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What the New Div 296 Tax Means for Individuals with Large Super Balances

02 Apr 2026 05:52:00 GMT

The Better Targeted Superannuation Concessions measure (known as the Division 296 tax) is now law and takes effect from 1 July 2026. For those with large super balances, it’s important to understand what the new tax does, why it’s been introduced, and the practical steps you and your financial adviser should consider. The Purpose of the Tax Division 296 is designed to make superannuation tax concessions fairer and more sustainable. Rather than changing the way super is taxed for everyone, the law targets a small group of people who hold large super balances, ensuring they pay more tax on the portion of investment earnings that relate to those large balances. Who it Applies to — Thresholds and Rates This new measure, starting 1 July 2026 (first year is 2026-27), applies to an individual with total superannuation balances (TSBs) in excess of the following thresholds: Large balance threshold: $3.0 million Very large threshold: $10.0 million. Both thresholds will be indexed in future years. This will mean that the overall tax imposed on superannuation fund earnings will be as follows: Division 296 TSB Div 296 tax rate on earnings relating to this band Total effective tax on those earnings Up to $3,000,000 0% 15% (standard fund tax) $3,000,001 to $10,000,000 15% 30% (15% + 15%) Above $10,000,000 25% 40% (15% + 25%) Certain people will be excluded from having this new tax levied upon them, notwithstanding that their TSB may exceed the threshold. Excluded persons include child recipients of death benefit pensions and individuals who have made structured settlement superannuation contributions for a personal injury compensation payment. Further, where a person dies, they will no longer have a TSB. However, other than the first year of operation (ie, 2026-27), there can still be a Division 296 tax assessment in respect of the financial year in which they die, where they had a TSB of more than $3 million at the start of the year. Given superannuation is not an estate asset, this scenario should be considered as part of a review of an individual’s estate plan. How the Tax Works From an SMSF perspective, the fund will calculate its Division 296 earnings, which is based on its taxable income with adjustments for assessable contributions; net exempt income attributable to pensions; any non-arm’s length income (which is already taxed at 45%) and income relating to investments in a pooled superannuation trust. There may also be adjustments for any capital gains made from the disposal of fund assets, if the fund has made the relevant small-fund CGT election. The calculated Division 296 superannuation earnings is then attributed to fund members using an attribution percentage calculated by an actuary. This information will be used by the ATO to assess the member’s Division 296 tax liability. Division 296 tax is levied on the individual, not a superannuation fund. However, the tax can be paid either by the individual or they can elect for the amount to be deducted from their nominated superannuation interest. Next Steps If your total super balance is near—or already above—the thresholds, it is important that you contact your adviser to arrange tailored modelling and to discuss whether the small-fund CGT election is suitable. Early planning will help you manage cashflow, reporting and any actuarial requirements efficiently. This will also be an opportunity to review the suitability and benefits of holding investment capital in a superannuation structure versus alternatives for amounts in excess of the large threshold. If you’re unsure how these changes may affect your superannuation strategy, reach out to our team to discuss your situation and next steps. Note: The material and contents provided in this publication are informative in nature only. It is not intended to be advice and you should not act specifically on the basis of this information alone. If expert assistance is required, professional advice should be obtained

Fringe Benefits Tax (FBT) Updates and Risk Areas for Employers 2025-26

18 Mar 2026 05:50:00 GMT

The Fringe Benefits Tax (FBT) year in Australia ends on 31 March. We’ve outlined the hot spots for employers and employees to help identify potential compliance risks and planning considerations ahead of the FBT lodgement period. What is Fringe Benefits Tax in Australia? FBT is a tax paid by employers in Australia on certain non-cash benefits provided to employees, such as cars, entertainment, expense reimbursements or discounted services. Quick Summary – Key FBT Issues for Australian Employers • The FBT year ends on 31 March, and businesses must review employee benefits provided during the year. • Electric vehicle benefits may qualify for an FBT exemption, but plug-in hybrids lose this exemption from 1 April 2025 unless transitional rules apply. • The ATO is increasing data-matching activity, particularly targeting vehicle benefits and businesses failing to lodge FBT returns. • Misreporting private use of work vehicles is one of the most common FBT compliance issues. • Businesses engaging contractors should review worker classification to confirm whether FBT obligations could arise. • New legislative instruments allow simplified record-keeping approaches, reducing compliance burden where appropriate. Electric Vehicle FBT Exemption in Australia Fringe Benefits Tax is governed by the Fringe Benefits Tax Assessment Act 1986, which sets out how taxable benefits provided to employees are valued and reported. Employers in Australia that provide employees with the use of eligible electric vehicles (EVs) can potentially qualify for an FBT exemption. This should normally be the case where: The employer owns or leases the car and allows a current employee to use the car; The car is a zero or low emission vehicle (battery electric, hydrogen fuel cell or plug-in hybrid electric); The car is both first held and used on or after 1 July 2022; and The value of the car is below the luxury car tax threshold for fuel efficient vehicles (which is $91,387 for the 2025–26 financial year). Plug-in hybrid vehicles no longer FBT exempt From 1 April 2025, plug-in hybrid electric vehicles will no longer qualify for the FBT exemption unless: The use of the vehicle was exempt before 1 April 2025, and There is a financially binding commitment to continue providing private use of the vehicle on and after 1 April 2025. If there is a break or change to that commitment on or after 1 April 2025 then the exemption won’t normally be available any more. Overlooking or misreporting FBT on private use of work vehicles The ATO is actively using sophisticated data analytics to target employers who fail to report or incorrectly report fringe benefits. ATO compliance teams are specifically looking for businesses that: Fail to lodge FBT returns despite providing vehicles for private use. Misunderstand exemptions, particularly the common misconception that dual-cab utes are automatically exempt from FBT. Neglect record-keeping, such as failing to maintain valid logbooks or odometer readings to support their claims. Incorrectly apportion usage, often treating private travel including garaging a vehicle at an employee’s home as business use. To ensure compliance, the ATO emphasises that a vehicle is considered “available for private use” if it is garaged at or near an employee’s home, regardless of whether they have permission to use it. Employers are expected to: Correctly identify the vehicle type (which impacts on whether they are providing a car benefit or a residual benefit). Maintain robust documentation, as invalid logbooks can lead the ATO to apply the statutory formula method, often resulting in higher tax liabilities. The ATO uses the case study of a Melbourne restaurant to illustrate the severity of non-compliance. In that instance, the lack of valid logbooks and failure to lodge returns resulted in a total liability of $938,000, which included the base tax, a 75% penalty for reckless behaviour, and significant interest charges. This highlights that the ATO is prepared to impose heavy financial penalties on businesses that deliberately avoid or carelessly manage their FBT obligations. FBT housekeeping It can be difficult to ensure the required records are maintained in relation to fringe benefits, especially as this may depend on employees producing records at a certain time. If your business has cars and you need to record odometer readings at the first and last days of the FBT year (31 March and 1 April), remember to have your team take a photo on their phone and email it through to a central contact person. This can save time chasing records later. The top FBT risk areas Mismatched claims for entertainment – claimed as a deduction but no FBT One of the easiest ways for the ATO to pick up on problem areas is where there are mismatches. When it comes to entertainment, employers are often keen to claim a deduction but this can be a problem if it is not recognised as a fringe benefit provided to employees. Expenses relating to entertainment such as a meal in a restaurant are generally not deductible and no GST credits can be claimed unless the expenses are subject to FBT. Let’s say you take a client out to lunch and the amount per head is less than $300. If your business uses the ‘actual’ method for FBT purposes, then there often won’t be any FBT implications. This is because benefits provided to clients are not subject to FBT and minor benefits (i.e., value of less than $300) provided to employees on an infrequent and irregular basis are generally exempt from FBT. However, no deductions should be claimed for the entertainment and no GST credits would normally be available either. If the business uses the 50/50 method, then 50% of the meal entertainment expenses would be subject to FBT (the minor benefits exemption would not apply). As a result, 50% of the expenses would be deductible and the business would be able to claim 50% of the GST credits. Employee contributions by journal entry in the accounts Many businesses use after-tax employee contributions to reduce the value of fringe benefits. It is also reasonably common for these contributions to be made by journal entry through the accounting system only (rather than being paid in cash). While this can be acceptable if managed correctly, the ATO has flagged numerous concerns including whether journal entries made after the end of the FBT year are valid employee contributions. For an employee contribution made by way of journal entry to be effective in reducing the taxable value of a benefit, all of the following conditions must be met: The employee must have an obligation to make a contribution to the employer towards a fringe benefit (i.e., under the employee’s remuneration agreement); The employer has an obligation to make a payment to the employee; The employee and employer agree to set-off the employee’s obligation to the employer against the employer’s obligation to the employee; and The journal entries are made no later than the time the financial accounts are prepared for the current year. Failing to ensure that arrangements involving fringe benefits and employee contributions are clearly documented can lead to problems. If there is no evidence of the obligation, then significant FBT liabilities could arise. Also remember that if the arrangement involves the business providing a loan to an employee this can trigger a separate loan fringe benefit issue that needs to be managed. Not lodging FBT returns The ATO is concerned that some employers are not lodging FBT returns when required to. If your business employs staff (even closely held staff such as family members), and is not registered for FBT, it’s essential to ensure that the position is reviewed to check whether the business could potentially have an FBT liability. If the business provides cars, car spaces, reimburses private expenses, provides entertainment, employee discounts or similar benefits, then you are likely to be providing at least some fringe benefits. There is a list of benefits that are considered exempt from FBT, such as portable electronic devices like laptops, protective clothing and tools of trade. If your business only provides these exempt items, or items that are infrequent and valued under $300, then you are unlikely to have to worry about FBT. What financial consequences can arise from FBT mistakes? Failure to correctly manage Fringe Benefits Tax obligations in Australia can lead to significant financial exposure for employers. Potential consequences may include: Payment of the underlying FBT liability Administrative penalties, which may be up to 75% for reckless behaviour General interest charges applied to unpaid amounts Additional compliance activity from the ATO Because FBT interacts with income tax deductions and GST claims, errors can also create secondary tax adjustments. For this reason, many businesses review their FBT position annually before the lodgement deadline. What this means for employers and business owners FBT compliance often becomes complex where businesses provide vehicles, entertainment, expense reimbursements or other non-cash benefits to employees. A structured review of the benefits your business provides, the records supporting those benefits, and the classification of workers can significantly reduce risk. Many businesses choose to undertake an FBT compliance review with a tax adviser before the lodgement deadline to ensure their reporting obligations are correct. In many cases, the key planning step is reviewing arrangements before the end of the FBT year on 31 March, rather than attempting to reconstruct records later. Frequently Asked Questions When does the FBT year end in Australia? The Fringe Benefits Tax year runs from 1 April to 31 March. Employers should review benefits provided during this period before preparing their FBT return. Are electric vehicles exempt from FBT? Certain battery electric and hydrogen fuel cell vehicles may qualify for an FBT exemption if they meet eligibility conditions, including the luxury car tax threshold and acquisition date requirements. Do contractors trigger FBT obligations? Generally, FBT applies to employees and certain office holders, not genuine independent contractors. However, determining worker classification can be complex and depends on the terms of the contract and the nature of the working relationship. What is one of the most common FBT mistakes? A common compliance issue is incorrect reporting of private use of work vehicles, particularly where vehicles are garaged at an employee’s home but treated as business-only use. Reviewing your FBT position before the lodgement deadline With the FBT year ending on 31 March, reviewing employee benefits and record-keeping practices ahead of the lodgement deadline can help reduce risk and avoid unexpected tax liabilities. Ensuring logbooks are valid, benefits are correctly classified, and employee contribution arrangements are documented can make a significant difference when preparing the FBT return. If you would like assistance reviewing your Fringe Benefits Tax obligations before the FBT lodgement deadline, you can arrange an FBT review with the team at Paris Financial. A proactive review of employee benefits, vehicle usage and record-keeping practices can help ensure your business remains compliant and avoids unexpected FBT liabilities. Disclaimer: This information is general in nature and does not constitute tax advice. Outcomes depend on individual circumstances and current ATO rules. Professional advice should be obtained before making decisions.

Aged care financial planning in Australia - avoiding 5 common mistakes

13 Mar 2026 05:38:00 GMT

Aged care financial planning is one of the most complex financial decisions many Australian families will face. While much of the discussion around aged care focuses on care services and accommodation options, the financial planning implications are often overlooked until decisions must be made quickly. In Australia, aged care costs and contributions are determined through government assessments that consider an individual’s income, assets and accommodation arrangements. While government subsidies exist, individuals may still be required to contribute to the cost of their care depending on their financial circumstances. Understanding the financial implications early can help families make more informed decisions and avoid unnecessary financial stress later. Quick Summary Aged care costs in Australia depend on income, assets and accommodation arrangements. Financial planning decisions can influence aged care fees and Age Pension outcomes. Many families delay planning until care is urgently required. Early planning may help preserve retirement savings and improve financial flexibility. Reviewing asset structures and cash flow can assist with managing aged care costs. Professional advice may help families navigate the aged care system with greater clarity. Understanding how aged care financial planning works in Australia can help families avoid unexpected costs and make more informed retirement decisions. Why is aged care financial planning important in Australia? Australia’s aged care system is supported by government funding, but individuals may still be required to contribute toward their care through a combination of accommodation payments, daily fees and means-tested contributions. These costs are influenced by a means assessment, which examines both income and assets when determining how much an individual may need to contribute. Without careful planning, financial decisions made during the transition into care may unintentionally increase fees, reduce Age Pension entitlements, or limit financial flexibility in retirement. Understanding these financial considerations ahead of time can allow families to plan more effectively and avoid rushed decisions. Financial consequences of poor aged care planning When aged care planning occurs late or without proper financial advice, families may face unexpected financial consequences. Potential outcomes may include: Higher aged care contributions due to asset structures Reduced Age Pension eligibility Limited liquidity to meet accommodation payments Pressure to sell assets or the family home quickly The exact financial impact depends on each individual’s circumstances, the type of care required and how assets are structured at the time of assessment. Because aged care decisions often involve significant financial commitments, planning ahead can help reduce uncertainty. Common aged care financial planning mistakes 1. Waiting until care is urgently required Many families only begin considering aged care once a medical event or sudden change in health occurs. At that point, financial decisions may need to be made quickly and with limited options available. Early planning allows families to understand the system and consider how different financial decisions may affect future costs. 2. Misunderstanding how assets are assessed Aged care costs in Australia are influenced by the value of an individual’s assets and income. Some families assume that certain assets will always be treated in a particular way without understanding how means testing works. Because assessment rules can vary depending on circumstances, it is important to understand how assets may be considered under the aged care means test. 3. Overlooking the impact on retirement income Decisions made during the transition to aged care can affect retirement income strategies. Changes to asset structures, accommodation payments or investment arrangements may influence Age Pension entitlements or income streams used to support retirement. Considering these factors as part of broader retirement planning can help maintain financial stability. 4. Rushing accommodation payment decisions When entering residential aged care, individuals may be asked to choose how accommodation costs will be paid. Payment options may include a Refundable Accommodation Deposit (RAD), a Daily Accommodation Payment (DAP), or a combination of the two. Each option can have different implications for cash flow, investment strategy and estate planning. 5. Not reviewing the broader financial plan Aged care should not be considered in isolation. It is often part of a broader retirement strategy that includes investments, superannuation, pensions and estate planning. Reviewing these elements together can help families understand how aged care decisions fit within long-term financial goals. What this means for families planning aged care Aged care decisions often occur during emotionally challenging periods for families. However, taking a structured approach to financial planning can help reduce uncertainty. Key steps may include: Reviewing current financial arrangements and assets Understanding potential aged care costs Considering how accommodation payments will be funded Monitoring government policy changes affecting aged care While every family’s circumstances are different, proactive planning can help ensure decisions are made with greater clarity and confidence. Frequently Asked Questions What is aged care financial planning? Aged care financial planning involves reviewing an individual’s financial situation to understand how aged care costs may be funded and how decisions may affect retirement income, assets and government entitlements. When should families start planning for aged care? Planning earlier in retirement can help families understand potential costs and structure finances appropriately before urgent decisions are required. How are aged care fees determined in Australia? Fees are typically determined through a government means assessment that considers an individual’s income and assets when calculating contributions toward aged care costs. Can financial advice help with aged care decisions? Financial advisers can assist families in reviewing their financial position, understanding aged care costs and evaluating strategies that align with long-term retirement objectives. Planning ahead for aged care Aged care is becoming an increasingly important part of retirement planning in Australia. While the care system provides important support services, the financial aspects can be complex. By understanding how aged care costs are assessed and considering financial planning strategies early, families can make more informed decisions and reduce financial uncertainty. If you would like to review your retirement plan or discuss aged care financial planning in Australia, the team at Paris Financial Services can assist. Source: Australian Government Department of Health and Aged Care – Residential aged care means assessment Paris Financial Services Pty Ltd is a Corporate Authorised Representative (No. 357928) of Capstone Financial Planning Pty Ltd. ABN 24 093 733 969. AFSL No. 223135 General Advice Disclaimer The information in this article is general information only and is not intended to be a recommendation. We strongly recommend you seek advice from your financial adviser as to whether this information is appropriate to your needs, financial situation and investment objectives. Whilst every care has been taken in the preparation of this article, Paris Financial Services Pty Ltd, its directors, authors, consultants, editors and any persons involved in the construction of this article, expressly disclaim all and any form of liability to any person in respect of this article and any consequences arising from its use by any person in reliance upon the whole or any part of this article.

Economists warn Middle East war to hit households through oil price spike but say fallout could be short lived

04 Mar 2026 05:37:00 GMT

Economists warn Australian households face fresh cost of living pressures in the form of higher petrol bills, as the Middle East war sees oil prices spike. However, markets have had a fairly modest reaction to the strikes on Iran, with analysts noting that the conflict may be short lived. The local share market was down around 0.2 per cent with less than an hour of trade remaining on Monday afternoon, as gains for energy and gold stocks limited losses. Asian markets were all lower, with Japan and Hong Kong hardest hit, down to the tune of about 1 per cent. “It remains to be seen how long this conflict will continue”, Betashares Chief Economist, David Bassanese told ABC News. “Maybe Iran will back down, maybe Donald Trump will be able to strike a deal fairly quickly”. Mr Bassanese said markets were in “wait and see mode”, as there were some “safety valves” that could be used to cushion the blow to oil supply. “The other OPEC (Organization of the Petroleum Exporting Countries) members, other oil producing members around the world can step up and provide oil supply if there are restrictions on Iranian output”. Oil prices spiked when they resumed trade on Monday morning. Brent crude rose above $US80/barrel before pulling back to be around 6 per cent higher at $US77.30 at 3:00 pm AEDT. West Texas Intermediate crude was also around 6 per cent higher at $US71.09. AMP Chief Economist, Shane Oliver said oil prices could have a significant spike, potentially to more than $US100/barrel, above the highs seen at the start of the Ukraine war. That could add around $14 dollars to the average Australian household’s weekly petrol bill, he said. Oil shipping already disrupted Around 20 per cent of the world’s oil production and a quarter of liquefied natural gas move through the Strait of Hormuz, a narrow stretch of water providing entry to the Persian Gulf. TD Securities analysts noted that even without an official shutdown, an increase in insurance costs has left tankers sitting outside the Strait. “Insurance premiums have risen at least 50 per cent and shipping is effectively shut down during the active strikes”, they said. “Oil production is less important for markets right now than the ability to ship it”. Shipping analysts at Oil Brokerage told clients there has already been major disruption, with the number of vessels moving through Hormuz having “fallen hard”. The analysts said data based on vessel tracking had become “increasingly unreliable” due to interference with automatic identification systems. However, they have forecast a short-term resolution. “A drawn out closure of the Hormuz, and/or wider war in the region is unlikely. Political pressure will build on Iran from its own allies and benefactor countries to prevent that”, the Oil Brokerage note read. “If the position holds and hostilities yield to negotiations, then the disruptions in freight and oil markets will remain solvable”. AMP’s Dr Oliver has put a 60 per cent probability on the conflict being a “limited war”, with the US President Trump “finding a way to declare victory in the next week or so”. That does not mean oil prices will quickly ease, however. “It may take a few days/weeks before this is clearly apparent so oil prices could still go higher”, Dr Oliver wrote in a note. He has put a 40 per cent probability on what he called the “high risk case”, with a significant disruption to oil supply. “Trump may lose the gamble with Iran fighting on for longer, forcing the US to stay involved longer. Iran could descend into chaos, as occurred in Iraq and Afghanistan, necessitating US troops on the ground. “This could mean a bigger and much longer disruption to oil supplies, conceivably resulting in a doubling in oil prices to around $US150/barrel, which could drive a sharp fall in shares”. Petrol price pain a ‘tax on households’ Dr Oliver estimated that for every $US1 rise in oil prices, Australian motorists would see around a cent a litre added to petrol prices. “A $US40 a barrel rise in world oil prices taking them above $US100 a barrel would add around 40 cents a litre with a 7-10 day lag if sustained”, he said. Based on an average household using 35 litres of petrol a week, he said around $14 would be added to their weekly fuel bill in that scenario. While the rise in petrol prices would add to inflation, Dr Oliver said it would also have a dampening impact on growth, as households were forced to cut back on spending elsewhere in the economy. “In other words, it will act as a tax on households”. As for how the Reserve Bank would deal with such a scenario – a spike in inflation alongside households being forced to cut back – Betashares’ David Bassanese said it is more likely to see the central bank on hold than hiking interest rates. “Implications for the RBA would be fairly mixed, with higher global energy prices a negative for consumer spending and sentiment, while also placing upward pressure on headline inflation (fuel accounts for 3 per cent of the [consumer price index])”, he wrote. “On balance, however, heightened geopolitical tensions, if they persisted and escalated, would tend to make the RBA less likely to hike rates amid such uncertainty”. Dr Oliver agreed that the equation was not as simple as higher oil prices equalling higher inflation and therefore higher rates. “Central banks will focus on underlying inflation and higher oil prices threaten economic growth”. Source: ABC

ATO Update on Inherited Homes: What it Means for Your Family's Wealth in Australia

04 Mar 2026 05:34:00 GMT

The ATO has issued a Draft Taxation Determination TD 2026/D1 which looks at how inherited family homes are treated for CGT purposes. Some industry commentators have dubbed it a “death tax by stealth”, but it is a bit more complex than this. The draft guidance focuses on a specific aspect of the rules around applying the main residence exemption to inherited properties, potentially exposing deceased estates and beneficiaries to significant tax if not planned correctly under Australian tax law. Quick Summary – Inherited Homes and CGT (Australia) TD 2026/D1 clarifies how the main residence exemption applies to inherited homes in Australia. A full CGT exemption may apply if the property is sold within two years of death, or occupied by a qualifying individual. The ATO’s draft view requires a clearly defined right to occupy the dwelling under the will. Discretionary powers or informal arrangements may not be sufficient. Poor drafting or delayed decisions could expose estates to substantial CGT. Structured estate planning is critical to preserving family wealth. Here’s what you need to know in practical terms. Why TD 2026/D1 Matters Under current law, deceased estates or beneficiaries can potentially sell a deceased individual’s former family home without paying CGT if certain conditions can be met. This exemption is particularly valuable for properties owned long-term, where unrealised gains could be substantial. In order to access a full exemption you normally need to ensure that the property is sold within 2 years of the date of death (but the ATO can potentially extend this deadline) or that the property has been the main residence of certain qualifying individuals from the date of death until the property is sold. You can also refer to the ATO’s official guidance on how capital gains tax and the main residence exemption apply to inherited property in Australia for technical clarity on eligibility and disposal timing, as outlined on the ATO website. These qualifying individuals can include the surviving spouse of the deceased individual, the beneficiary selling an interest in the property or someone who has a right to occupy the dwelling under the deceased’s will. The draft ATO guidance focuses on this last point. That is, what does it mean for someone to have “a right to occupy the dwelling under the deceased’s will.” In summary, the ATO’s view is that: The right to live in the home must be explicitly granted in the will to a named individual. Broad discretionary powers given to trustees, separate agreements, or even testamentary trusts (TTs) are not sufficient in the ATO’s view. For example: A will giving an executor discretion to allow a family member to occupy the home does not meet this requirement. A trustee of a TT who allows a beneficiary to live in the house is seen as separate from the will and may trigger CGT on sale. Some legal and real estate experts warn this could force families to sell homes within two years of death to avoid CGT, especially in high-value areas. Consider this: inheriting a $2 million home with a capital gain of $1.5 million could expose the beneficiaries to $300,000–$600,000 in tax, depending on discounts and tax brackets. However, it is important to remember that there are still other ways for the sale of the property to qualify for a full exemption. What does “a right to occupy under the will” actually mean? In the context of the draft determination, the ATO is drawing a distinction between a legally enforceable right created directly by the will and a practical arrangement facilitated by a trustee or executor. A right to occupy under the will generally requires that the will itself clearly grants a named individual the legal entitlement to reside in the dwelling. If the occupation depends on trustee discretion, side agreements or later decisions, the ATO’s draft position suggests that this may not satisfy the legislative requirement for the main residence exemption to apply in full. This technical distinction can have significant tax consequences, particularly where estates use testamentary trusts or flexible estate planning structures. Financial Consequences of Getting It Wrong Where a full exemption does not apply, capital gains tax may arise based on the difference between the property’s market value at the date of death and the eventual sale price, subject to any available CGT discounts and partial exemptions. In high-growth property markets, this can translate into six-figure tax liabilities for beneficiaries. The outcome will depend on factors such as: The timing of sale Whether the property was rented The availability of the 50% CGT discount The marginal tax rates of beneficiaries CGT outcomes depend on individual circumstances and current ATO interpretations. The draft nature of TD 2026/D1 also means the final position may evolve. Practical Steps to Protect Your Estate While we are waiting for the ATO to finalise its guidance in this area, there are steps you can take to protect your family’s assets: Review and update your will, especially if you are planning to provide certain individuals with the right to occupy a property. Does the will currently provide this right to specifically named beneficiaries? Plan the timing of sales – The two-year exemption window remains, but if you inherit a property and intend to hold it longer than this, weigh any potential CGT exposure against future rental income or family needs. Partial CGT exemptions might still apply, but the rules and calculations can be complex Seek professional advice, especially if your estate plan uses TTs. You will normally need to work closely with tax and legal advisors to structure the plan appropriately. Be market aware – Estate planning can intersect with market timing. Quick sales may preserve CGT exemptions, but this needs to be weighed up against non-tax factors. What This Means for Your Family’s Wealth The key takeaway is clear: estate planning is a complex area and needs to be navigated carefully to preserve family wealth and avoid unintended tax implications. Where family homes represent a significant proportion of total wealth, the interaction between wills, testamentary trusts and the main residence exemption should be reviewed proactively. Small drafting differences can materially alter tax outcomes. Many families benefit from obtaining strategic estate and tax planning advice before finalising their will or administering an estate to reduce unintended CGT exposure. A structured review of your estate plan can help ensure your intentions are carried out without unnecessary tax leakage. Disclaimer: This information is general in nature and does not constitute tax advice. Capital gains tax outcomes depend on individual circumstances and current ATO rules. Professional advice should be obtained before making decisions.

Keeping Your Self-Managed Super Fund Compliant in Australia

03 Mar 2026 01:28:00 GMT

Self managed superannuation funds (SMSFs) in Australia offer significant flexibility. However, maintaining SMSF compliance requires trustees to ensure the fund is operated solely to provide retirement benefits and that all transactions are conducted on commercial arm’s length terms in accordance with superannuation and tax law. Two critical areas to keep front of mind are: The sole purpose test, and The arm’s length requirements in both superannuation and taxation law. Quick Summary In Australia, SMSF compliance requires trustees to ensure the fund satisfies the sole purpose test and that all transactions are conducted on arm’s length commercial terms. SMSFs in Australia must be maintained solely for retirement benefit purposes. Related party transactions are permitted but strictly regulated. Trustees must act in members’ best interests at all times. All arrangements must be on commercial arm’s length terms. Breaches can result in ATO penalties or higher tax rates on fund income. The Sole Purpose Test The sole purpose test requires that superannuation funds be managed solely for the purpose of providing retirement benefits to fund members, or death benefits to dependants where relevant. This requirement is set out in section 62 of the Superannuation Industry (Supervision) Act 1993. The Australian Taxation Office provides detailed guidance on how it interprets and administers the sole purpose test for SMSFs. While some SMSFs may have dealings with or investments in related entities, these are subject to strict limits and when arrangements are entered into it is important that first and foremost SMSF trustees are considering the retirement benefits of the fund members rather than the needs of any external parties. In practical terms, trustees must ensure that any benefit to a related party is incidental and not the dominant purpose of the arrangement. Trustees should document the commercial rationale for related party investments to demonstrate that retirement outcomes remain the primary objective. Does Investing in a Related Party Satisfy the Sole Purpose Test? The example below illustrates how SMSF trustees should apply the sole purpose test when looking at making a related party investment. Example: Investing in a Related Business? Sachin and Deepthi have an SMSF which has a total balance of $1.2m. Their son Hardik commenced a business 3 years ago using a company structure. Hardik has approached his parents to invest $50,000 into his company via their SMSF. Although Hardik is passionate about the business it has not grown as he would like, and Sachin and Deepthi are aware that the business has had cashflow issues and profits are not at a point where the business is growing or generating a profit. Although the proposed investment amount is within the 5% in-house asset limit, would Sachin and Deepthi invest member funds in an unrelated business knowing the business was in this same situation? That is, would they be placing their son’s interests ahead of the interests of the fund members? Based on Sachin and Deepthi’s knowledge of the business, if the SMSF was to go ahead and make this investment they as trustees may have contravened the sole purpose test. The ATO has clarified that compliance with specific percentage limits does not override the requirement that the dominant purpose of maintaining the fund must be retirement benefit provision. Arm’s Length Requirements In addition to the sole purpose test there are superannuation and taxation law requirements that SMSF trustees always deal on arm’s length commercial terms. This is again particularly important when arrangements are with fund members and/or related parties. Under income tax law, where income is derived under a non-arm’s length arrangement, it may be treated as non-arm’s length income and taxed at the highest marginal tax rate rather than the concessional superannuation rate. Where arrangements are not at arm’s length, SMSF trustees can be liable for superannuation law penalties and in some cases fund income may be taxed at a higher rate. Some common examples and key issues are discussed below. Example: An SMSF Owns a Commercial Property Which is Leased to a Related Party Business The rent should be on commercial terms and this needs to be evidenced by a rental appraisal from a professional such as a real estate agent when a lease is entered into. The lease agreement should: Be in writing; Clearly cover who is responsible for particular outgoings and maintenance; and Be prepared or reviewed by a legal professional. If rent is below market value, the ATO may consider whether non-arm’s length income provisions apply. Note that the NALI/NALC rules in this area were significantly amended in 2023 and the position can be complex. Professional advice should be obtained before entering into any arrangement that may give rise to non-arm’s length income. Example: A Member of the SMSF or a Related Party Completes Work on an SMSF Property SMSF trustees should seek professional advice before commencing any work on SMSF properties where the work may be performed by a member or a related party. All arrangements with related entities should be commercial, including: If a related building company is used, the SMSF must pay market rates (same as the general public) and this should be supported by documentation to satisfy the fund auditor. If members (who are also trustees) perform work personally, strict rules apply to whether they can be paid for their services. Trustees are generally not remunerated for duties performed in their capacity as trustee. All materials should be purchased directly by the SMSF, not by individual members. Failure to properly structure these arrangements can create compliance risks under both superannuation and tax law. Financial Consequences of Non-Compliance If the sole purpose test is breached, the ATO may impose administrative penalties on individual trustees. In serious cases trustees may be disqualified or the fund may be made non-complying. Where non-arm’s length income rules apply, affected income may be taxed at the highest marginal rate rather than the concessional superannuation rate. This can materially reduce retirement savings. Outcomes depend on the specific circumstances and trustee intent. What This Means for You SMSF compliance in Australia requires more than meeting technical thresholds. Trustees must demonstrate that decisions are commercially sound and clearly focused on retirement outcomes. Before entering into related party investments, leasing arrangements or property projects, trustees should consider: Would this arrangement stand up to independent scrutiny? Is the dominant purpose retirement benefit provision? Is there objective evidence supporting market value terms? Is documentation sufficient to satisfy an auditor and the ATO? Early advice can reduce compliance risk and avoid costly rectification. Trustees considering related party investments or property arrangements may benefit from structured SMSF advisory support before implementation. Maintaining SMSF Compliance in Practice The flexibility of an SMSF comes with corresponding legal responsibilities. Ongoing review of investment decisions, lease arrangements and related party transactions is essential. Clear documentation, commercial discipline and forward planning remain central to maintaining SMSF compliance in Australia. Where uncertainty exists, obtaining professional advice before entering into a transaction is significantly safer than attempting to correct a contravention later. Structured review of proposed arrangements can reduce regulatory risk and protect retirement outcomes. Frequently Asked Questions Can my SMSF invest in a family member’s business? Possibly. The investment must comply with in-house asset limits and satisfy the sole purpose test. The dominant purpose must be retirement benefit, not financial assistance. What happens if my SMSF charges below market rent to my business? Income may be treated as non-arm’s length income and taxed at the highest marginal rate. Administrative penalties may also apply. Can I pay myself for renovating SMSF property? Trustees are generally not paid for performing trustee duties. Specialist advice should be obtained before undertaking work personally. Does staying within the 5% in-house asset limit guarantee compliance? No. The sole purpose test applies independently of asset limits. Trustees must always prioritise retirement objectives. What is the sole purpose test in Australia? The sole purpose test requires that an SMSF must be maintained solely to provide retirement benefits to members, or death benefits to dependants. Every trustee decision must be driven by this purpose. Benefits to related parties must be incidental, not the dominant purpose of the arrangement. Disclaimer: This information is general in nature and does not constitute financial or tax advice. SMSF rules and ATO requirements may change. Professional advice should be obtained before making decisions.

Home-Based Business CGT Rules Australia - ATO Active Asset Test & Main Residence Exemption Explained

02 Mar 2026 23:48:00 GMT

Running a home-based business in Australia, whether as a sole trader, freelancer or small operator, can create unexpected capital gains tax (CGT) consequences when selling your property. The Australian Taxation Office (ATO) has clarified how the active asset test applies when part of a home is used for business purposes. Many homeowners assume that claiming a home office deduction automatically provides access to small business CGT concessions, but current ATO guidance confirms this is rarely the case. Quick Summary The ATO has clarified that limited business use of a home does not automatically qualify the property for the small business CGT concessions. To access the concessions, the entire property must satisfy the active asset test. Incidental use such as a home office is generally insufficient. Does a Home Office Qualify for Small Business CGT Concessions? No. Minor or incidental business use such as a home office, workshop, or storage space, will generally not make your property an active asset. The ATO applies the active asset test to the entire property, not just the business portion. The ATO has clarified how home-based businesses interact with the small business CGT concessions, resolving a long-standing area of confusion. See: Home-based business and CGT implications | Australian Taxation Office The Key Issue: Active Asset Test When an individual sells their main residence, they will often enjoy a full CGT exemption. However, if part of the home is used for business purposes, this can potentially impact on the scope of the exemption. If a full exemption isn’t available under the main residence exemption rules then we typically look to other CGT concessions, including the CGT discount for assets that have been held for more than 12 months or the small business CGT concessions. The small business CGT concessions can potentially reduce or eliminate a capital gain made on sale of a property, but only if certain conditions are passed. One of the key conditions is that the property must pass an active asset test. In very broad terms, to pass the active asset test you need to show that the property has been actively used in a business activity for at least 7.5 years across the ownership period or for at least half of the ownership period. According to the ATO, an asset passes the active asset test if it has been used, or held ready for use, in the course of carrying on a business for the required period. However, where business use is only incidental to the property’s primary residential purpose, the asset as a whole may fail the test. The ATO is clear: the active asset test applies to the entire property, not just the business portion. When you are applying the active asset test, an asset either passes this test or fails it. It is not really possible for an asset to partially pass the active asset test. The entire property is either an active asset or it is not. Simply having a home office, workshop, or even being able to claim home occupancy expenses as a deduction does not necessarily make your home an active asset. Where business use is incidental to the home’s primary residential purpose, the ATO’s view is that the small business CGT concessions generally do not apply. Rus v FCT The view that the entire property must qualify as an active asset—and that incidental or minor business use (such as a home office or storage in a largely residential setting) is insufficient—draws support from case law, particularly the Administrative Appeals Tribunal (AAT) decision in Rus and Commissioner of Taxation [2018] AATA 1854 (Rus v FCT). In that case, a taxpayer sought access to the small business CGT concessions on the sale of a 16-hectare largely vacant rural property, where only a small portion (less than 10% by area) was used for business purposes: a home office, shed for storing tools/equipment/vehicles, and related supplies tied to a plastering and construction business operated through a controlled company. The balance of the land remained vacant or used residentially. The AAT upheld the ATO's ruling that the property as a whole did not satisfy the active asset test, reasoning that the business activities were not sufficiently integral to the asset overall. Minor or incidental use did not make the entire property an active asset, especially where the business was primarily conducted off-site. This precedent reinforces the ATO's strict approach in home-based business scenarios: the property is assessed holistically. This means that limited business use typically fails to tip the scales toward qualifying for the concessions. This case highlights that scale and intensity of business use matter significantly when determining whether a property qualifies as an active asset. Practical Examples Let’s take a look at how the ATO approaches some common scenarios. Minor home-based business: Harriet runs a hairdressing salon in a spare room, using 7% of the total floor space of the property and seeing clients eight hours a week. She claims deductions for occupancy expenses and gets a 93% main residence exemption. However, because her business use is minor, she cannot access small business CGT concessions. The 50% CGT discount can still apply. Significant business use: Sue and Rob own a two-storey building, with the ground floor operating as a takeaway store (50% of the total floor area of the property) and the top floor as their private residence. The business has been running for decades with employees. Here, the property qualifies as an active asset, potentially giving them access to the small business CGT concessions for the portion of the capital gain that isn’t covered by the main residence exemption. The Financial Impact of Not Meeting the Active Asset Test If a property does not meet the eligibility criteria for the small business CGT concessions, then even where a partial main residence exemption applies, the capital gain may only be reduced by the general 50% CGT discount available to individuals who have held the asset for 12 months or more. In contrast, where the small business CGT concessions apply, some or all of the remaining capital gain may be reduced or disregarded entirely, subject to meeting the relevant conditions. This difference in treatment can materially affect the final tax outcome. Depending on the size of the gain and the period of ownership, the amount of tax payable may be significantly higher if the property fails to qualify as an active asset. This is why understanding how the active asset test applies to your circumstances is critical before relying on projected sale proceeds for retirement or reinvestment. What This Means for You A partial main residence exemption doesn’t necessarily mean you have access to the small business CGT concessions. Many homeowners mistakenly assume that business deductions or a home office automatically open the door. The ATO clearly doesn’t share this view. Seek advice before changing the way your home will be used. Starting to operate a business from home can impact deductions, CGT calculations and access to concessions. Reviewing your position with a property tax specialist before selling can prevent unexpected tax outcomes. Professional advice can help ensure you make fully informed decisions. Keep thorough records. Floor plans, hours of business use, and detailed deductions can help strengthen your position and may help in any future planning or audits. Consult your accountant. If selling your home is on the horizon, professional advice is critical to assess any potential CGT exposure and explore concessions that might be available. Frequently Asked Questions Does claiming home office deductions affect my CGT exemption? Claiming occupancy expenses can reduce your main residence exemption proportionally. However, it does not automatically make your property an active asset for small business CGT concessions. What is the active asset test for property? To qualify for small business CGT concessions, the property must have been actively used in carrying on a business for at least half the ownership period or 7.5 years, whichever is relevant. Can part of my home qualify as an active asset? No. The active asset test applies to the entire property. Minor or incidental business use is unlikely to satisfy the test. The Bottom Line The ATO’s updated guidance suggests that many home-based business owners won’t have access to the small business CGT concessions on sale of their home, but this always depends on the facts. Business owners need to plan proactively, rather than assume that tax relief will be available. By reviewing your home-based business CGT position early, you can make smarter decisions about how your property is used and what the tax impact may be on sale. For example, will the profits generated from a small business operated at home end up being wiped out by a higher CGT liability on sale of the property down the track? After all, when it comes to CGT, every dollar you keep counts toward your next venture or your retirement nest egg. Disclaimer: This information is general in nature and does not constitute tax advice. Capital gains tax outcomes depend on individual circumstances and current ATO rules. Professional advice should be obtained before making decisions.

DPN Review: A Wake-Up Call for Business Owners on Personal Tax Risks in Australia

02 Mar 2026 23:00:00 GMT

Running a successful business is hard work and sometimes, despite best intentions, tax obligations slip. In Australia, a Director Penalty Notice (DPN) is one of the ATO’s most serious enforcement tools against company directors. If the business is being operated through a company structure, then the ATO can potentially issue a DPN, holding company directors personally liable for unpaid taxes. In 2024–25, DPNs skyrocketed by 136%, reaching over 84,000 notices, affecting directors of around 64,000 companies. The stakes are high, and now the Inspector-General of Taxation and Taxation Ombudsman is reviewing how the ATO issues and manages these notices, a development all directors should take seriously. At its core, a Director Penalty Notice makes company directors personally liable for specific unpaid tax obligations of their company. Quick Summary A Director Penalty Notice allows the ATO to pursue directors personally for certain unpaid company tax debts in Australia. Common exposures include PAYG withholding, GST and Superannuation Guarantee Charge. There are strict 21-day deadlines once a DPN is issued. Failure to lodge on time can result in lockdown DPNs, removing key relief options. Personal assets, credit ratings and bankruptcy risk may be at stake. Proactive compliance and early advice materially reduce exposure. So, what exactly is a DPN? A Director Penalty Notice is issued under Division 269 of Schedule 1 to the Taxation Administration Act 1953 and allows the ATO to recover certain unpaid company tax debts directly from directors. Put simply, if your company fails to pay certain taxes, like PAYG withholding, GST, or Superannuation Guarantee Charge (SGC), the ATO can target directors personally. The Australian Taxation Office provides official guidance on director penalties and how DPNs work. There are two types: Non-lockdown DPNs: These apply if the company has lodged its activity statements or SGC statements but has not made the relevant payments. In this case directors have 21 days to take appropriate action, such as arranging for payment of the debt, appointing an administrator, or entering liquidation. Acting promptly may allow the penalty to be remitted. Lockdown DPNs: These apply if reporting deadlines are missed as well. In this scenario directors cannot avoid personal liability by putting the company into administration or liquidation. The intent is to protect government revenue and employee entitlements, but for directors, the impact can be severe. What happens if you ignore a Director Penalty Notice? If a DPN is not addressed within the statutory 21-day period, the ATO may commence recovery action against the director personally. This can include legal proceedings, garnishee notices or bankruptcy action, depending on the circumstances. Importantly, the 21-day period begins from the date the notice is issued, not when it is received. This technical detail alone creates risk for directors who are not actively monitoring company compliance and correspondence. Why the Ombudsman is Involved The review, announced in December 2025 by Tax Ombudsman Ruth Owen, responds to a surge in complaints, with DPNs topping the list. It will examine: How effectively the ATO uses DPNs to recover debts, with $54.2 billion in collectable amounts by mid-2025 The fairness of selecting cases for enforcement How directors are notified and communicated with Treatment of vulnerable directors, including those coerced into roles or facing financial abuse The review also aligns with broader government initiatives, including support for gender-based violence survivors and more empathetic engagement with business owners. While timelines are flexible due to resources, the review is part of the 2025–26 work plan, alongside assessments of ATO services for agents, First Nations engagement, and interest charge remissions. Commercial Takeaways for Directors DPNs are more than a compliance issue. They are a real commercial and personal risk under Australian tax law. Ignoring a notice can disrupt personal finances, damage credit ratings, and in serious cases trigger bankruptcy. Directors should also understand that resigning as a director does not automatically eliminate exposure for prior periods. Liability can remain for debts incurred during the period of directorship, particularly where lodgement obligations were not met on time. At the same time, the Ombudsman review could improve transparency and fairness, giving directors a clearer understanding of options if financial stress arises. Financial Consequences Directors Should Not Overlook Beyond the immediate tax debt, directors may face: Legal costs associated with defending recovery action Personal insolvency proceedings Reputational damage affecting future business opportunities Disqualification from managing corporations in serious cases These outcomes depend on individual circumstances and the company’s compliance history. However, they reinforce that DPN exposure is not merely administrative. It is a material personal financial risk. Practical steps to protect yourself now Stay on top of obligations: make sure the company lodges returns and pays liabilities on time. Lodge statements even if payment is not possible: failing to lodge activity statements just makes things worse and may trigger lockdown DPN exposure. Consider using ATO payment plans if cash flow is tight. Agreeing a payment plan with the ATO before a DPN is issued can be a useful protective measure, but once a DPN has been issued, a payment plan will not necessarily remove personal liability. Early engagement is key. Monitor company cash flow and tax health closely, especially during economic dips. Act fast if you receive a DPN: consult your accountant or lawyer immediately to explore options because strict deadlines apply. Consider director insurance or business structuring to limit personal exposure, but compliance always comes first. What This Means for You as a Company Director The Ombudsman’s review is a timely reminder that tax is a key business risk, not just paperwork. Directors should treat PAYG withholding, GST and superannuation obligations as priority liabilities. These amounts are collected or withheld on behalf of employees and the government, and the ATO takes enforcement seriously. Structured tax governance, regular reviews of BAS and SGC reporting, and early intervention when cash flow tightens can significantly reduce the likelihood of personal exposure. Where financial stress is emerging, seeking professional advice before deadlines are missed can preserve options that may otherwise be lost. If you are concerned about DPN exposure, a proactive review of your company’s tax position can clarify risk areas and identify practical next steps through structured proactive tax planning for business owners. Frequently Asked Questions What taxes can trigger a Director Penalty Notice in Australia? Common exposures include PAYG withholding, GST and Superannuation Guarantee Charge liabilities. The ATO may pursue directors personally for these unpaid amounts. How long do directors have to respond to a DPN? Generally, directors have 21 days from the date the notice is issued to take appropriate action. Strict time limits apply. Can I avoid liability by resigning as a director? Resigning does not automatically remove exposure for debts incurred during the period of directorship. Liability may still apply depending on timing and compliance history. Does entering liquidation remove DPN liability? In some non-lockdown DPN cases, appointing an administrator or liquidator within the 21-day period may remit the penalty. In lockdown DPN cases, this relief is generally not available. The Ombudsman’s review reinforces a broader message for Australian business owners. Director Penalty Notices are not rare edge cases. They are increasingly common enforcement tools. Being informed, proactive and prepared can protect both your business and your personal assets. If you would like clarity on your exposure or governance framework, a structured review can help you move from reactive risk management to deliberate planning. Disclaimer: This information is general in nature and does not constitute tax advice. Outcomes depend on individual circumstances and current ATO rules. Professional advice should be obtained before making decisions.

How to invest in shares

20 Feb 2026 05:54:00 GMT

Shares or stocks are a popular investment for many investors but can be intimidating when you are starting out. Here’s a short guide to help start your journey into investing. What are shares? Shares, also called stocks, are a part ownership of a company and, if the company is publicly listed on a stock exchange, can be purchased or sold. Owning shares may mean you have certain rights, such as voting on major company changes or receiving a portion of company profits (known as dividends). The value of a company’s shares can change and depends on a range of factors at any given time. Some of these directly relate to the company, such as how it is run, market share and profitability. Other factors may be more indirect and relate to the industry a company operates in, government regulations or even weather and environmental conditions. Shares typically form part of a balanced investment portfolio, which may include other investments such as fixed interest, cash or physical assets. You can own shares directly or indirectly, through managed investments like managed funds or your superannuation. How to buy shares Buying or selling shares directly can be done by: having a broker or financial adviser to manage the shares on your behalf using an online trading platform investing in a managed account where a share portfolio is managed on your behalf. You can also own shares indirectly by using managed funds. Investments which are pooled together with other investors and managed on your behalf. Exchange traded funds (ETFs) are offered on the share market and track the performance of a particular asset or index. They do this by holding the physical assets or shares or invest in ways that exposes it to particular shares or assets without owning them directly. Managed funds are where you invest in a pool with other investors and you own ‘units’ in the fund which is managed according to a particular investment strategy. For example, many default superannuation funds use a variety of tailored managed funds to invest your money and provide you with access to shares and a range of other assets. Tips for share investing There’s more to owning shares than buying and selling. Here are some tips to help you invest. Understand the quality and value of shares The price of a share might not always match its actual value, so how do you know whether they are good value? Consider the company’s profit (current and expected in the future) as part of your assessment using sources like company websites, investment related websites and business articles. Some online trading platforms may also offer you their research covering measures like discounted cash flow (which considers future cash flows in today’s terms), Price to earnings (P/E) ratio which looks at share prices and earnings and Price to book (P/B) ratio which compares market value of the company to its value as listed in its accounting records. Plan your investment approach Your investment goals and expectations are an important factor in your decisions. For example, do you need to earn an income from the shares and require dividends? Do you have personal moral and ethical concerns you would like your shares to reflect? What timeframe do you have for investing? Manage your risks The likelihood of gaining or losing money from your share investment can change based on factors such as the company itself, the investment market and currency changes. Some strategies to help manage the risks include diversification (spreading your money across different companies, industries and regions), taking a long term approach allowing you to wait for market changes before selling or buying, or using an investment expert to assist you with a strategy. Shares are often considered a riskier investment due to the chance of losing your money so it is important to consider the risks alongside your circumstances and other investments. Remember the administration Any gains you make from your share investments, such as dividends or a gain from selling the shares compared to the original price you paid (also known as capital gains), count as part of your income, which then may be taxed. Stay up to date with the latest rules and regulations to ensure you are paying the correct amount of tax by researching yourself or using an expert to guide you. You may also consider tax treatment of your investments within your overall strategy. For example, the gains on investments held in superannuation before you retire are taxed at 15%, while investments outside of superannuation are taxed at your marginal tax rate (which could be higher or lower, depending on your overall income). If you decide to use superannuation as part of your investment strategy, be aware of the limits to how much you can put in each year and that you may not be able to access your superannuation until your retirement age. Some investors also factor the franking credits (also called imputation credits) offered by some Australian companies. Franking is where the company has already paid taxes on the dividends attributed to your shares. You are then able to claim credit for the taxes already paid as part of your tax return. Source: BT

Can your super be a lifeline during times of mortgage stress?

20 Feb 2026 05:52:00 GMT

Even with interest rates easing, the cost of living remains tough. In some cases, super can offer relief – especially under compassionate grounds or severe financial hardship. Mortgage stress is hitting many Australians hard – and if you’re feeling the pressure, you’re not alone. Even though interest rates have started to ease, the cost of living is still putting pressure on many households. If you’re also dealing with reduced income due to illness, injury or job loss, it can be tough to keep up with mortgage repayments. If you’re struggling to keep up with repayments, here are a few options worth exploring: Talk to your lender about temporary relief options. Check if you’re eligible for Government support like JobSeeker. Reach out to services like the National Debt Helpline. Consider selling investments. In some cases, you may be able to access your super early. Accessing super early: what to know Sometimes, when money gets tight, especially if you’re dealing with mortgage stress, you might wonder if you can dip into your super early. While it’s possible in some cases, it’s not automatic. Superannuation can be accessed when you meet a condition of release. The intention of super is to access once you retire after your preservation age (age 60). Early access means withdrawing prior to retirement, before reaching your preservation age or before meeting another condition of release. To do this, you’ll need to meet specific eligibility criteria set by the government, such as severe financial hardship or compassionate grounds. Compassionate grounds This is for situations where you’re at risk of losing your home. If you qualify, you might be able to withdraw a lump sum from your super to cover up to three months of repayments and 12 months of interest. The application goes through the Australian Taxation Office (ATO) and you can apply online via myGov. If approved, you’ll get a letter from the ATO, which you’ll need to give to your super fund to release the money. You can find out more through the ATO website. Severe financial hardship If you’re going through a tough time financially and are receiving Centrelink income support, you might be eligible to withdraw some of your super early under the severe financial hardship condition. If you’ve been getting income support for at least 39 weeks after turning age 60 and you’re not working at least 10 hours a week, you can apply directly to your super fund to access your full super balance – no restrictions. If you’re under 60 or haven’t met that 39 week threshold after turning 60, there’s still an option. You may be able to make one withdrawal per year, of up to $10,000, as long as: You’ve been receiving income support in the previous 26 consecutive weeks; and You’re struggling to meet reasonable and immediate living expenses, like mortgage repayments. The application goes straight to your super fund. If approved, you can access between $1,000 and $10,000 in a 12-month period. Remember, both the compassionate grounds and severe financial hardship options are there to help in tough times – but they come with conditions. So, if you’re unsure, start by contacting your super fund to find out – they can explain the eligibility criteria and guide you through the process. You may also want to speak to a financial adviser for personalised advice. They can help you understand what’s available and what’s right for your situation. Is tax payable on the lump sum withdrawal? If you’re under 60 and you access your super early, say, under compassionate grounds or severe financial hardship, just know that tax may apply. Your super fund will usually withhold tax before making the payment and the amount depends on your age and the tax components on your super. Some parts of your super are tax free, others are taxable and any withdrawal has to be split proportionally between the two. Taxation of lump sum payments Component Age Maximum tax rate Taxable (taxed) < 60 20%* Aged 60+ Tax free * Medicare levy and surcharge may also apply. If the super lump sum includes a taxable (untaxed) component, please seek specific tax advice. Also, keep in mind that taking money out of your super could affect other things – like your eligibility for Family Tax Benefit or how much you need to repay on your HELP debt. It’s a good idea to speak with a financial adviser or a registered tax agent. They can help you understand how it all fits together based on your personal situation. Recontribute as soon as possible If you do need to access your super early, it’s important to think about the long-term impact. Even a small withdrawal today can make a big difference to your retirement savings down the track – thanks to compounding returns. If you do need to dip into your super, consider setting a goal to recontribute once you’re back on your feet. Even small amounts can help rebuild your retirement savings over time. Financial stress can feel overwhelming, but support is available. Whether it’s help from your lender, government payments, support organisations or even your super fund in certain cases – exploring your options early and getting the right advice can make a big difference. Source: MLC

Property and SMSFs: Using your super to invest in property

20 Feb 2026 05:50:00 GMT

Thinking about using your super to invest in property? You’re not alone. Australians are increasingly seeking alternatives to traditional investments such as shares and managed funds to build their retirement wealth. Find out if buying property with superannuation is right for you. Buying property with SMSFs: how does it work? Investing in property through a self managed super fund (SMSF) involves using your super savings to purchase residential or commercial property within the fund. Many investors need to borrow additional money to make this possible. This can be done by setting up a special borrowing arrangement and complying with a strict set of rules. Once your fund has purchased a property, it will then become part of your retirement portfolio. SMSFs can appeal to Australians who may want more control over their investments, access to alternative asset classes like cryptocurrency, or an early start in the property market. However, buying property with super isn’t as simple as transferring money from your super into a regular home loan. There are strict rules, legal requirements and risks you need to consider. Things to think about before you start Setting up an SMSF: To buy property with your super, you’ll need to set up and run an SMSF. This means you become the trustee, responsible for managing the fund and following all the legal rules. Legal obligations: SMSFs have strict compliance requirements. These include keeping records and lodging audited annual returns. High cost of entry: Property is expensive. You may need a large super balance or use special borrowing arrangements, which can be complex and costly. Investment risk: Putting all your super into one property can expose you to the risks associated with property value declining. Diversification, or not putting all your eggs in one basket, can help reduce risk. Borrowing risks: Borrowing (gearing) may boost your returns, but it can also increase your losses if the property value falls. Returns: Make sure the property’s expected returns match your retirement goals. Penalties: SMSF rules can be tricky to navigate and breaking them can result in significant fines. SMSF property loan borrowing Buying property through your SMSF often means borrowing money, because most people don’t have enough super to pay for a property outright. Notably, super funds generally can’t borrow for investment purposes unless it’s through a Limited Recourse Borrowing Arrangement (LRBA). An LRBA lets your SMSF take out a loan to buy a single asset, like a property on a single title, while limiting the lender’s rights if the fund defaults. This means the lender can only claim the property purchased under the loan, not the SMSFs other assets. Key points to know: Strict conditions apply: The property must be held in a separate trust and the loan can only be used to buy that property.¹ Single title rule: The property usually needs to be on one title. Complex setup: You’ll need to create a company and trust structure. A lawyer or your accountant may be able to help with this. Costs and risks: Borrowing adds interest and fees and gearing can magnify losses as well as gains. Compliance is critical: An LRBA has many requirements. Breaching these rules can result in penalties and possibly even a forced sale of the property. Borrowing through an LRBA can help you access property sooner but it’s complicated and comes with risks. If you’re going down this path, you should consider getting professional financial advice to support your investment strategy. How to set up a property investment in your SMSF Investing in property with a borrowing arrangement takes time. You’ll need to take a number of steps before you even start inspecting properties. Here’s a basic guide. Review your fund’s investment strategy and trust deed to make sure the governing rules allow you to borrow and to invest in property. Talk to your accountant or financial adviser to create a trust structure, set up a sole purpose company and act as a trustee. Find a lender that offers LRBA loans and get a loan approval. Arrange to purchase a property in the name of the LRBA trustee company.² Obtain the required insurance. Pay transaction costs like stamp duty. Arrange for the property to be leased out at market rates. Once your SMSF owns the property, you’ll need to manage it just like any other landlord. That means finding tenants, collecting rent, paying expenses and keeping the property insured. Importantly, you generally can’t lease the property to yourself, your family or any related parties. The only exception is if it’s being used wholly and exclusively for business purposes. Case studies: Investors weigh up using their super to invest in property John and Sarah use their super to break into the property market John and Sarah are in their mid-40s with $1.2 million in combined super. They have strong financial knowledge and experience. Their goal is to invest in property and borrow through a Limited Recourse Borrowing Arrangement (LRBA). They’re comfortable taking on trustee responsibilities and have time to manage the fund. An SMSF might suit them because: It gives access to direct property, something traditional funds don’t offer. Their high balance makes the costs worthwhile. Pooling their savings and using LRBA gives them more control and flexibility over their retirement strategy. Their financial knowledge and experience means they can manage both their SMSF and the borrowing arrangement confidently. Margaret considers the costs and risks and decides to walk away Margaret is 60 with $150,000 in super. She considered using her super to buy an investment property through an SMSF. She liked the idea of control and flexibility but after consulting a financial adviser, she realised the downsides. She has limited investment knowledge and wants a simple, low effort solution. She already has insurance through her current fund and doesn’t want the extra responsibilities of running an SMSF. An SMSF possibly isn’t suitable for Margaret because: Her balance is likely too low to cover setup and ongoing costs like audits and compliance. She doesn’t want trustee duties. Her goals can likely be met by staying in a large fund with insurance benefits. Can I live in my SMSF property when I retire? It’s possible but only after you retire and transfer the property out of the SMSF into your personal name. You generally can’t live in a property owned by your super fund. It’s important to note there are some very complex legalities surrounding this move. Purchasing a property with super that you plan to live in when you retire may breach rules like the “sole purpose test”. For this reason, you should look to purchase a property consistent with the fund’s investment strategy. It should allow all members to achieve their retirement income objectives. As always, professional financial, tax and legal advice is recommended. Getting financial advice for property investing through super Investing in property through an SMSF is complex and comes with risks. It takes time and careful decision making to keep your fund compliant. Getting it wrong can severely impact your retirement wealth. The best way to reduce risk is by working with professionals who specialise in SMSFs. They can help you understand if this is the right move for you. Helping you evaluate your financial situation, risk tolerance and level of expertise. ¹ The loan can also be used to pay for expenses incurred in connection with the borrowing or acquisition, or in maintaining or repairing the asset (but not to improve the asset). ² We strongly recommend professional advice is obtained to ensure the property to be acquired complies with the strict LRBA requirements as well as the superannuation investment rules. Source: Colonial First State

Handling market highs and lows

20 Feb 2026 05:48:00 GMT

What goes up, must come down. Market highs and lows are a normal part of the investment world but they can be hard to handle when it’s your money at stake. Market volatility Investment markets tend to move in cycles, from boom periods when assets rise in value and deliver strong gains, to events like the global financial crisis when assets fall in value and generate losses for investors. This ‘volatility’ can be unsettling for investors, and during intense periods, it’s easy to focus on daily market movements. While these reactions are understandable, it’s important to remember that market ups and downs are a normal part of investment cycles. Don’t put your eggs all in one basket Diversifying your investments across different asset classes can help shield your portfolio from market volatility. Asset classes typically behave differently at different times. Some investments will rise in value while others fall. For example, when interest rates are low, share and property values may climb. Spreading your money across a variety of investments means you are less likely to wear the full brunt of a fall in one particular asset class. Focus on the bigger picture During periods of intense volatility, it can be easy to become too focused on day to day market movements. This can lead to knee jerk reactions bought on by concerns over falling asset values. These sorts of responses are understandable but it is also important to keep your eyes on your longer term goals. If your longer term goals and your circumstances haven’t changed, there may be less reason to change your investment strategy in the short term. Don’t be caught up by short term movements When markets drop for a prolonged period, you may feel as though investment losses are piling up and be tempted to bail out altogether. At these times, bear in mind investment markets tend to be cyclical and quality assets, like some shares, that drop in value today, may well recover its value – and go on to achieve even greater gains in the future. Selling out during a low will mean those paper losses will become real losses. And you will be forced to pay more to get back into the market at a later stage if these values recover. See a downturn as a potential opportunity At most times in life, we try to buy when prices are down and sell when they are high. It makes sense to take the same approach to your investments. When markets hit a downturn and values are lower, investors can look to take advantage of the opportunity to buy into quality assets at reduced prices. Source: BT

Protect yourself from ransomware

20 Feb 2026 05:46:00 GMT

Ransomware is a common and dangerous type of malware. It works by locking up or encrypting your files so that you can no longer access them. A ransom, usually in the form of cryptocurrency, is demanded to restore access to the files, or to prevent data and intellectual property from being leaked or sold online. A ransomware attack could block you from accessing your device or the information on it. Take some time to consider how a ransomware attack might affect you. This will help you to invest the right amount of time, effort and money into protecting your systems. You should consider: What can you replace? For example, files you downloaded from the internet. What can’t you replace? For example, photos that aren’t backed up. What would you spend to recover your information or device after a ransomware attack? Follow the steps in this guide to mitigate the risk and impact of a ransomware attack. Secure your devices to stop ransomware attacks Regularly update your devices Cybercriminals use known weaknesses to hack your devices. Updates have security upgrades so known weaknesses can’t be used to hack you. You should always update your system and applications when prompted. You can also turn on automatic updates on some devices and applications so that updates happen without your input. If you have a server or Network Attached Storage (NAS) device in your network, make sure they are regularly updated too. Set up and perform regular backups A backup is a digital copy of your most important information (e.g. photos, customer information or financial records) that is saved to an external storage device or to the cloud. The best recovery method from a ransomware attack is to restore from an unaffected backup. Regularly backup your files to an external storage device or the cloud. Backing up and checking that backups restore your files offers peace of mind. Implement access controls Controlling who can access what on your devices will help reduce the risk of ransomware. It will also limit the amount of data that ransomware attacks can encrypt, steal and delete. To do this, give users access and control only to what they need. This can be done by making sure each person who uses the device has the right type of account. There are two types of accounts you can set up on Microsoft Windows and Apple macOS; a standard account and an administrator account. Everyday users should have a standard account. Only those who need to should have an administrator account. Consider creating a standard account to use as your main account as they are less susceptible to ransomware. It’s also important that users don’t share their login details for accounts. Use antivirus software Antivirus software can help to prevent, detect and remove ransomware on your device. Make sure you turn on your antivirus software and keep it up to date. Turn on ransomware protection Some antivirus products offer ransomware protection. Make sure you enable this function to protect your devices. For Microsoft Windows devices, you can enable ‘controlled folder access’ within Windows Security. This will prevent designated files on your device from being encrypted by ransomware. Disable macros Microsoft Office applications can execute macros to automate routine tasks. Macros can be used to deliver ransomware to your device so they should be used with caution. If you don’t need to run macros, it is best practise to disable them. If you do need to run macros, consider preventing macros from running automatically and restricting which macros can run. Turn on multi-factor authentication Multi-factor authentication (MFA) makes it harder for cybercriminals to gain initial access to your device, account and information by making them jump through more security hoops and additional authentication layers. This means that the cybercriminal will have to spend more time, effort and resources to get into your device before any ransomware attacks can begin. MFA typically requires a combination of two or more of the following authentication types before granting access to an account: something a user knows (PIN, password/passphrase) something a user has (smartcard, physical token) something a user is (fingerprint, iris scan). Use unique passphrases If your accounts do not have multi-factor authentication then make sure to use a unique passphrase. Never reuse a passphrase across multiple accounts. This could help stop ransomware from spreading or your accounts being compromised. Extra measures for small business or advanced home networks Secure your servers If you use a NAS or other server in your home or business, take extra care to secure them. These devices are common targets for cybercriminals because they often store important files or perform important functions. Minimise external facing footprint Audit and secure any internet exposed services on your network (Remote Desktop, File Shares, Webmail, remote administration services). Discuss this with an IT professional if you are unsure. Migrate to cloud services Consider using online or cloud services that offer built in security, instead of managing your own. For example, use online services for things like email or website hosting. Understand how to prevent ransomware attacks Check messages you receive Cybercriminals will send you fake messages to try and get you to take some action. For example, they might ask you to click a link, download a file or give away your personal information. If you receive a message that you weren’t expecting it might be a way for a cybercriminal to get access to your account or device. Be careful opening files and downloading programs Sometimes you need to open a file or download a program from the internet. Avoid opening files that you receive unexpectedly or from people you don’t know. As an example, don’t open an email attachment if you don’t recognise the email address or weren’t expecting to receive it. Do not download files if they have a different file extension than what you were expecting (for example, a file that ends in .exe or .msi when you were expecting a PDF or image). Check that software is made by a reputable company before downloading and installing on your device. Always download software from the company’s official website or an official app store. Avoid links that ask you to log in or reset your password Sometimes you might receive a link that asks you to enter your credentials or reset your password. Do not enter your credentials after receiving instructions from an unexpected message. This could be a phishing attempt designed to steal your login details. If you think the message might be legitimate, find another way to action the request. For example, if you need to change your password for an account go to the official website and request to reset your password there. Remain vigilant and informed Sign up to get alerts through the free ASD’s ACSC alert service. This service will send you an alert when a new cyber threat is identified. Source: Australian Cyber Security Centre (ACSC)

What's in store for 2026 and beyond?

20 Feb 2026 05:43:00 GMT

Prepare for any changes that may be occurring in 2026 and beyond. Looking ahead: What’s changing in 2026? At this time of year, many of us start thinking about what’s next – new goals, fresh opportunities and trying to understand what’s ahead. Over the next year, a number of changes to superannuation, tax and even aged care may affect you or your loved ones. Some changes have been confirmed while others have been proposed or are pending confirmation. Some may impact your financial circumstances. Here is a summary of some of the key changes in 2026 and beyond. It’s a great time to speak to your financial adviser to discuss these changes and any opportunities that may be available. Most of the changes detailed involve complex rules that may lead to penalties if not followed correctly. Your financial adviser can help you understand these changes, turn complexity into clarity, help you make decisions that keep your future on track and help you avoid costly breaches. Refer to ato.gov.au for more information. Confirmed changes Personal tax cuts from 1 July 2026 What this means: Most taxpayers will receive modest tax cuts starting from 1 July 2026. The 16% tax rate on taxable income between $18,201 and $45,000 will reduce to: 15% from 1 July 2026 14% from 1 July 2027. There will be no changes to the other marginal tax rates and thresholds. The following table summarises the potential tax savings based on a range of taxable incomes. Taxable income Annual tax savings in 2026/27* Annual tax savings from 2027/28 onwards* $25,000 $68 $136 $35,000 $168 $336 $45,000 or more $268 $536 *Compared to 2025/26 financial year. How it may impact you: Pre-tax (concessional) contributions into superannuation are generally taxed at 15%. With a reduced personal tax rate, making tax deductible super contributions for those with income below $45,000 will not be as tax effective. If you fall into this category, there may be other types of contribution to consider that may qualify you for other benefits, such as personal contributions that may attract the Government co-contribution. Carry forward or ‘catch up’ concessional contribution opportunities before 30 June What this means: If your concessional contributions (CCs) in a financial year are below the annual CC cap, you can accrue these unused amounts and carry them forward for up to five years. This means if you meet certain eligibility rules, you can make larger CCs in a later financial year. This may give you greater flexibility to make larger CCs when your circumstances allow. What’s changing? The unused CC cap amounts from 2020/21 will expire if not used by 30 June 2026, as only unused CC cap amounts from five prior financial years are available to use. Furthermore, if your total super balance (TSB) will grow to $500,000 or more on 30 June 2026, 2025/26 may also be the last financial year that you can take advantage of catch up CCs. To be eligible to make catch up CCs, you must: Have a ‘total superannuation balance’ below $500,000 on 30 June 2025. Be eligible to claim a deduction if making personal contributions. Have unused CC cap amounts accrued from one of the five prior financial years. How it may impact you: The CCs you contribute is generally taxed at 15%. Any earnings are also taxed at a concessional rate of 15%. Compare this with your marginal rate, which could be up to 47%. Depending on your situation, this strategy could result in a tax saving of up to 32% and allow you to increase your super savings. New aged care rules and fees commenced on 1 November 2025 What this means: New aged care rules changed certain residential aged care fees and how financial support from the Government is allocated to residents in aged care facilities and those receiving support at home. What’s changed? Residential care fees are broken down into ‘accommodation fees’ and ‘ongoing care fees. The changes impact both of these fee categories, including who is eligible for Government assistance and how much residents need to contribute towards these costs, based on their income and assets. Residents with lower levels of income and assets who are eligible for Government support will continue to receive certain levels of subsidised care from the Government. Residents with higher levels of income and/or assets are expected to contribute more to the cost of their accommodation costs and ongoing care. Changes have also been made to the way that the Government will provide support to older Australians living at home. One of the key changes is the replacement of the previous ‘Home Care Packages’ with a new ‘Support at Home’ program. How it may impact you: If aged care is something you or your family might need in the coming years, now is the time to start the conversation. Understanding the rules early can help you make informed choices and avoid surprises later. Exiting certain legacy lifetime and life expectancy pensions What’s changed? Regulations commenced on 7 December 2024 that provide a five year window to commute lifetime, life expectancy and market linked income streams (also known as term allocated pensions) which were non commutable. For Centrelink recipients with legacy pensions, any social security debts will be waived if a legacy pension is commuted correctly within the amnesty period from 28 October 2025 to 6 December 2029. How it may impact you: If you have a legacy pension, there are tax, transfer balance cap and social security implications to consider before exiting a legacy pension. It’s important to consider the impact of all these considerations as exiting a legacy pension may not be the best option. For example, consider the impact of losing a full or partial assets test exemption when exiting the pension against the flexibility to access your funds. Proposed or unconfirmed changes Super contribution caps may increase from 1 July 2026 – Unconfirmed, awaiting release of wage growth data. Pension transfer balance cap may also increase from 1 July 2026 – Unconfirmed, awaiting release of inflation data. Keep an eye on Division 296 tax for higher super balances – Proposed, awaiting draft legislation. Other changes Some other changes and proposals to consider in the year ahead and beyond: Help to Buy scheme commences 5 December 2025 The Help to Buy scheme allows eligible persons or families to purchase a home with as little as a 2% deposit. If that’s on your radar, your adviser can help you weigh up whether this scheme fits your plans. The scheme has commenced. For more information, refer to Housing Australia’s First Home Buyers website. Superannuation guarantee (SG) payments to align with salary and wages (Payday Super) From 1 July 2026, superannuation guarantee (SG) payments are to be made within a specified time period (generally seven days) from when salary and wages are paid. This measure is now law and commencing on 1 July 2026. Refer to the ATO page on Payday Super for more information. Your financial adviser can help you understand how your SG payments will be received to ensure you do not breach your CC caps, particularly in the year that Payday Super commences. LISTO rate and income threshold: Proposed increase The Government proposed changes to the Low Income Superannuation Tax Offset (LISTO). From 1 July 2027, the maximum tax offset is proposed to increase from $500 to $810 and the income threshold may increase from $37,500 to $45,000. This proposal is not yet law and needs to be passed by Parliament. Source: MLC

Economic update February 2026

20 Feb 2026 05:42:00 GMT

Market developments during January 2026 included: Key Points The domestic equity market took the lead from European and US markets, finishing higher in January, while Real Estate Investment Trusts (REITs) moved lower. US equity markets rose in January in the face of rising geopolitical tension and the start of another US earnings season. Fixed interest performance was generally mixed over the first month of the year, with Japan normalising its monetary policy and European yields moving off December highs. Australian Equities The S&P/ASX 200 Accumulation Index rose by 1.8% in January, with five of the 11 sectors closing higher for the month. The Energy and Materials sectors (+10.6% and +9.5%, respectively) led the gains, while the Health Care sector (+2.2%), the Consumer Staples sector (+2.0%) and the Utilities sector (+0.6%) also rose. The Information Technology sector (-9.4%) led the declines again, while the REIT sector (-2.7%) was also softer. The S&P/ASX Small Ordinaries Index rose 2.7% in January, taking the past twelve months’ gains to 22.8%, compared to the 7.4% rise in the S&P/ASX 200 Accumulation, as smaller companies continue to outperform large caps. Deep Yellow Limited (DYL) was the month’s top gainer, rising 54.3%, thanks to a strong quarterly update and a significant increase in uranium spot prices. Paladin Energy (PDN) Limited also benefited from rising uranium prices in January, as they rebounded to April 2024 levels, closing the month 44.3% higher. Zip Co Limited (ZIP) was the worst performer for the month, declining 19.5%, following rising concerns about the US consumer. However, the quarterly update indicated strong user growth, aligning with the potential 10% cap on credit card interest rates in the US. Silex Systems Limited (SLX) fell 19.1% after the company failed to secure US$900m in funding from the US Department of Energy. December’s inflation rate of 3.8% exceeded market expectations of 3.6% and was significantly above the RBA’s 2% to 3% target range, paving the way for an early rate hike. Service inflation reached two year highs, while electricity costs increased as rebates expired. The unemployment rate was 4.1% in December, lower than the previous month’s 4.3% and market expectations, while the number of employed increased by 65,200 – above the forecast of 30,000 and higher than the revised increase of 28,700 in the prior month. Global Developed Equities Global equities were mixed in January, with developed market equities down 2.7% (MSCI World NR Index [AUD]). US equities were marginally higher after a flat December, with the S&P 500 Index rising 1.4%, lifting 12 month returns to 14.9%. The US earnings season kicked off in late January and geopolitical volatility took centre stage, with the US capture of the Venezuelan President, US’s bid to acquire Greenland and unrest in Iran. Across developed markets, value (+4.1%) outperformed growth (-0.8%), whilst quality (+2.8%) and momentum (+2.7%) also outperformed. Global small caps outperformed in January, returning 3.6%. European equity markets were broadly positive, with the UK’s FTSE 100 Index rising 2.9% and Germany’s DAX Index up 0.2%. In Japan, the Nikkei 225 surged by an impressive 5.9%, lifting rolling year returns to 34.8%, as Prime Minister Takaichi announced a snap election and plans for robust fiscal stimulus. On the economic front, the Federal Reserve held interest rates steady in January after cutting them in December, signalling a more cautious approach as officials stressed the need for further progress on inflation before easing again. Fed communication remained a key focus, with policymakers continuing to indicate a mild and data dependent easing cycle and little change to expectations that rate cuts in 2026 and beyond will be limited unless economic conditions soften significantly. Inflation data was mixed over the month, with headline inflation edging higher in December, reflecting firmer energy and services prices, while core inflation proved stickier than in prior readings and above market expectations. Growth momentum remained solid, with recent GDP data confirming a strong end to 2025 driven primarily by resilient consumer spending, although some leading indicators pointed to a gradual cooling in activity compared with the strength seen in the previous quarter. Overall commodity prices rose in January, with the S&P Goldman Sachs Commodity Index (USD) up by 9.1%. Oil reversed consecutive months of declines, rising 13.6% in January, driven by geopolitical tensions and supply issues involving Iran, Venezuela, and Cuba, along with US winter conditions and outages in Kazakhstan. Gold surged 13.3%, reaching US$5,600 per ounce before the US President’s nomination of the Fed Chair. Copper continued to rise (+4.9%), while Iron ore remained mostly steady (+0.5%). Emerging Market Equities Emerging market equities outperformed developed markets in January, rising 3.6% (MSCI Emerging Markets Index [AUD]). In China, the CSI 300 gained 1.7% in January, with a rotation towards the region’s technology stocks continuing. Economic data from China softened again in January, with the NBS Manufacturing PMI falling back below the expansion threshold to 49.3, reversing December’s brief return to growth and highlighting ongoing fragility in factory activity. Industrial production growth remained steady in December, increasing around the mid-single digits year on year and broadly in line with expectations, while retail sales showed only a modest improvement, underscoring continued weakness in household consumption despite policy support measures. Property and Infrastructure The S&P/ASX 200 A-REIT Accumulation Index fell by 2.7% in January, bringing its rolling annual return to 1.6%. Global real estate equities outperformed, rising by 2.8% during the month, as shown by the FTSE EPRA/NAREIT Developed NR Index (AUD Hedged). Global infrastructure also outperformed, up 3.8% in January, as measured by the S&P Global Infrastructure TR Index (AUD Hedged). Fixed Income Fixed income performance was mixed across global government bond markets in January, as longer dated yields climbed after a period of late 2025 volatility. The U.S. 10 year Treasury yield increased by 16 basis points to close the month at 4.26%, while the Federal Reserve kept policy steady in January after the last rate cut at the end of December and reiterated that inflation remains above target. Japanese government bonds also saw notable moves, with the 10 year yield climbing nearly 17 basis points to 2.24%, driven in part by reduced bond purchases and monetary policy normalisation expectations ahead of snap elections. Elsewhere, most European 10 year benchmark yields retreated from December highs, though UK gilts continued to push modestly higher. Domestically, Australian 10 year bond yields increased again, rising by 7 basis points in January, ending the month at 4.81%, as strong inflation data continues to extinguish any thoughts of interest rate cuts in 2026. Alternatives Preliminary estimates for January indicate that the index increased by 4.6 per cent (on a monthly average basis) in SDR terms, after increasing by 1.7 per cent in December. The nonrural, rural and base metals subindices all increased in the month. In Australian dollar terms, the index increased by 2.6 per cent in January. Over the past year, the index has increased by 2.6 per cent in SDR terms. Decreases in the prices of iron ore, oil and coking coal have been more than offset by increases in gold, lithium and rural commodity prices. The index has decreased by 0.9 per cent in Australian dollar terms. Source: Lonsec, February 2026 (January update)

Holiday Homes Under the Microscope: What the ATO's New Guidance Means for You

18 Feb 2026 05:39:00 GMT

For many Australians, a holiday home does double duty. It’s a place to escape with family and friends, and during the rest of the year it’s listed on Airbnb or Stayz to help cover the costs. Until recently, many owners assumed they could claim most of the usual deductions for the property without much trouble, as long as appropriate apportionments were made. However, that position is now under more scrutiny than ever following the release of some new draft guidance documents by the Australian Taxation Office (ATO) – TR 2025/D1, PCG 2025/D6 and PCG 2025/D7. The ATO is looking to significantly tighten the rules around holiday homes that are used to derive some rental income. While the documents are still in draft form, they clearly signal the ATO’s compliance focus going forward. What is the ATO Concerned About? In simple terms, the ATO wants to distinguish between properties that are genuinely held to maximise rental income and those that are primarily lifestyle assets with some incidental rental use. The ATO confirms that all rental income must be declared, even if it is occasional or earned through informal arrangements. However, if the property is really a holiday home and isn’t used mainly to produce rental income during the year then the owner can’t claim any deductions for expenses such as interest, rates, land tax, repairs and maintenance. That is, the ATO might not allow any of these expenses to be claimed as a deduction, even if the property is used to generate taxable rental income for some of the year at market rates. If the property is classified as a holiday home by the ATO, then owners can only claim deductions for limited direct expenses such as cleaning or advertising. The ATO is particularly focused on properties that: Are blocked out for private use during peak periods (for example, school holidays or ski season), Are advertised inconsistently or at above-market rates, Generate ongoing tax losses year after year. How Expenses Must be Claimed Even if the property isn’t classified as a holiday home, it will often still be necessary to apportion expenses if the property is only used partly for income producing purposes. PCG 2025/D6 outlines how expenses should be apportioned. The key principle is that claims must be “fair and reasonable”. Common methods include: Time-based apportionment (for example, based on days rented or genuinely available for rent), and Area-based apportionment (where only part of a property is rented). Getting this wrong, or failing to keep evidence, increases audit risk. The ATO has access to booking platform data and can easily compare listings, calendars and reported income. The Financial Impact can be Significant Consider a holiday unit that earns $30,000 a year in off-peak rent but is kept for private use during peak holiday periods. Under the new approach, the ATO may conclude the property is really a holiday home and could reduce deductible expenses from tens of thousands of dollars to only a small fraction, resulting in a materially higher tax bill. Co-ownership also needs care. Income and deductions are generally split according to ownership interests, regardless of who uses the property more. Renting to relatives at discounted rates can further limit deductions. Practical Steps you Should Take Now Although the guidance is proposed to apply from 1 July 2026 (with transitional relief for arrangements in place before 12 November 2025), now is the time to review your position: Are you holding and using the property to genuinely maximise rental income? Is the property advertised broadly and consistently, including during peak periods? Use market pricing: Set rent in line with comparable properties in the same area. Keep strong records: Retain booking calendars, advertisements, enquiries, and a diary showing private versus rental use. Review ownership and strategy: In some cases, changing how a property is operated can improve its commercial profile and tax outcome, but beware of CGT liabilities, duty and legal fees. Document existing arrangements: If you may qualify for transitional relief, evidence is critical. The Bottom Line The ATO is not banning deductions for holiday homes, but it is drawing a firmer line between genuine investment properties and lifestyle assets. With the right structure, pricing and record-keeping, many owners can still claim appropriate deductions and improve cash flow. If you own a holiday property, a proactive review could save you from an unpleasant surprise later. Please contact our team at Paris Financial if you would like us to assess your current arrangements and help you plan ahead. Note: The material and contents provided in this publication are informative in nature only. It is not intended to be advice and you should not act specifically on the basis of this information alone. If expert assistance is required, professional advice should be obtained.

Aged Care Planning for Families: WhatÂ's Changed and How to Prepare with Confidence

15 Feb 2026 23:59:00 GMT

When families first start thinking about aged care it is rarely because they planned to. It often begins quietly with a fall, a missed medication or a growing sense that day to day life is becoming harder for someone you love. Aged care planning is not about taking control away from an older parent. It is about supporting dignity, safety and choice while reducing stress for the whole family. For many families the system can feel overwhelming at first. There are assessments, decisions new terminology and emotional conversations to navigate. The reassuring news is that Australia’s aged care system now places much greater emphasis on supporting people to remain at home for as long as possible, while giving families clearer pathways to help when needs change. With the right information and a calm approach, families can move forward with confidence rather than urgency. Why aged care planning feels so emotional for families Aged care decisions are rarely just practical. They touch on identity independence family roles and sometimes long held promises like “I’ll never go into care”. Adult children often find themselves balancing respect for a parent’s wishes with concerns about safety health and exhaustion within the family. It is common for families to feel guilt for even raising the topic. Others worry they are overreacting or acting too late. These feelings are normal. Aged care planning works best when it is seen as an ongoing conversation, rather than a single life changing decision. What has changed in aged care and why it matters to families Recent changes to Australia’s aged care system have focused on making care more person centered and easier to navigate. For families this means: A stronger focus on dignity choice and respect for older Australians A simplified assessment process through a Single Assessment System A new Support at Home program designed to help people stay at home longer These changes are practical, rather than political. They affect how families access support, what services are available and how care evolves over time. Starting the conversation with care and respect The most important step in aged care planning often happens around a kitchen table, rather than in a government office. Families who take time to talk early usually experience less conflict and less stress later. Helpful ways to start include: Asking what matters most to your parent right now Talking about what is becoming harder rather than what is “wrong” Reassuring them that support is about maintaining independence not removing it Many older Australians worry that accepting help means losing control. In reality, early support often preserves independence for longer. Understanding aged care assessments without fear An aged care assessment is the gateway to government funded services. Assessments are usually done in the home and focus on understanding a person’s physical health, daily living needs and overall wellbeing. Families can play a valuable role by helping the assessor see the full picture. Older people sometimes downplay difficulties because they do not want to be a burden. How families can prepare for an assessment Write down recent changes in health mobility memory or confidence Note any falls hospital visits or medication issues Be honest about what support family members are providing and where it is becoming unsustainable Attend the assessment if your parent wants your support This is not about exaggerating needs. It is about ensuring the assessment reflects real life. Support at Home: what families need to know Many families prefer care at home for as long as it is safe and workable. The Support at Home program brings together government funded in home services under a single framework. Support at Home may include: Help with personal care like showering and dressing Nursing or allied health services Support with meals cleaning transport or social connection Equipment or home modifications to improve safety The goal is to provide flexible support that adapts as needs change. For families this means fewer sudden transitions and more continuity. The hidden load families often carry One of the least discussed aspects of aged care is the coordination role families take on. Even with government funded services families often manage appointments, paperwork, providers schedules and finances. Adult children may feel like they have taken on a part time job without training or clear boundaries. Over time this can lead to exhaustion frustration and tension between siblings. A helpful step is to share responsibilities early. Decide who will: Be the main contact for providers Attend appointments and assessments Keep records and paperwork organised Check in regularly on emotional wellbeing Clarity now prevents resentment later. When home care may no longer be enough For some families there comes a point where care needs exceed what can be safely managed at home. This does not mean failure. It means circumstances have changed. Signs it may be time to explore higher levels of care include: Frequent falls or injuries Missed medications or confusion Poor nutrition or weight loss Increasing hospital admissions Carer burnout within the family Having early conversations about residential care preferences helps families avoid rushed decisions during a crisis. The financial side families worry about most Money is often the quiet source of anxiety in aged care. Families may worry about costs, fairness between siblings and protecting a parent’s financial security. Rather than trying to understand everything at once it helps to focus on: What support is subsidised by the government What costs may increase over time as care needs change How early decisions affect future options Clear guidance can reduce stress and prevent costly mistakes. A calm step by step approach for families If you are feeling unsure where to start this simple plan can help: Have an open supportive conversation with your loved one Write a brief summary of current needs and concerns Contact My Aged Care to understand assessment pathways Prepare together for the assessment Create a shared folder for documents and notes Talk as a family about roles and expectations Seek professional guidance early if you are unsure You do not need to do everything at once. Small steps still move you forward. A reassuring reminder for families You are not behind. You are responding with care to a changing situation. Aged care planning is about protecting quality of life for your loved one and preserving wellbeing for the family supporting them. When families take a proactive supportive approach, they often find that decisions feel less overwhelming and more empowering. Financial advice can help families understand how care choices interact with cash flow assets and long-term security. If you have questions about the financial aspects of aged care or want support navigating the system please contact our team at Paris Financial. We are here to help families move forward with clarity compassion and confidence. Frequently Asked Questions About Aged Care Planning What is aged care planning? Aged care planning is the process of preparing for future care needs so older people can remain safe supported and independent while giving families clarity and confidence. When should families start aged care planning? Families should start aged care planning when daily tasks become harder or health or mobility begins to change rather than waiting for a crisis. Do we need to wait for a health emergency to access aged care support? No. Families can apply for an aged care assessment before a crisis to access early support and reduce the risk of rushed decisions later. What support helps older people stay at home longer? Government funded support may include personal care nursing allied health help with meals cleaning transport social connection and home safety modifications. Why is financial planning important in aged care? Financial planning helps families understand costs eligibility and ensures care decisions support both wellbeing and long term financial security. Sources Australian Government Department of Health and Aged Care – Support at Home program https://www.health.gov.au/our-work/support-at-home/about My Aged Care – Support at Home and aged care assessments https://www.myagedcare.gov.au/aged-care-programs/support-at-home-program Paris Financial Services Pty Ltd is a Corporate Authorised Representative (No. 357928) of Capstone Financial Planning Pty Ltd. ABN 24 093 733 969. AFSL No. 223135 General Advice Disclaimer The information in this article is general information only and is not intended to be a recommendation. We strongly recommend you seek advice from your financial adviser as to whether this information is appropriate to your needs, financial situation and investment objectives. Whilst every care has been taken in the preparation of this article, Paris Financial Services Pty Ltd, its directors, authors, consultants, editors and any persons involved in the construction of this article, expressly disclaim all and any form of liability to any person in respect of this article and any consequences arising from its use by any person in reliance upon the whole or any part of this article.

Electric Car Discounts Under Review: What It Means for Your Business

08 Feb 2026 23:55:00 GMT

Electric vehicles (EVs) are no longer a niche choice. By late 2025, they account for more than 8% of new car sales in Australia, driven in no small part by generous tax incentives. One of the most significant is the Federal Government’s Electric Car Discount, introduced in mid-2022. For many businesses and employees, it has materially reduced the cost of owning or leasing an EV. That said, the rules are now under review. While no immediate changes are proposed, this is an important moment to understand the benefits, assess whether they suit your circumstances, and consider timing. How the Electric Car Discount Works (in Plain English) The discount is not a cash rebate. Instead, it operates through tax concessions that can significantly reduce the real cost of an EV: Fringe Benefits Tax (FBT) exemption Where an eligible EV is provided to an employee as a fringe benefit, private use is exempt from FBT. This is often the biggest saving. Without the exemption, FBT is effectively charged at up to 47%. For many employees, the exemption can reduce the annual after-tax cost of a vehicle by thousands of dollars. Important points: The exemption applies to battery electric vehicles and hydrogen fuel cell vehicles. Plug-in hybrid vehicles lost eligibility for new arrangements from 1 April 2025. The car must be first held and used after 1 July 2022 and be below the luxury car tax threshold at first purchase. Higher luxury car tax (LCT) threshold Fuel-efficient vehicles, including EVs, benefit from a higher LCT threshold ($91,387 for 2025–26, compared to $76,950 for other cars). This can prevent the 33% luxury car tax applying to part of the purchase price. Reduced import costs Certain EVs are also exempt from the 5% customs duty, reducing upfront acquisition costs. Commercially, these settings have made EVs very competitive. Lower running costs (electricity versus fuel, fewer servicing requirements) and solid resale values have strengthened the business case, particularly for salary packaging and small fleets. Why the Government Is Reviewing the Rules A statutory review of the Electric Car Discount has now commenced. The key reason is cost. Uptake has exceeded expectations, and the projected cost to the budget has increased significantly over the forward estimates. The review will examine: Whether the concession is still required to encourage EV adoption. Whether eligibility settings should be tightened (for example, limiting benefits to certain vehicle types or price points). How the discount interacts with other policies, such as the National Vehicle Emissions Standard commencing in 2025. Public consultation is underway, with a final report not due until mid-2027. Importantly, there is no suggestion of immediate changes, and any reforms are more likely to be prospective. Practical Takeaways for Business Owners and Employees While uncertainty always creates hesitation, the current rules are clear and legislated. From a practical perspective: Now is a good time to review fleet or salary packaging arrangements, particularly if you are considering replacing a vehicle in the next 12–24 months. Existing arrangements are expected to be grandfathered, reducing the risk of retrospective changes (although we can’t guarantee this). Ensure vehicles are clearly under the LCT threshold at first purchase and meet all eligibility criteria if you want to access the FBT exemption. Check the tax treatment of charging infrastructure provided in connection with an eligible EV, this won’t necessarily qualify for an FBT exemption. Final Thought The Electric Car Discount remains one of the most valuable concessions available for employee vehicles. While a review introduces longer-term uncertainty, the commercial reality today is that EVs can deliver genuine tax and cash-flow savings when structured correctly. If you are considering an EV—either personally or through your business—now is the right time to run the numbers. Please contact our team at Paris Financial if you would like tailored advice on whether an electric vehicle strategy makes sense for you under the current rules. Note: The material and contents provided in this publication are informative in nature only. It is not intended to be advice and you should not act specifically on the basis of this information alone. If expert assistance is required, professional advice should be obtained.

Downsizer Contributions and the Main Residence Exemption

03 Feb 2026 23:53:00 GMT

When clients sell a long-held family home, they may be able to channel part of the proceeds into superannuation by using the downsizer contribution rules. Basic Eligibility Conditions To qualify, the seller must meet a number of conditions: They must have reached the eligible age of 55 years (at the time of making the contribution). The eligible dwelling must be located in Australia and have been owned for at least 10 years. The disposal of the dwelling must be exempt from CGT under the main residence exemption to some extent (full exemption not required). The contribution must be made within 90 days of settlement, and an election form must be lodged with the fund no later than when the contribution is received. The downsizer contribution can only be used once per individual and is limited to the lesser of the gross sale proceeds or $300,000 per person. Does the Sale Need to be Fully CGT-exempt? A common question is whether the sale must be fully exempt as the main residence. Importantly, a full exemption is not required. Even if only part of the capital gain is exempt under main residence rules, the property may still qualify — provided all other conditions are met. Is the Property Required to be the Main Residence at Sale? Equally important: the property does not need to be the seller’s principal residence at the time of sale. Living in the property for some years and renting it out later does not disqualify it, as long as the ownership and residence history supports at least a partial main residence exemption. Special Rules for Pre-CGT Properties Where a property was acquired before CGT began, the rules look at whether part of the gain would have been disregarded had CGT applied. A key requirement is that there is a dwelling that qualifies as the main residence. Disposal of vacant land will generally not satisfy the test and therefore will not meet downsizer requirements. Eligibility of a Non-Owning Spouse It is common for only one spouse to be listed on the property title. A non-owning spouse may still qualify for a downsizer contribution if all other requirements are met, apart from ownership. However, a spouse who never lived in the property and could not reasonably have treated it as their main residence is unlikely to be eligible. Preservation and Access to Funds A downsizer contribution is subject to the standard preservation rules. Once contributed, the amount cannot be accessed until: You reach preservation age (60) and retire, or You reach age 65, regardless of retirement status. Consider future cash-flow needs before making the contribution. Before you Contribute Although seemingly straightforward, downsizer contributions involve several nuances. Please contact our team at Paris Financial if you have any questions. Related links: Downsizer super contributions Downsizer contributions and capital gains tax Note: The material and contents provided in this publication are informative in nature only. It is not intended to be advice and you should not act specifically on the basis of this information alone. If expert assistance is required, professional advice should be obtained.

AI Tax Tips: Helpful Shortcut or Costly Trap?

02 Feb 2026 07:01:00 GMT

As a business owner or investor, time is always tight. So, it’s no surprise many people now turn to AI tools like ChatGPT for quick answers on tax deductions, super contributions or structuring ideas. The responses sound confident, arrive instantly and cost nothing. What could go wrong? Plenty. The Australian tax and super system is complex, highly fact-specific and constantly changing. While AI can be a useful starting point, relying on it for decisions can expose you to audits, penalties and poor financial outcomes. We’re increasingly seeing the clean-up work when AI advice goes wrong. Where AI Can Help (and Where it Can’t) AI is quite good at explaining basic concepts in plain English. It can help you understand what “negative gearing” means, outline the difference between concessional and non-concessional super contributions, or prompt you to think about record-keeping. Used this way, it can save time and help you ask better questions. The problem starts when AI moves from explaining concepts to giving “advice”. Tax and super outcomes depend on your specific facts: your income levels, business structure, age, residency status, assets, timing and future plans. AI does not know these details unless you provide them—and you generally shouldn’t. Even then, it cannot exercise judgement or balance competing risks the way an experienced adviser can. The Accuracy Risk: Confident, but Wrong AI tools are known to “hallucinate” – that is, provide answers that sound authoritative but are incorrect or incomplete. In practice, this can mean: Claiming deductions that don’t apply to your circumstances Miscalculating capital gains tax or ignoring integrity rules Suggesting super strategies that breach contribution caps or eligibility rules Quoting legislation, cases and rulings or concessions that don’t exist or are out of date. These errors are rarely obvious to a non-expert, but they are normally obvious to the ATO, courts and experienced advisers. A recent decision handed down by the Administrative Review Tribunal highlights some of the key problems. In Smith and Commissioner of Taxation [2026] ARTA 25 the taxpayer appeared to rely on AI tools to identify cases which supported their argument, but this approach was shot down by the Tribunal. Some of the cases didn’t exist and others were simply not relevant to the matter being considered. If the person using the AI tool doesn’t verify the existence of the cases provided by the tool and read them to ensure their relevance then “the Tribunal’s resources are being wasted, as the Tribunal must look for cases that don’t exist and read cases that have no relevance at all”. ATO Scrutiny is Increasing, not Decreasing The ATO isn’t anti-AI—they use it internally for fraud detection and analytics. But for you? The ATO’s misinformation guide makes it clear that AI tools can provide false, inaccurate, incomplete or outdated information. The ATO’s message is to verify everything, or face the music. Surveys reveal 64% of businesses seek AI accounting help first, only for pros to unscramble the mess—wasting time and money. ATO AI transparency statement | Australian Taxation Office Protect yourself from misinformation and disinformation | Australian Taxation Office When something is wrong, the ATO will generally amend the return, charge interest and may apply penalties—even if the mistake came from AI advice rather than intent. We are seeing this play out most clearly with work-from-home claims, property deductions and SMSF compliance. Superannuation: High Stakes, Little Margin for Error Super is an area where AI advice can be particularly dangerous. Self-managed super funds, in particular, operate under strict rules. AI often overlooks key issues such as eligibility, timing, purpose tests and investment restrictions. The result can be non-compliance, forced unwinding of transactions and penalties that run into thousands of dollars. Super mistakes can also permanently damage your retirement savings. Data Security and Privacy There is also a practical risk many people overlook: entering personal or financial information into AI platforms. Once data is entered, you lose control over how it is stored or used. This creates privacy and fraud risks that are simply not worth taking. A Smarter Approach: AI Plus Professional Advice AI is best used as a support tool, not a decision-maker. It can help you understand the landscape, but important tax and super decisions should always be reviewed in light of your full circumstances. At our firm, we encourage clients to bring questions early, test ideas and have conversations before acting. That approach almost always costs less than fixing problems after the fact. The bottom line: AI can be a helpful assistant, but it is not your accountant. When it comes to protecting your wealth and staying compliant, tailored professional advice remains essential. Feel free to contact our team at Paris Financial should you have any questions. Note: The material and contents provided in this publication are informative in nature only. It is not intended to be advice and you should not act specifically on the basis of this information alone. If expert assistance is required, professional advice should be obtained.

Tax Planning Guide for Established Allied Health Practices

21 Jan 2026 06:59:00 GMT

If you run an established allied health practice, tax compliance is no longer just about lodging returns on time. As your clinic grows, the way your business is structured, how you claim deductions, and how you plan for future growth or exit can make a material difference to your after-tax outcomes. Physiotherapists, psychologists, chiropractors, and other allied health professionals face unique tax considerations. Many operate multi-practitioner clinics, employ staff, lease or own premises, and plan for eventual succession or retirement. Getting the tax strategy right early, and reviewing it regularly, can save significant money over time. Understanding Your Business Structure One of the most important tax decisions for any allied health practice is the structure it operates under. The right structure balances tax efficiency, asset protection, and flexibility as your practice grows. Sole Trader: Simplest and cheapest to set up Personal liability for all business debts and legal risks Income flows directly into personal tax return Limited tax planning and income splitting options Partnership: Common in multi-practitioner clinics Each partner reports their share of income individually Without written agreement, ATO assumes equal profit split Essential to document income sharing, decision-making, and exit arrangements Company: Separate legal entity providing strong asset protection Income retained and distributed via franked dividends Directors have personal liability for PAYG and superannuation obligations Best for established practices with significant assets Trust: Flexible income distribution to beneficiaries based on tax situations Strong asset protection as trust owns assets separately Must operate according to deed with proper documentation ATO scrutinises arrangements to prevent tax avoidance Your structure should be reviewed annually with a tax specialist, especially as revenue grows, new practitioners join, or premises are purchased. Common Tax Deductions for Allied Health Practices The ATO allows allied health professionals to claim a wide range of business-related expenses, provided they are incurred in earning assessable income. Deductible expenses include: Professional indemnity insurance (including run-off cover in certain circumstances) Association memberships and journal subscriptions Work-related conferences and seminars Continuing professional development that maintains or improves current skills Medical equipment depreciation and insurance Personal protective equipment (gloves, masks, sanitiser) Work-related phone and internet costs (proportionate to actual work use) Non-deductible expenses include: Personal medical expenses (dental work, GP visits, vaccinations) Ordinary commuting costs between home and work General grooming and clothing (unless occupation-specific protective gear) Initial qualifications or courses enabling you to start a new profession Digital records are acceptable to the ATO, and tracking expenses as you incur them makes tax time considerably easier. GST and Allied Health Services Most allied health services are GST-free if the service is provided by a recognised health professional registered under state or territory law (or member of an approved professional association) and the service is accepted as necessary treatment. This applies to physiotherapy, occupational therapy, psychology, chiropractic, and other recognised allied health services. Products sold or services outside your recognised scope may be subject to GST. If assistants work under your supervision, their services can be GST-free if you bill in your name, accept full responsibility, are involved in at least part of the service, and supervise appropriately. Getting GST treatment right affects your pricing, BAS obligations, and input tax credit eligibility. Strategic Tax Planning and Record-Keeping Tax planning is not something you do once a year in June. As your practice grows and circumstances change, your structure needs regular review. Key tax planning strategies: Review structure annually as revenue and circumstances change Consideration of Income splitting through appropriate structures to lower tax brackets Time equipment purchases strategically (before year-end for immediate deductions) Maximise superannuation contributions (taxed at 15% versus higher marginal rates) Plan income and expense timing across financial years Separate personal and practice assets for protection Record-keeping requirements: Keep records for five years minimum Tax invoices for equipment and supplies Receipts for conferences and professional development Vehicle logbooks if claiming car expenses Phone and internet usage records Insurance certificates and membership documentation Digital records are acceptable to the ATO Good records protect you during ATO reviews and make tax planning far easier. Buying Your Practice Premises and CGT Planning Purchasing your own premises can provide long-term security, equity growth, and access to valuable capital gains tax concessions. Whether the property is owned personally, through a trust, company, or SMSF significantly affects GST, land tax, stamp duty, and CGT outcomes. The ATO emphasises that arrangements need to be commercially realistic and properly documented. Getting this structure right from the start is crucial, as restructuring later can trigger tax events and may appear as tax avoidance if not done for genuine commercial reasons. Succession and Exit Planning Eligibility requirements: Aggregated turnover under $2 million OR net assets under $6 million Active asset test: premises used in business for at least half the ownership period (or 7.5 years if owned 15+ years) Available concessions: 15-year exemption: Complete CGT exemption after 15 years of ownership and retirement 50% active asset reduction: Automatic if basic conditions met Retirement exemption: Disregard up to $500,000 lifetime limit, proceeds for retirement including super (subject to caps) Rollover options: Defer CGT by reinvesting in replacement assets Working with Paris Financial Paris Financial specialises in tax and accounting for allied health professionals across Australia. We understand the operational and financial realities of running a health practice, from structuring and compliance through to growth and succession planning. Our services include annual tax planning and compliance, business structure optimisation, practice premises purchase advice, succession planning and practice valuations, CGT concession strategies, and asset protection structuring. If you want clarity and confidence around your practice’s tax position, professional advice can make a meaningful difference. Contact Paris Financial today to discuss how we can help optimise your practice’s tax position. This article provides general information based on current ATO guidance. Tax laws are complex and subject to change. Always seek professional advice specific to your circumstances from a qualified tax advisor or accountant specialising in allied health practices. Source: ATO: https://www.ato.gov.au/businesses-and-organisations/starting-registering-or-closing-a-business/starting-your-own-business/business-structures-key-tax-obligations Paris Financial: https://www.parisfinancial.com.au/advisory-services/allied-health/established-practices/

Capital Gains Tax Pitfalls for Beneficiaries: What You Need to Know About Inherited Property

20 Jan 2026 06:57:00 GMT

Receiving property as part of an inheritance can seem straightforward, but many Australians discover too late that significant tax obligations may apply when they decide to sell. Capital gains tax on inherited property catches countless beneficiaries by surprise each year, resulting in unexpected bills that could have been avoided with proper planning and knowledge of the rules. Understanding Capital Gains Tax on Inherited Property When you inherit property in Australia, you generally do not pay tax at the time of inheritance. However, capital gains tax may apply when you eventually sell or dispose of the property. The Australian Taxation Office has specific rules that determine whether you will face a tax liability, and these rules can be complex. The key question is not whether you inherited the property, but rather how the deceased used it and when you choose to sell it. These factors determine whether you qualify for exemptions that could save you thousands of dollars in tax. The Two-Year Rule: Your Window of Opportunity If the property was the deceased’s main residence immediately before their death and was not being used to produce income, you may be fully exempt from capital gains tax if you sell (and settle) the property within two years of their death. Many beneficiaries are unaware of this time-sensitive exemption and miss out on significant tax savings simply because they delayed the sale. Estate administration can be complex and time-consuming, which is why the Australian Taxation Office may allow additional time in appropriate circumstances. Discretionary extensions are considered on a case-by-case basis and are not automatic. The ATO may take into account circumstances such as probate delays, legal disputes over the estate, serious illness, or other significant events that prevented the property from being sold within two years. Generally, the ATO expects the property to be sold as soon as reasonably practicable once these issues are resolved. Delays caused by waiting for market conditions to improve, renovating the property, or inactivity by the executor or beneficiary are unlikely to support an extension. The Foreign Resident Trap A significant and often overlooked tax trap affects beneficiaries and deceased persons who are foreign residents. Since 1 July 2020, if the deceased was a foreign resident at the time of death, the main residence exemption is generally not available, subject to very limited life-event exceptions. Similarly, if you are a foreign resident when you sell an inherited Australian property, you are generally not entitled to the main residence exemption, regardless of how long the property was owned or occupied by the deceased. These rules have caught many Australians living overseas by surprise, particularly those who inherit a family home expecting it to be tax-free. Partial Exemptions: Not All or Nothing Not every inherited property qualifies for a full exemption, but that does not mean you will pay tax on the entire capital gain. Partial exemptions can be available when the property was not always the deceased’s main residence or was used to produce income for part of the ownership period. To calculate a partial exemption, you need to determine the number of days the property was used as a main residence versus the total number of days it was owned. The taxable portion of your capital gain is based on the proportion of non-main residence days. These calculations become more complex if you also use the property as your main residence after inheriting it, or if the property was previously inherited by the deceased from another estate. Professional advice is essential to ensure you calculate the exemption correctly. Cost Base Considerations Understanding the cost base of your inherited property is crucial for calculating any capital gain. The cost base is generally what the deceased originally paid for the property, plus certain costs such as legal fees and improvements made after 20 September 1985. If the deceased acquired the property before 20 September 1985, it was a pre-capital gains tax asset while they owned it. In this case, the first element of your cost base becomes the market value of the property on the day the deceased died. For properties acquired after 20 September 1985, your cost base is usually what the deceased’s cost base was on the day they died. This means you step into their shoes for tax purposes, inheriting not just the property but also their original acquisition costs. As a beneficiary, you can also include in your cost base any expenditure that the legal personal representative of the estate would have included if they had sold the asset instead of distributing it to you. This might include conveyancing fees or other costs incurred during the estate administration. The Discount Method Advantage If the inherited property has been held for at least 12 months, you may be eligible for the capital gains tax discount. This discount allows Australian residents to reduce their taxable capital gain by 50 per cent. For inherited property, the 12-month ownership requirement generally includes the period the deceased owned the property, provided they acquired it on or after 20 September 1985. This means you may qualify for the discount even if you personally have only owned the property for a short time. What Happens If You Use the Property as Your Main Residence If you move into the inherited property and use it as your main residence, you may be entitled to additional exemptions. The property must be used as your main residence and not used to produce income during this period. When you eventually sell the property, you may need to calculate a partial exemption that takes into account both the deceased’s period of ownership (if it was not their main residence at the time of their death) and your own period of residence. This calculation considers how many days the property was a main residence for either of you compared to the total days of ownership. The key point is that you must actually live in the property as your main residence. Simply owning it while maintaining another home elsewhere will not qualify you for this exemption. Pre-Capital Gains Tax Properties Properties acquired before 20 September 1985 receive special treatment under the capital gains tax rules. If the deceased acquired the property before this date, it is generally exempt from capital gains tax. However, any major capital improvements or additions made on or after 20 September 1985 may be subject to capital gains tax. The Australian Taxation Office treats these improvements separately from the original property. Common Mistakes to Avoid Many beneficiaries make costly mistakes when dealing with inherited property. One of the most common is assuming that because they inherited the property, no tax will ever apply. Another mistake is failing to keep proper records. You need to maintain documentation of the deceased’s original purchase price, any improvements they made, and all costs associated with the estate administration. Some beneficiaries also fail to seek advice about the two-year rule and inadvertently miss the deadline for the full exemption. The Importance of Timing The timing of when you sell an inherited property can have significant tax implications. Selling within two years of the deceased’s death can provide a full exemption in many cases, while selling after this period may result in tax on some or all of the capital gain. It is important to know that the property needs to have been sold, and settled by the two year anniversary of the date of death of the deceased, not just the contract signed (as is typically thee case with capital gains). However, the decision should not be based solely on tax considerations. You need to weigh your personal circumstances, the property market, and your financial needs against the potential tax savings. If you are approaching the two-year deadline and circumstances have delayed the sale through no fault of your own, you should document these circumstances carefully. This documentation may support an application for a discretionary extension. Seeking Professional Advice The rules surrounding capital gains tax on inherited property are complex and subject to change. Each situation is unique, and what applies to one beneficiary may not apply to another. Professional tax advice is essential. A qualified adviser can help you determine whether you qualify for exemptions, calculate any capital gain correctly, and identify strategies to minimise your tax liability. Planning Ahead If you are concerned about the tax implications for your own beneficiaries, estate planning strategies may help reduce future capital gains tax exposure. However, tax should be only one consideration when planning your estate. Key Takeaways: Protecting Yourself from CGT on Inherited Property Inheriting property comes with both opportunities and obligations. While the Australian tax system provides generous exemptions for inherited properties, these exemptions come with conditions and time limits that must be understood and carefully managed. The hidden tax traps around inherited property can result in unexpected tax bills if you are not aware of the rules. By understanding the two-year exemption window, the foreign resident restrictions, and the various partial exemptions available, you can make informed decisions about when and how to sell inherited property. The most important step you can take is to seek professional advice as soon as possible after inheriting property. This advice can help you navigate the complex rules, maximise available exemptions, and avoid costly mistakes that could significantly increase your tax liability. Paris Financial are here to assist with any of your queries regarding inherited property and capital gains tax. Contact us today for expert advice tailored to your specific circumstances. Source: ATO: https://www.ato.gov.au/individuals-and-families/investments-and-assets/capital-gains-tax/inherited-assets-and-capital-gains-tax Disclaimer: This information is general in nature and does not constitute tax advice. Capital gains tax outcomes depend on individual circumstances and current ATO rules. Professional advice should be obtained before making decisions.

Know the Rules Before You Break Them: Why SMSF Education Matters More Than Ever

08 Dec 2025 06:53:00 GMT

Running, or deciding to set up a self-managed super fund (SMSF) gives you control, but it also brings legal responsibilities. The Superannuation Industry (Supervision) Act 1993 (SISA) contains detailed rules on trustee duties, investments, borrowing, payments and recordkeeping. Simply put, you cannot identify or avoid breaches you don’t know exist. For trustees, this should mean education is not optional but rather, is essential for risk management. Why understanding SISA matters You can’t comply with what you don’t know: Many common breaches arise from misunderstanding basic SISA duties (for example, sole purpose, arm’s length dealings, or in-house asset limits). Awareness of the rules is the first step to spotting a problem early. Early identification reduces harm: Knowing what to look for, incorrect benefit payments, related party transactions that aren’t on commercial terms, or records that are incomplete, lets you seek advice before small errors become reportable contraventions. Education protects members: The consequences of a breach can include loss of tax concessions, penalties and remediation costs that reduce retirement savings for members. The ATO’s Focus on Education — What Trustees Need to Know The ATO has recently published a draft Practice Statement (PS LA 2025/D2) explaining when it might issue an education direction under section 160 of SISA. These directions give the ATO power to require trustees (or directors of corporate trustees) to complete specified education, where trustees’ knowledge or behaviour poses a risk to compliance. The draft statement sets out the ATO’s approach and the kinds of circumstances that may lead to an education direction. However, trustees should not wait for an ATO directive before getting educated – such a directive means the trustees have already breached the rules. The draft Practice Statement is intended to support compliance and public confidence, but it is not a substitute for proactive trustee learning. Acting early and voluntarily is both safer for trustees and viewed more favourably by regulators. Practical Steps Trustees Can Consider Use ATO’s official SMSF guidance Start with the ATO’s SMSF courses on the lifecycle of an SMSF, setting up, running and winding up. These courses are written for trustees and prospective trustees: Setting up an SMSF: https://smallbusiness.taxsuperandyou.gov.au/setting-up-a-self-managed-super-fund-smsf Running an SMSF: https://smallbusiness.taxsuperandyou.gov.au/running-a-self-managed-super-fund-smsf Winding up an SMSF: https://smallbusiness.taxsuperandyou.gov.au/winding-self-managed-super-fund-smsf Complete the ATO’s ‘knowledge check’ The ATO provides an online “knowledge check” for each course designed to test trustee understanding. It’s a useful starting point, but note a pass mark of 50% should not be taken as a guarantee of safety. Trustees should consider whether aiming for a much higher standard, even 100% comprehension of core duties, is a more appropriate target to reduce risk. Seek timely professional advice If a knowledge check or your reading flags uncertainty, contact us early to discuss your concerns. Timely, qualified advice often transforms a potential contravention into a routine fix and may mitigate potential penalties or ATO enforcement action. Document your learning and decisions Keep records of training completed, who provided advice, and why investment or payment decisions were made. Good records are persuasive evidence of a trustee’s intent to comply. Final Word SMSF trustees hold both opportunity and responsibility. Learning the SISA rules and the ATO’s expectations is the most practical way to prevent costly mistakes. The ATO’s draft Practice Statement shows the regulator is prepared to use education directions where trustees’ knowledge gaps pose risks, but you shouldn’t wait to be told. Build your knowledge, use the ATO’s resources, complete the knowledge check, document what you learn, and seek professional help confidently and early. That approach better protects your fund and retirement outcomes. Feel free to reach out to our team at Paris Financial to learn more: Contact us. Note: The material and contents provided in this publication are informative in nature only. It is not intended to be advice and you should not act specifically on the basis of this information alone. If expert assistance is required, professional advice should be obtained.

Cash is Making a Comeback Â– Is Your Business Ready to Take It?

05 Dec 2025 06:51:00 GMT

For years, businesses have been moving away from cash – and for good reason. Digital payments are quick, traceable, and cut down on the risk of theft or counting errors. But that tap-and-go world might soon have to make room again for notes and coins. The Government has released draft regulations that would require certain retailers to accept cash payments, ensuring Australians can still buy essential goods like groceries and fuel – even when technology fails. The change aims to stop people from being excluded when power, internet, or card systems go down, or when they simply prefer to pay in cash. Who Will Need to Accept Cash – and Who Won’t The new rules are targeted and, importantly, practical. They’ll apply to fuel stations and grocery retailers, including both major supermarket chains and independent operators, but only for in-person transactions under $500. That means you won’t have to accept someone paying for a $700 tyre replacement or bulk farm supplies in cash – it’s about the everyday essentials. If your business (or franchise group) has an annual turnover of less than $10 million, you’ll be exempt. That’s good news for most small businesses such as family-run grocers, local cafés, and corner stores already managing tight margins and staffing challenges. The regulations are expected to take effect from 1 January 2026, with a review after three years to see how the system is working in practice. Why It’s Happening The move comes as part of a broader push to maintain access and fairness in Australia’s payment system. The Government and industry groups have recognised that while most Australians are happy to tap their card or phone, around 10–15% still prefer to use cash – particularly older Australians and those in regional or remote areas. There’s also a resilience angle: during bushfires, floods, or power outages, card networks can go offline. In those moments, cash becomes essential. What This Means for Your Business For larger retailers, this change will mean dusting off cash-handling policies and reintroducing processes that many have phased out. That may include: Re-establishing cash floats and tills Staff training to handle and verify cash More frequent bank deposits and reconciliation procedures For small businesses that fall under the $10 million exemption, the key step will be to document your turnover clearly so you can demonstrate that the exemption applies. We can help ensure your records and structures support that. There may also be commercial upside. Accepting cash could attract a segment of customers who’ve drifted away as stores went digital – especially in regional areas where cash use remains strong. A small business that promotes “cash welcome” could even gain new loyal customers who value convenience and personal service. Preparing for the Change With final regulations expected soon, it’s worth starting to plan now. Review your payment policies, assess whether you’re likely to be caught by the new rules, and budget for any setup or compliance costs. If you’re exempt, ensure your records are watertight. If not, look for ways to streamline cash handling – for example, by using digital cash counters or smart safes to reduce errors and time spent on reconciliations. Looking Ahead Cash isn’t going away just yet. This reform is about maintaining choice, resilience, and fairness in how Australians pay – and ensuring businesses are ready when customers want to use it. If you’d like help assessing how these rules could affect your operations or what the exemption means for your business, get in touch with our team. Note: The material and contents provided in this publication are informative in nature only. It is not intended to be advice and you should not act specifically on the basis of this information alone. If expert assistance is required, professional advice should be obtained

Super on Payday: Fundamental Changes for Employers

03 Dec 2025 06:48:00 GMT

If you run a business, you already know the juggling act that comes with managing the payroll process — paying staff on time, managing cash flow, and staying compliant. From 1 July 2026, there’s a major change coming that will reshape how you handle superannuation contributions for staff. It’s called Payday Super, and it became law on 4 November 2025. The new rules are designed to close Australia’s $6.25 billion unpaid super gap and make sure employees — especially casual and part-time workers — get their retirement savings when they get paid. What’s Changing? From 1 July 2026, you’ll need to pay superannuation guarantee (SG) contributions at the same time as wages, rather than weeks or months later. Employers will have seven business days from payday to ensure contributions hit employees’ super funds. If payments are late, the Superannuation Guarantee Charge (SGC) will apply — that means paying the missed super plus an interest and administration penalty. Once SGC has been assessed, additional interest and penalties may apply if the SGC liability isn’t paid in full. Unlike the existing system, SGC amounts will normally be deductible to employers, although penalties for late payment of SGC won’t be deductible. On top of this, the ATO will retire the Small Business Superannuation Clearing House (SBSCH) platform from 1 July 2026 for all users and alternative options should be sought. The change isn’t just about compliance — it’s about impact. The Government estimates the earlier payments could boost an average worker’s retirement balance by around $7,700. Why It’s Good for Business This reform might sound like extra admin, and it might take a bit of getting used to, but it can actually simplify your payroll process and strengthen your reputation as an employer. Less admin – Paying super when you run payroll means no more quarterly payment crunches. Fewer compliance risks – ATO data-matching will pick up issues faster, helping you avoid penalties before they snowball. Stronger employee trust – Staff can see their super growing in real time, which might help with engagement and retention. Smoother cash flow management – Paying smaller, regular amounts of super is often easier to manage than large quarterly sums. The ATO will take a “risk-based” approach for the first year, focusing on education and helping businesses transition smoothly. If you pay on time, you’ll likely be flagged as low risk, meaning fewer compliance checks. How to Get Ready — Practical Steps to Take Now You’ve got time before the rules kick in, but the smart move is to prepare early. Here’s how: Check your payroll software. Most modern systems (like Xero, MYOB, or QuickBooks) already support payday-aligned super. Confirm your setup and check if any updates or integrations are needed. Map your pay cycles. Note how often you pay staff (weekly, fortnightly, monthly) and calculate the seven-day payment window for each. Brief your team. Make sure whoever manages payroll understands the changes. The ATO has free online resources and webinars to help. Plan your cash flow. Consider shifting from quarterly to more regular payments now to get used to the timing. Smaller, frequent super payments can reduce cash flow shocks. Monitor and review. Set up a monthly check to ensure super contributions have cleared correctly. Keep an eye on ATO updates as final guidance is released. If you outsource payroll, contact your provider soon — many are already updating systems for Payday Super and can help you make a seamless switch. The Bottom Line Payday Super isn’t just a compliance change — it’s an opportunity to make your payroll more efficient, your staff happier, and your business more compliant with less effort. With the laws now passed and just over 6 months to prepare, it’s time to get ahead of the curve. If you’d like help reviewing your payroll setup or planning the transition, get in touch with our team — we can help you make sure your business is ready to go when Payday Super commences. Note: The material and contents provided in this publication are informative in nature only. It is not intended to be advice and you should not act specifically on the basis of this information alone. If expert assistance is required, professional advice should be obtained.

Unlocking Tax Savings: Can Your MBA (or Other Studies) Pay Off at Tax Time?

01 Dec 2025 06:46:00 GMT

If you’ve invested in further study — an MBA, a leadership course, or a postgraduate qualification — you might be wondering: can this help at tax time? For many professionals, the answer is yes — but only if the right boxes are ticked. The ATO’s rules on self-education expenses are strict, and the line between “deductible” and “non-deductible” can be thin. Getting it right could mean thousands back in your pocket; getting it wrong could mean an ATO adjustment, plus interest and penalties. Let’s unpack how it works with a real-world example and some practical takeaways. The Scenario: Sarah’s MBA Sarah works in the Department of Defence and recently completed an MBA through a private provider. Her employer supported her studies with a $40,000 study allowance, and the course fees totalled $18,000. She deferred payment using the FEE-HELP loan system and declared the allowance as taxable income in her return. Now she’s asking: Can I claim a deduction for my MBA fees? Does it matter that I used FEE-HELP? Does the employer allowance change things? The Type of Loan Matters First, not all funding for education courses is treated equally. HECS-HELP – no deduction: If your course is a Commonwealth supported place (most undergraduate and some postgraduate university programs), you can’t claim a deduction. There is specific legislation in the tax system which denies deductions for fees covered by HECS-HELP — even if you pay them upfront and even if the course is closely related to your work. FEE-HELP – potential deduction: If you’re in a full-fee course, your tuition fees might be deductible if the study directly relates to your current employment or business activities. The ATO doesn’t allow a deduction for loan repayments later on — just the course fees themselves. Practical tip: Check your course statement or loan confirmation to see if you’re under HECS-HELP or FEE-HELP. Only FEE-HELP (or private payment) gives you potential deductibility. The “Nexus” Test — Linking Study to Your Current Work Even if the funding passes the first test, the purpose of the study is key. The ATO will only allow deductions if the course maintains or improves the skills you already use in your job, or is likely to increase your income in that same role. It won’t apply if you’re studying to move into a new field or start a different career. The ATO issued a detailed ruling on this topic in 2024 which provides some clear examples: Allowed: A store manager doing an MBA to strengthen leadership and business operations skills. Denied: A sales rep doing an MBA to change careers into consulting — the link to the current role was too weak. For Sarah, the deduction depends on whether her MBA subjects (like strategy, policy or management) build directly on her current Defence role. The fact that her employer funded the course helps demonstrate relevance, but it’s not proof on its own. In some cases you might find that specific subjects or modules are sufficiently linked with current income earning activities, while other subjects are too general in nature for the fees to be deductible. Employer Allowances and HELP Repayments The $40,000 allowance Sarah received is assessable income — it’s taxed just like salary. But that doesn’t stop her from claiming eligible self-education deductions for the course fees. HELP loan repayments later on are not deductible — they’re simply a repayment of debt. The timing of the deduction is based on when the course expense was incurred (not when the loan is repaid). Making It Practical If you’re planning further study or reviewing a recent course, here’s how to make sure you get it right: Check your loan type – FEE-HELP or private fees can be deductible; HECS-HELP cannot. Gather evidence – Keep course outlines, job descriptions, and any correspondence showing the study supports your current work. Claim what’s relevant – You can only claim expenses directly connected to your current job (fees, books, and possibly travel). Be ready for review – Large claims often attract ATO attention. A private ruling can provide peace of mind if the amount is significant. Key Takeaways For many professionals, postgraduate studies like an MBA can deliver both career and tax benefits — but only if they relate directly to your current role. Handled correctly, self-education deductions can return thousands in tax savings. For Sarah, that could mean a refund of over $5,000 on an $18,000 course. If you’re considering further study, talk to us before you enrol or claim. A quick chat could ensure your next qualification delivers the best return — professionally and financially. Note: The material and contents provided in this publication are informative in nature only. It is not intended to be advice and you should not act specifically on the basis of this information alone. If expert assistance is required, professional advice should be obtained.

Understanding the Aged Care Financial Planning Process

01 Dec 2025 06:29:00 GMT

The Paris Financial Services aged care financial planning process involves five key steps: initial consultation, comprehensive financial evaluation, customised strategy formulation, implementation support and ongoing review to adapt to changing circumstances and regulations. When you opt for our services to address your care financial planning requirements, you can anticipate a supportive aged care financial planning process designed around your unique circumstances. Navigating aged care decisions can feel overwhelming, but having a clear roadmap makes all the difference for Australian families facing this significant life transition. We offer structure, clarity and peace of mind during what can be an emotionally challenging time. Our approach ensures that every financial decision protects your assets, maximises available government entitlements and positions you or your loved ones for a secure and comfortable aged care experience. Step 1: Initial meeting and needs assessment We kick off with an in-depth conversation regarding your family’s circumstances, concerns and objectives. This helps us gain an understanding and pinpoint areas where we can offer assistance. During this initial consultation, we take time to listen carefully to your specific situation, including family dynamics, health considerations and financial priorities. This first step in the aged care financial planning process establishes the foundation for everything that follows. We partner with independent aged care consultants should you need help with finding a facility that suits your needs (additional cost will apply). Step 2: Comprehensive financial evaluation Our team of aged care planners carries out a meticulous examination of your assets, revenue and potential aged care expenses. We explore various scenarios to determine the most beneficial financial strategy tailored to your situation. What we analyse This evaluation includes reviewing your property holdings, superannuation, investments, pensions and other income sources. We assess how different aged care payment options would impact your financial position both immediately and in the long term. Our analysis considers both Centrelink entitlements and aged care fee structures to identify opportunities for optimisation. Step 3: Customised strategy formulation Drawing from our evaluation, we craft a personalised aged care financial plan. This plan outlines specific tactics for handling aged care charges, maximising government entitlements and safeguarding your assets. Strategy components Your customised strategy addresses how to structure your finances to achieve the best possible outcome. This might include recommendations on whether to pay aged care fees via daily payments, lump sums or a combination approach. We also identify strategies to protect the family home, optimise Centrelink benefits and ensure sufficient income for ongoing living expenses. Step 4: Hands-on implementation support We go beyond offering guidance. We aid you in executing the agreed-upon strategies, providing practical, hands-on support throughout the implementation phase. Implementation assistance This includes assisting with paperwork, liaising with aged care establishments and collaborating with other professionals like lawyers or accountants if necessary. We understand that the administrative burden can be significant, so we help coordinate with Centrelink, aged care facilities and financial institutions to ensure everything is processed correctly and efficiently. Step 5: Continuous review and adaptation The journey through aged care often involves changes and obstacles. We provide ongoing assistance and regular evaluations to ensure that your financial plan remains optimal amidst changing circumstances. What ongoing support includes This might include: Organising investments to generate regular income Assessing the effects of payment choices Understanding implications should you wish to move facilities Adapting to changes in Aged Care or Centrelink laws As regulations evolve and personal circumstances shift, your aged care financial planning process continues with our support. We proactively monitor changes to legislation and reach out when adjustments to your strategy may be beneficial. Why choose a structured aged care financial planning process Having a clear, step-by-step process removes uncertainty and ensures nothing is overlooked. The financial implications of aged care decisions are significant, often involving hundreds of thousands of dollars over time. A structured aged care financial planning process helps you make informed decisions that protect your wealth while ensuring quality care. Our experience has shown that families who engage with professional planning early achieve better financial outcomes and experience less stress throughout the aged care transition. The peace of mind that comes from knowing you’ve made the right financial decisions is invaluable. Get expert support with your aged care financial planning process If you or your family are facing aged care decisions, understanding the aged care financial planning process is your first step toward financial security and peace of mind. The team at Paris Financial Services has extensive experience guiding Australian families through every stage of the aged care financial planning process, ensuring optimal outcomes that protect assets and maximise entitlements. Contact Paris Financial Services today to begin your personalised aged care financial planning process and secure your family’s financial future. FAQ’s – Aged care financial planning process Q: What is involved in the aged care financial planning process? A: The aged care financial planning process includes five stages: an initial meeting to discuss your circumstances, financial evaluation of assets and costs, strategy formulation to maximise entitlements, implementation support with paperwork and coordination and ongoing reviews to adapt your plan as situations change. Q: How does Paris Financial Services support aged care planning? A: Paris Financial Services provides end-to-end support through the aged care financial planning process, including comprehensive financial assessments, customised strategy development, assistance with documentation and liaising with aged care facilities and regular reviews to ensure your plan remains optimal. Q: Why is ongoing review important in aged care financial planning? A: Ongoing review is essential because aged care involves frequent changes including investment adjustments, payment option impacts, facility changes and updates to Aged Care or Centrelink laws. Regular reviews ensure your financial strategy remains effective. Q: Can Paris Financial Services help me find an aged care facility? A: Paris Financial Services partners with independent aged care consultants who can help you find a facility that suits your needs, though this service involves an additional cost beyond the financial planning process. Source: About the Aged Care Act: health.gov.au Aged Care Planning: Paris Financial Services Paris Financial Services Pty Ltd is a Corporate Authorised Representative (No. 357928) of Capstone Financial Planning Pty Ltd. ABN 24 093 733 969. AFSL No. 223135 General Advice Disclaimer The information in this article is general information only and is not intended to be a recommendation. We strongly recommend you seek advice from your financial adviser as to whether this information is appropriate to your needs, financial situation and investment objectives. Whilst every care has been taken in the preparation of this article, Paris Financial Services Pty Ltd, its directors, authors, consultants, editors and any persons involved in the construction of this article, expressly disclaim all and any form of liability to any person in respect of this article and any consequences arising from its use by any person in reliance upon the whole or any part of this article.

Understanding payroll governance - A complete guide for Australian small businesses

18 Nov 2025 03:51:00 GMT

When you employ staff in Australia, establishing strong payroll governance is essential for meeting your legal obligations and protecting your business. We’ve created this guide to help you understand exactly what’s required. What is payroll governance? When you employ staff, it’s important to have good payroll governance so that you can meet your employer tax, reporting and super obligations. Payroll governance refers to the systems, processes and controls your business implements to ensure compliance with Australian taxation and employment laws. You should ensure your payroll governance measures are designed effectively and are fit for purpose. This means having systems and processes that are tailored to your businesses’ structure, size, complexity and industry. Your core payroll obligations Australian employers must meet four key obligations: 1. Pay As You Go (PAYG) Withholding PAYG withholding requires employers to withhold tax from employee wages and remit it to the Australian Taxation Office. This includes calculating the correct withholding amounts, reporting these amounts and paying them to the ATO according to your reporting schedule. 2. Single Touch Payroll (STP) Single Touch Payroll requires you to report your employees’ salaries, wages, PAYG withholding and superannuation information to the ATO each time you pay them. This real-time reporting system has replaced the previous annual payment summary process. 3. Fringe Benefits Tax (FBT) If your business provides fringe benefits to employees (such as company vehicles, entertainment, or certain allowances), you may have FBT obligations that need to be managed as part of your payroll governance. 4. Superannuation Guarantee (SG) Employers must make superannuation guarantee contributions for eligible employees. These contributions need to be calculated correctly and paid on time to avoid penalties. Essential components of effective payroll governance To meet your payroll obligations, you should ensure you have a formal, documented payroll framework that includes descriptions of roles and responsibilities to implement policies and procedures. Systems and controls Systems and controls should be in place and periodically reviewed to ensure accurate reporting. Your payroll system must be capable of: Calculating wages, tax withholding and superannuation accurately Generating compliant payslips and reports Submitting data through STP-enabled software Maintaining detailed audit trails You must report payroll information through your STP-enabled software. This gives the ATO visibility of your payroll data. However, you must still also complete your annual reporting. Risk management These measures should include processes and procedures that support your business to comply with its legal obligations and help identify, assess and mitigate risks such as administrative errors, employee fraud and cybercrime. Appropriate processes and procedures should be in place to support your obligations and identify, assess and mitigate risks such as employee fraud and cybercrime. Staff capability It’s also important to ensure your payroll and accounting staff have the right skills and knowledge to perform their role. If they are in different departments, they should each be aware of the scope of their function and responsibilities. Critical payroll governance practices Maintain good record keeping Tips to help you keep on top of your payroll governance include adopting good record keeping practices. Proper documentation is fundamental to demonstrating compliance and resolving any queries from the ATO or employees. Review processes regularly Reviewing your payroll processes regularly and keeping up to date with any payroll updates or changes that could impact your business is essential for maintaining compliance. Routinely review your policies and procedures for any changes that impact your business. This includes understanding how changes to tax tables, superannuation rates, or reporting requirements affect your obligations. Ensure accurate reporting Ensure you report your PAYG withholding amounts correctly based on your business structure. This is particularly important when: Your business structure changes You transition between withholding categories Consolidated groups are restructured When consolidated groups are restructured or government entities are grouped, the responsibility for payroll often passes from one related entity to another. It is important to update your payroll software with the new entity’s ABN and PRN. This ensures PAYG withholding payments are correctly applied. Understand your withholding status Understand PAYG withholding thresholds that may change your payer status from a small-medium withholder to a large withholder because this determines the frequency and method of reporting and paying. When an employer’s withholding threshold requires a transition into the large withholder system, reporting and payment are done via a unique PRN. Update your payroll software with this PRN and use it every time a PAYG withholding amount is remitted. This ensures it is correctly applied and not against another tax type or account. Common payroll governance issues The ATO has identified several common issues with payroll governance that businesses should address: Reconciliation gaps You should routinely undertake a reconciliation of payroll totals to compare PAYG withholding amounts paid against reported year to date STP data and BAS W2 totals. A year-end reconciliation will verify if your PAYG withholding amounts paid during the year equal the reported STP finalisation declaration. This is extremely important because these STP totals are prefilled into your payee’s individual income tax returns. STP data provides the ATO with a near real-time indicator of what your PAYG withholding obligations should be. There are often significant discrepancies between lodged STP reports and PAYG withholding amounts paid. Payment reference number issues Continue to notify your PAYG withholding amounts using your Payment Reference Number (PRN) or Electronic Funds Transfer (EFT) code. Failing to use the correct PRN can result in payments being misallocated. Third-party provider communication If you use a third-party provider to submit your payroll data, regularly communicate with them to ensure all your obligations are being met. A lack of communication between employers and their payroll service providers can cause issues, including: Reporting and paying PAYG withholding late without letting their employer client know Incorrectly reporting under their own ABN and not the employer’s, which causes significant discrepancies Registration and lodgement failures Operating without required registrations and failing to report or lodge on time may attract ATO attention and incur interest and penalties. Your payroll governance checklist Based on ATO guidance, ensure your payroll governance includes: Documentation: Formal, documented payroll framework Clear descriptions of roles and responsibilities Policies and procedures for payroll processing Record keeping practices documented Systems: STP-enabled software in use Systems periodically reviewed for accuracy Correct ABN and PRN configured Controls in place to prevent errors Processes: Regular reconciliation of PAYG withholding vs STP data Year-end reconciliation procedures Review of policies when changes impact business Procedures to identify and mitigate risks Compliance: Understanding of withholding thresholds Awareness of payer status requirements Annual reporting completed (in addition to STP) Regular communication with third-party providers (if applicable) People: Staff have appropriate skills and knowledge Clear understanding of scope and responsibilities Training provided on payroll procedures Departments coordinate when functions are separated Why payroll governance matters Effective payroll governance protects your business by: Reducing compliance risk: Meeting your obligations helps you avoid ATO penalties and interest charges that result from late or incorrect reporting. Improving accuracy: Strong systems and controls minimise errors in wage calculations, tax withholding and superannuation contributions. Building employee trust: Accurate, timely payments and correct reporting demonstrate professionalism and care for your employees’ financial wellbeing. Supporting business growth: Well-documented processes make it easier to scale your payroll function as your business expands. Enabling early issue detection: Regular reconciliation and reviews help identify problems before they become significant compliance issues. How Paris Financial can help Don’t wait for an ATO query or compliance issue to address your payroll governance. Taking proactive steps now will protect your business and give you peace of mind. Need help with your payroll governance? The team at Paris Financial is here to help. Whether you need a review of your current systems, assistance setting up new processes, or ongoing support to ensure compliance, we have the expertise to guide you. Connect with our team here: Contact Us. About Paris Financial Paris Financial provides comprehensive accounting, taxation and advisory services to small and medium businesses across Australia. Our experienced team helps businesses navigate complex compliance requirements while building systems that support sustainable growth. FAQ: Australian payroll governance Q: What is payroll governance? A: Payroll governance refers to the systems, processes and controls businesses put in place to meet their employer tax, reporting and super obligations, including PAYG withholding, Single Touch Payroll, Fringe Benefits Tax and Superannuation Guarantee. Q: What are the main payroll obligations for Australian employers? A: Australian employers must comply with four main obligations: PAYG withholding, Single Touch Payroll (STP) reporting, Fringe Benefits Tax (if applicable) and Superannuation Guarantee contributions. Q: Why should payroll governance be tailored to my business? A: Payroll governance measures should be designed effectively and fit for purpose, meaning they are appropriate for your business’s structure, size, complexity and industry. Q: How often should I reconcile my payroll? A: You should routinely reconcile payroll totals to compare PAYG withholding amounts paid against reported year to date STP data and BAS W2 totals, with a year-end reconciliation to verify amounts match your STP finalisation declaration. Q: Do I still need to complete annual reporting if I use Single Touch Payroll? A: Yes. While you must report payroll information through STP-enabled software, you must still also complete your annual reporting obligations. SOURCES ATO: Understanding payroll governance Improving payroll governance

When medical bills meet tax rules - Lessons from a heartbreaking case

18 Nov 2025 02:49:00 GMT

Imagine this: after years of hardship and illness, you’re forced to retire early on a Total and Permanent Disability (TPD) pension from your super fund. It’s your only income stream. Then come the medical bills – tens of thousands of dollars in treatments to manage the very conditions that ended your career. You might assume those costs are tax deductible as the TPD pension was payable because of this disability. Unfortunately, a recent tribunal case shows it’s not that simple. In Wannberg v Commissioner of Taxation [2025] ARTA 1561, the Administrative Review Tribunal (ART) upheld the ATO’s decision to deny nearly $100,000 in medical deductions. The case is a stark reminder that the tax system draws a sharp line between earning income and dealing with your health. The Story Behind the Case The taxpayer, Mr Wannberg, had left the workforce due to severe mental and physical health issues caused by years of abuse. His TPD pension from his super fund was his only income. In 2024, he applied to the ATO for a private ruling, asking whether about $98,000 in medical expenses – including psychotherapy, residential treatment, and dental work – could be claimed as deductions. His argument was heartfelt and logical: these treatments were essential to manage his disabilities and sustain his eligibility for the pension. He compared his situation to a 2010 High Court case (Anstis), where a student was allowed to deduct self-education costs linked to her Youth Allowance. But the ATO said no – and the tribunal agreed. Why the Deductions Failed The key issue came down to a single piece of tax legislation: section 8-1 of the Income Tax Assessment Act 1997. To be deductible, an expense must be incurred “in gaining or producing your assessable income” and must not be of a private or domestic nature. The tribunal found no direct link – or “nexus” – between the medical treatments and the pension income. The TPD pension was payable because of his disability, not because of any ongoing effort to maintain it. As the tribunal put it, the medical costs helped him live with his condition, but didn’t produce the pension. In other words, while staying healthy might be personally essential, it doesn’t make those expenses tax-deductible. The costs were considered private in nature – similar to most therapy, medical, or dental bills. What This Means for You This decision offers a few key takeaways for anyone receiving disability pensions, super income streams, or other support payments: Understand the “nexus” test: An expense must directly help you earn your income. Medical costs for managing a condition usually don’t meet that test. Recognise the private line: Even if a treatment relates to your ability to work, it’s likely still “private” unless it directly relates to producing income. Treatment vs assessment: Some taxpayers are required to obtain certificates from medical practitioners to maintain a licence so that they can continue with their current income producing activities. These costs are often deductible, unless the individual receives medical treatment. Plan for non-deductible costs: If you rely on disability or super pensions, factor medical expenses into your financial plan. Consider insurance options, offsets, or rebates (like private health or Medicare levy exemptions) to ease the load. Seek advice early: Before spending large sums, get an ATO private ruling or professional advice. The Wannberg case is a tough reminder that the tax law cares more about how income is produced than how life is lived. The system draws a firm line between personal wellbeing and income generation – and unfortunately, even genuine medical needs often fall on the wrong side of that line. If you’re unsure whether an expense might be deductible, don’t guess. Talk to us first. We can help you plan ahead, stay compliant, and make the most of the rules that do work in your favour. Note: The material and contents provided in this publication are informative in nature only. It is not intended to be advice and you should not act specifically on the basis of this information alone. If expert assistance is required, professional advice should be obtained.

Your obligations as an SMSF trustee

17 Nov 2025 06:38:00 GMT

The following outlines your obligations as a trustee or director of a corporate trustee of a Self Managed Super Fund (SMSF) and what happens when they are not met. Understand your obligations All trustees of your SMSF are responsible for running the fund and making decisions that are in the best financial interests of all members. This means you are responsible for decisions made by other trustees even if you’re not involved in making the decision. Trustees must meet specific obligations under the Superannuation Industry (Supervision) Act 1993. Exercise honesty, care, skill and diligence As a trustee, you must ensure your SMSF complies with: your trust deed the rules of the Superannuation Industry (Supervision) Act 1993 (SISA). The SISA states that as a trustee, you must: act honestly in all matters concerning your fund act in the best financial interest of all members not hinder any trustee from performing or exercising functions or powers not access or allow others to access benefits early retain control over your fund. Meet the sole purpose test The sole purpose of your SMSF is to provide retirement benefits to your members or to pay death benefits if a member dies before retirement. To be eligible for the tax concessions normally available to super funds, your SMSF must meet the sole purpose test. Generally, it is illegal for anyone to benefit from the SMSF outside of this sole purpose. It can be illegal to: access funds early invest in a related business be paid for your duties or services as a trustee use the SMSF’s assets for personal use. An example of breaching (or contravening) the sole purpose test is where your SMSF invests in a rental property specifically to allow a related party to live in that property. Accept contributions and rollovers In accordance with the trust deed and superannuation laws, you need to follow specific rules for accepting contributions and rollovers. You also need to make sure any contributions and rollovers are: properly documented allocated to the correct member’s account. Develop and review your SMSF investment strategy Your SMSF’s investment strategy must: consider all members’ personal circumstances include investment objectives and types of investments allowed consider liquidity and diversification of assets and whether to hold insurance be regularly reviewed and updated when needed. When making investments, you must demonstrate with records how your decisions comply with your SMSF investment strategy. Comply with investment restrictions There are restrictions on SMSF investments. Any investment your fund makes cannot provide a present day benefit for the members or related parties. Other than very limited circumstances, generally: you can’t acquire assets from, or lend money to, fund members or other related parties your SMSF can’t borrow money. Pay benefits Trustees are responsible for ensuring a member is legally entitled to access their super benefit before releasing any retirement benefits. Generally, members can only access benefits once they meet a condition of release. You must pay benefits to members according to the trust deed and super laws. Value SMSF assets Each year you must value your SMSF’s assets at market value so you can prepare the fund’s accounts, statements and the SMSF annual return (SAR). Some assets must be valued and reported in a specific way. You must also keep evidence of your valuations to provide to your SMSF auditor. Prepare SMSF financial statements Each year you need to prepare: a statement of financial position an operating statement for your SMSF. You must then provide this to your SMSF auditor. Arrange the yearly audit Your SMSF must be audited each year by an independent SMSF auditor who is registered with the Australian Securities & Investments Commission (ASIC). The auditor will assess your fund’s compliance with super laws and report any contraventions to us. Lodge the SMSF annual return (SAR) Each year you must lodge the SAR by its due date and pay any tax liability. If the SAR is more than 2 weeks overdue, you may not be able to receive contributions or rollovers until you lodge your return. You may also be required to lodge: transfer balance account reports once your SMSF begins paying a pension activity statements. Pay yearly fees Your SMSF is required to pay the supervisory levy when you lodge your SAR. The amount will depend on whether your fund is new, existing or winding up. If your SMSF is set up with a corporate trustee, you will also have to pay ASIC fees. Notify the ATO of changes to your SMSF You must tell the ATO about certain changes to your SMSF within 28 days. If your SMSF is set up with a corporate trustee, you’re also required to inform ASIC. Keep accurate records You must keep records of all decisions and actions your SMSF takes. This will provide you with supporting evidence on the decisions you and the other trustees make. Meet the residency rules Your SMSF must be an Australian super fund at all times during the financial year. If it isn’t, the assets and income of the fund will be taxed at the highest marginal rate. Your fund is an Australian super fund if it meets all three of these residency conditions at all times during the financial year: establishment or at least one asset held in Australia central management and control ordinarily in Australia active members. If a member moves or travels overseas for an extended period, this may affect the residency status of the fund. Consequences of not meeting your obligations The ATO is a key regulator for SMSFs. This means they’re responsible for: administering super and tax laws ensuring trustee compliance. Their main focus is to assist trustees to understand their obligations and comply with the law. When an obligation is not met and results in a contravention, they may need to take compliance action. The action they take will depend on the: type of breach or contravention trustee’s attitude to their obligations seriousness of the contravention. If you’d like personal guidance on this topic, contact our team to discuss your situation. Source: Australian Taxation Office

Value your business

17 Nov 2025 06:37:00 GMT

Working out how much your business is worth can be an important part of getting finance, attracting investors or selling your business. Here are some suggested steps to help you through the process. 1. Prepare your business information You’ll need a range of business information to value your business properly. If you need help with preparing your documents and can’t afford a professional, consider asking friends or family with bookkeeping or business experience. If you’re selling, potential buyers may want to value your business independently. So it’s a good idea to already have your business documents organised and up to date. You’ll need the following information. Finances and assets Your financial statements (for the last 5 years if possible) such as cash flow statements, debts, annual turnover and profit and loss statements. Details of physical assets such as machinery, buildings, equipment and stock. Details of other assets such as goodwill towards the business and intellectual property (any designs or ideas that you have protected through copyright). Legal information Legal documents such as leases and insurance policies. Registration papers such as business name certificates, Australian business number (ABN) registration papers, licenses, permits and any other papers that demonstrate you comply with government requirements. Business profile, procedures and plans Market conditions such as details of competitors and how your business compares to them. Sales information such as reports and forecasts. Business history such as start date, ownership and location changes. Business procedure documentation such as marketing, staff roster and customer service procedures. Business plan such as marketing, emergency management and growth plans. Other details such as opening hours and whether the business premises are owned or leased. Staff, supplier and customer information Employee details such as job descriptions, skills and experience, work history, performance reviews and pay rates. Supplier details such as supply agreements and supply prices. Customer details such as customer numbers, customer profiles and direct marketing activities. 2. Decide whether to get professional advice If you can afford to, consider getting professional advice on how to value your business through your accountant, a business adviser or a business broker. These professionals can help you: analyse your finances find trends in your industry’s market calculate the goodwill value of your business estimate your business’ future profit work out a value for your business. They might also have clients who would be interested in buying your business. This could save you the cost and hassle of advertising. 3. Choose a valuation method Keep in mind that there is no one set valuation method. You could use a combination of methods to get your final value. You may also need to negotiate the method of valuation with a buyer or investor. If you use a professional, they can help you decide which method is best for your business. Some common methods for calculating the value of a business include using: current market values return on investment business asset value cost of starting a business from scratch future profit of a business. Look at current marketplace value and your industry How you value your business can depend heavily on the industry you’re in and the current marketplace value of similar businesses. Industries usually come up with their own rules and formulas to value a business. So, it’s a good idea to get a good understanding for your particular industry. Use the return on investment method to calculate value If you’re selling your business, the return on investment (ROI) method uses your business’ net profit to work out its value. You can either calculate: an ROI based on a selling price (value) you have in mind; or a selling price based on an ROI that you set ROI = (net annual profit/selling price) x 100 For example, you have a selling price of $200,000 in mind but want to test your ROI based on that price. You calculate that your business’ net profit was $50,000 for the past year. To work out the ROI, you use the formula: ROI = (50,000/200,000) x 100 In this case, your ROI is 25%. If you have an ROI in mind, you can use it to calculate the price for your business: Value (selling price) = (net annual profit/ROI) x 100 Say you wanted a ROI of at least 50% for the sale of your business. If your business’ net profit for the past year was $100,000, you could work out the minimum selling price you should set. Selling price = (100,000/50) x 100 In this case, to achieve a ROI of at least 50%, you’ll need to sell your business for at least $200,000. Use your business’ assets to calculate net worth When calculating the value of your business assets, make sure you include both tangible and intangible assets of your business. Tangible assets are physical things you can touch such as tools, equipment and property. Intangible assets are things that can’t be touched but are still valuable, such as intellectual property, brands and business goodwill. After you’ve calculated the total asset value of your business, use this as an indication of how much you’d like to sell your business for. Assessing your business’ assets value can be a complicated process. It’s a good idea to ask your business advisor or accountant for help. Calculating business goodwill Goodwill can include: customer loyalty and relations brand recognition staff performance customer lists reputation of your business business operation procedures. Calculating goodwill can be a complicated process. You’ll get different results depending on the method you use. You can use different methods to get a price range you’d like to set for your business goodwill but in the end, the value is what the marketplace or buyer is willing to pay. Because it’s difficult to calculate goodwill, it’s a good idea consult a professional such as your accountant. Account for depreciation If you use your business assets to calculate value, remember to account for depreciation. Depreciation is the loss of value for your assets over time. For example, you may have purchased a computer for your business 3 years ago for $1,000. When calculating your business’ asset value, the value of the computer will no longer be $1,000. Talk to your accountant if you’re unsure how to work out depreciation of assets. Find the cost of creating your business from scratch The cost of creating your business from scratch can be used as a guide for valuing your business. This is the estimated cost to build a similar business in your industry in the current market. To calculate the cost, you’ll need to include all costs involved when starting from scratch, like: buying stock buying equipment and tools getting licenses and permits recruiting, training and employing staff developing products marketing and promotion buying or leasing premises setting up online. Estimate the future profit of your business For a buyer or investor, the biggest value of your business will be its future profits. You’re more likely to get finance or sell for a good price if you show your business will probably be profitable. Show this through your financial statements to give investors an idea of the returns they could expect from your business. Estimate the future profit of your business by looking at trends in your business finances from past years. You can also look at trends for similar businesses in your industry. This can show how your business compares and how the market is going. Use this information when negotiating finance or a selling price for your business. If you’d like personal guidance on this topic, contact our team to discuss your situation. Source: business.gov.au

What happens to your super when you retire?

17 Nov 2025 06:36:00 GMT

Superannuation is one of the important pillars of savings in retirement for most Australians. After years of working and contributing to your super fund, retirement is when you are finally able to access it. Whether retirement is just around the corner or still a few years away, it’s worth understanding your options. In this article, we’ll walk you through your options on what do with your super when you retire, how is it taxed and what happens if there’s any left when you pass away. When can you access your super? You can usually access your super when you reach your preservation age (currently age 60) and retire. Alternatively, you can start accessing it once you turn 65, even if you’re still working. There are other special circumstances where you might be able to access it earlier, like severe financial hardship or permanent disability but generally speaking, retirement is the key trigger. Your options once you have access to your super Once you retire and meet a condition of release, your super becomes accessible for you to withdraw but that doesn’t necessarily mean you have to withdraw and use all of it. You’ve got a few main options and you may prefer a combination of these: Leave it in your super fund (Accumulation phase) Yes, you can actually choose to leave your super where it is, in its accumulation phase even after you retire. If you don’t need to access the money straight away, you can leave your super invested in the fund’s accumulation account. Your money can keep growing (taxed at 15% on earnings) and you can access it when you’re ready. So, while this may suit short-term plans, it may usually not be the most tax effective option when compared to other options like starting a superannuation pension in retirement, which is often tax free and funded with money from your superannuation savings. Take a lump sum Where access to funds is required, you may prefer withdrawing a lump sum from super. This can help you in various ways like paying off a mortgage, clearing credit cards or personal loan debt, covering medical costs, funding travel expenses or investing elsewhere (e.g. property, shares outside of super). However, this decision should be carefully considered as withdrawing a lump sum or lump sums can reduce how long your super lasts. It’s also worth considering how that money will be managed outside super, as it may be subject to different tax treatment or may impact any Centrelink entitlements like the Age Pension. Start a superannuation pension (account-based income stream) An account-based pension lets you convert your accumulated super into a regular income stream. However, once an income stream is started with a set balance, you cannot add more monies to the ongoing account-based pension unless the pension is commuted and restarted again. If you need access to your superannuation savings, starting an income stream is a popular option which can be tax effective. Where access to the super savings is required, an income stream can be a good option because: You can receive regular and flexible payments (monthly, quarterly, etc). You can choose how much to set as regular income for your pension payment (subject to government set minimum limits). Earnings are tax free once you’re in pension phase. Payments can be adjusted as your needs change. You keep control over your investment strategy. You can still withdraw lump sums if needed but many people like the idea of a steady income, much like a salary. However, consider that the ongoing income payments can reduce your account balance over time. Can a lifetime annuity help? One of the biggest concerns for retirees is running out of money. If you want income for life, no matter how long you live, lifetime income streams such as a lifetime annuity can help you achieve that. Unlike an account-based pension (which relies on how long your money lasts), a lifetime annuity is more like an insurance product. You invest a lump sum from your super and in return, receive a regular income for the rest of your life. Some retirees consider using a combination of a pension and an annuity – the pension provides flexibility and the annuity can provide peace of mind. However, lifetime annuities are designed to be held for life. Although there may be flexibility to access a lump sum if needed, there may be break cost considerations. Can I combine these options? Absolutely and many retirees choose to do so. You might prefer to consider: Leaving some of your super invested in accumulation phase. Taking a lump sum to pay off debts. Starting a super pension to draw regular income. Using part of your super to start a lifetime annuity. The right mix will depend on your lifestyle, goals, health, family situation and other sources of income, including the Age Pension. There are many more options we have not discussed. The Age Pension and Super: How they can work together The Age Pension is a government payment designed to help eligible Australians in retirement. As of 2025, you can apply for the Age Pension from age 67. There are also concessions and benefits that come with it, such as reduced utility bills and medical costs, so it’s well worth checking your eligibility. Eligibility is also based on your means – your income and assets. Centrelink includes your super in the assets and income tests. However, the assessment can differ if your super is converted into an income stream like a lifetime annuity. Age Pension, combined with other sources of super based income like an account-based pension and/or a lifetime annuity, can help make your money last longer. It acts as a safety net if your super runs down over time. This can be a powerful way to stretch your retirement savings further. How is my super taxed when I retire? The earnings on your super are usually taxed at a maximum rate of 15% whilst the super remains in accumulation phase. Where an account-based pension is started, the earnings in the pension phase are tax free. If you’re age 60 or over, any withdrawals from your super (lump sum or income) are usually tax free if you’ve permanently retired. However, if you’re under 60 or receiving certain types of benefits (like defined benefit pensions), tax rules may be a little different. It’s worth speaking to a financial adviser to understand your situation. How do I make my super last? Australians are living longer than ever, and therefore it is important to strategise and ensure that your retirement savings can last for a long time. Here are a few strategies to consider: Budget and plan – Work out how much income you need as opposed to how much you want. Consider your spending habits and lifestyle goals to help ensure you don’t withdraw more than you need. Work out how long your super will last. Stay invested – Your money doesn’t have to stop working for you when you retire. Draw appropriate amounts based on your retirement objectives and consider keeping the balance invested in an option that suits your risk tolerance and goals. Mix your income sources – Layering your income can help your super last longer. One way you could consider meeting your essential expenses throughout retirement, the Age Pension can work together with a secure, lifetime income stream, such as a lifetime annuity, to provide regular income payments for life. Once your essential expenses have been met through a combination of the Age Pension and a lifetime income stream, you could meet your additional desired expenditure goals with income from an account-based pension. Review your investments – Ensure they match your risk tolerance and income needs in different phases of your retirement. What happens to my super when I die? If you don’t use all your super before you pass away, the remaining balance is generally paid out to your beneficiaries, either as a lump sum or income stream (depending on your instructions and their eligibility) or your estate. This is known as a death benefit and it can be left to your spouse or partner, your children, certain dependant or interdependents or your estate. It can either be paid as a lump sum or can be paid as an income stream. The tax treatment depends on who receives the benefit. For example, a lump sum payment to a spouse is tax free. To make sure your wishes are followed, it’s important to nominate your beneficiaries with your super fund. You can make a binding death benefit nomination to ensure your super goes exactly where you want it to. Otherwise, your super fund will decide (within legal guidelines). Steps toward a stronger retirement Super can be one of the most flexible and tax effective ways to fund your retirement but simply reaching retirement age doesn’t mean your financial decisions stop. In fact, how you choose to access and manage your super can shape your lifestyle for decades to come. Whether you choose a lump sum, a regular income or a combination, planning ahead is essential. Think about how long your money needs to last, how to make the most of your tax benefits and how to combine super with other income sources like the Age Pension. A financial adviser can help you tailor your retirement needs with the right options. Super is more than just savings. The right strategy can help your super last longer, support your quality of life, and give you peace of mind. If you’d like personal guidance on this topic, contact our team to discuss your situation. Source: Challenger

Investing an inheritance from $10,000 to $100,000 whatever your life stage

17 Nov 2025 06:35:00 GMT

Receiving an inheritance may be a once in a lifetime financial opportunity that also coincides with a very difficult, emotional time in your life. Whether you inherit $10,000 or $100,000, your age, life stage, risk appetite and financial preparedness are likely to play a key role in decisions about how and where to invest. Many Australians are likely to be left some form of inheritance, most likely from a parent, at some point in their life, with 81% of retirees currently expecting to leave wealth behind. The average amount Australians expect to inherit is $184,000, according to research commissioned by Colonial First State*. And while one in two Australians consider up to $10,000 a sizeable amount with which to start investing, the research shows the average amount most Australians consider to be a sizeable investment to own is more than $600,000. Investing an inheritance may help close that gap. Following are some general thought starters to consider by age, life stage and size of inheritance but please consult a financial adviser for advice relevant to your personal situation. Also consider your risk appetite. Generally, the more risk you’re willing to undertake, the higher the potential reward may be. However, higher returns come with a higher risk that the value of your investment may fall. In general, if you only have a short time frame to invest, lower risk investments could be a safer option as they’re less likely to fluctuate in value. What to do when you first receive an inheritance The first thing to do when you first receive an inheritance, particularly if it comes at an unexpected time, is to consider your options. That may mean putting it in a high interest savings account or a mortgage offset account while you decide what to do. Then consider your goals. Do you need to pay off debt? Are you looking to build long-term wealth? Pay off your home loan? Build a diversified investment portfolio? Or invest for the kids? Most people with a six figure amount to invest will consult a financial adviser, although it can also be cost effective to obtain one off financial advice for smaller amounts. Inheriting assets like shares or property, such as the family home, can also have different capital gains tax implications if you decide to sell, so getting tax advice may also be important. In your 20s In your twenties, it may be helpful to pay off any high interest debt or build an emergency fund to cover three to six months of living expenses. Otherwise, the earlier you invest, the more time your money has to grow and compound. $10,000 to invest: A growth oriented exchange traded fund (ETF) or managed fund may allow money to grow while offering flexibility to access it later if needed. A voluntary contribution to super, allocated to growth or high growth, can be a tax effective investment that compounds over the long term if you’re within the super contribution caps, or limits, although you generally can’t access it until you reach age 60 and have retired. $100,000 to invest: Low touch investors might consider a diversified range of shares via set and forget growth ETFs and managed funds, such as a US shares themed ETF or a long-term growth managed fund. It may be worth consulting a financial adviser to start building a diversified growth portfolio of managed investments. In your 30s For many, the thirties are about getting into the housing market. $10,000 to invest: A high interest term deposit or savings account that offers some growth may be a good option over a short time frame. A voluntary contribution to super may allow you to save for your deposit faster using the First Home Super Saver scheme. The tax rate is generally 15% on earnings in super, while the amount of your contributions you can release to buy your first home increases in line with the shortfall interest charge rate (currently 6.78%). $100,000 to invest: Starting a family or looking to enjoy a little extra income? Dividend focused ETFs may help generate a passive income stream. If property investing is more your thing, you may have enough to invest in a growing regional market or a real estate investment trust (REIT). In your 40s At this point, many Australians who have a mortgage are looking to reduce it. $10,000 to invest: Those with a mortgage that’s more than 50% of the value of their home might consider paying it down or putting their inheritance in a mortgage offset account. If a mortgage is less than 50% of the value of the home, it may be worth considering shares as average share market returns most years can be higher than average mortgage interest rates – again, there are many low cost ETFs and managed funds available. Or consider making a one off voluntary concessional (pre tax) or non-concessional (after tax) contribution to your super and investing it in a long-term, high growth shares investment option, a gold or silver themed ETF or the growth focused managed fund of your choice. $100,000 to invest: Thinking about paying for the kids’ education? Investment bonds can be a good option to include in the mix as withdrawals are tax free after 10 years. Some investors may consider debt recycling by paying down the mortgage and then applying for a new loan to buy an investment property. Interest on the new loan is generally tax deductible so those interest payments can be offset against your income to reduce the amount of tax you pay. For those who can afford to invest the money outright, it may be worth building a diversified portfolio of ETFs or managed funds. Global and local shares have historically offered among the best returns. We can connect you with a financial adviser if you’d like help to invest. In your 50s After the age of 50, it’s often a good time to maximise pre tax and after tax super contributions to harness some of those tax advantages. $10,000 to invest: Have you reached your annual super contribution cap limits? You can contribute up to $30,000 a year in concessional contributions, which are generally taxed at the concessional rate of 15%. These include compulsory employer contributions and salary sacrifice, as well as voluntary personal contributions (which could include a tax free inheritance) for which you claim a tax deduction. Alternatives might include investing in income producing shares that usually pay a dividend, income or dividend ETFs or REITs. $100,000 to invest: If you haven’t fully used your concessional contributions cap in any of the previous five financial years (and your total super balance was less than $500,000 at 30 June of the most recent financial year), you may be able to use those unused cap amounts to make additional catch up contributions over the standard concessional cap amount (currently $30,000). Non-concessional super contributions (up to $120,000 a year to a maximum super balance of $2 million) are not taxed on the way in and are an effective means of growing your super quickly. While you can’t claim a deduction against these contributions, they compound relatively quickly in the super environment. Depending on how much you have contributed in prior years, you may be eligible to contribute up to $360,000. Investors who are likely to need to draw on their investments in the next few years, might consider including some fixed income securities or managed volatility funds alongside higher risk investments, such as shares. In your 60s Many people approaching retirement focus on preserving capital against sudden falls in value but there are also real costs in going too conservative too early. From age 60, you can also access super if you meet a condition of release, such as retiring from a job. You can access your super regardless from age 65. $10,000 to invest: It may be helpful to pay down any remaining debt or top up super. $100,000 to invest: After 60, be cautious with gifting, as it may affect your eligibility to receive the government’s Age Pension from age 67. Gifts over $10,000 per year or $30,000 over five years will still be counted among your assets when it comes to Centrelink means-testing. For those who have reached their super contribution cap limits, it may be worth topping up your spouse’s super. In your 70s and beyond Enjoy your retirement. Most investors are focused on capital preservation and income generation and it may be worth using the bucket strategy with the goal of making your money last longer. At the same time, don’t forget to tick off the things on your bucket list. $10,000 to invest: Keep some money in cash or term deposits for accessibility. $100,000 to invest: A mix of fixed income investments, REITs and conservative managed funds may help reduce risk, alongside higher growth shares or managed funds that you don’t expect to access in the next five years. Whether you inherit a modest sum or a substantial windfall, align your investment strategy with your life stage, goals and risk tolerance. For smaller amounts, many Australians manage without advice but for larger inheritances, professional advice from a financial adviser and an accountant can help you navigate tax implications, diversify your investments and plan effectively for the future. * Colonial First State research conducted with 2,250 Australians online between January and June 2025. If you’d like personal guidance on this topic, contact our team to discuss your situation. Source: Colonial First State

Protecting your money - Cybersecurity and scam awareness

17 Nov 2025 06:33:00 GMT

Your super and investment savings represent years of hard work for a secure future. Unfortunately, they can be a prime target for scammers, causing significant financial loss and emotional distress. Financial scams are on the rise and becoming more sophisticated, making them harder to detect. This article will help you recognise common types of super and investment scams, how to identify them and how to protect yourself and your loved ones. Super scams These scams usually involve individuals or companies pretending to be from a super fund or regulatory body seeking your personal information. They may claim they need it to update your super account or verify your identity. Or they could offer to help you access your super before you’re eligible to under law. They may claim that doing this can, for example, help you pay off debts or purchase a house. But accessing your super early can result in significant penalties. In addition, these scams may involve high fees or charges which can eat into your super savings. We recommend that: You never give out your personal information unless you’re sure it’s safe. You’re aware of the conditions of release to withdraw your super. Given the variety of scams out there, following these four steps can help prevent you falling victim. Stop If you receive a suspicious call, email or text, pause and assess. Genuine organisations never pressure you to act immediately or ask for your password via email. Reflect Be careful about sharing personal information online. Scammers piece together details from various sources to exploit or create accounts in your name. Always reflect. Protect Whether it’s personal or work, staying vigilant is crucial. When in doubt, reject contact, delete suspicious messages and avoid opening unknown links. Report If you receive a suspicious email, do not click on any links or attachments or provide any information. If you receive a suspicious email, you can report it to the Australian Cyber Security Centre (ACSC). Amy’s story: a crypto cautionary tale Amy, intrigued by a cryptocurrency investment promising high returns using her super, fell victim to a scam that led to the loss of her savings and her involvement in criminal activity. Her story highlights the dangers of crypto scams. It will help you to recognise and avoid such fraudulent schemes and the potential consequences, including financial loss and legal repercussions that victims may face. Amy was contacted by a man named Michael via Facebook. He was promoting a cryptocurrency investment business promising amazing returns that didn’t require an initial deposit from her bank account but rather from her superannuation. A complex scheme Intrigued by this, Amy engaged in further conversation with Michael. He walked her through the steps of setting up a legitimate Self Managed Super Fund (SMSF), allowing Amy to take the funds she had invested with her existing super fund and place them into a bank account, which was then invested into a fake crypto wallet/fake investment website. As time went on, Amy would check her balance on what she believed was a genuine trading platform – it showed significant growth, her initial $30,000 deposit soaring to over $170,000. However, after hearing about instability in the crypto markets, Amy decided that it might be time to withdraw some of her profits. Amy contacted the crypto business, which advised that she would need to pay an upfront sum of $4,500 to cover taxes – funds that Amy didn’t have readily available. Amy reached out to Michael and explained that she wanted to withdraw some of her money from her crypto investment but couldn’t afford to pay the upfront lump sum tax. Michael explained if Amy agreed to open a number of bank accounts and handle some fund transfers on his behalf that would “help to grow the Australian business”, she would be able to earn a 5% commission on each amount transferred and accumulate enough money to pay the lump sum tax. Amy agreed to the arrangement and funds began being transferred into the bank accounts Amy had opened. Michael would call Amy and request her to “transfer $x into the crypto wallet, then purchase this specific crypto coin”. The crypto wallet would then be emptied by Michael/Crypto Investments. How did the scam work? Amy unknowingly fell for a crypto investment scam. Michael convinced her to open an SMSF, allowing her to access funds that were meant to be preserved until retirement. The fake crypto platform showed huge growth, giving Amy confidence in the investment and making her feel good about the nest egg she believed was growing. By quoting her high upfront costs to access the funds, Michael manipulated her into becoming an unwitting money mule, engaging in money laundering and helping the scammers deceive other unsuspecting people out of their funds. Unfortunately, Amy has not only lost her super but has also become involved in criminal activity. The matter is now with the police and Amy faces possible prosecution for money laundering offences. If you’d like personal guidance on this topic, contact our team to discuss your situation. Source: MLC

Australian property market approaches $12 trillion as national price momentum builds

17 Nov 2025 06:32:00 GMT

Overview The total value of Australian residential real estate is now $11.8 trillion. National housing values are gaining momentum, rising 2.2% over the September quarter alone. Darwin markets are setting the pace for capital growth since the first interest rate cut in February, with suburbs like Wanguri and Durack (NT) soaring by 20.1%. Conversely, Sydney and Melbourne accounted for the majority of areas experiencing a dip in value since the rate cuts began. Australia’s property market has reached a new milestone, with the total value of residential real estate climbing to $11.8 trillion for the first time, increasing by $678 billion over the past 12 months, according to Cotality’s October Monthly Housing data. The milestone comes as momentum in national housing values continues to build, with dwelling values up 2.2% over the three months to September. This is the largest quarterly increase since the three months to May 2024 (2.2%). The annual growth trend also shifted higher for the fourth consecutive month, up from a low of 3.7% over the 2024-25 financial year, to 4.8% in the 12 months to September. This $11.8 trillion milestone is a clear testament to the resilience of Australia’s property market, where national dwelling values are now up 4.8% over the past year. There’s a clear building of momentum, with a 2.2% rise over the September quarter alone, the largest quarterly increase since May 2024. At the moment, there’s some uncertainty around the timing of another cash rate reduction and inflation impacting market momentum through to the end of the year. However, if the property market were to continue at its current rate of growth, it’s possible the combined market value could hit $12 trillion by the end of the year. Which market values have changed the most (or least) amid rate cuts so far? Largest and smallest change in suburb dwelling values between 28 February 2025 and 30 September 2025 Highest change – CAPITALS Source: Cotality Lowest change – CAPITALS Source: Cotality Highest change – REGIONALS Source: Cotality Lowest change – REGIONALS Source: Cotality Drilling down into the performance of individual suburbs reveals where the market has thrived most decisively since the first interest rate cut in February. This period, between the end of February and September 2025, highlights the markets responding strongest to lower borrowing costs and tight supply. Cotality’s analysis of suburb level dwelling values since February shows a clear trend: Darwin markets are setting the pace for capital growth. Suburbs like Wanguri and Durack (NT) both led the nation with outstanding growth of 20.1% in that time. This surge in Darwin suburbs reflects a powerful combination of relative affordability, extremely low levels of housing supply and a notable lift in investment activity. Conversely, Sydney and Melbourne accounted for the majority of areas experiencing a dip in value since the rate cuts began. The largest declines were concentrated in inner city, lifestyle suburbs, primarily those with high density unit stock. Milsons Point in Sydney saw the greatest fall at −7.1%, with Kirribilli close behind at −6.3%. This reflected market dynamics more broadly. Even though the suburb analysis is hyper local, the data highlights a broader trend of Darwin leading Australia’s capital growth trend. City home values are up 13.4% through the year to date. It’s a relatively affordable market and investors may be taking note of high yields and rapid value increases. Some of the top performing regional markets were also the most affordable, such as Boggabri in regional NSW and Rochester in regional Victoria, each dwelling market with a median below $400,000. With other capital city and major regional markets soaring in value over the past few years, it seems like buyers are targeting what is left of the affordable land and housing across the country as interest rates fall and rents reaccelerate. Other highlights include: The strongest quarterly pace of growth has rippled from the lower quartile of the market (2.4%) to the broad middle (2.5%). Nationally, the ‘middle’ of the market is dwellings valued between $648k and $1.2m. Outside of Darwin, where values rose 5.9% in the September quarter, the ‘midsized’ capitals continued to lead growth, with Perth home values up 4.0%, Brisbane up 3.5% and Adelaide up 2.5%. Cotality estimates 44,436 sales occurred nationally in September, taking the rolling 12 month count to 540,775. Annual sales were roughly in line with the number of sales this time last year. The amount of time it takes to sell a property by private treaty has increased year on year to 30 days nationally but results vary depending on the market. For example, the recent strength in the Darwin market has driven down selling times from 51 days in the September quarter last year to just 39 days. In Melbourne, selling times have fallen from 35 to 32 days year on year. The discounts offered by sellers are generally smaller than they were a year ago amid rising buyer activity and low stock levels. The vendor discounting rate shrank from 3.3% in the September quarter last year to 3.2% in the three months to September 2025. Total stock levels have moved subtly higher in the past four weeks, with just 122,173 properties observed for sale nationally over the four weeks to October 5. Since the start of spring, total listing levels have risen 2.7%. However, stock levels generally remain tight, sitting -19.3% below the historic five-year average for this time of year. If you’d like personal guidance on this topic, contact our team to discuss your situation. Source: Cotality

Higher deeming incomes, Age Pension asset test limits and payments from 20 September

17 Nov 2025 06:30:00 GMT

Deeming rates changed for the first time in five years in September, which will affect the income the government estimates retirees earn from their investments. At the same time, Age Pension payments and part Age Pension cut off limits have also increased. Deeming rates used to estimate the income Age Pension recipients receive from their financial investments increased from 20 September for the first time since being frozen during the COVID-19 pandemic. The increase means retirees will be deemed to receive more income than previously from the same amount of financial investments. Pension payments are reduced by 50 cents for every dollar of additional income. But while that will see Age Pension payments reduced for some, it may be offset for many by an increase in Age Pension entitlements. There has also been an increase in the part Age Pension cut off limit and in the income limit for the Commonwealth Seniors Health Card – but once again, that change may be offset by the increase to the deeming rates. Many people mistakenly assume they’re not eligible, so it’s worth checking if you qualify under the new rules. Eligibility for the government Age Pension starts at age 67, though you can apply up to 13 weeks earlier. What are the new deeming rates and why do they matter? The deeming rate increased from 0.25% to 0.75% for the first $64,200 a single pensioner receives and the first $106,200 a couple receives. The higher deeming rate, which applies to the balance of any financial assets, increased by the same amount, from 2.25% to 2.75%. Age Pension payments increased in September 2025 Here are the maximum Age Pension payment rates that are in effect as of 20 September, paid fortnightly, along with their respective annual equivalents. Single payments rose by $29.70 per fortnight, while combined payments for couples increased by $22.40 per person. Maximum Age Pension payments from 20 September 2025 Payment Type Fortnightly* Annually* Previous fortnightly payment Previous annual payment Single $1,178.70 $30,646.20 $1,149.00 $29,874.00 Couple (each) $888.50 $23,101.00 $866.10 $22,518.60 Couple (combined) $1,777.00 $46,202.00 $1,732.20 $45,037.20 Department of Social Services Indexation Rates September 2025. *Includes basic rate plus maximum pension and energy supplements. Payments last increased in March 2025 and are likely to change again when they are next assessed in March 2026. Tip: Many people assume they’re not eligible for either a part or full Age Pension and therefore apply late or miss out on this and other government benefits. Age Pension income and assets test thresholds increase The government reviews the Age Pension income and assets test thresholds in July each year. The upper limits, also known as thresholds, increase in March and September each year in line with Age Pension payment increases. Whether you are eligible for the Age Pension depends on your age, residency and your income and assets. If your income and assets are below certain thresholds you may be eligible. When determining how much you’re entitled to receive under the income and assets tests, the test that results in the lower amount of Age Pension applies. Here are the income and assets test thresholds that apply as at 20 September, compared with previous thresholds. Assets test thresholds The lower assets test threshold determines the point where the full Age Pension starts to reduce, while the upper assets test thresholds determine what the cut off points are for the part Age Pension. If the value of your assets falls between the lower and upper assets test thresholds, your entitlement will be reduced. The higher your assessable assets, the lower the amount of Age Pension you are eligible to receive. Your family home is exempt from the assets test but your investments, household contents and motor vehicles may be included. Asset test thresholds from 20 September 2025 Payment type Full Age Pension limit Part Age Pension cut off Previous full Age Pension limit Previous part Age Pension cut off Single – homeowner $321,500 $714,500 $314,000 $697,000 Single – non-homeowner $579,500 $972,500 $566,000 $949,000 Couple (combined) – homeowner $481,500 $1,074,000 $470,000 $1,047,500 Couple (combined) – non-homeowner $739,500 $1,332,000 $722,000 $1,299,500 Source: Services Australia Age Pension Assets test thresholds Income test thresholds from 20 September 2025 The lower income test threshold determines the point where the full Age Pension starts to reduce, while the upper income test threshold determines what the cut off point is for the part Age Pension. Income includes things like payment for employment or self employment activities, rental income and a deemed rate of income from financial investments such as managed funds, super (if you are over the Age Pension age) or account-based pensions commenced after 1 January 2015. Income doesn’t include things like emergency relief payments. Income test thresholds from 20 September 2025 Payment type Full Age Pension limit Part Age Pension cut off Previous full Age Pension limit Previous part Age Pension cut off Single $218 per fortnight $2,575.40 per fortnight $212 per fortnight $2,510.00 per fortnight Couple (combined) $380 per fortnight $3,934.00 per fortnight $372 per fortnight $3,836.40 per fortnight Source: Services Australia Age Pension Income test thresholds If you have income between the lower and upper income test thresholds, your entitlement will reduce as your level of income rises. For example, the Age Pension payment for a single person earning more than $218 per fortnight will reduce by 50 cents for each dollar earned over $218. For a couple earning more than $380 per fortnight combined, the Age Pension payment for each person will reduce by 25 cents for each dollar earned over $380. Tip: The Work Bonus allows you to work and earn up to $300 per fortnight without affecting your Age Pension. If you don’t work, this amount accrues up to a maximum Work Bonus balance of $11,800. Commonwealth Seniors Health Card income limit increases From 20 September 2025, the income limit to qualify for the Commonwealth Seniors Health Card (CHSC) will be: Single: $101,105 per annum (an increase of $2,080). Couple (combined): $161,768 per annum (an increase of $3,328). You must be Age Pension age and meet some other requirements to be eligible for the CSHC. If you’d like personal guidance on this topic, contact our team to discuss your situation. Source: Colonial First State

Economic update November 2025

17 Nov 2025 06:29:00 GMT

Global Trade tensions re-escalated in October, with the US responding to increased rare earth export controls from China with an additional 100% tariff alongside export controls on critical software. This led to the S&P500 experiencing its largest one day decline since Liberation Day in April, falling by -2.71% on October 10. Gold prices accelerated to fresh record highs amid global trade tensions, the continued US government shutdown and expectations of further Fed cuts. The yellow metal then pared gains in the second half of the month as trade tensions eased and investors took profit, with the spot gold price ending the month +3.7% higher at US$4,002.92/oz. By the end of the month, US President Donald Trump and China’s President, Xi Jinping met to discuss a potential deal, during which Trump reduced the fentanyl tariff on China by 10%, while China agreed to pause export controls on rare earths. Global equity indices continued to create fresh highs throughout the month amid robust corporate earnings and continued monetary policy easing from global central banks. The Morgan Stanley Capital International (MSCI) World Index advanced +1.9%, with a strong contribution from US equities. The S&P500 added +2.3%, the Dow Jones gained +2.5% and the tech heavy NASDAQ rallied +4.7%. European equities also fared well, with the Stoxx600 gaining +2.5% on the month and the FTSE100 adding +1.9%. The global services Purchasing Managers’ Index (PMI) declined to 52.8 in September, from 53.4. The global manufacturing PMI ticked lower to 50.8, from 50.9. US The US federal government entered a shutdown on 1 October, resulting in delayed economic data prints and missed pay checks for furloughed employees. Treasury yields rallied on the risk off sentiment and as markets fully priced in a 25 basis points (bp) cut at the October Fed meeting. Nvidia became the first stock to reach a US$5tn market cap, amid a broader AI rally. Major US stock indices continued to reset record highs amid corporate quarterly earnings and increased AI related spending. NASDAQ +4.7%, DOW +2.5%, S&P500 +2.3%. Fed Chair, Jerome Powell indicated in a speech mid month that the Fed was on track to deliver a 25bp rate cut at its end of October meeting, despite the lack of economic data, as the economic outlook appeared unchanged since the Fed last met. Core Consumer Price Index (CPI) surprised to the downside in September, rising +0.23% month on month (MoM) vs consensus +0.3% MoM. At the end of the month the Fed delivered the widely expected 25bp rate cut, however Fed Chair Powell advised that a further rate cut in December was not a “foregone conclusion”. The market was fully priced in a 25bp cut in December, with Powell’s commentary sparking a repricing in the market. By the end of October, this had fallen to 67% priced in. The US Dollar Index (DXY) appreciated +2.1% during October amid the more cautious outlook towards future rate cuts from the Fed. Australia The ASX200 traded +0.4% higher in October, reaching a fresh high at 9,108.6. Annual General Meetings (AGMs) and a mixed bag of trading updates captured investor attention. The monthly household spending indicator slowed to +0.1% in August, below consensus expectations of +0.3%. The unemployment rate rose unexpectedly to 4.5%, from 4.3% in September, the highest level of unemployment since November 2021. This saw money markets begin to price in the likelihood of a rate cut in November. The Reserve Bank of Australia (RBA) Governor, Bullock provided hawkish commentary at an industry dinner, during which she advised that the labour market remained tight, with upside risks to the RBA’s expectations for Q3 trimmed mean CPI. The chance of a November cut was largely priced out again. Q3 CPI came in higher than expected, up +1.3% during the quarter, boosting the annual CPI increase from +2.1% to +3.1%. This caused markets to almost entirely price out the chance of a further rate cut in 2025. Interest rate sensitive stocks, including Real Estate Investment Trusts (REITS) and tech companies, sold off as the likelihood of further rate cuts diminished. The Aussie Dollar experienced a U-shaped month against the USD, ending October -1.0% lower. The AUD sold off on the unemployment print and then appreciated as the market began to price out the likelihood of imminent future rate cuts. New Zealand The Reserve Bank of New Zealand (RBNZ) delivered a unanimous 50bp rate cut in its October meeting to 2.5%. The market had priced a ~50% chance of a 50bp rate cut at this meeting. A further 25bp rate cut in November is almost fully priced in. Q3 CPI increased by +1.0%, slightly higher than market expectations for +0.9% and bringing yearly CPI to +3.0%, from +2.7%. Europe The FTSE100 and STOXX600 both reset their record highs during the month, advancing +3.9% and +2.5% respectively, tracking gains from its US peers. Eurozone inflation ticked higher in September in line with consensus, up to +2.2% year on year (YoY) from +2.0% YoY previously. European Union countries turned in their 2026 general government budgets to the EU Commission during October. Germany’s budget showed front loaded fiscal expenditure growth, with its general government deficit widening to 4.75% of Gross Domestic Product (GDP) in 2026 and 4.25% in 2027. Conversely, Italy’s budget saw a continuation of moderate fiscal conservatism. S&P downgraded France’s sovereign credit rating in an unscheduled decision, to A+ from AA-. The ratings agency highlighted risks to the French government (present or future) being able to see through fiscal consolidation. The European Central Bank kept rates on hold at 2% as widely expected, reiterating that the policy rate was in a “good place”. The Euro depreciated -1.7% against the USD during October, partially due to ongoing political uncertainty in France. The Euro closed the month at 1.1534 USD, its lowest point during the month. China Policymakers at the Fourth Plenum remained committed to the 2025 Objectives, which included modern industrial system and tech self sufficiency. Q3 GDP growth slowed to 4.8% YoY, slightly above market expectations for 4.7% YoY. This was the lowest GDP growth reading in four quarters; however, the slowdown was likely expected due to softer monthly indicators released throughout the summer. Australian dollar After posting a +1.1% gain against the USD in September, the AUD ended October at 0.6545, losing -1% over the month. AUD/USD traded a 177-pip range, opening around the month’s high of 0.6623 and touching a low of 0.6446 mid month. AUD declined into mid month as risk sentiment softened amid thin liquidity and a brief stall in the US equity rally. The USD index had one of its best weeks year to date (YTD) which saw AUD fall to its lowest level in two months. Focus then turned to AU Q3 Inflation on October 29. The metrics that the RBA typically focuses on were stronger than expected, including details around shelter costs, domestic services and market based prices. Following this, the market began to price out the chance of a further rate cut in 2025 from the RBA. On the pickup in AU rate expectations, AUD climbed to a high of 0.6618 post CPI print. It settled around 0.6550, before closing the month slightly lower at 0.6545. Australian equities The ASX200 gained +0.4%, resetting its intraday record high mid month at 9108.6. AGMs and trading updates were the focus of the month. Materials led the index, up +4.3%, led by lithium stocks as they tracked gains in the underlying commodity price and headlines that China intends to impose export controls on advanced lithium batteries. PLS +31.0%, LTR +19.3%. James Hardie traded +14.7% higher on the month after reporting its preliminary Q2 results ~67% ahead of previous guidance at the midpoint due to improved performance in its Siding & Trim business. At the AGM, the Chair was voted off the board, alongside two other directors. Tech stocks underperformed the index, down -8.4% on the month. Of the group’s constituents, WTC saw the largest percentage decline, down -23.4% after reporting that officers from the Australian Securities and Investments Commission (ASIC) and the Australian Federal Police (AFP) executed a search warrant regarding alleged trading in Wise Tech Global (WTC) shares from Richard White and three other WiseTech employees. WTC advised that it was unaware of any charges. The Consumer Staples sector ended the month near flat with the major supermarkets seeing divergent share price performance; Woolworths (WOW) +6.4%, Coles (COL) -5.3%. While WOW reported softer than expected Q1 earnings, the company provided a Q2 trading update which suggested AU Food sales growth had risen +3.2% month to date (MTD) in October, outpacing market forecasts for the full quarter. COL reported in line Q1 earnings a day later. Health Care stocks declined -4.8% in October, with sector heavyweight CSL down -9.9% on the month. CSL fell after downgrading its Financial Year 2026 Net Profit After Tax and Amortisation (FY26 NPATA) growth outlook at its AGM by 3% at the midpoint and delayed the Seqirus demerger. Global equities Global equities traded higher during October, with many global indices resetting their record highs during the month driven by quarterly corporate earnings. The MSCI World Index gained +1.9%. US indices NASDAQ +4.7%, DOW +2.5% and S&P500 +2.3% reset highs on positive earnings from major banks and mega cap tech companies. Tech stocks led the S&P500, with the sector gauge up +6.2%. Nvidia gained +8.5% on headlines that it will invest US$100bn into OpenAI and build seven supercomputers for the US Department of Defence. Alphabet gained +15.7% during October, seeing gains after reporting Q3 Search and Cloud revenue ahead of expectations. Amazon advanced +11.2% after reporting better than expected Q3 results and Q4 guidance, due to AWS revenue accelerating to +20% YoY and adding 3.8GW of new capacity. In Europe, the STOXX600 gained +2.5%, while the FTSE100 advanced +3.9%. Both reset record highs. In Asia, the MSCI Asia Pacific Index increased +3.6%, boosted by gains in Japan (+16.6%) and Korea (+19.9%). Property securities Global property securities fell slightly in October down -1.5% in USD, after ~12% return to September YTD. The weaker October result followed two consecutive months of positive returns in September (+1.2%) and August (+4.5%). The Americas region performed in line with Global being down -1.6% in October driven by US China trade war escalation. The negative month follows consecutive months of positive returns with 1.3% in September and a strong >4% return in August. The Americas region REITs are now up ~4% YTD. Europe/UK returns outperformed global average in October but were down -0.6% following +0.4% returns in September and +1% in August. However, Europe/UK has performed strongly YTD with ~18% total return. The Asia Pacific region returns underperformed global averages with -2% returns in October on trade war concerns. The key driver was weaker returns in China/HK. This is a change in trend with positive returns seen in the Asia Pacific (APAC) region since April, as inflation cools across the region. However, the APAC region has outperformed YTD with ~20% returns. Locally, Australian Real Estate Investment Trusts (AREITs) were down -3% this month, a continuation of the weaker -3% from September. The weaker performance was primarily driven by higher CPI and resulted in a November rate cut no longer being expected or lower rate cuts this cycle. YTD, AREITs are up ~6%. Fixed Income and Credit October 1 marked the beginning of the US government shutdown and most tier 1 data was not released. This saw Treasuries rally in a 100% chance of a Fed cut in the October meeting. Over the month, Treasuries grinded lower, with the 10yr US Treasury yield closing the month -7.3bps lower at 4.078%. AU swap spreads were the domestic topic of the month, as the 10yr point grinded wider from approximately -8bps to +0.875bps at month end. This move became a US story after Fed Chair Powell made comments on ending Quantitative Tightening (QT) in the coming months in mid October. This was a catalyst to see US invoice spreads push wider and add to the sharp widening domestically in Aussie swap spreads. Credit spreads widened mid month on concerns regarding the health of the global credit market amid the collapse of several small lenders in the US. Spreads tightened again towards the end of the month on strong corporate earnings and advancing equity markets. US investment grade credit spreads finished the month mostly unchanged. High yield spreads followed a similar trend, however finished the month +6.7bps wider. If you’d like personal guidance on this topic, contact our team to discuss your situation. Source: First Sentier Investors, November 2025

Super Tax Shake-Up: Big Balances Beware

13 Nov 2025 06:28:00 GMT

If your super balance is comfortably below $3 million, you can probably relax — the proposed changes to the super rules shouldn’t adversely affect you (yet). But if your super is nudging that level, or if you’re clearly over, the Treasurer’s latest announcement could change how you think about super’s generous tax breaks. For some time now the Government has been planning to introduce targeted measures to reduce tax concessions for those with superannuation balances over $3 million. This has commonly been referred to as the Division 296 tax. However, the Government has reworked the proposed new tax — part of the Better Targeted Superannuation Concessions (BTSC) policy — attempting to make it simpler, fairer, and more practical. After a wave of industry criticism, the revised version keeps the broad policy intent (reducing tax concessions for very large balances) but removes some of the more problematic features. Let’s break down what’s changed and what it means for you. What’s Changing — and Why It’s Simpler The original 2023 proposal aimed to apply an extra 15% tax on “earnings” from super balances above $3 million. The big flaw? “Earnings” included unrealised gains — paper profits on assets like property or shares that hadn’t been sold. This meant some people could have owed tax on increases in value they hadn’t actually received in cash. The reworked model drops unrealised gains from the equation entirely, taxing only realised earnings — actual income and capital gains when assets are sold. This makes the system far more practical and aligned with everyday tax rules. No more worrying about funding a tax bill on assets you haven’t sold. A Fairer, Tiered Approach The new rules introduce a two-tier system for high balances: Tier 1 ($3m–$10m): Extra 15% tax on earnings from this portion (making a total rate of 30%). Tier 2 (over $10m): Extra 25% tax on earnings above $10m (for a total rate of 40%). Both thresholds will be indexed annually to inflation ($150,000 steps for the $3m tier and $500,000 for the $10m tier), which should prevent “bracket creep” over time. Importantly, the start date has been pushed back to 1 July 2026, with the first assessments expected in 2027–28. The Government estimates less than 0.5% of Australians will be affected at the $3m level, and fewer than 0.1% at the $10m mark. What This Means in Practice Here are a couple of examples from Treasury to help you get your head around this. Consider Megan, who has a $4.5 million super balance split between an SMSF and an APRA fund. She earns $300,000 in realised income for the year within the super system. The super balance above $3m represents is one-third of the total balance, so she’ll pay $15,000 in additional Division 296 tax (15% × 33.33% × $300,000). Emma, on the other hand, has $12.9 million in her SMSF and $840,000 in earnings. She pays 15% on the Tier 1 portion and an extra 10% on the Tier 2 portion—a total of around $115,000 in extra tax. These examples show how the tax scales up progressively. The ATO will calculate each individual’s total super balance across all funds (SMSFs and APRA funds) and determine the proportionate amount of earnings to be taxed. Why It’s Still Good News (for Most) For many SMSF members, this update is a relief. By removing unrealised gains, it eliminates valuation headaches and liquidity pressures — particularly for those holding property or unlisted assets. That said, individuals with super balances above $10m will face a higher overall rate (up to 40%), which may prompt a rethink of long-term strategies. However, remember that updated legislation relating to this measure hasn’t been introduced to Parliament and things could change before the proposed rules become reality. Low Income Superannuation Tax Offset In addition to introducing the revamped Division 296 tax, the Government has announced that it will increase the Low Income Superannuation Tax Offset (LISTO) from $37,000 to $45,000 from 1 July 2027. The maximum payment will also increase to $810. Treasury estimates that the average increase in the LISTO payment will be $410 for affected workers. What to Do Now Check your total super balance (TSB) now and project where it may be by 2026. Seek advice early — strategies like managing liquidity, reviewing asset allocations, and timing asset sales could make a real difference. Stay informed — draft legislation is expected in 2026. We’ll keep you updated through our newsletters. Overall, the Government’s revised approach strikes a more balanced tone: fewer administrative headaches for most, but less generosity for the ultra-wealthy. If your balance is near or above $3 million, now’s the time to plan ahead — not panic. Your future self (and your accountant) will thank you. If you’d like to discuss how these proposed changes may affect your superannuation strategy, contact our team today for personalised tax advice. Note: The material and contents provided in this publication are informative in nature only. It is not intended to be advice and you should not act specifically on the basis of this information alone. If expert assistance is required, professional advice should be obtained.

Your rights and protections under the new Aged Care Act

10 Nov 2025 06:26:00 GMT

The Australian Parliament passed the Aged Care Act 2024 on 25 November 2024. This new law started on 1 November 2025 and creates a rights-based aged care system that puts older people at the centre of their care. This article explains your rights under the new Act. Why the new act matters The new Aged Care Act 2024 will make aged care safer, fairer and more respectful for older Australians. According to the Department of Health, Disability and Ageing, the new Act will: Place the rights of older people at the centre of care Strengthen accountability for providers through registration and monitoring Simplify rules to make them easier to understand Introduce a new Statement of Rights The new Act responds to about 60 of the 148 recommendations from the Royal Commission into Aged Care Quality and Safety. The Royal Commission found that the current aged care legislation was no longer fit for purpose because it focused on providers and funding rather than on the people accessing services. Your rights under the Statement of Rights The Aged Care Act 2024 includes a Statement of Rights that explains the rights older people have when accessing government-funded aged care services. Independence, autonomy and freedom of choice You will have the right to make your own decisions and have control over: Which funded aged care services you use How you access funded aged care services and who provides them Your money and belongings How you live, even if there is some personal risk You will have the right to get support to make these decisions if you need to. Safe and quality care You will have the right to receive safe, high-quality care that: Supports your physical and mental health and wellbeing Is delivered by care workers with appropriate qualifications, skills and experience Respects your dignity and privacy Communication and language You will have the right to communicate in the language or method you prefer. This includes using interpreters or communication aids if you need them. Support and advocacy You may need support to understand your rights, make decisions or make a complaint. You will have the right to get this support from an independent advocate or someone else you choose. Equitable access You will have the right to a fair and accurate assessment to find out what funded aged care services you need. This assessment should respect your culture and background. Your right to speak up If you feel that your rights are not being respected, you have the right to raise concerns or make a complaint. The Aged Care Quality and Safety Commission can support you if you have not been able to resolve issues with your service provider. You can make complaints confidentially or anonymously if you wish. Contact the commission: Phone: 1800 951 822 Website: agedcarequality.gov.au The Commission will listen to your concerns, discuss the outcome you want and explain how they can help. Finding and comparing providers Under the new Act, providers will be required to share clear information to help you make informed decisions. You can use the Find a provider tool on the My Aged Care website to: Search for government-funded aged care providers in your area Compare different providers View information about services offered My Aged Care: Phone: 1800 200 422 Website: myagedcare.gov.au How the commission holds providers accountable The new Act gives the Aged Care Quality and Safety Commission stronger powers to regulate providers. Providers will need to: Be registered with the Commission to receive government funding Meet registration conditions and quality standards Comply with financial and prudential standards Ensure their actions are guided by the Statement of Rights The Commission will hold care providers accountable and work to ensure your safety, rights and care are put first. Key takeaway The Aged Care Act 2024 marks an important shift towards a person-centred aged care system in Australia. The new Act starts from 1 November 2025. By knowing your rights under the Statement of Rights and using the resources available through My Aged Care and the Aged Care Quality and Safety Commission, you can make informed decisions about your care. If you’d like to discuss how these aged care changes may affect your financial planning, the team at Paris Financial is here to help. Contact us today for a confidential conversation about your loved ones aged care needs. Sources: About the new rights-based Aged Care Act: health.gov.au Aged Care Act 2024 – Statement of Rights explainer: health.gov.au New Aged Care Act – Aged Care Quality and Safety Commission: agedcarequality.gov.au Complaints and concerns – Aged Care Quality and Safety Commission: agedcarequality.gov.au My Aged Care – Find a provider: myagedcare.gov.au About the Aged Care Act: health.gov.au Paris Financial Services Pty Ltd is a Corporate Authorised Representative (No. 357928) of Capstone Financial Planning Pty Ltd. ABN 24 093 733 969. AFSL No. 223135 General Advice Disclaimer The information in this article is general information only and is not intended to be a recommendation. We strongly recommend you seek advice from your financial adviser as to whether this information is appropriate to your needs, financial situation and investment objectives. Whilst every care has been taken in the preparation of this article, Paris Financial Services Pty Ltd, its directors, authors, consultants, editors and any persons involved in the construction of this article, expressly disclaim all and any form of liability to any person in respect of this article and any consequences arising from its use by any person in reliance upon the whole or any part of this article.

Proposed Extension of the Instant Asset Write-Off and Other Tax Measures

05 Nov 2025 06:25:00 GMT

A new Bill before Parliament – the Treasury Laws Amendment (Strengthening Financial Systems and Other Measures) Bill 2025 – proposes several key changes that could affect small businesses, listed companies, and the not-for-profit sector. The headline measure is the proposed extension of the $20,000 instant asset write-off for another year, to 30 June 2026. Small Business Boost: $20,000 Instant Asset Write-Off Extended If the Bill passes, small businesses with an aggregated annual turnover of less than $10 million will continue to be able to immediately deduct the full cost of eligible assets costing under $20,000 (excluding GST) through to 30 June 2026. The threshold applies per asset, meaning multiple purchases can qualify if each individual item is under the limit. To claim the deduction, the asset must be first used or installed ready for use by the new deadline. This measure remains one of the simplest and most practical tax incentives available to small businesses. It provides a direct cash-flow benefit by allowing the full deduction in the year of purchase instead of spreading depreciation over several years, as long as the taxpayer would actually have a tax bill for that year. For example, a tradesperson upgrading tools, or a café purchasing a new fridge or coffee machine, can immediately claim the full deduction – freeing up cash for reinvestment elsewhere in the business. While the proposal still needs to pass Parliament, now is the time to plan. If you are considering new equipment or technology upgrades, budgeting early ensures assets can be delivered and installed before the cut-off date once the law is enacted. Strengthened Corporate Disclosure The Bill also proposes tighter disclosure rules for listed companies. Changes to the Corporations Act 2001 would require the disclosure of equity derivative interests – such as options, swaps, and short positions – under the substantial holding regime. These reforms are designed to improve market transparency and make it harder for significant shareholdings or control interests to remain hidden. For listed entities, this will increase compliance obligations and may require updates to internal monitoring and reporting systems. Investors with substantial positions in listed companies should also review their current arrangements to ensure future compliance. Greater Transparency for Charities For the not-for-profit sector, the ACNC Commissioner would gain the power to publicly disclose “protected information” such as details of investigations, provided it meets a public harm test. This aims to strengthen public confidence in the charity sector by showing that the regulator is taking action where misconduct occurs. For well-run charities, stronger transparency can enhance community trust – but it also highlights the need for robust governance, record-keeping, and compliance processes. Financial Regulator Reviews Simplified Finally, the Bill would reduce the frequency of reviews of ASIC and APRA by the Financial Regulator Assessment Authority from every two years to every five. While largely administrative, this signals a shift toward streamlined oversight to allow regulators to focus on core functions. What You Should Do Now Although these measures are still before Parliament, it’s wise to start planning. For small businesses, consider your 2025–26 capital expenditure needs and make sure any planned purchases can be installed and ready for use by 30 June 2026 if you are hoping to rely on the upfront deduction. For charities and listed entities, review governance and reporting frameworks to prepare for greater transparency requirements. We’ll keep you updated as the Bill progresses. In the meantime, contact us if you’d like to discuss how these proposed changes might fit into your business or investment strategy. Note: The material and contents provided in this publication are informative in nature only. It is not intended to be advice and you should not act specifically on the basis of this information alone. If expert assistance is required, professional advice should be obtained.

Electric Cars and Fringe Benefits Tax: What Employers Need to Know

22 Oct 2025 06:24:00 GMT

Electric vehicles (EVs) are becoming increasingly popular across Australia, and many employers are now offering them to staff as part of salary packaging arrangements or company car benefits. While electric cars can be exempt from Fringe Benefits Tax (FBT), there are important compliance requirements that employers need to understand. If you’re providing electric vehicles to employees in 2025, here’s what you need to know about FBT exemptions, reporting obligations, and the recent changes affecting plug-in hybrid vehicles. FBT Exemption for Electric Cars From 1 July 2022, certain electric cars provided for private use by employees may be exempt from FBT. This exemption can result in significant tax savings for both employers and employees, making EVs an attractive option for company vehicle programs. Eligibility Criteria To qualify for the FBT exemption, the vehicle must meet all of the following criteria: Be a zero or low emissions vehicle: This includes battery electric vehicles, hydrogen fuel cell vehicles, or plug-in hybrid electric vehicles (though PHEVs have specific restrictions from 1 April 2025) First held and used on or after 1 July 2022: The vehicle must have been acquired and made available after this date Used by a current employee or their associates: The benefit must be provided to an employee or their family members Not subject to Luxury Car Tax (LCT): The vehicle must not have attracted LCT at any point This exemption applies to both salary-packaged vehicles and employer-provided vehicles. Important Change: Plug-in Hybrid Sunset Clause As of 1 April 2025, plug-in hybrid electric vehicles (PHEVs) are no longer considered zero or low emissions vehicles for FBT exemption purposes. Grandfathering Provisions PHEVs may still qualify for the exemption if: The exemption was already in place before 1 April 2025, AND There is a financially binding commitment to continue providing the vehicle If your business provides PHEVs to employees, review your arrangements to understand whether the exemption still applies or if FBT will now be payable. What Still Needs to Be Reported? Here’s a critical point many employers miss: even if an electric vehicle is exempt from FBT, reportable fringe benefits may still apply. Reportable Fringe Benefits Explained Employers must disclose the taxable value of the benefit on the employee’s payment summary. This reportable amount doesn’t result in additional tax for the employer, but it can affect the employee’s: Eligibility for government benefits Income-tested obligations (such as HECS/HELP repayments) Medicare levy surcharge calculations Other means-tested entitlements What Gets Included? When calculating the reportable fringe benefit amount, you must consider associated car expenses, including: Vehicle registration Insurance Repairs and maintenance Electricity used to charge the vehicle Calculation Methods To calculate the reportable amount accurately, the employee receiving the vehicle benefit needs to have kept a complying logbook for a 12-week period. Without a complying logbook, the statutory method will apply, which may result in a higher reportable amount. Key Compliance Requirements for Employers If you’re providing electric vehicles to employees, here’s what you need to do: Review vehicle arrangements annually Ensure your EVs continue to meet the FBT exemption criteria and that you’re meeting all reporting obligations. Implement logbook requirements Ensure employees or directors complete complying logbooks for the required 12-week period. This is essential for accurate calculation of reportable fringe benefits. Track usage and expenses Maintain accurate records of all expenses related to the EV, including electricity charging costs, to determine reportable amounts correctly. Communicate with employees Make sure employees understand how fringe benefits may affect their tax obligations and income-tested entitlements, even when FBT is exempt. Stay updated on changes With the PHEV sunset clause now in effect, ensure you’re across any changes that affect your vehicle fleet. Why This Matters Electric vehicles offer significant environmental benefits and can provide tax advantages for both employers and employees. However, the tax implications are more complex than simply claiming an FBT exemption. Understanding the nuances of FBT exemptions, reportable fringe benefits, and logbook requirements ensures: Your business remains compliant with ATO obligations Employees can make informed decisions about salary packaging You avoid unexpected tax consequences Your reporting is accurate and complete Common Questions About EVs and FBT Do all electric cars qualify for FBT exemption? No. The vehicle must meet all four eligibility criteria, including not being subject to Luxury Car Tax. High-value EVs that attract LCT do not qualify for the exemption. What happens if I provided a PHEV before 1 April 2025? If the exemption was in place before 1 April 2025 and you have a financially binding commitment to continue providing the vehicle, the exemption can continue to apply (grandfathering). Do I still need to report FBT-exempt EVs? Yes. Even though the benefit is exempt from FBT, you must still report the taxable value as a reportable fringe benefit on the employee’s payment summary. What if my employee doesn’t keep a logbook? Without a complying logbook, you’ll need to use the statutory method to calculate the reportable fringe benefit amount, which typically results in a higher value. How Paris Financial Can Help Navigating FBT obligations for electric vehicles requires careful attention to eligibility criteria, calculation methods, and reporting requirements. At Paris Financial, we help employers: Determine if your EVs qualify for FBT exemption Calculate reportable fringe benefit amounts accurately Implement complying logbook systems Review PHEV arrangements following the 1 April 2025 changes Ensure all FBT reporting obligations are met Provide clear guidance to employees about tax implications Our experienced team stays up-to-date with the latest ATO guidance to ensure your business remains compliant. Need Advice on Electric Vehicles and FBT? If you’re considering offering electric vehicles to employees, or you already provide EVs and want to ensure you’re meeting all compliance requirements, contact Paris Financial today. Our team can review your arrangements, advise on your obligations, and help you implement the right systems to manage FBT effectively. For more detailed information about FBT and electric vehicles, visit the ATO’s official guidance or speak with our team. Disclaimer: This article provides general information about FBT and electric vehicles based on current ATO guidance. Tax rules are complex and every situation is different. Please contact Paris Financial or your registered tax agent for advice specific to your circumstances.

Government Review of Supermarket Unit Pricing: What It Could Mean for Your Business

09 Oct 2025 06:22:00 GMT

The Federal Government recently wrapped up a consultation process on supermarket unit pricing. While the topic might sound like a purely consumer issue, it could have very real commercial impacts for businesses supplying into the grocery sector. On 1 September 2025, Treasury opened consultation on strengthening the Retail Grocery Industry (Unit Pricing) Code of Conduct. Submissions closed just a few weeks later on 19 September 2025, marking the end of a very short opportunity for stakeholders to have their say. A Quick Recap Unit pricing is what allows shoppers to compare costs per standard measure (e.g. $/100g or $/litre) across different pack sizes and brands. Since 2009, large supermarkets have been required to display this information to help customers spot value. While compliance has been relatively low-cost and penalties limited, the Government’s review signals that much tighter rules could be on the way. Why Now? The ACCC’s recent supermarket inquiry highlighted that while unit pricing helps, there are still gaps. The big concern is shrinkflation—when pack sizes quietly reduce while prices remain the same or higher. With cost-of-living pressures dominating headlines, the Government is looking at clearer, fairer pricing to rebuild consumer trust. What Might Change? Proposals considered in the consultation paper include: Shrinkflation alerts – supermarkets may need to flag when a product becomes smaller without a matching price cut. Clearer displays – larger, more prominent unit prices both in-store and online. Wider coverage – expanding the rules beyond major supermarkets to smaller retailers and online sellers. Standardised measures – eliminating confusing “per roll” vs “per sheet” comparisons. Civil penalties – introducing fines for non-compliance. The Commercial Impact For suppliers, packaging decisions could come under closer scrutiny. For retailers, costs might arise from updating shelf labels, software, or e-commerce systems. But there are also opportunities: businesses that embrace transparency could build loyalty and stand out in a competitive market. What You Should Do Now that the consultation period has closed, Treasury will consider submissions and the Government is expected to announce its response later this year. Businesses in food, grocery, and household goods should stay alert—the final shape of the rules could affect pricing, packaging, and compliance obligations across the sector. At Paris Financial, we can help you model potential compliance costs, assess financial impacts, and prepare for upcoming regulatory change. Reach out to discuss how this review might affect your business. Note: The material and contents provided in this publication are informative in nature only. It is not intended to be advice and you should not act specifically on the basis of this information alone. If expert assistance is required, professional advice should be obtained.

Accessing superannuation funds for medical treatment or financial hardship

05 Oct 2025 06:21:00 GMT

Superannuation is one of the largest assets for many Australians and offers significant tax advantages, however, strict rules apply to when it can be accessed. While super is most commonly accessed at retirement, death or disability, there are limited situations where earlier access may be possible. Early access is generally available in two situations: Financial hardship – where you are receiving a qualifying Centrelink/DVA payment for a minimum period and cannot meet immediate living expenses. Compassionate grounds – Funding for certain specific scenarios which include preventing a mortgage foreclosure or meeting medical expenses for a life-threatening injury or illness or to alleviate severe chronic pain. Compassionate grounds access requires an application to be made to the ATO which needs to be accompanied by relevant medical certificates or mortgage information. If approved the ATO will provide instructions to the individual’s superannuation fund to release an amount to cover the expense. We have included some ATO links with more detailed information on compassionate grounds and financial hardship below. When accessing superannuation under compassionate grounds you would usually collect the relevant supporting documentation and personally make the application for approval using your MyGov account. It has come to the ATO’s attention that there may be medical and dental providers exploiting this access and assisting super fund members to access amounts for cosmetic reasons (you may have even seen advertisements pop up on your social media showing people with a new sparkling smile – and a lower super balance). The ATO’s concerns are discussed in Separating fact from fiction on accessing your super early. Superannuation fund members and SMSF trustees should be aware that there can be substantial penalties applied when super is accessed outside of the legislated conditions of release. You should never provide another party with access to your MyGov login or allow a third party to make applications on your behalf. Penalties may also apply for making false declarations. Should you have any questions or concerns relating to proposed access to your superannuation please reach out to us. Related links Accessing superannuation under compassionate grounds Accessing superannuation due to financial hardship Note: The material and contents provided in this publication are informative in nature only. It is not intended to be advice and you should not act specifically on the basis of this information alone. If expert assistance is required, professional advice should be obtained.

ATO Interest Charges Are No Longer Deductible - What You Can Do

02 Oct 2025 06:18:00 GMT

Leaving debts outstanding with the ATO is now more expensive for many taxpayers. As we explained in the July edition of our newsletter, general interest charge (GIC) and shortfall interest charge (SIC) imposed by the ATO is no longer tax-deductible from 1 July 2025. This applies regardless of whether the underlying tax debt relates to past or future income years. With GIC currently at 11.17%, this is now one of the most expensive forms of finance in the market — and unlike in the past, you won’t get a deduction to offset the cost. For many taxpayers, this makes relying on an ATO payment plan a costly strategy. Refinancing ATO debt Businesses can sometimes refinance tax debts with a bank or other lender. Unlike GIC and SIC amounts, interest on these loans might be deductible for tax purposes, provided the borrowing is connected to business activities. While tax debts will sometimes relate to income tax or CGT liabilities, remember that interest could also be deductible where money is borrowed to pay other tax debts relating to a business, such as: GST PAYG instalments PAYG withholding for employees FBT However, before taking any action to refinance ATO debt it is important to carefully consider whether you will be able to deduct the interest expenses or not. Individuals If you are an individual with a tax debt, the treatment of interest expenses incurred on a loan used to pay that tax debt really depends on the extent to which the tax debt arose from a business activity: Sole traders: If you are genuinely carrying on a business, interest on borrowings used to pay tax debts from that business is generally deductible. Employees or investors: If your tax debt relates to salary, wages, rental income, dividends, or other investment income, the interest is not deductible. Refinancing may still reduce overall interest costs depending on the interest rate on the new loan, but it won’t generate a tax deduction. Example: Sam is a sole trader who runs a café. He borrows $30,000 to pay his tax debt, which arose entirely from his café profits. The interest should be fully deductible. However, if Sam also earns salary or wages from a part-time job and some of his tax debt relates to the employment income, only a portion of the interest on the loan used to pay the tax debt would be deductible. If $20,000 of the tax debt relates to his business and $10,000 relates to employment activities, then only 2/3rds of the interest expenses would be deductible. Companies and trusts If a company or trust borrows to pay its own tax debts (income tax, GST, PAYG withholding, FBT), the interest will usually be deductible if it can be traced back to a debt that arose from carrying on a business. However, if a director or beneficiary borrows money personally to cover those debts, the interest would not normally be deductible to them. Partnerships The position is more complex when it comes to partnership arrangements. If the borrowing is at the partnership level and it relates to a tax debt that arose from a business carried on by the partnership then the interest should normally be deductible. For example, this could include interest on money borrowed to pay business tax obligations such as GST or PAYG withholding amounts. However, the ATO takes the view that if an individual who is a partner in a partnership borrows money personally to pay a tax debt relating to their share of the profits of the partnership, the interest isn’t deductible. The ATO treats this as a personal expense, even if the partnership is carrying on a business activity. Practical takeaway Leaving debts outstanding with the ATO is now more expensive than ever because GIC and SIC are no longer deductible. Refinancing the tax debt with an external lender might provide you with a tax deduction and might also enable you to access lower interest rates. The key is to distinguish between tax debts that relate to a business activity and other tax debts. For mixed situations, you may need to apportion the deduction. If you’re unsure how this applies to you, talk to the team at Paris Financial before arranging finance. With the right strategy, you can manage tax debts more effectively and avoid costly surprises. Note: The material and contents provided in this publication are informative in nature only. It is not intended to be advice and you should not act specifically on the basis of this information alone. If expert assistance is required, professional advice should be obtained.

Aged Care Act 2024 - understanding your Statement of Rights

24 Sep 2025 06:15:00 GMT

The Aged Care Act 2024 introduces a comprehensive Statement of Rights that will transform aged care for every older Australian from 1 November 2025. This Statement of Rights is at the heart of the new legislation, ensuring that older people and their needs are at the centre of the aged care system. According to the Department of Health, the Statement of Rights is a core part of the Act that promotes quality and safe care for older people accessing funded aged care services. It also serves as a reference for providers and workers, helping them understand how to deliver care that respects older people’s rights. The Aged Care Act 2024 responds directly to the Royal Commission into Aged Care Quality and Safety, which found that current aged care legislation is structured around providers and how to fund them, rather than around the people accessing services and what they need. This comprehensive rights framework changes that by putting your rights at the centre of every aged care decision. What your rights cover Your rights under the new legislation explain what you’re entitled to when accessing, or seeking to access, funded aged care services. According to official government sources, these rights ensure older people can: Make decisions about their care and services: maintaining control over your aged care journey. Access safe, high quality aged care: receiving care that meets enhanced standards. Be treated with dignity and respect: ensuring person-centred, culturally appropriate care. Stay connected with family, friends and community: maintaining important relationships. Get support when they need it: accessing advocates and assistance with decisions. These rights work together to create a person-centred aged care system that makes sure older people get the best care possible. Your right to make decisions and stay in control Under the new Act, older people are presumed to have the ability to make decisions. This represents a fundamental shift towards recognising your autonomy and control over your aged care experience. Making informed decisions about your care also extends to understanding the financial implications of different aged care options, including fees, funding arrangements and how your assets may be assessed. The legislation promotes older people living active, meaningful lives the way they choose. This means you maintain control over decisions about your care, services and how you want to live your daily life. Supported decision making: Your rights recognise that some people may need support to exercise them effectively. Under the new Act, you can choose to have someone registered to support you in making decisions or communicating on your behalf. This person is called a registered supporter and their role is based on a supported decision making model designed to ensure your autonomy and dignity while providing necessary assistance. Your right to quality and safety Under the new framework, you have the right to safe, high quality aged care that protects your physical and mental health and wellbeing. The Act establishes your right to be free from violence, exploitation and neglect. This aligns with international human rights protections and ensures that aged care services prioritise your safety and security. Enhanced quality standards: Your rights work alongside strengthened Aged Care Quality Standards that will apply to providers. These standards include clear expectations for service delivery and quality care that respects your rights. Providers must demonstrate they understand your rights and have practices in place to ensure funded aged care services are compatible with them. Your right to dignity and respect You are entitled to be treated with dignity and respect in all aspects of your aged care experience. This includes receiving care that is culturally appropriate and responsive to your individual needs, identity and preferences. Cultural safety: Special provisions address the needs of Aboriginal and Torres Strait Islander peoples. According to government materials, Aboriginal and Torres Strait Islander peoples have a right to stay connected with their community, Country and Island Home. The Act aims to ensure culturally safe care that respects cultural identity and maintains important cultural connections. Your right to privacy and information Comprehensive privacy protections and your right to access information about your care and services form a key part of your rights framework. Providers and anyone working in the aged care system must respect and protect your privacy and access to information. The Act includes a revised approach to privacy that ensures the system is transparent and helps you make informed decisions. This transparency is particularly important for understanding aged care costs, fee structures and how different financial arrangements might affect your entitlements and ongoing expenses. You have the right to get information about the funded services you use. Communications should be person-centric, putting you first in all interactions and decision making processes. Your right to communication and complaints Effective communication and fair complaints processes are guaranteed when things go wrong. You have the right to receive information about your care and services in ways you can understand. This includes access to interpreters and communication supports when needed. Making complaints about your rights: When you believe your rights are not being upheld, the Act provides clear pathways for resolution. You should first raise concerns with your provider. All providers are required to have complaints management systems to address issues and resolve them quickly and fairly. If issues cannot be resolved with your provider, complaints can be made to the Aged Care Complaints Commissioner. According to government sources, complaints processes will be a primary pathway used to help older people resolve concerns about their rights. Your right to connection and advocacy Maintaining connections to family, friends and community is recognised as essential for your wellbeing and quality of life. You have the right to stay connected with people who are important to you, such as family, friends and carers. You also have the right to stay connected with your communities through leisure, spiritual or cultural activities and pets. Accessing advocacy support: Your rights include access to support when you need it. You may need support to understand your rights, make decisions, or make a complaint. You have the right to access and get support from an advocate or someone else you choose. The Act supports helping you, your registered supporters, family, friends and advocates understand your rights and make informed decisions. How providers must uphold your rights All aged care providers now have binding obligations to respect your rights. Under the new Act, providers must take all reasonable and proportionate steps to act in line with your rights when they deliver aged care services. Providers must show that they understand your rights and have systems in place to ensure compliance with them. Provider responsibilities: Enhanced obligations and registration conditions centre on upholding your rights. The registration process will include demonstrating understanding of your rights and implementing practices to respect them. This means providers must structure their services around your rights rather than their own operational convenience. How your rights are enforced The Aged Care Act 2024 provides stronger powers for the Aged Care Quality and Safety Commission and the Department of Health, Disability and Ageing to enforce your rights. The new regulatory model will change how the sector operates, with enhanced oversight focused on ensuring your rights are respected and upheld. Pathways for upholding rights: According to government sources, pathways will be available to uphold the rights set out in the legislation. Complaints processes will be a primary pathway, but the Act also includes other mechanisms to address harm for people who have received poor quality care. The Act establishes a new framework that provides more protections for people who raise issues about their rights not being respected. Worker protections support your rights Enhanced worker protections encourage reporting of concerns about aged care quality and rights compliance. The Act introduces an expanded whistleblower framework that protects workers from punishment, unfair treatment, threats and victimisation when they report concerns about aged care laws or rights violations. This framework also protects worker identity except in limited circumstances or with consent, creating a safer environment for workers to speak up when your rights are not being respected. What your rights mean for families Your rights affect every aspect of aged care planning and decision making for Australian families. Understanding these rights is essential for ensuring quality care and appropriate service selection. For families, your rights mean: Clear expectations of what aged care services should provide Better understanding of quality standards and service obligations Improved pathways for raising concerns about care quality Enhanced protections against poor quality care or rights violations Greater transparency in service delivery and decision making Better understanding of financial implications and fee structures when exercising choice of providers and services The rights-based approach requires families to be more engaged in understanding and advocating for these rights to be respected. Preparing for your new rights The Aged Care Act 2024 and its comprehensive rights framework come into effect on 1 November 2025, aligning with the launch of the new Support at Home program. The government has developed resources to help the aged care sector and families prepare for these changes, including training modules and information materials available through MyAgedCare.gov.au. Getting ready: Understanding your rights is the first step in preparing for the new system. The Department of Health recommends staying informed about the changes through official government channels and resources. Professional financial planning becomes particularly valuable in this rights-based system, as exercising your right to choose providers and services requires understanding the cost implications and how different arrangements affect your financial situation. For families, understanding these rights is crucial for planning aged care needs and ensuring quality care that respects the person-centred approach mandated by the new legislation. Your rights: Foundation for quality aged care The Aged Care Act 2024 rights framework represents a fundamental shift in how aged care operates in Australia. These comprehensive rights ensure that older people are at the centre of all aged care decisions and that services are delivered with respect, dignity and transparency. Understanding your rights is essential for navigating the new aged care system and ensuring you receive the quality care you deserve. The rights-based approach creates both opportunities and responsibilities for older people and their families. At Paris Financial, we recognise that the Aged Care Act 2024 rights framework creates new considerations for aged care planning. Our expertise in aged care financial planning can help families understand how these rights may affect their planning needs and decision making. Contact Paris Financial today to discuss how your rights under the Aged Care Act 2024 may impact your aged care financial planning. We specialise in aged care financial strategies and can help you navigate the costs, fees and funding options while ensuring your financial arrangements support the quality, person-centred care you’re entitled to under the new rights framework. Source: Department of Health, Disability and Ageing: – About the new rights-based Aged Care Act – About the Aged Care Act – Statement of Rights – What the new Aged Care Act means for you – New ways of working in aged care Paris Financial Services Pty Ltd is a Corporate Authorised Representative (No. 357928) of Capstone Financial Planning Pty Ltd. ABN 24 093 733 969. AFSL No. 223135 General Advice Disclaimer The information in this article is general information only and is not intended to be a recommendation. We strongly recommend you seek advice from your financial adviser as to whether this information is appropriate to your needs, financial situation and investment objectives. Whilst every care has been taken in the preparation of this article, Paris Financial Services Pty Ltd, its directors, authors, consultants, editors and any persons involved in the construction of this article, expressly disclaim all and any form of liability to any person in respect of this article and any consequences arising from its use by any person in reliance upon the whole or any part of this article.

Non-compete clauses: the next stage

22 Sep 2025 06:13:00 GMT

Back in March this year the Government announced its intention to ban non-compete clauses for low and middle-income employees and consult on the use of non-compete clauses for those on higher incomes. The Government has indicated that the reforms in this area will take effect from 2027. This didn’t come as a complete surprise as the Competition Review had already published an issues paper on the topic and the Productivity Commission had also issued a report indicating that limiting the use of unreasonable restraint of trade clauses would have a material impact on wages for workers. Treasury has since issued a consultation paper, seeking feedback in the following key areas: How the proposed ban on non-compete clauses should be implemented; Whether additional reforms are required to the use of post-employment restraints, including for high-income employees; Whether changes are needed to clarify how restrictions on concurrent employment should apply to part-time or casual employees; and Details necessary to implement the proposed ban on no-poach and wage-fixing agreements in the Competition and Consumer Act. Treasury makes it clear that the Government is not planning to change the way the rules apply to restraints of trade outside employment arrangements (eg, on sale of a business) or change the use of confidentiality clauses in employment. If the proposed reforms end up being implemented, then this could have a direct impact on a range of employers and their workers. Existing agreements will need to be reviewed and potentially updated. However, it is too early at the moment to guess how this will end up, we will keep you up to date as further information becomes available. If you’re concerned about how the non-compete reforms may affect your agreements, Paris Financial can help you understand the changes and stay compliant. Note: The material and contents provided in this publication are informative in nature only. It is not intended to be advice and you should not act specifically on the basis of this information alone. If expert assistance is required, professional advice should be obtained.

Financial planning for dementia care - protecting family and finances

10 Sep 2025 06:12:00 GMT

Caring for a loved one with dementia is deeply emotional and often overwhelming. Alongside the daily responsibilities of care, families face complex financial decisions that affect both immediate wellbeing and long-term security. At Paris Financial, we understand that every dementia care journey is unique, but what remains constant is the need for clear, proactive financial planning. From managing aged care fees to protecting family assets, the right advice ensures your loved one receives the care they deserve while keeping your family’s financial future secure. Understanding dementia care needs Dementia affects memory, cognition and daily functioning, and care needs change over time. Many families begin with in-home support and may later consider residential aged care when needs become more intensive. Why financial advice matters here: Early planning helps you compare the true costs of in-home versus residential care. Decisions about when and how to transition affect cash flow, Centrelink or DVA benefits, and aged care fees. Structuring finances correctly now avoids unnecessary stress when urgent care decisions arise. The financial side of aged care The Government requires families to complete an income and assets assessment to determine contributions towards aged care. This can feel daunting, particularly when multiple family members are involved. How Paris Financial can help: Prepare income and asset summaries for Centrelink or DVA. Model how different funding options (pensions, superannuation, annuities, investments) will cover aged care fees. Advise on the financial impact of keeping, renting, or selling the family home. Ensure cash flow covers both care fees and lifestyle expenses such as outings, hobbies and private health cover. The family home and aged care decisions For many families, the home is their most significant asset and also the centre of emotional discussions. If a partner or family member remains living there, different fee rules apply than if the home is rented or sold. Our role: Help you weigh up whether to retain, rent or sell the property. Explain the effect of each option on aged care means-tested fees and Centrelink payments. Work with legal advisers if estate planning or enduring powers of attorney need to be updated. Choosing a care facility Residential aged care facilities vary widely in cost, services and payment structures. Families often face decisions about paying a Refundable Accommodation Deposit (RAD), daily fees, or a combination of both. Paris Financial can guide you by: Comparing payment structures to see which option suits your cash flow and long-term planning. Factoring in aged care fees alongside existing loans, investments or business obligations. Ensuring that payments are structured to protect the financial wellbeing of both the person in care and their family. Planning beyond care fees Care doesn’t stop at facility fees. Lifestyle and medical costs continue, from medications and therapies to personal needs such as haircuts, social outings or family travel. A financial adviser ensures these ongoing costs are budgeted for and integrated into your overall wealth management strategy. That way, your loved one’s quality of life is protected without creating financial stress for the family. Why financial planning is essential in dementia care Without structured planning, families can be left scrambling at the worst possible time, selling assets in a rush, paying more tax than necessary, or facing unexpected shortfalls. Paris Financial provides: Clarity: A clear picture of aged care costs and funding options. Control: Strategies to protect and maximise family wealth. Confidence: Peace of mind that your loved one’s care is funded sustainably. Take the next step Supporting someone with dementia is challenging enough without the financial uncertainty. With expert guidance from Paris Financial, you can focus on caring for your loved one while knowing the finances are in safe hands. Contact Paris Financial today on (03) 8393 1000 or visit our website to start planning with confidence. Source: My Aged Care Paris Financial Services Pty Ltd is a Corporate Authorised Representative (No. 357928) of Capstone Financial Planning Pty Ltd. ABN 24 093 733 969. AFSL No. 223135 General Advice Disclaimer The information in this article is general information only and is not intended to be a recommendation. We strongly recommend you seek advice from your financial adviser as to whether this information is appropriate to your needs, financial situation and investment objectives. Whilst every care has been taken in the preparation of this article, Paris Financial Services Pty Ltd, its directors, authors, consultants, editors and any persons involved in the construction of this article, expressly disclaim all and any form of liability to any person in respect of this article and any consequences arising from its use by any person in reliance upon the whole or any part of this article.

Creating a more dynamic and resilient economy

09 Sep 2025 06:11:00 GMT

The Productivity Commission (PC) has been tasked by the Australian Government to conduct an inquiry into creating a more dynamic and resilient economy. The PC was asked to identify priority reforms and develop actionable recommendations. The PC has now released its interim report which presents some draft recommendations that are focused on two key areas: Corporate tax reform to spur business investment Where efficiencies could be made in the regulatory space (ie, cutting down on red tape) The interim report makes some interesting observations and key features of the draft recommendations are summarised below. Corporate tax reform The PC notes that business investment has fallen notably over the past decade and that the corporate tax system has a significant part to play in addressing this. The PC is basically suggesting that the existing corporate tax system needs to be updated to move towards a more efficient mix of taxes. The first stage of this process would involve two linked components: Lower tax rate: businesses earning under $1 billion could have their tax rate reduced to 20%, with larger businesses still subject to a 30% rate. New cashflow tax: a net cashflow tax of 5% should be applied to company profits. Under this system, companies would be able to fully deduct capital expenditure in the year it is incurred, encouraging investment and helping to produce a more dynamic and resilient economy. However, the new tax is expected to create an increased tax burden for companies earning over $1 billion. Cutting down on red tape The interim report notes that businesses have reported spending more time on regulatory compliance – this probably doesn’t come as a surprise to most business owners who have been forced to deal with multiple layers of government regulation. Some real world examples include windfarm approvals taking up to nine years in NSW while starting a café in Brisbane could involve up to 31 separate regulatory steps. The proposed fixes include: The Australian Government adopting a whole-of-government statement committing to new principles and processes to drive regulation that supports economic dynamism. Regulation should be scrutinised to ensure that its impact on growth and dynamism is more fully considered. Public servants should be subject to enhanced expectations, making them accountable for delivering growth, competition and innovation. These are simply draft recommendations contained in an interim report so we are a long way from any of these recommendations being implemented. However, the interim report provides some insight into areas where the Government might look to make some changes to boost productivity in Australia. The PC is inviting feedback up until 15 September on the interim report before finalising its recommendations later this year. For tailored guidance, reach out to the team at Paris Financial to discuss your accounting needs. Note: The material and contents provided in this publication are informative in nature only. It is not intended to be advice and you should not act specifically on the basis of this information alone. If expert assistance is required, professional advice should be obtained.

A win for those carrying student debt

05 Sep 2025 06:08:00 GMT

In support of young Australians and in response to the rising cost of living, the Australian Government has passed legislation to reduce student loan debt by 20% and change the way that loan repayments are determined. This should help students significantly more than the advice from outside of Parliament – cut down on the smashed avo. 20% reduction in student debt The reduction is expected to benefit more than 3 million Australians and remove over $16 billion in outstanding debt. The 20% reduction will be automatically applied to anyone with the following student loans: HELP loans (eg, HECS-HELP, FEE-HELP, STARTUP-HELP, SA-HELP, OS-HELP) VET Student loans Australian Apprenticeship Support Loans Student Start-up Loans Student Financial Supplement Scheme. The reduction will be based on the loan balance at 1 June 2025, before indexation was applied. Indexation will only apply to the reduced balance. The ATO will apply the reduction automatically on a retrospective basis and will adjust the indexation that is applied. No action is needed from those with a student loan balance and the Government has indicated that you will be notified once the reduction has been applied. If you had a HELP debt showing on your ATO account on 1 April 2025 but you paid the debt off after 1 June 2025 then the reduction will normally trigger a credit to your HELP account. If you don’t have any other outstanding tax or other debts to the Commonwealth, then the credit should be refunded to you. The HELP debt estimator is a useful tool to get an idea of the reduction amount, please reach out if you need any help in working out eligibility. Changes to repayments The Government has also modified the way that HELP and student loan repayments operate, primarily by increasing the amount that individuals can earn before they need to make repayments. The minimum repayment threshold for the 2025-26 year is being increased from $56,156 to $67,000. The threshold was $54,435 for the 2024-25 year. Under the new repayment system an individual will only need to make a compulsory repayment for the 2025-26 year if their income is above $67,000. The repayments will be calculated only against the portion of income that is above $67,000. Repayments will still be made through the tax system and will typically be determined when tax returns are lodged with the ATO. For many people the change in the rules will mean they have more disposable income in the short term, but it will take longer to pay off student loans. The main exception to this will be when an individual chooses to make voluntary repayments. If you need advice, reach out to the team at Paris Financial today. Note: The material and contents provided in this publication are informative in nature only. It is not intended to be advice and you should not act specifically on the basis of this information alone. If expert assistance is required, professional advice should be obtained.

Secure your email

20 Aug 2025 06:07:00 GMT

In today’s world, we manage a significant part of our lives through emails. We use them to communicate with friends, family and colleagues. We also use email to sign up for online accounts and services. Checking and managing your emails may seem like a mundane and repetitive task. But if you don’t stay vigilant, someone else could access and control your email account. This can lead to devastating personal and financial impacts. Cybercriminals can learn a lot about you from your emails. It is crucial to secure your email account, apply good habits and know how to protect yourself from scams. Understand the threats Poor cybersecurity makes it easier for someone to hack your email account. This can expose you to identity theft, fraud and further attacks. Learning about online threats is a first step in protecting yourself from cybercriminals. Phishing Phishing is when someone tricks you into giving them your personal information by pretending to be a person or business you trust. They may ask you to open a malicious link or attachment to steal your login or other details. Account compromise You need your email to access many online services such as banking and shopping. But if a cybercriminal gains access to your email account, they could get into any account linked to your email. They can then lock you out of these accounts and steal your money and personal information. Unusual account activity may be a sign of a compromise, such as a password reset or bank transfer you didn’t make. Identity theft Identity theft can occur when a cybercriminal gets access to your personal information. Common details they steal include your date of birth, address and tax file number. They can then use these details to impersonate you for financial gain. Malware Cybercriminals use malware (short for ‘malicious software’) to gain access to your data. You might open a link or attachment that downloads malware without you knowing. Some malware may even pose as antivirus or security products. Business email compromise Cybercriminals can impersonate a business by using a fake or compromised email account. This is a form of targeted phishing made to look like a real company or employee. Their goal is to trick victims into providing sensitive information, money or goods. Know the warning signs of email compromise Your login details don’t work. Your password recovery details have changed. You notice multiple login attempts at unusual locations or times. You get an unexpected email to reset your password. Your contacts are receiving emails from you that you didn’t send. If you notice any of these signs or suspect your email is compromised, reset your password and sign out of all sessions and follow this advice below. Strengthen your email account security There are several ways to make your email account more secure. Start by using multi factor authentication and a strong password. Turn on multi factor authentication Multi factor authentication (MFA) is one of the best ways to protect your email account from cybercriminals. MFA means you need 2 or more steps to verify your identity before you can log in. For example, using your login details as well as an authentication code. This makes it hard for cybercriminals to gain access to your account if they know your login details. Use a strong password If MFA is not an option, use a strong password such as a passphrase to protect your email account. A passphrase has 4 or more random words like ‘crystal onion clay pretzel’. Passphrases are easy to remember but hard for someone to guess. Don’t include personal details in your passphrase or share it with anyone. This includes the answers to your security questions if you need to recover your account. You may also want to consider using a password manager. A password manager can help protect, create and store strong and unique passwords. We recommend you to search online to compare their security features and the reputation of the service provider. If you are unsure, ask a friend, co-worker or IT professional for a recommendation. Set up account recovery options Make sure to set up recovery options for all your email accounts. If you lose access to your account or it is compromised, you can reset your login using your recovery option. Keep your devices and software up to date Regular updates are important for keeping your email accounts secure. Cybercriminals hack devices by using known weaknesses in systems or apps. Updates have security upgrades to fix these weaknesses. Make sure your devices and software are up to date. Check automatic updates are on and install updates as soon as possible. The longer you leave it, the more vulnerable you could be to a cyberattack. Practice secure habits Improving your email account security is only the first step. You also need to be aware of what to do and what not to do when using your email at home and in public. Check your recent login activity Make a habit of checking your email login activity often. This will allow you to catch any suspicious activity that can lead to an account compromise. This may include frequent login attempts, or login from an unrecognised device or location. If you notice any suspicious activity, sign out of all sessions and change your password. But be aware, it’s possible for your device to detect a different location than what you expect. For example, it may display your location based on the closest data centre in a major city. Use antivirus protection Antivirus software provides protection against malware. It helps to keep your devices secure and protect your personal information. Your devices likely come with built in antivirus software. Third party antivirus products can also offer more security features over free versions. If using these, make sure you research the provider online. Pay close attention to the services they offer and terms of service. Also, look for customer reviews and feedback. Avoid public WiFi Public networks are convenient but can also be unsecure. Cybercriminals will target public networks to gain access to your sensitive information. If you are working in public spaces such as an airport or cafe, avoid using their WiFi or use a VPN. Only use trusted networks such as your home WiFi or your personal hotspot. Where this isn’t an option, think twice about what you share or access on a public network. Don’t save your login details on public devices and make sure you log out when done. Delete your unused accounts Get rid of old email accounts you no longer use. Leaving them active can expose your personal information since you’re not checking them. Remember that uninstalling the app doesn’t delete or deactivate your account. You will need to do this through the official app or website. Remove sensitive information Consider removing emails with any sensitive or personal information. If a cybercriminal gains access, they can find and steal this information. This includes any documents that show who you are, where you live and work, or what your bank details are. You can store sensitive emails and attachments in a password protected zip file or offline storage. Have questions? Reach out to Paris Financial. Source: Australian Cyber Security Centre

2025 financial year in review

20 Aug 2025 06:05:00 GMT

A strong year for share returns Global shares delivered very strong returns in the past financial year. Optimism on the promise of ‘Artificial Intelligence’ (AI) as well as progress towards lower global inflation and interest rates have been the key positive drivers for rising global share prices. These strong share gains come despite the tragic Russian-Ukraine War as well as the Hamas-Israel and the Israel-Iran conflicts which are all brutal and seemingly never ending. Global shares (hedged) recorded a 13.3% return for the year in local currency terms. The clear outperformer has been Wall Street. US shares as represented by the S&P 500 delivered a 15.2% return for the financial year (Chart 1). The returns from Australian shares at 13.7% (ASX 300) were very strong but trailed in Wall Street’s wake. There was one compensation in that the weakness in the Australian dollar over the past year allowed global shares (unhedged) to deliver an exceptionally strong 18.4% return. Chart 1: Share returns for 2024-2025 Source: LSEG DataStream. However, this was not an easy climb to historic highs for both the American and Australian share markets in the last year. The sharp share price falls recorded from March to April 2025 came in response to US President Donald Trump’s aggressive agenda on imposing tariffs. From his first day in the Oval Office on 20 January 2025 threatening Canada and Mexico to the impositions of a 145% tariff on China, 20% for Europe and 10% for Australia in April, President Trump has been menacing America’s trading partners as well as gambling with the US economy. Given that tariffs are a tax that increases consumer prices, the risk of a sharp rise in US inflation and corresponding increase in US interest rates sent Wall Street into a tailspin. Fortunately, sanity briefly returned with President Trump announcing a 90 day pause to allow tariff negotiations. However, if the tirades against America’s trading partners resume on President Trump’s “Truth Social” after the 9 July deadline, then investors will have to strap their seatbelts on for another rollercoaster ride. Even with these political headwinds, enthusiasm for technology has been the key positive driver of Wall Street’s strong returns. Tesla led the charge with a 60% price gain followed by Meta/Facebook (46%) and then the largest AI chipmaker Nvidia with 28%. These extraordinary gains allowed the US technology focused NASDAQ 100 Index to post a 15.7% annual return. Notably in an Australian context, only Commonwealth Bank shares with a 45% price gain for the year could deliver a similar result to the American technology companies. There were also notable disappointments with large price falls for resource shares such as BHP (-14% decline) and Fortescue (-29%), as well as CSL (-19%). Table 1: Asset class returns in Australian dollars – periods to 30 June 2025 Asset class Returns 1 year 3 yrs (pa) 5 yrs (pa) 10 yrs (pa) Cash 4.4% 3.9% 2.3% 2.0% Australian bonds 6.8% 3.9% -0.1% 2.3% Global bonds (hedged) 5.4% 2.3% -0.6% 2.0% Global high yield bonds (hedged) 8.3% 7.8% 4.1% 4.5% Global listed infrastructure (hedged) 14.7% 5.1% 7.0% 6.7% Global property securities (hedged) 8.4% 2.2% 4.4% 3.0% Australian shares 13.7% 13.3% 11.8% 8.8% Global shares (unhedged) 18.4% 19.2% 14.8% 11.8% Global shares (hedged) 13.3% 15.8% 12.6% 9.7% Emerging markets (unhedged) 17.5% 11.5% 7.9% 6.5% Past performance is not a reliable indicator of future performance. Sources: FactSet, MLC Asset Management Services Limited. Benchmark data: Bloomberg AusBond Bank Bill Index (cash), Bloomberg AusBond Composite 0+ Yr Index (Aust bonds), Bloomberg Global Aggregate Bond Index Hedged to $A (global bonds), Barclays US High Yield Ba/B Cash Pay x Financials ($A Hedged) (global high yield bonds) FTSE Global Core Infrastructure 50/50 Index Hedged to $A, FTSE EPRA/NAREIT Developed Index (net) hedged to $A (global property securities), S&P/ASX300 Total Return Index (Aust shares), MSCI All Country World Indices hedged to $A and unhedged (net) (global shares), and MSCI Emerging Markets Index (net) unhedged to $A (emerging markets). European shares made a solid 8.4% return for the year with the benefit of the European Central Bank cutting interest rates by 1.75% to 2%. Asian share markets delivered a mixed performance across countries. Japan’s share market made a muted 2.3% return for the year given the Japanese central bank has been assertively raising interest rates to combat inflation. Taiwan was similarly subdued at a 3% return given geopolitical concerns. Yet Chinese share prices made a robust recovery with a 34% annual gain (MSCI China in local currency). Lower interest rates and assurances from China’s government of more support for economic activity have countered concerns over China’s weak property market. This strength in Chinese shares was a key contributor to the strong 12.9% return for emerging markets in local currency terms. Australian bonds provided a strong 6.8% annual return with the support of lower inflation and the Reserve Bank of Australia (RBA) cutting the cash interest rates by 0.5% to 3.85% in 2025. Global bonds (hedged) delivered a reasonable 5.4% return. Bond markets have experienced turbulence in the past year given the shifting sands on economic activity, inflation and political risks. Global high yield bonds (hedged) made a very strong 8.3% annual return as investors considered that the elevated yields available are attractive for income despite very narrow credit spreads. The ‘cost of living’ is still challenging for consumers Global inflation has gradually fallen in the past year (Chart 2). Milder price rises for consumer goods such as clothing and electrical equipment have kept inflation in check. Notably inflation in both Australia and the US has fallen from above 3% in mid-2024 towards the low 2% inflation levels in mid-2025. China as the ‘factory to the world’ in producing consumer goods has been a source of this lower global inflation as well as experiencing its own minimal inflation given modest economic growth. Chart 2: Global consumer inflation Source: Australian Bureau of Statistics, National Bureau of Statistics of China and US Bureau of Labor Statistics. Consumers around the world remain angry with the “cost of living”. This reflects the fact that consumer prices have not returned to the pre pandemic era of 2019 but remain high given the inflation crisis of 2021-2022. There are also still persistent price pressures in the service sector such as health care, insurance and rents that continue to squeeze consumers’ budgets. Consumers have expressed this anger at the ballot box in the past year. Notably Donald Trump’s ‘second coming’ to the White House in November 2024 can be partly attributed to some American consumers being angry at their declining living standards with high inflation during Joe Biden’s Presidency. While Australia’s inflation has declined to 2.1%, in the year to May 2025, this moderation in price rises is also due to government electricity rebates. According to the Australian Bureau of Statistics (ABS), rebates have seen electricity prices rise by only 1.1% since June 2023. Without these government rebates, electricity prices would have risen by 17.7%1. Even with these milder electricity price rises, the struggle to keep food on the table and a roof over our heads continues. Egg prices have increased by 19.3%, coffee and tea (8.3%) and rents by 4.5% in the past year. The past year has also provided dramatic and terrible events. The Middle East remains cursed by brutal violence. The conflict between Hamas and Israel continues in Gaza while Israel and Iran exchanged missiles and threats in the brutal ‘12-day War’ in June 2025. Russia’s devastating invasion of Ukraine in 2022 is still casting a dark shadow over Europe and remains a threat to energy security and political stability. The economic importance of these conflicts is that these could intensify and potentially suddenly cut global oil supplies. Both Iran and Russia are large oil producers and even though most of their supply typically goes to China, any Eastern Europe or Middle East War could dramatically increase oil prices and thereby inflation for the rest of the world. The global economy has provided both positive and negative surprises in the past year Global economic activity has been ‘multi speed’ in the past year. The US economy has been the key source of strength. American businesses and consumers have kept spending despite the headwind of high interest rates. Strong jobs growth has allowed the unemployment rate to remain stable at around 4% and supported solid wages growth. Notably the US economy recorded annual gross domestic product (GDP) growth of 2% in the year to March 2025 compared to potential growth estimates of around 1.8%. Hence the US is still punching above its heavyweight status in the global economy. However, there are warning signs that a sharp US slowdown may be coming with more subdued business and consumer surveys given tariff concerns. European economic growth has picked up speed to 1.6% for the past year to March. Germany has struggled given weaker global demand for their luxury cars. The United Kingdom modestly improved from their post 2016 Brexit malaise but is still characterised by low business investment. China’s economic growth at 5.4% in the past year remains constrained by a cautious consumer and weak property market. Falling property construction and apartment prices have undermined confidence in China’s prospects. Korea has also disappointed with stagnant economic activity as real GDP has fallen by -0.3%. Amongst Australia’s other major trading partners, economic growth has also been more encouraging. India’s economic growth at 7.4% is the strongest amongst major nations and confirms India’s long-term potential. Even with these mixed global economic activity results, share investors have taken encouragement from falling global interest rates (Chart 3). Most central banks are lowering their cash interest rates given that inflation is now near their circa 2% targets. The most prominent central banks lowering interest rates were the European Central Bank which has cut by 1.75% to 2% during the past year. China’s central bank has also been more ambitious with a total of 0.75% in interest rates cuts. The US Federal Reserve was initially assertive by cutting interest rates by 1% in 2024 but has since paused in 2025 given tariff concerns. The RBA has been a timid central bank with only 0.5% in interest rate cuts in the past year. Chart 3: Global cash interest rates set by central banks Source: LSEG DataStream. Australia’s economic performance is a mix of the lacklustre and the laudable. Australian consumers are still being squeezed by inflation, high mortgage interest rates and rising rents. Australia’s lacklustre economy is confirmed by the subdued GDP result for the March quarter of 2025 that shows the economy expanded by barely 0.2% for the quarter and 1.3% for the past year. Essentially economic activity is only just registering a pulse. Notably Australia is in a ‘per capita’ recession where population growth of 1.7% exceeds economic growth of 1.3%. Yet there is a ‘silver lining in this dark cloud’ judging by the RBA’s willingness to cut interest rates. The RBA’s February and May 2025 interest rate cuts and expectations for more later in 2025 is giving some solace to consumers amongst these difficult times. More encouraging and remarkable is that Australia is recording strong jobs growth even with subdued economic activity. In the year to May 2025, circa 362,000 new jobs were generated in Australia. The key benefit of this strong jobs market is that Australia has a low unemployment rate of 4.1% and wages growth is solid. Notably wages growth was 3.4% in the year to March but is now significantly higher than consumer inflation at 2.1% in the year to May. Finally, Australian workers are starting to see wage increases are outpacing rising consumer prices. Global prospects Enthusiasm for AI and technology have been the key factors supporting rising share prices. Lower global inflation, which has allowed central banks to selectively cut interest rates, has also been supportive. Typically, a lower interest rate environment can boost corporate profits and thereby share prices. However, President Trump’s return to the White House has generated alarm over the prospect for large tariffs imposed on America’s key trading partners. Given that tariffs are a tax that increases consumer prices, the risk of a sharp rise in US inflation is a major threat to both global share prices as well as bond yields. If the Trump Administration actually implements the proposed tariff increases after the current 90 day pause ends, then the risk of higher inflation and weaker economic activity magnifies across the world. Hence President Trump’s aggressive policy agenda – higher tariffs that impose more difficult trading conditions for the global economy, lower US immigration and population growth with “mass deportations”, as well as higher US budget deficits – is a recipe for economic and financial instability. Global share markets are also likely to be challenged by considerable global political risks. The continuing Russian-Ukraine war is casting a shadow over Europe which has generated insecurity and motivated large increases in defence spending. The brief and brutal conflict between Israel and Iran in June may prove to be a forewarning of a chaotic Middle East that could threaten global oil supplies. Given these complex and significant risks, investors should maintain a disciplined and diversified strategy. If you’d like to discuss how the events of the 2025 financial year could impact your future strategy, the Paris Financial team is here to support you. 1 ABS Monthly Consumer Price Index Indicator for May 2025, https://www.abs.gov.au/statistics/economy/price-indexes-and-inflation/monthly-consumer-price-index-indicator/latest-release#key- (released 26/06/2025). Source: MLC

Australian housing market update

20 Aug 2025 06:04:00 GMT

Australian housing values rose another 0.6% in June, marking a fifth straight month of growth since conditions flattened out through the end of last year. Demonstrating the broad based nature of the upswing, monthly gains were recorded across almost every broad region of Australia, with Hobart the only region to see a month on month fall. The first rate cut in February was a clear turning point for housing value trends. An additional cut in May, and growing certainty of more cuts later in the year have fuelled housing sentiment, helping to push values higher. Although value rises have been broad based, the quarterly pace of growth, at 1.4% remains mild compared to mid-2023 when the national index was rising at the quarterly rate of 3.3%. Current growth levels could be described as tepid compared with the extreme 8.1% quarterly rate of growth recorded through the height of the pandemic. Across the individual capitals, quarterly growth was led by Darwin, with dwelling values jumping 4.9%, enough to take dwelling values to a new record high, finally surpassing the mining boom peak recorded just over 11 years ago in May 2014. Outside of Darwin, the quarterly trend across the capitals was led by Perth and Brisbane, the same markets which have led the five-year growth trend, with values up 81% and 75% respectively since June 2020. Although the quarterly pace of growth still favours regional Australia, at 1.6%, compared with the combined capitals at 1.4%, it is looking increasingly likely that the quarterly growth trend will once again favour capital city markets over the coming months. In fact, the last two months have seen the combined capitals record a slightly higher rate of capital gain than regional markets. The housing rebound is occurring against a backdrop of relatively low home sales, with turnover through the first half of the year tracking at an annualised pace of 4.9%, slightly below the decade average of 5.1% Although demonstrated demand is tracking slightly below average, advertised supply is scarce, creating a more balanced market for buyers and sellers. Advertised stock levels were tracking -5.8% below the same time a year ago and -16.7% below the previous five-year average. Low inventory levels are supporting an improvement in selling conditions, which can be seen in auction clearance rates, which rose to slightly above the decade average in the last two weeks of June, holding around the mid-60% range. Turning the focus to rental conditions, rental growth has continued to ease across most of Australia, with the national rental index rising 1.3% through the June quarter, the lowest Q2 change since 2020. The slowdown in rental growth is more visible in the annual trends, where national rental growth has eased from a peak of 9.7% in November 2021 and tracked at more than 8% between July 2021 and May 2024. The national rental index was up 3.4% through the financial year, the lowest annual increase since February 2021. Slower rental growth comes despite vacancy rates consistently holding around the mid-1% range, well below the pre pandemic five-year average of 3.3%. Rental affordability is a key factor keeping a lid on rental growth. Assuming the median rent and median household income, rental households are now dedicating around one third of their pre-tax income to paying rent. As the period of COVID ‘catch up’ migration comes to an end, and recent temporary migrants head back overseas, net overseas migration has reduced close to pre pandemic levels. Because most recent overseas arrivals rent, slower rates of net overseas migration are also contributing to the slowdown in rental demand. Now let’s take a look at housing conditions across each of the capital cities Sydney Sydney dwelling values rose 1.1% through the June quarter, adding just over $13,000 to the median value. The quarterly gain is up from a 0.8% rise in Q1 and a -1.4% decline through the final quarter of 2024. Through the first half of the year, Sydney home values have increased by 1.9%, mostly fuelled by houses (+2.5%) rather than units (+0.4%). In some good news for renters, rental growth has eased, with the annual change in Sydney rents reducing to 1.9%, down from an annual change in 2023/24 of 7.4% and 11.1% through 2022/23. The easing in rental appreciation comes despite vacancy rates easing to 1.8% in June, well below the decade average of 2.9% Melbourne Melbourne dwelling values rose 0.5% in June, taking the quarterly change to 1.1%, up from 0.7% in Q1 after three quarters of decline. Through the first half of the year, Melbourne dwelling values have increased by 1.8%, adding just over $14,000 to the median dwelling values. Despite the recent gains, Melbourne values are still 3.9% below the record high set in March 2022. While growth in housing values has accelerated, the trend in rental markets is losing steam, with annual rental growth of just 1.2% recorded across Melbourne, the lowest annual rate of growth July 2021. Brisbane Housing values across Brisbane rose by 0.7% in June, to be 2.0% higher over the quarter, adding approximately $18,000 to the median value of a dwelling over the past three months. The market is up 7.0% over the financial year, led by a 10.9% jump in unit values while house values rose by a smaller 6.3%. The stronger result comes back to worsening affordability constraints deflecting demand towards the unit sector, along with very low supply levels across Brisbane’s unit market where listings are tracking 33% below the previous five-year average. Annual rental growth has slowed across Brisbane, with dwelling rents up 3.8% in 2024/25 and holding below 4% annual growth since November last year. Adelaide Adelaide dwelling values rose by 0.5% in June to be 1.1% higher over the June quarter. The monthly and quarterly result were a slight underperformance compared with the national growth rate of 0.6% and 1.4%, respectively. Although growth conditions have accelerated from the March quarter, when values were up 0.5%, the annual rate of growth, at 8.0% was well down on a year ago when the market was up 14.5%. A subtle rise in advertised supply levels relative to a year ago (+3.1%) might be helping to take some heat out of the growth rate, alongside worsening affordability constraints and less population growth. Perth The pace of capital gains has reaccelerated across the Perth market, with the monthly rate of growth rising to 0.8% in June. After posting three months of negative change between December and February, monthly movements in Perth dwelling values have been consistently positive, taking the quarterly rate of growth to 2.1%, the highest since the three months ending October last year. Through the financial year, Perth dwelling values are up 7.0%, or in dollar terms approximately $54,000. Despite the strong annual outcome, the annual rate of growth is less than a third relative to a year ago when Perth home values were up 24.4%. Hobart Although Hobart dwelling values slipped 0.2% in June, the quarterly pace of gains, at 0.9% has held in modest positive territory over eight of the past nine months. Supporting the upwards trend has been an improvement in housing affordability, with Hobart dwelling values remaining 10.2% below their record highs, and a reduction in advertised supply levels, which are now tracking 25.0% lower than a year ago and 1.7% below the previous five-year average. Rental trends have been on an upswing, with Hobart rents rising 5.3% over the past 12 months, the second highest annual gain of any capital city after Darwin (6.2%). Darwin Darwin housing values have been on a solid growth run, with the 1.5% rise in June finally taking the city’ s dwellings to a new record high. The previous record high was set in May 2014 at the height of Darwin’s infrastructure boom. Values were up 4.9% through the June quarter, the highest quarterly gain of any capital city, and the 6.0% gain over the financial year was the strongest annual gain since the 12 months ending September 2022. The rise in values has been accompanied by a near doubling (+98%) in the volume of investor finance commitments over the year to March, alongside affordable housing prices and high rental yields. ACT ACT housing values rose by 0.9% in June, the strongest monthly gain since March 2022. The monthly gain took values 1.3% higher over the June quarter, compared with a flat (0.0%) result in Q1 and a -0.2% change in Q4 last year. House values continue to show a substantially stronger capital gain than units, with values up 1.6% and 0.2% respectively over the quarter. The difference between houses and units comes back to supply levels, with house listings across the ACT tracking 14.7% below their previous five-year average, while unit listings are holding 30.4% above their five-year average. A range of factors are set to shape housing market outcomes over the rest of the year. On the upside, there is an expectation that interest rates will fall further over the coming months, possibly reducing to the early 3% or even high 2% range by year’s end. Consumer sentiment is likely to improve, while labour markets are holding tight. Additionally, persistently low levels of new housing supply are likely to support values. With the monthly inflation indicator for May showing a 2.4% core inflation rate, inflation is well and truly back within the RBA’s target range of 2-3%, beating the RBA’s latest forecasts, which had trimmed mean inflation holding at 2.6% from mid-2025. The lower than expected inflation outcome has prompted many economists to bring forward their forecasts for future rate cuts, with a consensus view forming that rates will fall another 25 basis points in July, with more cuts to follow. Financial markets are pricing in a cash rate of 3.1% by December and 2.9% through the first quarter of 2026. Lower interest rates go further than improving borrowing capacity and serviceability. Along with reduced cost of living pressures we should see the lower cost of debt providing some support for consumer sentiment and high commitment decision making. The tight labour market, with the unemployment rate holding around 4.1% or lower since early 2022, should also support confidence and borrowing ability. Concerns about the labour market being ‘too tight’ seem to be fading, with no evidence of a blowout in wage growth. From a housing supply perspective, the rise in dwelling approvals from the cyclical lows of 2023/24 looks to have been short lived, with monthly numbers faltering below the decade average and well below the 20,000 approvals required to reach housing accord targets. Insufficient levels of new housing are likely to place further upward pressure on housing prices at a time when affordability constraints are already at record levels. Downside risks relate to widespread affordability constraints, elevated levels of household debt, a cautious lending environment and reduced housing demand via population growth. Geopolitical risk is another factor that could weigh on sentiment. Given the ongoing affordability constraints evident across most markets, it’s hard to see value growth posting a material upswing. The 2.4% rise in national dwelling values through the first half of the year equates to a dollar value increase in the median dwelling value of approximately $19,000, eroding much of the benefits of lower rates when it comes to borrowing capacity. Household debt levels could weigh on credit availability, with the ratio of household debt to disposable income tracking at 181% in the March quarter. While down from historic highs, the risk of households accumulating excessive levels of debt as financial conditions ease is something the Council of Financial Regulators has on their radar. Lower population growth should also help to quell the accrual of housing demand in the absence of a supply response. Finally, geopolitical risk relating to conflict in the Middle East, US tariffs and the ongoing Ukraine war remains a wild card that could weigh on consumer sentiment and potentially disrupt economic conditions. Overall, the tailwinds of lower interest rates, higher confidence, tight labour markets and low housing supply are likely to outweigh the headwinds, providing the foundations for further modest growth in housing values in 2025, but there is no expectation growth conditions will be anywhere near as strong as seen through early 2023 or, for that matter, the height of the pandemic housing boom. With continued interest rates reductions in the second half of the year there’s plenty to keep an eye on in the coming months. If you’re considering entering or expanding in the housing market, reach out to Paris Financial – we can help you understand the tax and investment implications. Source: Cotality (formally CoreLogic)

Economic update August 2025

20 Aug 2025 06:01:00 GMT

Global Financial markets rallied in July after the US struck trade deals with Japan and the EU, which involved a reduction in the tariff rate in exchange for over $1 trillion in combined investment and purchased commitments, supporting both equities and broader risk sentiment. While gold has been supported year to date (YTD) by safe-haven demand and exchange traded fund (ETF) inflows, momentum softened after the trade deal announcements and prices accordingly consolidated into month end. Gold spot finished July 40 basis points (bps) lower than it started. COMEX futures and London Metal Exchange (LME) benchmarks rallied at the beginning of July after US President Trump flagged the possibility of a 50% tariff on copper imports. However, later in the month, the price action reversed sharply after the administration clarified that the tariff would only apply to semi finished copper and derivative products (not refined metal). Global equities performed well in July, with the Morgan Stanley Capital International (MSCI) World Index closing at a record high and up +1.2% on the month. The S&P500 and Nasdaq also created several fresh highs, boosted by solid earnings releases and easing tariff concerns. The global manufacturing Purchasing Managers’ Index (PMI) increased to 50.3 in June and global services PMI declined slightly to 51.9. US US Federal Reserve (The Fed) kept interest rates unchanged. Fed Chair, Jerome Powell did not give any signal regarding next steps for policy rates, consistent with previous guidance from the committee to watch data “over the summer”. At the beginning of the month, the US Senate passed Trump’s “Big Beautiful Bill” after a 27-hour session. With the Senate tied 50-50, Vice President JD Vance cast the tie breaking vote and took the final count to 51-50. President Trump signed the Bill into law during the White House’s Fourth of July ceremony. The Nasdaq and S&P500 closed at record highs multiple times throughout the month. Nvidia boosted the index and became the first public company to reach US $4tn market cap. On the last trading day of the month, Microsoft briefly surpassed the US $4tn market cap threshold, becoming the second publicly traded company to ever do so. The S&P500 and Nasdaq closed July up +2.2% and +3.7% respectively. Q2 GDP rebounded to +3.0% quarter on quarter seasonally adjusted annual rate (SAAR). The statistic was boosted by net exports, with underlying growth slowing. Core Consumer Price Index (CPI) printed at +0.23% month on month (MOM), slightly softer than consensus expectations of +0.3%. Core Personal Consumption Expenditures (PCE) matched expectations, printing at +0.26% MOM, with the year on year (YOY) reading stronger than expected due to upward revisions of the May and April numbers. The unemployment rate fell unexpectedly to 4.11% in June, with the US economy adding 147k jobs. Industrial production increased +0.3% MOM in June, while manufacturing production increased by +0.1%. Australia The Reserve Bank of Australia (RBA) elected to keep rates on hold during its July meeting in a 6-3 vote. This surprised the market, which had almost fully priced in a 25bp cut. The majority of Board members decided to wait until the Q2 CPI data was published before voting in favour of an additional rate reduction. The ASX200 advanced +2.4% in July and notably surpassed 8,700 for the first time in its history on Friday 18 July. The unemployment rate in June ticked up to 4.3%. The economy added over 2,000 jobs, below consensus estimates of adding 20k jobs. Q2 CPI printed slightly softer than expected, with headline CPI increasing by +0.71% in Q2, below consensus +0.8%. Consequently, yearly headline CPI eased from +2.4% to +2.1%. Trimmed mean CPI increased by +0.59%, below +0.7% expectations. This confirmed market expectations for a 25bp rate cut in August. This policy rate change is nearly fully priced in by fixed income markets. May and June retail sales were released during July. May sales came in at +0.2%, weaker than the +0.5% consensus pencilled in and April’s -0.1% figure was revised to flat. On the other hand, June retail sales were stronger than expected, increasing by +1.2% (vs consensus expectations for a +0.4% rise). Notably, this was the last retail sales print, with the Australia Bureau of Statistics (ABS) moving to a broader household spending indicator. New Zealand The Reserve Bank of New Zealand (RBNZ) opted to leave interest rates unchanged at 3.25% when it met in July, with the expectation that annual CPI would likely increase towards the top of the Monetary Policy Committee’s 1-3% target band over mid 2025. Later in the month, Q2 CPI printed softer than expected, increasing by +0.5%, vs consensus expectations of +0.6%. The headline miss was largely due to lower than expected home ownership costs and health. Europe US President Trump proposed a 30% tariff on all goods from the European Union if a separate trade deal could not be negotiated before August 1. Later in the month, an agreement was reached which imposed a 15% tariff on European exports to the US. The European Central Bank (ECB) kept interest rates unchanged in July as expected. The Eurozone unemployment rate inched up to 6.3% in May, from 6.2% in April. The STOXX600 gained +0.9% during July. The market moved mostly sideways during the month as investors awaited further clarity on the tariff situation. Eurozone Harmonised Index of Consumer Prices (HICP) rose to 2.0% in June, slightly higher than the 1.9% May print. Euro area industrial production rebounded strongly in May, up +1.7% MOM, vs -2.2% MOM decline in April. China China’s economy expanded by +5.2% YOY in Q2, slightly ahead of consensus expectations but exceeding Beijing’s full year target of 5%. On July 28, China announced that it would be implementing nationwide childcare subsidies to support the birth rate. The program will see families provided with 3,600 yuan per year for each child up until the age of three. The subsidies will have retroactive coverage, applying in full to children born on or after 1 January 2025 and in part to children born before that date. Export growth came in above expectations in June, increasing +5.8% YOY vs +5.0% YOY consensus. The manufacturing PMI declined to 49.3, from 49.4 in June. Non manufacturing PMI softened from 50.5 in June to 50.1 in July, slightly below market expectations of 50.2. Australian dollar The AUD saw a fairly choppy month in July, though ended the month -2.4% lower. The local currency traded as high as 0.6620, though finished the month at its low near 0.6425. The surprise hold from the RBA to start the month started a bullish week or so stretch for the Aussie, trading close to 0.66. Despite being slightly soft, the US CPI print mid month showed some tariff impacts, seeing the market dial back Fed cut expectations and the USD modestly rise. This, combined with AU unemployment hitting 4.3%, resulted in weakening of the AUD to ~0.6460. Tariff deal announcements with both Japan and the European Union during the remainder of July buoyed risk and pushed the AUD to its intramonth high of 0.6602. The end of the month saw what looked like a squeeze in short USD positions, bringing the Aussie lower once again, in conjunction with some hawkish rhetoric from Jerome Powell. Australian equities The ASX200 reset its record high during July finishing the month +2.4% higher than it began. Most sectors in the index saw gains, with the Financials complex the only sector to fall (-1.0%). The major banks were mixed in July, with CBA seeing the largest decline (-3.7%). NAB and WBC also saw declines, down -1.1% and -0.1% respectively. Meanwhile ANZ bucked the trend, rising +5.4%. AMP saw the largest percentage increase of the Financials sector, up +27.0% with net flows up +63% on the prior quarter. The Health Care sector saw the largest percentage gain on the index, up +9.1% during July. This was supported by index heavyweight CSL, which advanced +13.1%. Clarity Pharmaceuticals saw the largest gain of the complex, advancing +74.8% following multiple announcements including the successful completion of a $203m placement and positive progression in several clinical trials. A rotation out of banks and into resources was seen in the back half of the month, with the resources sector up +4.1% in July. Rare Earth miners ILU and LYC saw some of the largest percentage gains, up +35.5% and +21.6% respectively. Updates within the resources sector were mixed. Boss Energy sold off -44% on the day it reported its June quarter (JunQ) results. Despite the outlook, the company beat consensus expectations for JunQ production. The stock saw the largest percentage decline on the index, down 62.7%. On the other hand, FMG gained +16.3% during July after posting strong JunQ results. Gold stocks were mixed, with NEM gaining +10.8% after reporting a strong quarter and record free cash flow, while NST saw the largest percentage decline in the sector, down -16.1% after lifting its capital expenditure (capex) forecast. JLG entered into a Scheme Implementation Deed with private equity company Pacific Equity Partners at $4.00 per share, in a $1.1bn deal. JLG closed the month +23.0% higher. Global equities Notwithstanding some earnings and macro induced volatility over the course of the month, global equities broadly trended higher in July. The MSCI World Index advanced +1.2% in July. The S&P500 and Nasdaq indices ended up +2.2% and +3.7% respectively. Both the STOXX600 and MSCI Asia Pacific indices closed +0.9% . In the US, NVDA became the first publicly traded company to exceed US $4tn market cap, while Microsoft briefly reached this level at the end of the month. Tech stocks led the S&P500 higher, with the sector gauge advancing +5.2%. Four of the Magnificent 7 Stocks (Mag7) stocks reported strong quarters during July, with Alphabet (+8.9%), Microsoft (+7.3%) and Meta (+4.5%). Tesla shares fell over 8% after reporting lower profits and CEO, Elon Musk warned investors the company could be facing more “rough” quarters ahead. The stock ended down -3.0%. Of the remaining Mag7: AAPL +1.2%, AMZN +6.1%, NVDA +12.6%. European equities moved sideways during July as investors awaited news of a trade deal with the US, which came towards the end of the month. Stoxx sectors saw mixed performance, with Banks up +7.2%, while Media companies underperformed, down -6.5%. Novo Nordisk saw the largest percentage decline on the index, down -28.5% after the company issued a profit warning, cut its growth outlook for 2025 and named a new CEO. Elsewhere, TSMC gained +6.7% after reporting a strong quarterly result and lifting its 2025 USD revenue guidance to 30% YOY with unchanged capital expenditure expectations. Property securities Global property securities saw slowness in July (-1%) after three consecutive months of positive returns (June 1.3%, May ~1% and April 0.9%). Global property continues to be up ~6% YTD. Regional differences remain with the Americas region seeing continued weak performance down -0.8% in July, marketing four consecutive months of negative performance (June -0.5%, May -4.6% and April -2.2%), likely on concerns about the higher US debt on longer term interest rates. Europe/UK had a weak month (-6.0%) after strong returns (~20%) over April-June. The Asia Pacific region had a positive July (+0.9%), continuing from June (+4%), May (+1.0%), and April (+4.5%). Lower rates and limited growth expectations from tariffs were key contributors. Locally, Australian Real Estate Investment Trusts (AREITs) had a more positive month (+3.3%) marking four consecutive months of positive returns – June +0.7%, May +5% and April +6%, with positive macro data highlighting the scope for lower rates and an improving backdrop for REITs. Fixed Income and Credit The first half of the month saw steepening pressure in global long end bonds. Fiscal deficit fears were brought centre stage following the signing of Trump’s Opportunity and Balanced Budget Bill (OBBB) into law and the Japan LDP election loss in the lower house. The 10y US Treasury (UST) yield ended the month 15bps higher at 4.376%, while the 2y UST yield ended July 24bps higher at 3.958%. The 30yr UST yield briefly broke through the 5% level during the month, before moderating and closing 13bps higher at 4.901%. The RBA kept rates on hold in July, contrary to market expectations for a 25bps cut. Fixed income markets had almost fully priced in this policy rate change prior to the meeting. As at month end, the rates market has priced in 80bps of RBA cuts in 2025. Meanwhile, the US market is pricing in 67bps of cuts in 2025, after the Fed kept rates unchanged at the end of the month. US investment grade credit spreads ended the month flat, after trading sideways during July. The high yield credit spread ended the month +5bps wider. If you’d like to discuss how these economic shifts might affect your personal or business finances, the Paris Financial team is here to help. Source: First Sentier Investors, August 2025

Carry forward concessional contributions

20 Aug 2025 05:59:00 GMT

If you’re looking for ways to potentially increase your retirement savings while reducing tax, carry forward concessional contributions could be a good option. Carry forward concessional contributions If you’ve had time out of work raising kids or for other lifestyle reasons, or you haven’t had the money to boost your super until now, you could take advantage of carry forward concessional contributions (also known as catch up contributions). If you’re eligible, the Australian government allows you to catch up on your super contributions by adding in more than the annual limit, so you can enjoy life at retirement without worrying about money. What are carry forward concessional contributions? Carry forward concessional contributions, also known as catch up contributions, fall under concessional (before-tax) contributions. Concessional contributions include: employer contributions (such as super guarantee and salary sacrifice). personal contributions that you claim as a tax deduction. There is an annual cap for concessional contributions which is currently $30,000. If eligible, you can contribute more than $30,000 this financial year by using any unused concessional contributions caps from the previous five financial years. Benefits of carry forward super contributions Making additional before-tax contributions can be a tax-effective way to boost your retirement savings. Super contributions are taxed at 15% (up to an additional 15% tax may apply to higher income earners) which is often a lot lower than most peoples’ marginal tax rate (rate of tax you pay on your personal income) which can be up to a maximum of 47% including the Medicare levy. Any earnings you receive on your contributions once they are in your super account are also only taxed at up to 15%. Case study examples Here’s a few examples of how carry forward concessional contributions could benefit you. Example 1: Tax savings John, a 50 year old with a total super balance under $500,000. He receives a bonus at work and decides to use the bonus to make additional concessional contributions to super including unused amounts from the previous five financial years. This not only helps him save more for retirement but also reduces his taxable income and tax liability for the year. Example 2: Boosting retirement savings after a career break Mark took a career break in his early 30s to care for his children. When he returned to work, he wanted to catch up on his super contributions. His total super balance was $400,000. The carry-forward rule allowed him to use the unused cap from up to five previous financial years when he wasn’t working. He did this by making regular salary sacrifice contributions through his employer which helped him rebuild his super balance more quickly as well as providing additional personal income tax savings. Example 3: Accelerating retirement savings close to retirement Lisa, who is in her late 50s, is planning to retire in a few years. She realises her super balance is not as high as she’d like it to be at $300,000. Carry forward concessional contributions enable her to decrease her tax and increase her super savings in the final years before retirement, giving her a better lifestyle in retirement. She does this by making salary sacrifice contributions through her employer. Eligibility rules for carry forward concessional contributions To make a carry forward concessional contribution, there are specific conditions you need to meet: You need to be under the age of 75 – your contribution must be received by your super fund on or before 28 days following the end of the month you turn 75. Your total super balance needs to be less than $500,000 on 30 June of the previous financial year. You can only carry forward unused concessional contributions from 1 July 2020. Unused concessional cap amounts can only be carried forward for five financial years until they expire. Eligibility criteria for super contributions, including carry forward concessional contributions, can change over time. It’s essential to check with the Australian Taxation Office or consult a financial adviser for the most up to date information. Calculating your carry forward concessional contribution amount Check your previous 30 June total super balance with the ATO. This is available via the MyGov website. You want to ensure your total super balance is under $500,000 as at the previous 30 June. Once you login to your account, you can also use MyGov to work out the amount of unused concessional contributions cap that is available. Important things to consider for carry forward concessional contributions Keep in mind that carry forward concessional contributions are part of the concessional contributions cap, which includes employer contributions (such as super guarantee and salary sacrifice contributions) and personal contributions that you claim as a tax deduction. When determining the amount of unused concessional contributions cap that is available for the current financial year, consider any future concessional contributions you intend to make. It’s also important to remember that you can’t access your super until you meet a condition of release, such as reaching age 65 or age 60 and either retiring or ceasing work. To use up carried forward concessional cap amounts, you may want to make salary sacrifice or personal deductible contributions to super. How do super bring forward rules differ to carry forward concessional contributions? Super bring forward rules Super bring forward rules relate to after-tax contributions, allowing you to contribute more into super in a shorter period. Under these rules, you can bring forward up to two years’ worth of non-concessional (after-tax) contributions. The annual non concessional contributions cap is $120,000 for the 2025-26 financial year. However, using the bring forward rule, you could contribute up to $360,000 if eligible. If your total super balance is less than the general transfer balance cap of $2.0 million, you may be eligible to make non-concessional (after-tax) contributions. Depending on your total super balance you may be able to use the bring forward rule. Carry forward concessional contributions Carry forward concessional contributions are for before-tax contributions, enabling you to make up for past years where you may not have utilised all your concessional contribution caps. Generally, concessional contributions reduce your personal taxable income and tax payable. Ready to make a carry forward concessional contribution? Adding a little extra to your super can be a great way to boost your super savings for retirement. Frequently Asked Questions How do I determine my carry forward contributions for the current financial year? Carry forward concessional contributions are in addition to the current financial year’s concessional contributions cap ($30,000 for 2025-26). Your carry forward concessional contributions or unused concessional contributions cap for the previous five years, can be obtained from the ATO using MyGov. Check that the information in MyGov is consistent with what you believe has occurred. Do I need to notify my super fund to make carry forward concessional contributions? If you intend to claim a tax deduction for personal contributions, you must lodge a valid notice of intent to claim a tax deduction with your super fund. Strict timing requirements apply. However, you don’t have to notify your super fund that you intend to use carry forward concessional contributions. Can I make carry forward concessional contributions at any time during the financial year? Generally, you can make carry forward concessional contributions at any time during the financial year, however: where personal contributions are made on or after age 67, a work test or work test exemption must be satisfied in the financial year to be eligible to claim a tax deduction. if you’re turning 75, a personal tax-deductible super contribution cannot be made after 28 days following the end of the month you turn 75. there are strict timing requirements for lodging a notice of intent to claim a tax deduction with your super fund. See the ATO website for more information. What are the tax benefits of carry forward concessional contributions? Carry forward concessional contributions can help to reduce your taxable income for the year in which you make them. This can result in potential tax savings, especially if you’re in a higher tax bracket. If you’d like to explore how carry-forward contributions could boost your retirement savings, contact Paris Financial– our advisors can help you take advantage of this opportunity. Source: MLC

How much super do I need to retire in Australia?

20 Aug 2025 05:57:00 GMT

The amount of super you need to support your retirement will depend on what kind of lifestyle you’re hoping to enjoy and how much income you’ll be earning in addition to your super savings. Income from the Age Pension, part-time work and other financial investments will affect the amount of super you need to retire comfortably. The Association of Superannuation Funds of Australia (ASFA) provides yearly total income recommendations based on the type of retirement you’re aiming for. Depending on how much income you expect to receive from other sources, you can then estimate how much super you’ll need to reach the “comfortable” or “modest” benchmarks. The table below gives you an idea of how much retirement income you might need to enjoy a comfortable, or modest retirement, and compares these benchmarks against how much you can receive on the Age Pension. Comfortable lifestyle Modest lifestyle Maximum rate of Age Pension Single $52,383 $33,386 $29,874.00 Couple $73,875 $48,184 $22,518.60 (each) a year Budgets for various households and living standards for those aged 65-84 (March quarter 2025) Source: ASFA Retirement Standard The amount of super you need will also depend on what you’re earning from full or part-time work, the Age Pension and other investments. To enjoy a comfortable retirement, AFSA suggests that single people will need $595,000 in super savings at age 67, and couples will need $690,000. But your own individual goal will depend on your other income streams and personal situation. In addition to the total amount of super you have, the way you access it once you retire can also impact your retirement wealth. For example, your super earnings might be subject to more tax if you plan to withdraw lump sums, compared to setting up a super income stream like an account-based pension. What’s the difference between a comfortable and modest retirement in Australia? A comfortable retirement means you can look forward to a broad range of leisure and recreational activities, with a good standard of living. ASFA guidelines suggest you’ll be able to purchase things like private health insurance, a reasonable car, good clothes and a range of electronic equipment. You’ll enjoy domestic and occasionally international, holiday travel. According to ASFA, you can expect a modest retirement to be better than living on the government Age Pension. However, you’ll only be able to enjoy a fairly basic lifestyle. See the charts below to get a more detailed understanding of what sort of services and luxuries you might be able to enjoy, based on your retirement savings. Comfortable lifestyle Modest lifestyle Age Pension Medical Top level private health insurance, doctor/specialist visits, pharmacy needs Basic private health insurance, limited gap payments No private health insurance. Technology Fast reliable internet/telco subscription, computer/android mobile/streaming services Basic mobile, modest internet data allowance Very basic mobile and limited internet connectivity Transport Own a reasonable car, car insurance and maintenance/upkeep Owning a cheaper, older, more basic car Limited budget to own, maintain or repair a car Lifestyle Regular leisure activities including club membership, cinema visits, exhibitions, dance/yoga classes Infrequent leisure activities, occasional trip to the cinema Rare trips to the cinema Home Home repairs, updates and maintenance to kitchen and bathroom appliances over 20 years Limited budget for home repairs, household appliances Struggle to pay for repairs, such as leaky roofs or major plumbing problem Haircuts Regular professional haircuts Budget haircuts Less frequent haircuts, or self haircuts Home cooling and heating Confidence to use air conditioning in the home, afford all utilities Need to keep a close watch on all utility costs and make sacrifices Limited budget for home heating in winter Eating out Occasional restaurant meals, home delivery meals, take away coffee Limited meals out at inexpensive restaurants, infrequent home delivery or take away Only local club special meals or inexpensive take away Clothing Replace worn out clothing and footwear items, modest wardrobe updates Limited budget to replace or update worn items Very basic clothing and footwear budget Travel Annual domestic trip to visit family, one overseas trip every seven years Annual domestic trip or a few short breaks Occasional short break or day trip in your own city Annual budgets for households and living standards for those aged 65-84 (March quarter 2025) Source: ASFA Retirement Standard Do I need a second income stream in retirement? This will come down to your personal circumstances, and what kind of lifestyle you’re hoping to enjoy when you retire. Planning ahead is a great idea if you want to supplement your super with additional streams of income. For example, you could: build up your financial investments top up your super with salary sacrifice or a personal super contribution find part-time employment apply for the Age Pension. What government benefits could I receive? When you retire, you might be eligible for government benefits like the Age Pension or a concession card. This will depend on your age, your residency status, and your financial situation. As of 20 March 2025, the maximum Age Pension is: $1,149 per fortnight for singles ($29,874 a year). $866 each per fortnight for couples ($22,516 a year). If you’re eligible for the Age Pension, you may also be able to access additional government payments, such as: Carer allowance: If you provide daily care to an elderly person or someone with a disability or a serious illness. Rent assistance: To help cover your rent if you’re renting privately. If you’re receiving the Age Pension, the government will automatically send you a Pensioner Concession Card. Even if you’re not eligible for the Pensioner Concession Card, you might still be able to get a Commonwealth Seniors Health Card, subject to being eligible. Either of these cards will allow you to access: cheaper medicines on the Pharmaceutical Benefits Scheme (PBS) bulk billing for doctor’s appointments reduced out of hospital expenses through Medicare. Note that there may be additional concessions from state or territory governments, or from local councils and businesses. How can I set myself up for the retirement I want? Your first step will be to create a clear vision for the retirement you want. Ask yourself: What type of lifestyle do you want to enjoy in retirement? Modest, comfortable, or would you like even more freedom? Use the table above to figure out what you’d like your retirement to look like. Secondly, are you currently on track to achieve this goal? If you’re not quite on track to reach your goal, you can start thinking about strategies to boost your retirement wealth. This might include topping up your current super savings, working part-time, or building up your other financial investments. If you’re unsure about the best way to set yourself up for a retirement which supports your personal goals, a financial adviser can help steer you in the right direction. Calculating how much super is needed for retirement A retirement calculator helps you estimate how much money you’ll need for the retirement lifestyle you want – and how much money you might have when you retire, based on your super savings and other assets. The calculator will also show you the impact of potential investments, fees and voluntary contributions to your super and your retirement wealth. Consider the ASFA benchmarks for a modest and comfortable retirement, other income streams like part-time work or investments and your own financial goals when determining how much super you’ll need when you retire. How can I grow my super? Topping up your super is a good way to boost your retirement wealth and may provide tax-concessions in the short term. Currently, your employer must pay 12% of your ordinary time earnings into your nominated super fund. These contributions are called Superannuation Guarantee (SG) contributions. However, there are a few different ways you can contribute more of your own money towards your super. As super compounds each year, even a small contribution can go a long way towards building up your retirement wealth so you can enjoy the type of retirement you want. If you’re still not sure about the best way to set yourself up for retirement, consider speaking with a financial adviser. They’ll review your personal situation and help you find the solution which best suits your life stage, financial goals and risk tolerance. If you’re planning for retirement and want clarity on your superannuation needs, contact Paris Financial – our team can tailor a plan to your goals. Source: Colonial First State

Protecting retirement income from inflation

19 Aug 2025 05:56:00 GMT

The fall in inflation from multi decade highs is good news for the Australian economy. Many retirees are struggling to manage their cost of living because of the cumulative impact inflation has had on their financial position. Looking forward, retirees need a portfolio that is protected from inflation risks so that they don’t experience another cost of living crisis when inflation has another upturn. Maintaining the long-term real value of investments The key to a successful investment strategy is the ability to generate returns over the long term. Managing inflation is an important piece of the strategy. Long-term investments need to be able to generate a real rate of return that provides growth in the investment value. The investments do not need to capture short-term inflation changes, but they need to offset the impact of inflation over time. Assets that are expected to do this are generally referred to as ‘growth’ assets. To demonstrate this, we can look at the historical performance of assets over the long run1. Looking at Australian investment returns between 1900 – 2023, equities provided a return higher than inflation in 81 years which was 73% of the time. The one-year success rate for bonds and bills (cash) were lower, constrained by historical limits on bond yields. Both bonds and bills provided a one-year real return only 62% of the time in the same period. The long run probabilities are shown in Figure 1. As the investment horizon extends out, up to 25 years, the probability of equities providing a real return increases. The higher returns on the investment eventually overcome any initial shortfall. Bond and bill investments show little improvement with a longer investment horizon2. At horizons of 20 years, the probability of delivering a positive real return from nominal bonds was only 60%. Historically, all investment horizons of 16 years (and longer) have provided a positive real return for Australian equities. While history does not provide a guarantee, the increase shown in Figure 1 should provide confidence that a long-term investment in equities will provide real capital growth. This analysis can be extended to diversified products such as a 70/30 growth fund (70% equities and 30% bonds) and a 50/50 balanced fund (50% equities and 50% bonds). These both show trend improvements over time, benefiting from the exposure to growth assets, but over longer periods. The 70/30 fund needed 20 years and the 50/50 fund 25 years historically to ensure the positive real return. The portfolio comparison in retirement is important in the generation of income over longer periods. If income is taken as a set percentage of the balance than changes in income will directly link to market movements. Also, there are market linked annuities available in Australia where the capital is consumed but the income, which is paid for life, will be directly linked to the performance of the specified market or underlying investments. This paper provides a historical basis to consider the inflation protection provided by these income streams. Historical investment performance is not a reliable indicator of future performance, but it is worth considering the timeframe for recovery from historical shocks. Figure 1: Historical probability of positive real returns, 1900-2023 Source: Calculations, based on data from Morningstar, S&P, Bloomberg and ABS Inflation risk in retirement Inflation is often called out as a risk in retirement that needs to be managed differently. Longevity and sequencing risks are also noted as being different, and these are not present in the accumulation phase. One of the challenges with managing inflation risk in retirement, is that inflation risk has a different impact on a portfolio in the retirement phase. Management of inflation risk in retirement needs a different approach. It is not just that capital needs to regain its real value, but every income payment needs to keep its value to maintain the target lifestyle of the retiree. We can examine this difference by considering the outcome for someone who started to draw an income at the start of 1973. This was one of the worst years in the historical comparison where the inflation spike meant that any investment linked income would be falling in real terms in the first year. If a retiree’s income was linked to an investment, the real value would have declined for any of the three assets: Bills by 3.5%; Bonds by 26% and Equities by 30.7%. What happens over time is the recovery in the level of income. Income linked to equity performance briefly exceeds the original value in 1980 but dips again before maintaining real gains from 1983. Bills provide higher real income from 1985 while bonds will take until 1992. The 19 year impact on bonds highlights the exposure that nominal bonds have to inflation risks. The pattern for income linked to the different markets from 1973 can be seen in Figure 2. Figure 2: Investment-linked income example Source: Calculations, based on data from Morningstar, S&P, Bloomberg and ABS There is more at stake for retirees. The impact is not just the length of time to recover the real capital value, but the income that is lost over that period. For the nine years that the real equity linked income is under the starting point, a retiree needs to reduce their lifestyle or run their capital down early. The shortfall is shown in Figure 3. It highlights the cumulative shortfall in income, relative to the initial lifestyle of the retiree. The starting point is where inflation risk creates an impact which might be after the start of retirement. The shortfall highlights the extent of the impact from an inflation shock. The worst performance is from bonds, where more than 7 years of income (lifestyle) were lost over a 17-year period before a modest recovery. For equity-linked income, nearly three years of lifestyle were lost over nine years. While there was a strong recovery after, this is an average of a third of total spending that needs to be cut for an extended period. Cash investments took longer to fully recover, but the extent of the pain was not as large. The worst point is ten years after the shock, where the retiree has missed 1.7 years of real spending. Figure 3: Cumulative shortfall in real incomes Source: Challenger calculations, based on data from Morningstar, S&P, Bloomberg and ABS The extended pain highlights why inflation risk is an additional risk to consider in retirement. It is not just the capital recovery, but it is the lost lifestyle that happens when an income stream does not keep pace with inflation. Retirees that choose a market linked income stream need to have the capacity to sustain a potential extended period of reduced lifestyle before they can enjoy an increased lifestyle later in retirement. Payment profiles and income indexation The analysis so far has highlighted how inflation shocks can impact a lifestyle based on an initial spending level. In practice, not all spending profiles are the same. The different approaches to generating income provide differing levels of starting income. Some differing options for indexation of an income stream include: CPI linked lifetime income Market linked lifetime income3 Accelerated payments with market-linked lifetime income A CPI linked lifetime income stream sustains the lifestyle of the retiree by adjusting their payments with changes in the cost of living. A market linked income stream uses an indirect approach, that requires market movements to exceed CPI inflation over time to maintain the lifestyle of the retiree. Accelerated payments are designed to smooth the income profile of market linked income streams. Recognising that payments are expected to grow over time, some of the income can be front-loaded by indexing the payments by a fixed percentage lower than the market return. This provides a higher starting payment that will grow more slowly. This fixed percentage is sometimes called the assumed investment rate (AIR). The analysis includes payments for an AIR of 2.5% p.a. and 5% p.a. The difference in the initial payment rates as shown in Figure 4 can be substantial. Figure 4: Initial payment rates Source: Challenger, as at 8 April 2024 Current rates provide a range of starting payments, per $100,000 of around $4,000 to $7,000 a year, for a 65 year old male. A market-linked lifetime annuity with a 5% AIR has payments starting at a rate 78% higher than one with no AIR. Over time the payments will increase by 5% less each year so over time the payments will cross over. This wedge is independent of market movements. The paths for the 30 years from Dec 1993 to Dec 2023 can be seen in Figure 5. This shows the five-fold increase for payments that were linked to the accumulation performance of the S&P/ASX200 over that time. The 5% AIR hurdle provided the highest initial payment, but lower indexation meant that this would not have been the highest after 2004, only 11 years into retirement. The smaller increase in the payments with a 5% AIR would not have kept up with inflation from the initial payment level. It provided a flatter spending profile that declines in real terms. Figure 5: Market-linked payments over time Source: Challenger, S&PASX200 Dividend strategy Another approach with an equity investment is to use only the dividend payments for retirement income. Dividend yields tend to be counter cyclical so dividends are not as volatile as share prices. The question is how well they keep up with inflation over time. Again, we can use the available historical data4 to see what might have happened. One difference is that none of the dividends are reinvested. When dividends are higher, a market linked strategy effectively reinvests the excess. A dividend strategy spends this excess which has an impact over longer horizons. Another difference with a dividend strategy is the starting income levels. The starting income reflects the dividend yield available at the time, with no consumption of capital over time. The first challenge is to see if the dividends protect from inflation for the given starting level. Figure 6 highlights how the dividend strategy does not provide the same level of protection of an equity market-linked strategy. It begins with a 60% success rate, similar to the equities market linked strategy with a 5% AIR. Over time, the success rate improves, but it does not match an equity market linked strategy. Historically, dividend growth over 25 years was below inflation in 10% of the scenarios. The earliest in this sample was 1929-1954 and the latest was 1969-1994. Figure 6: Inflation protection of a dividend strategy Source: Challenger calculations, based on data from Morningstar, S&P, BHM, Bloomberg and ABS The dividend strategy maintains the capital invested in the underlying equities so the income payments will be lower than what can be achieved if the capital is consumed over retirement. On average, the dividend yield has been 4.65% p.a. and is currently 5.2% including franking credits. Investors might expect inflation protection similar to an equity linked 5% AIR investment. In practice, the initial income is lower with a dividend strategy, but the lower income is better protected than the 5% AIR strategy. However, it can take a long time to catch up the initial income gap. Another impact of maintaining the capital is that the dividend strategy does not increase payments at older ages. The comparison to market linked lifetime income streams is shown in Figure 7 which shows that only the market-linked strategy with a 5% AIR has a higher initial payment at age 65, but by age 75, the dividend strategy provides lower payments than any of the other strategies. This demonstrates that a dividend strategy supports a lower lifestyle than a strategy that will consume capital over time. Retirees are unable to maximise the money available to spend through retirement if they do not draw down on their capital. Figure 7: Initial payment rates per $100,000 investment at different ages Source: Challenger as at 8 April 2024 with calculations based on S&P data as at Dec 2023 Age Pension Another consideration for retirees thinking about inflation protection is their entitlement to the Age Pension. Around two in three current retirees receive at least a partial Age Pension, and while this is likely to decline, a significant proportion of retirees will continue to receive some Age Pension in the future. The Age Pension provides an income stream that automatically increases with inflation. Over time, it will also increase with real wages growth, but the real wage declines in recent years mean that it is probably still several more years until the Age Pension will increase more than inflation. The mechanics of the Age Pension indexation can result in retirees receiving a partial Age Pension being over compensated. The full Age Pension payment is indexed and any means tested amounts are calculated relative to the new full payment. While earned income is likely to increase with inflation, the assets held by an asset tested pensioner might increase by less than inflation, or even fall. In this case, the proportionate increase in Age Pension payments might be higher than inflation reducing the need to fully protect a retirement portfolio from inflation. This protection is provided only up to the value of the Age Pension. If a retiree has any lifestyle requirements above the safety net provided by the Age Pension they need to be fully protected against inflation. Conclusion Protecting an investment portfolio from inflation can be an important concern for any investor. In retirement, the challenge increases as a retiree needs to protect their income stream to be able to sustain their lifestyle. While some investments can protect against inflation over the long run, market linked investments don’t necessarily protect an income stream from inflation over the short to medium term. Retirees who want to be able to maintain their lifestyle need the inflation protection that can be provided by a CPI linked income stream. The Age Pension will deliver some of this for retirees, but those with a lifestyle goal above the Age Pension’s safety net will need an additional source of inflation protected income. If you’d like advice on how to protect your retirement savings from the impact of inflation, speak with the Paris Financial team – we can help you put the right strategies in place. 1 The historical data in this paper comes from the Dimson, Marsh and Staunton dataset as provided by Morningstar. Recent data on indices relates to the S&P/ASX 200 Accumulation index, Bloomberg AusBond Composite 0+Yr Index and Bloomberg AusBond Bank Bill Index. Recent inflation data is the CPI sourced from the Australian Bureau of Statistics. 2 The majority of these periods were between 1933 and 1973 when bond yields were set by regulation. 3 Different market-linked options are available, but the initial payment is the same for each option. 4 Historical data is calculated as the difference between Accumulation and price returns in the BHM dataset: Brailsford, T., J. Handley & K. Maheswaran (2012) The historical equity risk premium in Australia: Post GFC and 128 years of data. Accounting and Finance Vol52.1 pp237-247. Franking credits have been included for the period post 1987 Source: Challenger

Reserve Bank cuts interest rates by 0.25 percentage points in August in unanimous decision

19 Aug 2025 05:35:00 GMT

In short: The Reserve Bank cut interest rates by 0.25 percentage points in August to 3.6 per cent, after July’s shock ‘on hold’ decision. The average owner-occupier with a $750,000 mortgage as of February will see their minimum monthly repayment fall $111 if their bank passes on the cut, taking the cumulative reduction this year to $340, according to Canstar. What’s next? The next RBA rates decision will be delivered on September 30. After that, there are two further meetings this year, in November and December. The Reserve Bank has delivered its third interest rate cut of 2025, with a 0.25 percentage point reduction at its August board meeting. That takes the cash rate to 3.6 per cent for the first time since April 2023. The move had been overwhelmingly anticipated by financial markets and economists after the surprise decision to hold rates steady in July. It was a unanimous decision by board, which had been divided last month. Tuesday’s cut follows a further easing of inflation in the June quarter, which RBA governor Michele Bullock last month highlighted as the crucial piece of data the monetary policy board was waiting for. “Updated staff forecasts for the August meeting suggest that underlying inflation will continue to moderate to around the midpoint of the 2–3 per cent range, with the cash rate assumed to follow a gradual easing path”, the post-meeting statement read. ABC News / Source: Reserve Bank of Australia The inflation pull back, alongside “labour market conditions easing slightly, as expected”, led the board to deem “further easing of monetary policy was appropriate”. “This takes the decline in the cash rate since the beginning of the year to 75 basis points”, the RBA board noted in its statement. The central bank cut interest rates at its February and May board meetings. Before that, the RBA’s cash rate had sat at 4.35 per cent since November 2023, after a series of 13 rate hikes, beginning in May 2022. Treasurer Jim Chalmers described it as a “very welcome relief for millions of Australians”. “It means the lowest interest rates for more than two years”, he said shortly after the decision. “It reflects the substantial and sustained progress we’ve made on inflation in a volatile and uncertain global environment”, the treasurer noted in a statement. Cash rate at 3.6pc, further rate cuts expected The Australian dollar fell following the decision, dipping just below 65 US cents as Ms Bullock addressed a media conference in Sydney. The RBA governor indicated the board was prepared to cut interest rates further if necessary. “The forecasts imply that the cash rate might need to be a bit lower than it is today to keep inflation low and stable, and employment growing, but there is still a lot of uncertainty”, Ms Bullock told reporters. “The board will continue to focus on the data to guide its policy response”. Where are rates heading? The Reserve Bank’s economic outlook suggests further room to cut interest rates, but it’s not all good news for most working-age Australians. Betashares chief economist, David Bassanese has forecast further interest rate cuts, with the next easing more likely in November, rather than at the next meeting in September. “Indeed, the [central] bank’s own forecasts of underlying inflation stabilising at 2.6 per cent over coming quarters incorporate further declines in the cash rate in line with current market expectations”, he wrote. “That said, barring a major growth scare, the RBA does not seem in any rush to cut interest rates. “All up, my base case remains that a rate cut on Melbourne Cup day is an odds on favourite –following release of the June quarter consumer price index report in late October”. The governor would not be drawn on what specific cash rate the central bank considers to be “neutral” – that is, the level where the rate is not stimulating or putting a handbrake on the economy. Instead, she gave a “very wide range” of between 1 and 4 per cent, and noted a neutral rate is for when there is an absence of economic shocks. “We are very often not in the absence of shocks … we’ve got shocks, particularly at the moment”. While the central bank’s forecasts put inflation around target over the period ahead, it has downgraded its growth forecasts. It now expects gross domestic product (GDP) expanded 1.6 per cent over the year to June (compared to 1.8 per cent forecast in May); and GDP growth to only pick up to 1.7 per cent by the end of the year (it had previously forecast 2.1 per cent). “Its forecasts assume that the cash rate will continue to ‘follow a gradual easing path’, implying that without further easing growth and inflation will be lower and unemployment higher”, AMP chief economist, Shane Oliver said. AMP has forecast further rate cuts in November, February and May to take the cash rate to 2.85 per cent. “We continue to see further rate cuts as growth remains sub par, the risks to unemployment are on the upside, underlying inflation is likely to remain around the 2.5 per cent target and monetary policy remains tight”, Dr Oliver wrote. How much will home loan repayments fall? Some lenders were quick off the mark to confirm they would be passing on the interest rate cut to home loan customers, with Macquarie, Commonwealth Bank, Westpac, ANZ, NAB and AMP among the first handful of announcements. The cumulative effect of three rate cuts so far this year have added up to a substantial reduction in minimum mortgage repayments for many home loan borrowers. According to calculations by financial comparison site Canstar, the savings from this month’s cut range from $74 on a half a million dollar mortgage, to $148 on a $1 million home loan. Based on an owner-occupier paying principal and interest with 25 years remaining in Feb 2025 at the RBA average existing customer variable rate. Calculations assume the banks pass on each cut in full to existing variable customers the month after. Source: Canstar.com.au The numbers are based on an owner-occupier repaying principal and interest, who had 25 years remaining on their loan in February. The estimates assume borrowers were paying the average variable rate of 5.79 per cent, which would fall to 5.54 per cent after Tuesday’s 0.25 percentage point cut, and that lenders pass on cuts in full to existing variable customers the following month. Home loan borrowers are not obliged to lower repayments, and, in fact, most do not – last month, Commonwealth Bank released data showing only one in 10 eligible home loan customers reduced their mortgage direct debits after the rate cut in May. If borrowers continue to make repayments above the minimum required, they will pay down more of the principal as the interest reduces, and pay off their loan faster. If you’re unsure how the latest rate cuts may affect your business or investments, reach out to the team at Paris Financial – we’re here to guide you through the changes. Source: ABC News

Interest deductions: risks and opportunities

18 Aug 2025 06:54:00 GMT

This tax season, we’ve seen a surge in questions about whether interest on a loan can be claimed as a tax deduction. It’s a great question as the way interest expenses are treated can significantly affect your overall tax position. However, the rules aren’t always straightforward. Here’s what you need to know. The purpose of the loan The most important thing when looking at the tax treatment of interest expenses is to identify what the borrowed money has been used for. That is, why did you borrow the money? For interest expenses to be deductible you generally need to show that the borrowed funds have been used for business or other income producing purposes. The security used for the loan isn’t relevant in determining the tax treatment. Let’s take a very simple scenario where Harry borrows money to buy a new private residence. The loan is secured against an existing rental property. As the borrowed money is used to acquire a private asset the interest won’t be deductible, even though the loan is secured against an income producing asset. Redraw v offset accounts While the economic impact of these arrangements might seem somewhat similar, they are treated very differently under the tax system. This is an area to be especially careful with. If you have an existing loan account arrangement, you’ve paid off some of the loan balance and you then use a redraw facility to access those funds again, this is treated as a new borrowing. We then follow the golden rule to determine the tax treatment. That is, what have the redrawn funds been used for? An offset account is different because money sitting in an offset account is basically treated much like your personal savings. If you withdraw money from an offset account you aren’t borrowing money, even if this leads to a higher interest charge on a linked loan account. As a result, you need to look back at what the original loan was used for. Let’s compare two scenarios that might seem similar from an economic perspective: Example 1: Lara’s redraw facility Lara borrowed some money five years ago to acquire her main residence. She has made some additional repayments against the loan balance. Lara redraws some of the funds and uses them to acquire some listed shares. Lara now has a mixed purpose loan. Part of the loan balance relates to the main residence and the interest accruing on this portion of the loan isn’t deductible. However, interest accruing on the redrawn amount should typically be deductible where the funds have been used to acquire income producing investments. Example 2: Peter’s offset account Peter also borrowed money to acquire a main residence. Rather than making additional repayments against the loan balance, Peter has deposited the funds into an offset account, which reduces the interest accruing on the home loan. Peter subsequently withdraws some of the money from the offset account to acquire listed shares. This increases the amount of interest accruing on the home loan. However, Peter can’t claim any of the interest as a deduction because the loan was used solely to acquire a private residence. Peter simply used his own savings to acquire the shares. Parking borrowed money in an offset account We have seen an increase in clients establishing a loan facility with the intention of using the funds for business or investment purposes in the near future. Sometimes clients will withdraw funds from the facility and then leave them sitting in an existing offset account while waiting to acquire an income producing asset. This can cause problems when it comes to claiming interest deductions. First, even if the offset account is linked to a loan account that has been used for income producing purposes, this won’t normally be sufficient to enable interest expenses incurred on the new loan to be deductible while the funds are sitting in the offset account. For example, let’s say Duncan has an existing rental property loan which has an offset account attached to it. Duncan takes out a new loan, expecting to use the funds to acquire some shares. While waiting to purchase the shares, he deposits the funds into the offset account, which reduces the interest accruing on the rental property loan. It is unlikely that Duncan will be able to claim a deduction for interest accruing on the new loan because the borrowed funds are not being used to produce income, they are simply being applied to reduce some interest expenses on a different loan. To make things worse, there is also a risk that parking the funds in an offset account for a period of time might taint the interest on the new loan account into the future, even if money is subsequently withdrawn from the offset account and used to acquire an income producing asset. For example, even if Duncan subsequently withdraws the funds from the offset account to acquire some listed shares, there is a risk that the ATO won’t allow interest accruing on the second loan to be deductible. The risk would be higher if there were already funds in the offset account when the borrowed funds were deposited into that account or if Duncan had deposited any other funds into the account before the withdrawal was made. This is because we now can’t really trace through and determine the ultimate source of the funds that have been used to acquire the shares. To do It’s worth reaching out to the team at Paris Financial before entering into any new loan arrangements. In this area, mistakes are often difficult to fix after the fact, which can lead to poor tax outcomes. That’s why getting advice from a tax professional before committing to a loan is essential. We can work alongside you and your mortgage broker to ensure your loan is structured in a way that makes financial sense and protects your tax position. Note: The material and contents provided in this publication are informative in nature only. It is not intended to be advice and you should not act specifically on the basis of this information alone. If expert assistance is required, professional advice should be obtained.

Superannuation rates and thresholds updates

11 Aug 2025 06:52:00 GMT

Super guarantee rate now 12%: what it means for employers From 1 July 2025, the superannuation guarantee (SG) rate officially rose to 12% of ordinary time earnings (OTE). This is the final step in the gradual increase legislated under previous reforms. What’s changed? Old rate: 11.5% (up to 30 June 2025) New rate: 12% (from 1 July 2025) This increase affects cash flow, payroll accruals and employment contracts, especially where total remuneration includes superannuation. Employer checklist Update payroll software: ensure systems are calculating 12% SG correctly from 1 July 2025 pay runs Review employment agreements: if contracts are set to inclusive of super, the take-home pay of employees may reduce unless renegotiated or the employer decides to bear the cost of the increased SG rate Budget for higher super contributions: consider possible cash flow impacts Remember that significant penalties can be imposed for late or incorrect SG payments, including loss of deductions, interest and other administration charges. Personal superannuation contributions The annual concessional contribution cap will remain at $30,000 for the 2025/2026 financial year. The annual non-concessional contribution (NCC) cap is set at four times the concessional contribution cap meaning it will also remain at $120,000. Although the annual NCC cap has not changed, NCCs can now be made by individuals with a total super balance (TSB) of less than $2,000,000 on 30 June 2025 (assuming they have not reached the age 75 deadline and any prior bring forward periods are considered). This is due to the fact that the upper TSB limit links to the general transfer balance cap (TBC) which has increased to $2,000,000. The relevant TSB amounts for NCCs in the 2025/2026 financial year are summarised in the table below: Total Super Balance – 30 June 2025 NCC Cap Allowable bring forward period Less than $1.76m $360,000 3 Years $1.76m to $1.88m $240,000 2 Years $1.88m to $2.0m $120,000 No bring forward $2.0m and above Nil Nil Personal deductible contributions A superannuation fund member may be able to claim a deduction for personal contributions made to their super fund with personal after-tax funds. A member will normally be eligible to claim a deduction if: The member makes an after-tax contribution to their superannuation fund in the relevant financial year They are aged under 67 or 67 to 74 and meet a work test or work test exemption They have provided the superannuation fund with a valid notice of intent to claim The super fund has provided the member with acknowledgement of the notice of intent to claim Notice of intent to claim If the member is eligible and would like to claim a deduction, then they must notify their super fund that they intend to claim a deduction. The notice must be valid and in the approved form – Notice of Intent to Claim or vary a deduction for personal super contributions (NAT 71121). The tax legislation provides a notice of intent to claim will be valid if: The individual is still a member of the fund The fund still holds the contribution It does not include all or part of an amount covered by a previous notice The fund has not started paying a super income stream using any of the contribution The contributions in the notice of intent have not been released from the fund that the individual has given notice to under the FHSS scheme The contributions in the notice of intent don’t include FHSSS amounts that have been recontributed to the fund. What you need to consider The member must provide the notice of intent to claim to the fund by the earlier of: The day the individual lodges their income tax return for the relevant financial year; or 30 June of the following financial year in which the individual made the contribution. However, if a super fund member provides a notice of intent after they have rolled over their entire super interest to another fund, withdrawn the entire super interest (paid it out of super as a lump sum), or commenced a pension with any part of the contribution, the notice will not be valid. This means the individual will not be able to claim a deduction for the personal contributions made before the rollover or withdrawal. Updated superannuation and tax thresholds: 2025/2026 2024/2025 2025/2026 General transfer balance cap $1,900,000 $2,000,000 Defined benefit income cap $118,750 $125,000 CGT lifetime Cap $1,780,000 $1,865,000 Untaxed plan cap – Lifetime $1,780,000 $1,865,000 Superannuation Guarantee – Maximum Contributions base (per quarter) $65,070 $62,500 PCG 2016/5 Safe Harbour rates for related party LRBA’s 9.35% 8.95% Remaining unchanged The following thresholds will remain unchanged for the 2025/2026 financial year. Concessional contribution cap $30,000 Non-concessional contribution cap – standard $120,000 Non concessional contribution cap – maximum bring forward over 3 financial years $360,000 Division 293 – Annual adjusted taxable income $250,000 Navigating the super guarantee updates If you have any queries about staying compliant with the super guarantee changes, get in touch with Paris Financial. Note: The material and contents provided in this publication are informative in nature only. It is not intended to be advice and you should not act specifically on the basis of this information alone. If expert assistance is required, professional advice should be obtained.

Luxury cars: the impact of the modified tax rules

08 Aug 2025 06:49:00 GMT

With the purchasing of luxury vehicles on the rise it’s important to be aware of some specific features of the tax system that can impact on the real cost of purchase. Often the tax rules provide taxpayers with a worse tax outcome if the car will be used for business or other income producing purposes compared with a non-luxury car, but this depends on the situation. Let’s take a look at the key features of the tax system dealing with luxury cars and the practical impact they can have on your tax position. Depreciation deductions and GST credits Normally when someone purchases a motor vehicle which will be used in their business or other income producing activities there will be an opportunity to claim depreciation deductions over the effective life of the vehicle. Rather than claiming an immediate deduction for the cost of the vehicle, you will typically be claiming a deduction for the cost of the vehicle gradually over a number of years. Likewise, a taxpayer who is registered for GST might be able to claim back GST credits on the cost of purchasing a motor vehicle that will be used in their business activities. However, when you are dealing with a luxury car the tax rules will sometimes limit your ability to claim depreciation deductions and GST credits, impacting on the after-tax cost of acquiring the car. How does it work? Each year the ATO publishes a luxury car limit which is $69,674 for the 2025-26 income year. If the total cost of the car exceeds this limit, then this can impact the GST credits or depreciation deductions that can be claimed. Let’s assume that Alice buys a new car for $88,000 (including GST) in July 2025. To keep things simple, let’s say Alice uses the car solely in her business activities and is registered for GST. The first issue for Alice is that rather than claiming GST credits of $8,000, her GST credit claim will be limited to $6,334 (ie, 11th x $69,674). We then subtract the GST credits that can be claimed from the total cost, leaving $81,666. As this still exceeds the luxury car limit, Alice’s depreciation deductions will be capped as well. While she actually spent $89,000 on the car, she can only claim depreciation deductions based on a deemed cost of $69,674. The end result is that Alice has missed out on some GST credits and depreciation deductions because she bought a luxury car. Exceptions to the rules There are some important exceptions to these rules. The rules only apply to vehicles which are classified as ‘cars’ under the tax system. That is, the car limit doesn’t apply if the vehicle is designed to carry a load of at least one tonne or it is designed to carry at least 9 passengers. The rules only apply if the vehicle was designed mainly for carrying passengers. The way we determine this depends on the nature of the vehicle and whether we are dealing with a dual cab ute or not. For example, let’s assume Steve buys a ute which is designed to carry a load of at least one tonne. This isn’t classified as a car for tax purposes so Steve won’t miss out on GST credits or depreciation deductions. However, let’s assume Jenny has bought a dual cab ute which is designed to carry a load of less than one tonne and fewer than 9 passengers. This is classified as a car and the luxury car limit will apply unless we can show that it wasn’t designed mainly to carry passengers. As we are dealing with a dual cab ute, we multiply the vehicle’s designed seating capacity (including the driver’s) by 68kg. If the total passenger weight determined using this formula doesn’t exceed the remaining ‘load’ capacity, we should be able to argue that the ute wasn’t designed mainly for the principal purpose of carrying passengers, which means that Jenny should be able to claim depreciation deductions based on the full cost of the vehicle. The approach would be different if we were dealing with something other than a dual cab ute, such as a four-wheel drive vehicle. Luxury car lease arrangements Normally when someone enters into a lease arrangement for a car and they use the car in their business or employment duties there’s an opportunity to claim deductions for the lease payments, adjusted for any private usage. However, if the value of the car exceeds the luxury car limit then the tax rules apply differently. Basically, what happens is that the taxpayer is deemed to have purchased the car using borrowed money. Rather than claiming a deduction for the actual lease payments, instead we will be claiming deductions for notional interest charges and depreciation, subject to the luxury car limit referred to above. Luxury car tax Cars with a luxury car tax (LCT) value which is over the LCT threshold for that year are subject to LCT, which is calculated as 33% of the amount above the LCT threshold. The LCT thresholds for the 2025-26 income year are: $91,387 for fuel-efficient vehicles $80,567 for all other vehicles that fall within the scope of the LCT rules From 1 July 2025 the definition of a fuel-efficient vehicle has changed, meaning that a car will only qualify for the higher LCT threshold if it has a fuel consumption that does not exceed 3.5 litres per 100km (this was 7 litres per 100km before 1 July 2025). Buying a car or other motor vehicle can be a complex process and there will be a range of factors to consider. If you need assistance with the tax side of things please let us know before you jump in and sign any agreements. Need Expert Guidance on Luxury Car Tax Rules? Contact the team at Paris Financial today to ensure you understand your tax position before purchasing a luxury vehicle. Note: The material and contents provided in this publication are informative in nature only. It is not intended to be advice and you should not act specifically on the basis of this information alone. If expert assistance is required, professional advice should be obtained.

Support at Home Pricing Changes - What Trustees Need to Know

08 Jul 2025 06:45:00 GMT

From 1 November 2025, Australia’s aged care system is set to evolve with the introduction of the Support at Home program, replacing the existing Home Care Packages (HCP) scheme. This transition will bring changes to how aged care services are priced and delivered. If you’re a trustee managing someone’s financial affairs or caring for an ageing family member, it’s essential to stay on top of what’s changing. In this article, we unpack the support at home pricing changes, what they mean for you, and how to prepare. Why Is the Support at Home Program Being Introduced? The government’s goal is to simplify in-home aged care while ensuring fairer access and more transparent pricing. Under the current Home Care Packages system, service pricing has been criticised for being inconsistent and difficult to understand, with various admin fees and hidden charges. The Support at Home program is designed to replace that system with a more standardised, clearer structure, where the price of services better reflects the full cost of delivery. This includes not only the direct service, but also admin costs like scheduling and transport. How Will Support at Home Pricing Work? Under the new model, each service will have a bundled price, that is, it will reflect the full cost of delivering that service. This is a big change from the current setup, where admin costs and service fees are listed separately. For example, instead of seeing: Personal care: $50/hour Admin: 20% You’ll now see something like: Personal care (inc. admin): $60/hour This bundled approach is intended to improve clarity and reduce fee layering. However, the shift could result in some services appearing more expensive, even if the total cost hasn’t increased. Or, it may highlight cases where a provider’s admin fees were previously high and now included in the base rate. What’s Changing in 2025 and 2026? From 1 November 2025, the Support at Home program takes effect. For the first eight months, providers will continue to set their own prices, similar to how things currently operate. This gives time for both providers and recipients to adapt. However, from 1 July 2026, government price caps will be introduced. These caps are intended to prevent overcharging and improve price consistency across the country. This means that while there may be short-term pricing variations during the transition, more predictable pricing is on the horizon. Will Home Care Costs Increase? That depends on your provider. Because each service will now reflect the full cost including admin, some prices may rise, especially if your provider previously charged low base fees but high management costs. On the other hand, clients whose providers have already priced services fairly and transparently may notice minimal changes. You’ll receive a new service agreement before the changeover. It’s crucial to read it thoroughly and ask your provider how their prices compare with others in the market. How to Compare Providers and Prices To help clients navigate these pricing shifts, the government has released indicative pricing summaries based on market averages. You’ll also be able to use the Find a Provider tool on the My Aged Care website to compare standard prices from multiple providers. These resources allow you to: Benchmark your current provider’s rates Explore alternatives if your provider’s pricing appears too high Make informed decisions about switching providers, if necessary What Should You Do Before 1 November 2025? Preparation is key. Here’s what you should do in the lead-up to the Support at Home rollout: Review your current care plan and agreement Understand your current fees, services, and what’s included. Talk to your provider Ask them how they plan to price services under the new system and request a draft of your updated agreement. Compare providers Use the My Aged Care tools to see how your provider stacks up in terms of pricing and services. Get advice if needed Trustees and family members should work closely with a financial advisor to ensure decisions are in the best interest of the care recipient. Government Protections to Keep Pricing Fair The introduction of price caps in July 2026 is just one way the government is protecting aged care consumers. Other protections include: Mandatory publication of prices Providers must publish their service prices on their website and on the My Aged Care portal. Transparent pricing structure Each service must have a clear and all-inclusive price listed. Market comparisons Clients can view how their provider compares with others, helping them decide whether to stay or switch. These measures aim to reduce confusion, discourage excessive charging, and support informed choices. What Happens Post-July 2026? After price caps come into play, expect to see: Greater pricing consistency Simplified cost comparisons Reduced financial stress for families This will mark a major step forward in aged care transparency. It’s particularly useful for trustees who are legally responsible for managing financial arrangements on behalf of care recipients. Budgeting and forecasting aged care costs will become more straightforward and fair. Don’t Navigate These Changes Alone Managing aged care finances isn’t simple, especially when reform is underway. If you’re unsure how these pricing changes might affect you or someone you support, expert guidance can make a big difference. At Paris Financial, we specialise in supporting trustees, families, and aged care recipients through periods of regulatory and financial change. We can help you: Review provider agreements Benchmark service costs Plan for future aged care expenses Comply with trustee obligations Support at Home Pricing Changes: Get Expert Advice Understanding the impact of support at home pricing changes is crucial for anyone involved in aged care financial decisions. Whether you’re a trustee or a concerned family member, staying ahead of these changes ensures better outcome both financially and in care quality. Need help reviewing your care agreements or planning aged care expenses? Contact the team at Paris Financial. We’re here to help you navigate support at home pricing changes with confidence. Source: My Aged Care

The one big, beautiful bill that may not be so beautiful for Aussies

07 Jul 2025 06:42:00 GMT

You may have seen the viral headline about a new U.S. tax bill called the One Big Beautiful Bill, but what does it mean for Australian investors, especially super funds and small businesses with US exposure? Turns out, it could mean a hit to investment returns. Where are things at? Australian superannuation funds currently have about $400 billion invested in the US and tax concessions are currently available under existing tax treaties. This could change. A new bill, backed by the Trump administration and recently passed through the House of Representatives proposes higher taxes on countries seen to be discriminating against US businesses, including Australia. If the bill becomes law, Australian super funds could face higher taxes on US investments, directly affecting the long-term returns of super funds. The implications Even if you don’t have direct investments in the US, this matters. If your business is tied to superannuation funds or if you rely on consistent super returns for your retirement planning, changes like these can add pressure. It also adds a layer of uncertainty for Aussie businesses operating globally. As trade tensions rise and tax rules shift, doing business internationally becomes more complex and potentially more costly. Tax experts say these changes could override existing treaties between the US and Australia. And they’re not just aimed at big corporates, any individual or entity with US exposure could potentially be affected in some way. What’s being done? Industry groups including the Financial Services Council are calling on the Australian Government to step in and protect Australian investors through diplomatic and trade channels. Major super funds have already met with US lawmakers, reminding them that Australia is a significant source of capital for US markets and that strong partnerships go both ways. That said, this legislation is still working its way through Congress and faces pushback even from some Republicans. But as one US political expert said, ‘Bills that looked doomed have passed before.’ We live in hope but it’s not over yet. What can you do? Using John Howard’s barometer, for now we’re at the be alert but not alarmed stage. If you’re managing a business, planning your retirement, or investing overseas, this is a reminder of how global politics can impact your bottom line. Here’s what we recommend: Stay informed. Tax rules can change quickly Ensure your retirement planning is flexible enough to adjust if needed or talk to us to help you Talk to us if you’ve got exposure to US investments, but you might need some input from a US tax specialist. There’s undoubtedly a bit to consider in the world of tax / finance at the moment, the environment’s changing at pace. If you’re unsure how these proposed US tax changes could affect your investments or retirement planning, reach out to Paris Financial. We’re here to help you stay informed and prepared. Note: The material and contents provided in this publication are informative in nature only. It is not intended to be advice and you should not act specifically on the basis of this information alone. If expert assistance is required, professional advice should be obtained.

Three Questions to Ask Before Refinancing Your Home Loan

06 Jul 2025 06:39:00 GMT

Refinancing your mortgage can be a smart financial strategy, one that reduces your interest rate, unlocks home equity, or consolidates your debts. But with benefits come costs, and not every refinance results in long-term savings. That’s why it’s crucial to evaluate your personal circumstances carefully before proceeding. To ensure you’re making an informed decision, here are three essential questions to ask before refinancing. 1. Has Your Financial Situation Changed Since You Took Out Your Loan? Your current financial position plays a major role in how successful a refinance will be. When applying for a refinance, your lender reassesses everything: Your income and employment history Any changes in household size or dependents Ongoing expenses and debts Credit score and loan repayment history Current property value and equity position If your financial situation has improved, such as receiving a pay rise, paying off other loans, or becoming dual-income—it may boost your borrowing power or secure you a better deal. On the flip side, if you’ve experienced a reduction in income, taken on new financial commitments, or become self-employed, it may impact your approval prospects or the interest rate offered. Additionally, consider life changes on the horizon: Are you planning to start a family? Downsize or retire? Launch a business? These events can impact your ability to service a loan in the long term and should be factored into your refinancing decision. 2. Will Refinancing Really Save You Money? Lower interest rates are appealing, but refinancing isn’t always cost-effective. In fact, the true cost of switching can catch many borrowers by surprise. Typical costs include: Exit fees from your current lender Break costs for fixed-rate loans Application or establishment fees for the new loan Valuation, legal, and discharge fees Stamp duty (in rare cases) Lenders Mortgage Insurance (LMI), if borrowing above 80% LVR It’s essential to crunch the numbers. A seemingly small interest rate cut might not justify thousands in switching costs, particularly if you plan to sell or pay off the loan soon. Before refinancing, run a break-even analysis: How long will it take for your savings to outweigh the upfront costs? If the answer is several years, but you intend to sell or restructure your finances sooner, it may not be worthwhile. 3. How Long Do You Plan to Keep the Property? Refinancing makes the most sense when you’re planning to hold onto the property for the medium to long term. If you’re likely to sell within a couple of years or you’re nearing the end of your mortgage term with only a small balance left—the time, effort, and expense of refinancing may not deliver real benefits. For example, someone with five years left on a mortgage may find limited long-term savings from refinancing, especially after factoring in break costs and new loan fees. In contrast, someone with 15–20 years remaining might benefit significantly from a better rate or improved loan features. Always weigh up your property and life goals when considering refinancing. Ask yourself whether the timing aligns with your broader financial strategy. Need Expert Advice Before Making a Move? At Paris Financial, we understand that refinancing is a big decision, one that needs to be tailored to your personal situation and long-term goals. Our in-house Mortgage Broker can walk you through your options and ensure you have a clear picture of both the benefits and costs involved. Whether you’re looking to reduce interest repayments, access equity, or restructure your loan for lifestyle changes, we’re here to guide you every step of the way. Call our team on (03) 8393 1000 for personalised advice and a no-obligation consultation. Making refinancing decisions without answering the right questions can lead to unexpected costs and limited benefits. Be sure to ask the right questions to ask before refinancing to protect your financial wellbeing. Hayley Crow is a Credit Representative (CR No: 486223) of Buyers Choice Licencing Pty Ltd ACN 626 172 281 (Australian Credit Licence No: 509484)

Trust funds: are they still worth the effort?

04 Jul 2025 06:36:00 GMT

For decades, trust structures have been a cornerstone of the Australian tax and financial system, prized for their asset protection and flexibility when it comes to income distributions. However, with regulatory changes and mounting administrative complexity the shine has been wearing off lately, prompting some businesses and investors to rethink their use. Is there a shift away from trusts? In recent years, we have noticed a slight trend of businesses transitioning from trust structures to corporate entities. This shift is largely due to increasing scrutiny on how trusts are used and the growing complexities involved in managing trusts, particularly when it comes to documentation and compliance requirements. Trustees and directors of trustee companies are realising that they need to devote more time and resources to ensure compliance with evolving and complex regulations. One of the primary challenges in utilising trusts for business purposes is the need for timely and accurate decision making. Trustees are normally required to make decisions about distributions by the end of the financial year to prevent the profits of the trust from being taxed at penalty rates. This timing can be problematic as it might not align with the availability of complete financial information, especially for businesses that are actively trading. This can lead to difficulties in making informed decisions regarding the distribution of trust income and to achieve optimal tax outcomes. The ATO has also intensified its focus on trust arrangements, especially when it comes to the use of integrity rules which have formed part of the tax system for many years, but haven’t tended to be applied all that often. The risk of making mistakes and being detected is probably higher than ever before. All’s not lost (we’re here to help) While the landscape around trusts is evolving and the scrutiny is high, this doesn’t mean that trust structures don’t still have their place. With the right support (support that we can provide in conjunction with other experts) trusts can still offer advantages that other structures can’t. They can still be a useful platform for passive investment activities, estate planning and as part of a business structure. This isn’t the time to give up on trusts. But it is important to seek advice before setting up a trust to make sure it is the most appropriate option and to fully understand the advantages, disadvantages and practical issues that will need to be managed when using a trust structure. If you’re considering whether a trust is still the right structure for your needs, get in touch with the team at Paris Financial. We’re here to guide you through the complexities and ensure your structure still fits your goals. Note: The material and contents provided in this publication are informative in nature only. It is not intended to be advice and you should not act specifically on the basis of this information alone. If expert assistance is required, professional advice should be obtained.

Finfluencers: bad tax advice could cost you

03 Jul 2025 06:25:00 GMT

They’re advising from your insta and TikTok feeds, they’ve got huge followings, they speak with conviction – financial influencers or ‘finfluencers’. Please heed our caution, taking advice from unqualified sources can have serious consequences. We’re seeing examples of misleading claims, exaggerated deductions and outright misinformation. Relying on this advice could not only leave you out of pocket but also expose you to ATO penalties, fines or in the worst case scenario – prosecution. What’s the problem? Many finfluencers make money by promoting financial products on behalf of companies, which means that they don’t necessarily have your best interests in mind when sharing information or insights. Finfluencers aren’t always qualified to provide advice on tax or financial products. You just can’t expect to receive solid, reliable or tailored guidance. Unfortunately, we’re seeing some influences share tax hacks that are either completely false or apply only in extremely limited situations. The ATO and some of the accounting professional bodies have sounded the alarm on some recent false claims, including: Claiming your pet as a work related guard dog Writing off luxury handbags as laptop bags Deducting fuel costs without any documentation Trying to claim swimwear as a work uniform These kinds of suggestions might sound plausible but following them could get you into serious trouble. The ATO uses sophisticated data matching tools to detect suspicious or inflated claims. If your deductions don’t meet the legal criteria, this could trigger an audit and if mistakes are found, the consequences can include: An increased tax liability Interest charges Fines A criminal record and in the most serious cases, imprisonment Here’s how to stay safe and tax smart: If it sounds too good to be true, it probably is. Dodgy deduction tips on social media are best ignored, at least until they can be verified. Stick to trusted sources. For official tax guidance, visit ato.gov.au. Don’t risk your business or personal reputation for a quick deduction. If you’re unsure about the legitimacy of a tax claim or want professional, compliant advice, contact Paris Financial today. We’re here to protect you from finfluencer tax risks and ensure you’re meeting your obligations with the ATO. Note: The material and contents provided in this publication are informative in nature only. It is not intended to be advice and you should not act specifically on the basis of this information alone. If expert assistance is required, professional advice should be obtained.

Div 296 super tax and practical things to consider

02 Jul 2025 06:22:00 GMT

Division 296 super tax is a controversial Federal Government proposal to impose an extra 15% tax on some superannuation earnings for individuals if their total superannuation balance (TSB) is over $3 million as at 30 June of the relevant income year. This measure is not yet law and must still pass both Houses of Parliament. At the time of publication, the start date had not been confirmed, although the Government was originally hoping that the measure would apply from 1 July 2025, with the first tax bills to be sent out sometime after 30 June 2026. How does it work? While we are waiting to see whether the measure will become law, let’s assume for the moment that the Government passes legislation which is consistent with the Government’s announcements to date. If so: If your TSB is over $3 million at 30 June, a portion of your annual superannuation earnings above that threshold will be taxed at an additional 15%. The tax is assessed to you personally and can be paid from your super or your own funds. Superannuation earnings for this purpose reflect the increase in your net super balance for the year, adjusted for certain contributions (eg, inheritance via death benefit pension) and withdrawals. Some exclusions apply: children on super pensions, structured settlements (personal injury), and the deceased. It is important to remember that your TSB is the aggregate of all Australian superannuation interests (including balances with APRA funds, SMSFs and defined benefit schemes) held at the end of the income year. If the start date is 1 July 2025, then the first test date will be 30 June 2026. An individual’s TSB at this date, and each following 30 June, will determine whether they will have a Division 296 tax liability for that income year. Only where the individual has a TSB on 30 June in excess of $3 million will they have a Division 296 tax liability for that income year. Examples Sam’s account 30 June super balance: $4 million. Annual growth: $120,000. Portion above $3m: ($4m–$3m)/$4m = 25% Taxable earnings: $120,000 x 25% = $30,000 Extra tax: $30,000 c 15% = $4,500 Lisa’s inheritance Lisa’s balance rises from $2m to $4.5m after receiving a death benefit pension. Only new investment growth (not the transferred amount) is taxed as earnings, but a total balance over $3m means she may still have a liability. What can you do? Review your super fund liquidity and cashflow planning for future tax payments Ensure your asset valuations are up to date Estimate your combined super balances and plan for any large transactions Document asset values, especially for SMSF members Seek tailored professional advice before making any changes While we are waiting to see whether the legislation passes through Parliament and whether any significant amendments or adjustments are made to the proposed measures, if you have any questions or concerns around this in the meantime, reach out – we’re here to help. Note: The material and contents provided in this publication are informative in nature only. It is not intended to be advice and you should not act specifically on the basis of this information alone. If expert assistance is required, professional advice should be obtained.

Important tax update: deductions for ATO interest charges scrapped

01 Jul 2025 05:35:00 GMT

If you’re carrying an Australian Taxation Office (ATO) debt there is a good chance that it will cost you even more from 1 July 2025 onwards. This is because from 1 July 2025 two types of interest charges imposed by the ATO are no longer deductible. What are the interest charges? There are two main types of interest that are charged by the ATO. These are: General Interest Charge (GIC): This applies when you pay your tax liability late. The ATO applies GIC to encourage tax liabilities to be paid on time and ensure taxpayers who pay late don’t have an unfair advantage over taxpayers who pay on time. GIC is calculated on a daily compounding basis on the overdue amount. The GIC annual rate for the July – September 2025 quarter is 10.78%. Shortfall Interest Charge (SIC): This is applied when there is a shortfall in tax paid because of an amendment or correction to your tax assessment. SIC is also calculated on a daily compounding basis. The SIC annual rate for the July – September 2025 quarter is 6.78%. The ATO applies SIC to the tax shortfall amount for the period between when it would have been due and when the assessment is corrected. What’s changing? Historically, both GIC and SIC amounts could be claimed as a deduction. This has meant that the net after-tax cost of the interest charges has been reduced for taxpayers who have a positive income tax liability for the relevant income year. However, the Government has passed legislation to ensure that GIC and SIC amounts incurred on or after 1 July 2025 are no longer deductible, even if the interest relates to a tax debt that arose before this date. As these interest charges are no longer deductible, this means that the after-tax impact of the charges is higher for many taxpayers. The impact becomes greater as your tax rate increases. For example, let’s take a look at two individuals who have the same level of tax debt owed to the ATO and the same level of tax debt owed to the ATO and the same GIC liability of $1,000 for a particular income year: Sally is a high income earner and subject to a 45% marginal tax rate (ignoring the Medicare levy). Under the old rules the net cost of the interest charge was only $550 because she could claim a deduction for the GIC amount and this reduced her income tax liability by $450. Under the new rules no deduction is available and the full cost to Sally will be $1,000. Adam is subject to a 30% marginal tax rate (again, ignoring the Medicare levy). Under the old rules the net cost of the interest charge was $700 because he could reduce his income tax liability by $300 by claiming a deduction for the GIC amount. As with Sally, under the new rules no deduction is available for the GIC and the full cost to Adam is $1,000. What can I do to minimise the impact of this change? The simple answer is to pay down ATO debt as quickly as possible. As you can see, the GIC rate is relatively high and continues to accrue on a daily basis until the debt is paid off. The faster you can pay off that debt, the lower the interest charges that will accrue. If you can’t afford to pay off your ATO debt in the short term then you might want to explore other options, including whether you would be better off borrowing money from another source at a lower interest rate to pay off the ATO debt. In some cases it is possible to claim a deduction for interest accruing on a loan that is used to pay tax debts, although this is normally only possible if the debt arose from business activities. It isn’t normally possible to claim a deduction for interest accruing on a loan that is used to pay a tax debt that arose from investment or employment activities. While the ATO will sometimes allow taxpayers to enter into a payment plan so that tax debts can be paid through instalments, tax debts that are subject to a payment plan still accrue GIC. On a more proactive basis, a better option is to plan ahead to ensure that upcoming tax payments can be made on time. This will sometimes mean setting aside funds regularly for tax instalments, GST, PAYG withholding and other amounts that need to be paid to the ATO. Keeping these amounts separate will help to ensure you’re ready when the ATO bill arrives. If you’re currently carrying tax debt or need help staying ahead of your obligations, we’re here to help. Let’s work together on a strategy that keeps you compliant and protects your bottom line. Note: The material and contents provided in this publication are informative in nature only. It is not intended to be advice and you should not act specifically on the basis of this information alone. If expert assistance is required, professional advice should be obtained.

What You Can Borrow vs What You Should Borrow: A Smarter Approach to Home Loans

13 Jun 2025 00:48:00 GMT

When it comes to applying for a home loan, it’s easy to be swayed by the number the bank puts in front of you. But just because a lender says you can borrow a certain amount doesn’t mean you should. At Paris Financial, we work with clients every day who are navigating this decision, and we always recommend looking beyond the pre-approval figure to assess your real-world financial comfort. A responsible borrowing decision isn’t just about securing a loan, it’s about protecting your lifestyle, preserving your financial goals, and preparing for the future. Understanding Your Borrowing Capacity Your borrowing capacity refers to the maximum amount a lender is willing to offer you. This is based on a combination of personal financial factors, including: Your gross income – all sources of regular earnings Monthly expenses – bills, insurance, groceries, transport, etc. Existing debts – credit cards, personal loans, car leases Deposit amount – the larger your deposit, the less you’ll need to borrow Interest rate and loan type – whether fixed or variable, interest-only or principal + interest Loan term – usually 25–30 years Estimated repayments – tested against potential rate rises While these calculations help lenders understand your financial position, they don’t always reflect your personal circumstances or risk tolerance. For example, you might technically be able to afford a $900,000 loan, but only if you strip back all spending and have no room left for holidays, school fees, or unexpected costs. What You Should Borrow Depends on Your Lifestyle Borrowing within your means gives you breathing room in your budget and flexibility for the future. A general rule is to avoid spending more than 30% of your gross monthly income on home loan repayments. Exceeding this limit can cause mortgage stress, which may result in financial strain or missed repayments down the track. Here are two scenarios that illustrate the difference: Scenario 1 – Borrowing to the Max A dual-income household earning $160,000 combined is approved for a $900,000 loan. They take the full amount and buy a larger house but are left with no surplus cash for savings, school fees, or emergencies. Scenario 2 – Borrowing Conservatively The same couple opts to borrow $750,000 instead. Their monthly repayments are lower, leaving them with buffer room for travel, retirement savings, and lifestyle upgrades. If one partner changes jobs or takes leave, they can still comfortably manage. Build a Budget Before You Borrow One of the most effective ways to determine your true borrowing limit is to build a household budget. Start by listing your income sources and subtracting all regular expenses, such as: Rent or existing mortgage Utility bills Council rates and body corporate fees Insurance premiums Groceries and medical expenses Childcare, tuition or school-related costs Transport, fuel, tolls Subscriptions, phone and internet Lifestyle spending: dining out, shopping, entertainment Credit card or personal loan repayments Don’t forget irregular expenses like annual registration fees or car servicing. If you find this process challenging, a financial planner can help guide you through the numbers and establish a practical, sustainable budget. Leave Room for the Unexpected Even the best-planned budgets need flexibility. When working out how much you should borrow, consider possible life changes: Are you planning to start a family and reduce income? Are interest rates forecast to rise? Will one partner be on unpaid leave or study break? Are you nearing retirement age and looking to downsize? Could an unexpected illness or redundancy impact your earnings? Building a buffer into your monthly repayments can help absorb these changes. It also reduces financial stress and gives you more control over your money. Plan for the Future – Not Just the Now Borrowing is not a one-off event, it’s a long-term commitment. Your mortgage repayments should support your broader financial goals, not hinder them. Want to invest in property or shares in the future? Make sure your home loan doesn’t consume your investing power. Planning for early retirement? Choose a repayment plan that aligns with your ideal retirement age. Want to keep travelling or funding children’s education? Don’t stretch yourself to the point of missing out on life’s important milestones. Let a Broker Help You Make a Balanced Choice Many borrowers assume their lender or online calculator gives them the full picture, but the reality is far more nuanced. That’s why working with a trusted mortgage broker can help ensure your home loan structure fits your financial plan, not just the bank’s. At Paris Financial, we work closely with individuals, families, and business owners to understand the bigger picture and guide them toward smarter borrowing decisions. Need Home Loan Advice That Aligns With Your Future? If you’re unsure how much you should borrow, or whether your current structure still fits your goals, get in touch with our team. Our in-house Mortgage Broker can walk you through the numbers and help you borrow with confidence. Call (03) 8393 1000 or visit parisfinancial.com.au to book a session. Understanding what you can borrow vs what you should borrow is essential for long-term financial health.

SMSF Tax Deductions: What You Can (and Can't) Claim

05 Jun 2025 00:45:00 GMT

Managing your own super fund means keeping your finger on the pulse, not just when it comes to investments, but also compliance. One of the most misunderstood areas for SMSF trustees is tax deductibility. Yes, your SMSF can claim deductions. But no, that doesn't mean anything goes. The Golden Rule: There Must Be a Clear Link to Income For an expense to be deductible, it needs to directly relate to producing or managing the fund’s assessable income. If it doesn’t support the income-earning purpose of the fund, it won’t fly with the ATO, no matter how ‘reasonable’ it might seem. What Expenses Are Deductible? Here’s a breakdown of commonly accepted SMSF deductions: You can generally claim: Life and disability insurance premiums paid by the SMSF Accounting and audit fees for annual fund compliance Ongoing investment advice (not initial set-up advice) Admin service fees to keep things running smoothly Property management costs, including repairs and agent fees Annual ATO lodgement fees Out-of-pocket costs for trustees performing official duties (e.g. travel) Actuarial and valuation fees Bank charges and investment management fees These are all considered legitimate because they’re essential to the ongoing operation and income generation of the fund. What Expenses Aren’t Deductible? Unfortunately, not everything qualifies, even if it feels related to the fund. You can’t claim: Costs of setting up your SMSF Initial investment purchases Upfront financial planning advice (like choosing investments at setup) Penalties issued by the ATO or ASIC Amendments to the trust deed, unless directly tied to compliance Watch Out for These Common Traps Even if an expense seems related to managing your SMSF, it won’t be deductible if: It’s capital in nature (e.g. buying an asset) It relates to private, personal, or domestic use It’s tied to exempt income (like funds in the pension phase) It’s expressly prohibited by tax law (like bribes or fines) In other words, the ATO doesn’t just want to know what you spent. They want to know why you spent it. Need a Hand with SMSF Tax Deductions? Keeping your SMSF compliant and tax-efficient doesn’t need to be a headache. Our SMSF specialists can help you understand what’s deductible, what’s not, and how to keep your fund running smoothly. Contact the tax experts at Paris Financial today on (03) 8393 1000 if you’re unsure what your SMSF can claim. Source: Australian Taxation Office – SMSF Tax Deductions

ATO's new requirements for NFPs

04 Jun 2025 00:43:00 GMT

If you are involved with running a not for profit (NFP) organisation it is important to be aware of key obligations and requirements. In particular, if the NFP qualifies as a tax exempt entity there are some specific conditions that need to be satisfied and a relatively new ATO reporting obligation which needs to be undertaken to maintain that income tax exempt status. Annual NFP self-review return From the 2023–24 income year, non-charitable NFPs with an active Australian Business Number (ABN) are required to lodge an annual NFP self-review return with the ATO. This return notifies the ATO of the organisation's eligibility to self-assess as income tax exempt. The return has three sections: Organisation details: standard information on the NFP. Income tax self-assessment: confirmation of the organisation's income tax exempt status. Summary and declaration: acknowledgement of the information provided. When the return is being completed the NFP must answer ‘yes’ or ‘no’ to the question: ‘Does the organisation have and follow clauses in its governing documents that prohibit the distribution of income or assets to members while it is operating and winding up?’ This requirement needs to be satisfied in order for the NFP to self-assess its position as a tax exempt entity. If a NFPs governing documents don’t have these clauses then it can still self-assess as income tax exempt for the 2024 income year as long as no income or assets have been distributed to members. As a transitional arrangement, the ATO is allowing NFPs until 30 June 2025 to update their governing documents. Failing to do this will mean that the organisation cannot self-assess as income tax exempt from 1 July 2024 for the 2025 income year, which would lead to the organisation being treated as a taxable entity that might then need to lodge a tax return. Mandatory clauses in governing documents Governing documents are the formal documents which set out the purpose of the organisation, its character and the rules and requirements for how decisions are made, how it operates and how long it operates for. As noted above, NFPs must include specific clauses in their governing documents to self-assess as income tax exempt. These clauses must: Prohibit the distribution of income or assets to members during the organisation's operation and on winding up. Ensure that any surplus assets are transferred to another NFP with similar purposes upon dissolution. NFPs should also ensure that there are sufficient controls in place to ensure that members don’t receive income, property or assets which belong to the organisation, except where they are receiving remuneration for work performed for the entity or a reimbursement of expenses incurred on behalf of the organisation. The advises that NFP governing documents should be reviewed at least annually or whenever there is a major change to the structure or activities of the organisation. An annual general meeting is a good time to review governing documents. Taking a proactive approach helps identify any issues and reinforces your organisation's commitment to good governance. Staying Compliant with ATO NFP Requirements To avoid losing your income tax exempt status, it’s essential to stay on top of the latest ATO NFP requirements. If you’re unsure whether your organisation is meeting its obligations, reach out to our team for expert guidance. Note: The material and contents provided in this publication are informative in nature only. It is not intended to be advice and you should not act specifically on the basis of this information alone. If expert assistance is required, professional advice should be obtained.

From air fryers to swimwear: Tax deductions to avoid

03 Jun 2025 00:41:00 GMT

With the 2025 tax season fast approaching the Australian Taxation Office (ATO) is reminding taxpayers to be careful when claiming work related expenses. This is in reaction to a spate of claims that didn’t quite pass the ‘pub test’. To give you a few examples of what didn’t get through… A mechanic attempting to claim an air fryer, microwave, two vacuum cleaners, TV, gaming console and gaming accessories as work related expenses A truck driver seeking to deduct swimwear purchased during transit due to hot weather A fashion industry manager attempting to claim over $10,000 in luxury branded clothing and accessories for work related events These claims were deemed personal in nature and lacked a sufficient connection to income earning activities. The advice here would be - if in doubt leave it out or run it by us. 2025 priorities The ATO is focusing on areas where frequent errors occur including: Work related expenses: as above, claims must have a clear connection to income earning activities and be substantiated with records including receipts or invoices. Even if an expense seems to relate to income earning activities, it can’t normally be claimed if it is a private expense. There are a wide range of common expenses that normally don’t qualify for a deduction. Working from home deductions: taxpayers must prove they incurred additional expenses due to working from home. The ATO offers two methods for calculating these deductions: the fixed rate method and the actual cost method (more detail below). Multiple income sources: all sources of income, including side hustles or gig economy work must be declared. Each source may have different deductions available. Working from home deductions For those working from home there are two methods to calculate deductions: Fixed rate method: claim 70 cents per hour for additional running expenses such as electricity, internet and phone usage even if you don’t have a dedicated home office. This method can only be used if you have recorded the actual number of hours you worked from home across the income year. A reasonable estimate isn’t enough. Actual cost method: claim the actual expenses incurred, with records to substantiate the claims. This method potentially enables a larger deduction to be claimed, but the record keeping obligations are more onerous. It's important to note that double dipping is not allowed. For instance, if you claim deductions using the fixed rate method you can’t separately claim a deduction for your mobile phone costs. If you’re unsure whether a deduction is valid, speak with our team before lodging your return, we’re here to help. Note: The material and contents provided in this publication are informative in nature only. It is not intended to be advice and you should not act specifically on the basis of this information alone. If expert assistance is required, professional advice should be obtained.

The New Aged Care Act: What it means for families

02 Jun 2025 00:38:00 GMT

At Paris Financial, we understand that aged care decisions are among the most sensitive and significant financial conversations families will have. From 1 November 2025, the Australian Government is introducing new Aged Care Act 2024, designed to overhaul the existing system and place older people’s rights at the heart of aged care. This is one of the biggest shifts in aged care legislation in decades, with wide-reaching implications for individuals, families, and service providers. The changes aim to simplify the system, strengthen protections, and raise standards of care across the country. A Shift to a Rights-Based Model The new Aged Care Act introduces a rights-based model, enshrining the dignity, independence, and wellbeing of older Australians in law. For the first time, aged care recipients will have formal legal rights guiding their treatment and experience. These include the right to: Be treated with dignity and respect. Make decisions about their own care. Receive culturally safe and appropriate services. Access clear and simple information. Be protected from neglect and harm. Providers will be required to uphold these rights, with stronger enforcement measures in place to ensure compliance. Key Reforms Under the new Aged Care Act The legislation introduces significant changes across multiple areas: 1. Improved access and simpler navigation Older Australians and their families will find it easier to enter and move through the aged care system, with less red tape and more support. The process of applying for services will be streamlined. 2. Clearer provider responsibilities Care providers will have clearly defined obligations. These include care quality benchmarks, worker training requirements, and systems for listening and responding to complaints. 3. Transparency and choice Consumers will receive better information to help them compare providers, understand fees, and make confident decisions about their care options. 4. Stronger oversight The new Act introduces robust regulatory and complaints-handling frameworks, with increased powers for aged care authorities to monitor and enforce standards. 5. A Supported workforce To support higher standards, the Act will also promote a more stable, better trained and better paid aged care workforce. Financial Implications for Families For many Australians, the financial aspects of aged care are just as important as the care decisions themselves. These reforms could affect: accommodation costs and bonds eligibility for government subsidies access to transparent pricing structures estate planning and intergenerational wealth transfers At Paris Financial, we help clients plan aged care transitions well in advance, ensuring they retain financial flexibility and avoid unexpected costs. The new Act adds further weight to the need for professional advice. How to prepare for the changes With the new legislation taking effect on 1 July 2025, here’s how to stay ahead: Review aged care arrangements for yourself or family members. Speak to current care providers about how they’re preparing. Seek financial advice to structure assets and income effectively. Consider updating your estate planning documents. How Paris Financial can support you Our team is here to help you: understand your aged care funding options minimise tax while accessing care plan for future costs and estate transfers navigate means testing and Centrelink requirements. We believe aged care planning should never be rushed. Whether you’re preparing for yourself, a parent, or another loved one, we’ll work with you to design a plan that protects your finances and ensures peace of mind. Stay informed To read more about the new Aged Care Act and the rights-based care model, visit the My Aged Care website. If you’d like to speak to someone about how these changes might affect your situation or a family member’s care, book a free consult with the Paris Financial team here: Contact Us. Source: My Aged Care

ATO Interest Charges May Soon Be Non-Deductible: What You Need to Know

28 May 2025 00:33:00 GMT

Business owners with outstanding ATO interest charges may soon lose a long-standing tax benefit. The government has proposed legislative changes that will disallow deductions for General Interest Charges (GIC) and Shortfall Interest Charges (SIC) from 1 July 2025. That means the clock is ticking for businesses that want to claim these deductions before they’re removed. What Are GIC and SIC? These are interest charges applied by the ATO when: Tax obligations are paid late (GIC), or There’s a shortfall due to an underestimation of tax (SIC). Currently, these charges are tax deductible, meaning businesses can claim them as a legitimate expense — often at a high effective return, given that GIC currently sits around 11.38%. However, this tax benefit could soon disappear. What’s Changing from 1 July 2025? The government’s proposed legislation will remove the ability to claim GIC and SIC as tax deductions. This means that: Any ATO interest incurred after 1 July 2025 will no longer reduce your taxable income. The ATO may still apply interest, but businesses will wear the full cost without a tax deduction. This measure is expected to raise around $500 million over four years, while also encouraging more timely and accurate tax payments. Is There Still a Way to Deduct Tax-Related Interest? Yes — but only in limited situations. According to Taxation Ruling IT 2582, businesses that borrow funds to pay off income tax may still be able to claim the interest on those borrowings as a deduction — if it’s done in connection with the business’s income-producing activities. In simple terms: If you’re running a business and take out a loan to pay your tax debt — and the loan supports the operation of the business — the interest on that loan may still be deductible, even after 1 July 2025. But this rule doesn’t apply to individuals who aren’t carrying on a business, and it doesn’t apply to the ATO interest itself — only to commercial interest on borrowings used to repay tax. What You Can Do Now If you have an ATO debt that includes GIC or SIC, the most tax-effective option could be to pay it before 30 June 2025. This could allow you to: Claim a deduction under the current rules Avoid losing that tax benefit from July next year Possibly refinance tax debt using a business loan, and claim interest under IT 2582 (if eligible) In some cases, specialist lenders can assist with structured repayments, helping businesses clear ATO debt now and maintain healthy cash flow going forward. How Paris Financial Can Help If you’re unsure whether these changes apply to you, or you want to act before the window closes, we can help. Our tax advisors can: Review your ATO account and identify deductible interest components Explore whether your business qualifies for deducting interest on borrowed funds (under IT 2582) Assist with structuring repayments or finding a lending solution where appropriate The key takeaway? Don’t wait until 2025. The opportunity to deduct ATO interest is still available — but not for long. Need help reviewing your ATO debt or planning your repayments before the rules change? Get in touch with the team at Paris Financial today on: (03) 8393 1000.

Home Loan Pre-Approvals: Follow These 4 Steps for Success

20 May 2025 03:06:00 GMT

Step-by-Step Guide to Home Loan Pre-Approval Buying a home is one of the biggest financial decisions you’ll make. Before making an offer, you need to know how much you can borrow. That’s where home loan pre-approval comes in. Pre-approval, also called conditional approval, is an estimate from a lender of how much you can borrow. It doesn’t guarantee final loan approval, but it gives you an edge when negotiating with sellers. Here’s how to secure home loan pre-approval in four simple steps. Step 1: Gather Your Financial Information Lenders need a complete picture of your finances to determine how much you can borrow. You’ll need to provide: ✔ Income Proof – Recent payslips, tax returns, and financial statements if self-employed. ✔ Assets & Liabilities – Property deeds, savings account statements, and investment records. ✔ Loan & Credit Details – Statements of existing loans, credit card limits, and ongoing financial commitments. ✔ Living Expenses – Monthly expenses, including rent, bills, groceries, and discretionary spending. This information helps you estimate how much you can borrow. Online mortgage calculators can give you a rough idea before meeting with a lender. Step 2: Meet with a Lender or Mortgage Broker Once you have your financial documents ready, schedule a meeting with a lender or mortgage broker. 🔹 Lenders work directly with banks and financial institutions to provide loans. 🔹 Mortgage brokers compare loan options from different lenders to find the best deal for you. During the meeting, they’ll assess your financial situation and calculate an estimated borrowing amount. If you decide to proceed, you’ll complete a home loan pre-approval application. Step 3: Undergo a Credit Check Lenders will perform a credit check to assess your financial history. A strong credit score improves your chances of securing pre-approval and accessing lower interest rates. What lenders look for: ✔ No history of missed payments or defaults ✔ Low credit card balances ✔ A stable income and employment history If your credit score isn’t ideal, you may need to improve it before applying for home loan pre-approval. Reducing credit card limits and paying off outstanding debts can help. Step 4: Receive Conditional Approval If your credit check is successful, you’ll receive a conditional approval certificate. This certificate is valid for 90 days and provides an estimate of how much you can borrow. Important things to remember: ✔ Pre-approval is not a guarantee of final loan approval. ✔ Additional checks will be required before finalising the loan. ✔ Borrowing capacity may change based on property valuation and lending policies. With your home loan pre-approval, you can confidently start house hunting, knowing your budget and financial standing. What Happens After Pre-Approval? Once you find a home and make an offer, you’ll need to apply for full loan approval. The lender will reassess your financial situation and conduct a final property valuation. If approved, you’ll receive formal loan documentation to sign before settlement. Getting pre-approved is an essential step in the home-buying journey. If you need help navigating the process, contact our team today! Final Thoughts on Home Loan Pre-Approval Why Pre-Approval Matters Securing home loan pre-approval allows you to: Understand your borrowing power Gain an advantage over other buyers Streamline the loan application process If you’re preparing to buy a home, getting pre-approved can make the process smoother. Our team can guide you through your options and help you secure home loan pre-approval faster. Call us at (03) 8393 1000 or email us at champions@parisfinancial.com.au to get started. Hayley Crow is a Credit Representative (CR No: 486223) of Buyers Choice Licencing Pty Ltd ACN 626 172 281 (Australian Credit Licence No: 509484)

Economic update May 2025

16 May 2025 03:28:00 GMT

Global Global markets whipsawed following the “Liberation Day” tariff announcements on April 2, and subsequent developments throughout the month. Volatility was rife and trading volumes were robust. The Volatility Index (VIX) spiked to a 5-year high of 57.8 on April 9, though ended the month sub-25. This move came as markets responded to several significant rollbacks of Trump’s initially absolutist tariff agenda. Investors sold out of US assets at the beginning of the month on concerns around deglobalisation and fears that “US exceptionalism” had come to an end. This saw demand for US Treasuries (USTs) and the US dollar weaken, breaching the conventional wisdom that Treasuries and the USD should behave as safe havens during risk events. While the US Dollar Index (DXY) ended April -4.5% lower, 10y USTs recovered, closing the month near unchanged. Global equity indices fell substantially after the initial tariff announcements and recovered almost entirely on the 90-day pause and other concessions. Despite entering correction territory early in April, the MSCI World index closed near flat. Perhaps now the pre-eminent safe haven asset: gold, rallied nearly 10% in the first three weeks of April as investors sought an alternative to the USTs. The bullion continued to create new all time highs and briefly surpassed $3,500/oz, before paring gains into month-end. While hard data held up on order front-loading in the US, soft data showed a deterioration in economic conditions. In March, the Global Manufacturing Purchasing Managers’ Index (PMI) retreated to 50.3 and the Services PMI increased to 52.7. US The S&P 500 fell just shy of entering a bear market, down nearly 19% before the tariff pause resulted in a rebound. March quarter earnings releases were overshadowed by cautions from management regarding the dampened growth outlook for 2025. The S&P 500 closed the month down -0.76%. US Treasury prices began to trade in line with its equity counterparts, contrary to expectations. As equity markets rebounded in the back half of the month, so did Treasury prices. US Manufacturing PMI came in at 50.7, while the Services PMI dropped from 54.4 to 51.4 in March. The US labour market added +228k jobs during March ahead of the +140k expectation, with the unemployment rate ticking up slightly to 4.2%, from 4.1% in February. Notably, federal government employment declined. Job Openings and Labor Turnover Survey (JOLTS) data showed a largely stable labour market, but a subdued hiring rate of 3.4%. The layoff rate remained consistent at 1.0%. Core Personal Consumption Expenditures (PCE) increased +2.8% year on year during March, slightly ahead of expectations and unchanged from February. Retail sales in March rose +1.4%, primarily due to strong auto sales. This was likely a result of frontloaded car purchases ahead of expected price increases due to tariffs. Soft data from April showed that consumer and business sentiment continued to weaken. Existing homes sales fell -5.9% in March to 4.02m, likely due to a combination of higher mortgage rates and elevated uncertainty. Australia The AUD dropped below 0.60 USD post April 2 in a combination of risk-off sentiment and superannuation funds rebalancing currency hedges as their equity positions fell. The AUD recovered during the month, mostly due to weakness from the USD. The ASX 200 followed a similar pattern to broader global equity markets during April in response to tariff headlines, however closed the month up +3.61%. Q1 Consumer Price Index (CPI) came in at +0.9%, stronger than expectations of +0.8% off the back of higher motor vehicle prices and a greater rebound in electricity prices. Year on year CPI held steady at +2.4%. Trimmed mean inflation increased 0.7% QoQ, up from 0.5%, bringing annual inflation to +2.9%, down from 3.3% in the last quarter. The RBA opted to leave the cash rate unchanged at 4.10%, citing concerns that inflation may not fall sustainably within the target band. The RBA opted to take a “wait and see” approach given the substantial uncertainty regarding tariffs and global trade. The market is currently pricing in a 25bps cut in May. The unemployment rate was unchanged during March at 4.1%, with the labour force participation lower than expectations at 66.8%. The lower participation was mostly due to the impact of Cyclone Alfred. All measures of the labour market remain tight. Retail trade was weaker than expected in Feb, up +0.2% (vs +0.3% exp.) due to a surprise decline in household goods. New Zealand The RBNZ cut rates by 25bps to 3.50% in early April and advised that “the Committee has scope to lower the Official Cash Rate (OCR) further as appropriate”. Q1 CPI was up by +0.9%, slightly stronger than the +0.8% consensus expectations, bolstered unexpectedly by higher education fees (+8.9%). This was due to a +23% increase in tertiary and other post-school related education costs. Services inflation increased by +0.7% in Q1. Europe The ECB cut interest rates by 25bps for the second meeting in a row in April, bringing the cash rate to 2.25%. The Governing Council advised that the current climate is one of “exceptional uncertainty” and that it will assess further rate cuts on a meeting by meeting basis. The STOXX 600 declined -1.21% throughout the month, selling off in line with other global equities, before a shallow recovery. The Sterling gained over +3.5% during April, close to its highest level in over three years against the USD, following the sharp selloff in the greenback. However, the Sterling continued to underperform the Euro. The Euro saw its largest monthly gain against the Dollar in nearly 15 years, ending the month buying 1.1328 USD. European Union annual inflation slowed to +2.2% in March, in line with expectations. China China announced a slew of retaliatory tariffs against the US, landing at 125% before both companies implemented a 90-day pause. The April Politburo meeting saw the Politburo pledge to step up the implementation of more proactive macro policies, vowing to offset external uncertainty with the certainty of high quality development. GDP growth exceeded expectations at +5.4% year on year in Q1, vs +5.2% estimates ahead of US tariffs. Manufacturing PMI slipped into contraction for the first time in three months, coming in a 49.0, below expectations of 49.7 and at its lowest level in 16 months. This was mainly due to a pullback in export orders. Non manufacturing PMI dropped to 50.4, below expectations of 50.6. Australian dollar After advancing +2.5% against the USD in April, the AUD ended the month at 0.6402, posting its second consecutive month of gains against the greenback. Post April 2, the AUD declined against the USD due to a decline in risk sentiment and superannuation funds trimming hedging positions as global equities declined. This saw the AUD depreciated -5.8% on the week. The AUD saw gains for the rest of the month following the announcement of the 90-day tariff pause and as US assets were sold off across the board, mechanically supporting the AUD. While the AUD experienced a similar selloff against the EUR as superannuation funds rebalanced portfolios, it experienced a far shallower recovery. The AUD ended the month down -2.15% against the EUR. Australian equities The ASX200 ended April +3.6% higher than it begun, with all Global Industry Classification Standard (GICS) sector groups firmly in positive territory, with the only exception being Energy. Trading volumes were robust following President Trump’s “Liberation Day” as the market sought to identify the relative winners and losers of the shifting trade and geopolitical set up. The energy sector declined -7.7% over the course of April as oil saw its largest monthly decline in nearly 3.5 years. The oil price decline came as Saudi Arabia indicated that it would expand its production and as the global trade war dampened the outlook for fuel demand. Index heavyweights WDS and STO fell -10.3% and -9.8% respectively. Meanwhile, uranium miners BOE, PDN and DYL advanced +27.8%, +14.7% and +7.1% respectively. The gains followed an extended period of underperformance off the back of a lower Uranium spot price, as well as abating tariff concerns and positive production updates from both BOE and PDN. Gold stocks rallied as the spot price of gold continued to reach record highs, peaking just above US $3500/oz. While EVN and NEM provided positive quarterly updates to the market in April, NST observed a weaker March Quarter and downgraded its FY25 guidance at its earnings update. Despite this, EVN (+10.1%), NEM (+6.4%) and NST (+4.5%) all ended April higher. The financials sector saw a 5.6% gain on aggregate, with banks seemingly considered relative safe havens given their strong domestic focus and robust balance sheets. CBA, the largest company in the index, rallied +10.4% over the month. The stock is now trading +45% higher than this time last year. Other major banks also observed gains in April; NAB +6.2%, WBC +4.0%, ANZ +2.7%. Macquarie Group, on the other hand, ended the month -1.6% lower. The stock fell as much as -16.4% following Liberation Day, though pared losses over the remainder of the month. On April 22, the company announced that it would be selling its North American and European public investments business to Nomura for A$2.8bn; a deal which would see A$285bn of Assets Under Management (AUM) across equities, fixed income and multi-asset move to the Japanese bank. In the days following this announcement, the stock advanced ~8%. JHX extended last month’s sell off, down -3.9%. Twenty-one investors wrote an open letter to the ASX requesting that investors be allowed to vote on whether the company could move its primary listing to the US. In response, JHX released a letter to shareholders advising that it would not move its primary listing without a shareholder vote. Global equities The S&P500 ended April down -0.8%, its third consecutive monthly decline. The Dow Jones declined -3.2%, while the tech heavy NASDAQ rallied +1.5%. Though the S&P sold off more than -10% in the days following Liberation Day, it progressively recovered as various exclusions were announced and a 90-day pause was implemented. The market also begun to digest various Q1 earning releases and guidance updates from corporate America. C-suites were given their first proper opportunity to provide the market with some tariff context. The tech sector and consumer staples sectors outperformed the broader market, with the GICS sector groups advancing +1.6% and +1.1% respectively. Meanwhile, amid an -18% decline in the World Trade Index (WTI) and a -15% fall in Brent, the energy sector lagged (-13.7%). Similar to other global markets, European equities fell post April 2, then stabilised as the Trump administration showed signs of moderating its stance on tariffs, however EPS downgrades continue to accelerate. The FTSE100 and Stoxx600 ended the month down just over -1% a piece. Asian equity markets were mixed during April, with Singapore, Hong Kong, China and Taiwan indices posting losses greater than 2%, while Korea and Japan saw gains of 3.0% and 1.2% respectively. The MSCI Asia Pacific Index moved similarly to the Australian market and other global peers, whipsawing around tariff announcements from the White House, before steadily increasing for the remainder of the month to finish up +2.6%. Property securities While tariff news continued to be the key talking point, Global property securities saw a decent April performance up 0.9% in the month, after a weaker March (-2.0%). The Americas region was the worst performer in April down 2.2%, erasing YTD gains, primarily on stagflation concerns in the US. Europe/UK on the other hand had an extremely strong April +10.3%, potentially reflecting investors looking for alternatives and the UK/European Real Estate Investment Trusts (REITs) being too cheap to begin with despite a resilient rental backdrop. The Asia Pacific region also had a strong month of performance, up 4.5% potentially benefitting from lower rates and limited growth downside expectations from tariffs. Locally, Australian Real Estate Investment Trusts (AREITs) had a strong month too up ~6% on lower rate expectations following tariffs. Fixed Income and Credit The US bond market was in the spotlight throughout April. US fixed income began to sell off despite risk-off sentiment during the early stage of the month, demonstrating a positive correlation to equities. This was quite surprising and opposed to traditional 60:40 portfolio playbooks. However, this was due to uncertainty induced deleveraging across the investor spectrum. Of course, there is substantial leverage underpinning the US treasury market. Demand for 10y USTs weakened, calling its status as a safe haven asset into question, with yields rising to over 4.5%. Despite this volatility, the yield recovered to end the month only -4bps lower than it begun. The 2y USTs yield ended the month -28bps lower, as the market priced in additional rate cuts from the Fed due to increased economic uncertainty and a softer growth outlook. The AU bond market is pricing in a 2025 cash rate of between 2.85% - 2.90%, representing 4-5 rate cuts by year-end. The 10y AU Government bond yield trended lower throughout the month, after a U shaped sell off and recovery around tariff news at the beginning of April. US investment grade credit spreads widened significantly after “Liberation Day” before tightening slightly after the 90-day pause was announced. Spreads remained wider for the rest of the month, closing 5.7bps wider. HY (High Yield) spreads followed the same pattern, finishing April 31.2bps wider. For more expert insights and strategies, reach out to the Paris Financial Private Wealth team. We’re here to help you navigate the ever-changing economic landscape with confidence. Source: First Sentier Investors, May 2025

Federal Election 2025

16 May 2025 03:26:00 GMT

During the Federal Election campaign, the Government made a number of election promises, which may impact your finances. There were also a number of support measures proposed in the recent Federal Budget. What could this mean for you? These announcements are proposals only and may or may not be made law. The information below, including the policy details and proposed start dates, is based on the information announced as at 5 May 2025. You should speak to your financial adviser to discuss how these proposals could apply to you. Election promises Taxation $1,000 instant tax deduction for work-related expenses, proposed from 1 July 2026. What’s proposed? Taxpayers who have eligible work-related expenses may be able to claim a tax deduction of up to $1,000 without having to keep individual receipts. It will still be possible to claim work-related expenses above this limit, however evidence will be needed. Who could benefit? The deduction will be available to people with ‘labour income’. This doesn’t include income from running a business or from investments, where the usual rules will continue to apply. $20,000 small business instant asset write-off extension, proposed from: 1 July 2025 to 30 June 2026. What’s proposed? The higher instant asset write-off threshold of $20,000, which currently applies until 30 June 2025, is proposed to be extended for another 12 months until 30 June 2026. The threshold is available for more than one asset. Eligible businesses can continue to place assets valued at $20,000 or more into a depreciation pool, where a deduction of 15% can be claimed in the first income year and 30% thereafter. Who could benefit? Small businesses with an aggregated annual turnover below $10 million will be able to claim an immediate tax deduction for the full cost of eligible assets costing less than $20,000 that are first used or installed ready for use by 30 June 2026. Help for home buyers Expanded ‘Help to Buy’ scheme, proposed from: to be confirmed. What’s proposed? The Government has proposed to expand access to the Help to Buy scheme to more home buyers by increasing the property price caps and income test thresholds, which determine eligibility to participate in the scheme. The scheme is a shared equity scheme, which allows eligible home buyers to purchase a home with a smaller deposit, of as little as 2%. The Commonwealth will contribute up to 30% of the purchase price of an existing home and up to 40% of the purchase price of a new home. The Help to Buy scheme is expected to open for applications later this year. Although the Federal Government has legislated the scheme, the States and Territories need to pass legislation for it to operate in each jurisdiction. Who could benefit? Increasing the income cap and property price caps will enable more people to participate in the scheme. For singles, the income cap will increase from $90,000 to $100,000. For joint applicants (and single parents), the income cap will increase from $120,000 to $160,000. The property price cap will depend on the location of the property and details can be found in the Government’s media release. Participants must meet a number of eligibility rules and conditions, including repaying the Government when the home is sold or when certain changes occur in their circumstances. So it’s very important to understand the rights and responsibilities of participating in the scheme before making an application. Previously announced measures Cost of living support The below proposals were announced by the Government in the March 2025 Federal Budget. Energy bill relief extended for six months, proposed from: July 2025. What’s proposed? The Government will provide further energy rebates in addition to the bill credits people have received since July 2024. The rebate will be applied automatically to electricity bills between 1 July and 31 December 2025, in two quarterly instalments of $75. Who could benefit? All Australian households and eligible small businesses will receive the additional energy rebate. It’s expected the eligibility rules that apply to small businesses (quarterly power consumption) will not change. Lower cap for PBS medicines, proposed from: January 2026. What’s proposed? The maximum cost of Pharmaceutical Benefits Scheme (PBS) medicines will decrease from $31.60 to $25 per script. Who could benefit? This will benefit people who don’t hold a concession card and would otherwise pay the maximum amount to fill a script. It doesn’t apply if the script is for a medicine not on the PBS, which may cost more than $25. Pensioners and Commonwealth concession cardholders will continue to pay the subsidised rate of $7.70 per PBS script until 1 January 2030. This is an existing measure. Student loans to be cut by 20%, proposed from: 1 June 2025. What’s proposed? Student loans will be reduced by 20% before the annual indexation (at a rate of 3.2%) is applied on 1 June 2025. Who could benefit? The changes will benefit all people who have Higher Education Loan Program (HELP) Student Loans, VET Student Loans, Australian Apprenticeship Support Loans, Student Start-up Loans and Student Financial Supplement Scheme, based on their outstanding 1 June 2025 balance. Importantly, voluntary loan repayments that are processed before 1 June will reduce the loan balance that’s indexed on 1 June. However, the 20% debt reduction will be applied to the 1 June balance. So if this proposal is legislated, before making a voluntary repayment, it’s worth doing the numbers to see if it’s best to make a voluntary repayment before or after the 20% reduction and indexation is applied on 1 June. The table below provides an example which shows the difference between making a $5,000 voluntary repayment before and after 1 June, where the outstanding debt balance is $30,000. Outstanding debt today Voluntary repayment before 1 June Loan balance on 1 June (after 20% reduction and indexation applied) Voluntary repayment after 1 June Outstanding balance $30,000 $0 $24,768 $5,000 $19,768 $30,000 $5,000 $20,640 $0 $20,640 Reduced student loan repayment obligations, proposed from: 1 July 2025. What’s proposed? The minimum income that can be earned before student loan repayments need to be made is proposed to increase. This is in addition to the standard indexation of the income repayment thresholds which ordinarily happens on 1 July each year. Also, the way repayments are calculated will be changed. Who could benefit? People with student debts will benefit from lower compulsory loan repayments in 2025/26 and beyond, if their ‘repayment income’ is above the minimum threshold at which loan repayments need to be made and less than $180,000. The minimum income threshold is $54,435 in 2024/25 and will automatically increase to $56,156 on 1 July. Also, the Government has proposed: increasing the minimum income threshold to $67,000; and calculating repayments on just the repayment income earned above the income threshold, not on total income. The list of qualifying student loans is the same as those to be eligible for the 20% debt reduction on 1 June 2025 (see above). Expanded ‘First Home Guarantee’ program, proposed from: to be confirmed. What’s proposed? Help will be extended to all first home buyers under the Commonwealth’s First Home Guarantee Scheme. The scheme enables home buyers to purchase their first home with as little as a 5% deposit. The Government provides a guarantee for the remaining portion of the deposit (up to 15%), to ensure the first home buyer doesn’t pay Lenders Mortgage Insurance. Currently, income limits and property price caps apply and access is only granted to a maximum of 10,000 eligible participants each year. These requirements are proposed to be removed, opening the scheme to all first home buyers. Who could benefit? The extension of the scheme may help first home buyers to purchase their first home sooner. It’s important to understand that purchasing a home with a smaller deposit may increase the total interest that is paid over the life of the loan. Superannuation The below measure was initially announced by the Government in 2023, with support reconfirmed in the 2023 Federal Budget. Legislation was introduced to Parliament to make this change law in 2024 but lapsed when the election was called. The Government will need to reintroduce and pass legislation in Parliament before this change can take effect. Given the complexity of the policy and the number of days that Parliament may sit between now and 1 July, we don’t know if the proposed start date will change if the policy is reintroduced. Higher taxes for balances over $3 million, proposed from: 1 July 2025. What’s proposed? Where people have more than $3 million in super (both accumulation and retirement values) from 1 July 2026, higher taxes are to be paid on investment earnings, with payment due in the 2027 financial year. Currently, investment earnings within the ‘accumulation phase’ of superannuation are taxed at a maximum rate of 15%. With a ‘retirement phase income stream’, such as an account-based pension once retired, investment earnings are generally tax free. It’s proposed that from 1 July 2025, where a person has a ‘total super balance’ exceeding $3 million at the end of the financial year, an additional tax of 15% will apply to a portion of the investment earnings. The new tax will be called ‘Division 296 tax’, as that is the name of the relevant section of tax law where the proposed rules are covered. Additional tax won’t be paid where the total super balance is less than $3 million on 30 June 2026 (the end of the first year it will apply) or the end of any following financial year. Where to from here? It’s important to remember these changes need to be legislated to become law. The information above is based on the announcements made to date, and there may be changes to the start dates or other details if the policies are formalised. You should speak to a financial adviser to understand more about what has been announced and how these changes could apply to you. If you have questions about how the Federal Election 2025 policies may affect your finances, speak to Paris Financial for tailored advice. The Federal Election 2025 could bring changes worth planning for. Source: MLC

The absurdity and calamity of US tariff policies

16 May 2025 03:22:00 GMT

US tariffs are poorly designed, badly implemented and are already damaging both the US and global economies. The economic damage will only get worse as uncertainty further undermines business and consumer confidence and results in dislocation of global supply chains. Determining the extent of economic damage, and financial market implications, is difficult because we don't know what tariffs will actually be implemented or how many backflips there are before then. There’s no clear, defining strategy. The justification for tariffs oscillates between reinvigorating US manufacturing, raising revenue to fund tax cuts, the cost of the US providing global security, the provision of the US dollar to support global trade and financial markets, and broadly addressing an 'unfair' trading system. Different justifications would lead to different structures of the tariff regime. Adding to uncertainty, key individuals in the administration have different goals for tariffs. 1. The obsession with bilateral trade deficits is baseless President Trump's tariff obsession is rooted in a dislike of trade deficits. The United States has run a trade deficit since the mid-1970s (Figure 1). He attributes this deficit to unfair trade policies in other countries and an overvalued US dollar, resulting from US dollar demand given its role in international trade and finance. But the trade deficit also depends on US domestic conditions, notably the US Government's huge fiscal deficit, currently 5% of GDP. Balanced national trade doesn't need bilateral balanced trade Even if balanced trade at the country level was desirable, there is no reason for this to apply country by country. Even countries with balanced aggregate trade run large trade deficits or surpluses with almost all of their trading partners: Belgium had balanced trade with just two countries; and Canada, Finland, South Korea and South Africa each had balanced trade with just one of their trading partners. Each of these five countries had significant bilateral trade surpluses or deficits with over 150 of their trading partners. The US goal of balanced bilateral trade with every country is, frankly, bonkers. 2. The calculation of tariff rates is absurd Bilateral trade balances are meaningless but determine the US 'reciprocal tariffs' (Figure 2). Even countries the US has a trade surplus with, including Australia get a 10% tariff. If Australia applied the same logic as the US, we’d impose a tariff on the US of around 50%. The US has a surplus in services trade of 0.25% of GDP (partly offsetting the goods trade deficit of 1% of GDP; Figure 1) but ignores services trade in its calculation of tariffs. 3. The tariffs are badly designed reflecting unclear and inconsistent goals The US tariff regime has a mix of tariffs on specific goods (steel, aluminium, vehicles) and on specific countries (Canada, Mexico, China and the reciprocal tariffs) reflecting the varied goals of the tariffs. But many of these goals are in conflict. If, as Trump claims, tariffs raise revenue without increasing US prices by forcing foreign suppliers to absorb the tariff, then US manufacturers won't be more competitive as US prices won't be higher. And if tariffs are successful in boosting US production, then there would be fewer imports, and so less tariff revenue. Several bad design elements of the tariffs mean there will be further changes: Different tariff rates distort trade for little benefit – for example, Apple intends to ship iPhones to the US from India rather than China as US produced iPhones would be prohibitively expensive. High tariffs are being applied to goods the US can't, or won't, ever produce – for example, some minerals and shoes (most come from China and Vietnam with 145% and 46% tariffs). Tariffs are being applied to inputs used by US manufacturers, increasing exporters’ costs. 4. The effective trade embargo with China will be disruptive to the US economy The 145% punitive tariff applied to China makes most imports from China prohibitively expensive. But the US economy is not ready to disengage from China, which has supplied 13% of US imports. Factories don't pop up overnight. Using a fine disaggregation, breaking down goods into their constituent parts, over half of US imports are from China. Alternative suppliers just don't exist. For finished consumer goods with very high import shares from China, large price increases and stock shortages will be disruptive to consumers and impact consumer sentiment and support for tariffs. The economic impact will be even greater for those imports predominantly sourced from China that are used as inputs in US production, such as explosives, machinery and various chemicals. For example, China is also a key source for base ingredients used in manufacturing medicines and finished medicines. 5. The tariff regime won't survive its poor design, but tariffs won't go away completely The US tariff regime is already unravelling with holes poked in the tariff wall. Reciprocal tariffs were paused until 9 July (the baseline 10% tariff still applies to all countries). Consumer frustration will mount facing higher prices and product shortages. For example, phones, computers and some other electronics have been exempted from the China tariffs. Businesses are getting traction lobbying on the cost to production from tariffs, for example there will be a partial rebate on the 25% tariffs on car parts used as inputs in US manufacturing. The US has said some 70 countries want to negotiate tariff reductions. Yet negotiating a detailed trade agreement takes time. The renegotiation of the US-Canada-Mexico trade agreement in President Trump's first term took 18 months. A rushed negotiation will contain flaws. However, President Trump strongly believes in the benefits of tariffs for promoting US manufacturing and he needs the revenue. He has committed to using tariffs to reduce income taxes, even musing that income taxes could be eradicated. But a 10% uniform tariff has been estimated to raise just $1.7 trillion over 10 years, a 20% tariff $2.6 trillion. This is substantially less than the estimated cost of $5 to 11 trillion of the tax cuts already promised by President Trump. 6. What does the future hold? There will be many more turns in the road with backflips, reduced tariffs for goods the US won't produce or needs and new tariffs. There will be 'deals' reducing (but not eliminating) individual tariffs with countries committing to reduce trade barriers and import US goods (much of which will never happen). The pause in reciprocal tariffs, after just one week, was reportedly triggered by the turmoil in bond markets which could have precipitated a financial crisis. Trump has displayed greater resolve in the face of the large fall in equity prices than in his first term. But the risk of a financial crisis, or severe recession, and sharp falls in approval ratings are likely to remain red lines that would result in some pullback. Challenger expects ongoing tariff uncertainty and hence further volatility in markets. Aggregate tariffs will never get to the levels initially announced, but they will also be much higher than before, reducing US and global growth. Tariffs will add to US inflation, reducing the ability of the Fed to ease. Market pricing is for almost 100 basis points of cuts this year, but there's a good chance the Fed does not even cut this year. Australia will also see slower growth. We have limited direct exposure to the US economy, but our largest trading partners are more exposed (Table 1). The IMF downgraded its GDP growth forecasts for 2025 by 0.5%. Slower growth, and China's surplus manufacturing capacity reducing Australian import prices, will lower inflation opening the path to RBA rate cuts. However, market pricing for a cash rate below 3% by December is overdone. With the worst case for US tariffs unlikely to play out, three cuts bringing the cash rate to 3.35%, around its neutral level, seems more likely. The US Tariff Policy 2025 continues to create uncertainty. Talk to the Paris Financial Private Wealth team for expert insight into how the US Tariff Policy 2025 may impact your financial planning. Source: Challenger

Estate Planning and SMSFs

16 May 2025 03:20:00 GMT

One of the main reasons an individual would use an SMSF is for estate planning as it can offer greater flexibility to beneficiaries than what is available via a public offer fund. Where a member dies without a binding nomination, the distribution of the death benefits is at the discretion of the remaining trustees. This can result in some planning after the death of a member in order to achieve the optimal tax outcome. For example, one child may be still a minor and be entitled to receive the death benefits tax free. In this situation, the trustee could allocate a greater amount to that child and rely on an estate equalisation clause in the Will to ensure that the other children receive a greater share of the estate assets. However, there are a number of traps when using an SMSF for estate planning, particularly where there are blended families. It is possible that the individual controlling the trust does not agree with the wishes of the deceased. As they have control of the fund, they can frustrate the attempts of other beneficiaries, such as children from a previous marriage to receive their inheritance, even where the trustee has agreed there is a valid binding nomination in their favour. Nominations SMSF members have more options when making a nomination than what is available via a public offer fund. As well as having access to non-binding, binding, non-lapsing binding and reversionary nominations, members also have the option of establishing an SMSF Will. An SMSF Will is a collection of rules written into the governing rules of the fund’s trust deed which broadly have a similar format to a Will. These rules place an obligation on the trustee and they can be as complex as the member wishes specifying who is to benefit, any contingent beneficiaries and in what form. It may also be possible to provide for a ‘life interest’ death benefit pension whereby one beneficiary, such as a spouse has an entitlement to the pension payments during their lifetime, but on their death, the capital would be distributed to the beneficiaries of the first deceased, such as any children from a previous marriage. Superannuation dependants There are three types of dependants for the purposes of death benefits being paid from a superannuation fund. They are: SIS dependants, who can be paid directly from a superannuation fund dependants who are entitled to take their benefit as an income stream death benefit dependants who can receive lump sum death benefits tax-free. Relationship SIS Dependant Death Benefit (Tax) Dependant Spouse X X Former Spouse X Child under 18 X X Child 18 or over X Only if financially dependant Financial Dependant X X Interdependent X X If a member wants some or all of their superannuation benefits to be paid to someone other than those in the above list, they would need to have that portion paid to their legal personal representative and make a provision for that person within their Will. All beneficiaries who are entitled to receive death benefits directly from a superannuation trustee are allowed, under superannuation legislation, to take that benefit as a lump sum. However, there are restrictions on who can receive death benefits as an income stream. While most of the dependants listed in this table can receive superannuation death benefits as an income stream, children of the deceased who are aged over 18 can only receive an income stream if they are financially dependent and under 25 or they are disabled. Where a child of the deceased receives death benefits as an income stream, the income stream must be commuted and the benefits withdrawn as a tax-free lump sum no later than their twenty-fifth birthday unless they are disabled. As with many aspects of superannuation, the legislation specifies what is allowable, however individual funds may have more onerous rules in place documented in their trust deed. Taxation of benefits paid to non-dependants Where the beneficiary is not a death benefit dependant, any benefits must be taken as a lump sum and the taxable component of the benefit will be subject to tax of up to 15% plus Medicare levy on the taxed element and up to 30% plus Medicare levy on the untaxed element. While the definitions of a dependant in the SIS Act and death benefit dependants in the Tax Act are substantially the same, there is a notable difference. Adult children are SIS Act dependants and therefore, can be paid directly by the trustees of the superannuation fund, however as they are not death benefits dependants as defined in the Tax Act, the benefits will be subject to tax. For tax purposes, the relevant beneficiary is the ultimate beneficiary. Therefore, a benefit that passes through the estate but is paid to a death benefit dependant beneficiary will be tax-free. There can be an issue where the benefits are paid to the beneficiaries via a testamentary trust. While it may be envisaged that the only persons to benefit from the fund are death benefits dependants, the trust may have potential beneficiaries that aren’t death benefit dependants in which case all benefits appropriated to the trust will be subject to tax. A possible solution is to provide in the will a superannuation benefits testamentary trust that limits beneficiaries and potential beneficiaries only to death benefit dependants. To get expert advice, contact the Paris Financial Private Wealth team today. Estate Planning and SMSFs require careful planning—let us guide you through it. Source: BT

Navigating market volatility

16 May 2025 03:18:00 GMT

Financial markets have been erratic lately, understandably causing some concern for those of us with super and investments. While dips and major market events are a common feature of investing, markets generally trend upwards over time. Most super funds invest in sharemarkets to help your money grow over in the long term. So when markets see-saw, so do super and investment balances and returns. While this can be worrying, it’s important to remember that although the value of investments may go up and down at different times, markets tend to recover and grow over the long term. So it’s important to keep your long-term investment goals in mind. What’s happened recently? On 3 April, President Donald Trump announced the US would place tariffs on goods imported into the US from countries around the world. This included a 10% tariff on goods from Australia, which was the minimum rate announced on the day. Major global economies and markets had been preparing for the announcements, but the tariffs imposed on some countries were bigger than expected. Other countries have also responded by putting similar tariffs on US goods coming into their markets. As a result, share markets in the US and elsewhere fell sharply in the days afterwards, including the Australian Stock Exchange. What is a tariff? A tariff is a tax added to the cost of goods imported from a particular country or countries. It is paid to the government where the goods are being imported. Tariffs are often used to protect domestic industries by increasing the price of foreign-made competitor products, or to raise revenue. The cost of those items to the public will generally increase by a similar amount to the tariff. What does this mean for markets and investments? The US tariffs are expected to slow global trade and push up the price of some things, which could cause inflation to rise. This could result in the Reserve Bank of Australia cutting the interest rate several times this year to prevent the economy from slowing down too much. In the short term, you may see a negative effect on the performance of investments. Short term volatility in response to political announcements and other geopolitical events is a common feature of investment markets. While difficult to forecast, history shows us that markets do recover from disruptive influences – for example, from the Global Financial Crisis and the COVID-19 pandemic. What led to this? Since Trump’s second presidency began, uncertainty has emerged about US policy in the areas of tariffs, defence and other critical areas of government spending. In recent months, shares have been quite weak, particularly US technology stocks. This group of stocks was optimistically priced after two years of strong growth, and therefore most at risk of uncertainty in the US market. This has unsettled businesses amid concerns the US economy could slow. It has also fed into uncertainty in global investment markets, including the Australian sharemarket. What does this mean for me? As global financial markets move up and down, the value and returns of your super and investments may also change in the short term. While this can be concerning, history shows that markets rise over time. So it’s important to keep your long-term savings and investment goals in mind and carefully consider before making any changes to your investment strategy. It’s understandable at times like these that some members think about changing how their money is invested. As this chart shows, the long-term trend across major investment types is positive, with shares experiencing more volatility but generating higher returns than more conservative options such as cash. While past performance is not a guarantee of future performance, historically more time invested in the sharemarket has meant a higher return on investment. How different investment types have performed over 20 years It’s also worth noting that investment performance has generally been strong over the past two years, meaning the value of your investments or super may have been relatively high. Do I need to do anything? As with any significant market event, it’s best to avoid impulse reactions, but to take a long-term view. Navigating market volatility doesn’t have to feel overwhelming. Talk to Paris Financial about how navigating market volatility fits into your long-term investment strategy. Source: CFS

Protect yourself: Multi-factor authentication

16 May 2025 03:16:00 GMT

Multi-factor authentication (MFA) is when you use two or more different types of actions to verify your identity and you may already be using MFA. For example, when you receive an authentication code by SMS text message after entering your password to log into an online account. MFA is one of the best ways to protect against someone breaking into your account. It makes it harder for cybercriminals to take over your account, by adding extra layers of protection. MFA requires you to use a combination of two or more of the following factors to access your accounts: Something you know (e.g. a PIN, password or passphrase); Something you have (e.g. a smartcard, physical token, authenticator app or SMS); and Something you are (e.g. a fingerprint, facial recognition or iris scan). MFA defends against the majority of password-related cyberattacks. For example, MFA protects against credential stuffing where cybercriminals use previously stolen passwords from one website and try to reuse them elsewhere so they can gain access to more accounts. Think of adding MFA to your account like adding a house alarm that requires a PIN to deactivate. It provides you with an extra layer of protection from cybercriminals trying to break in. Even if they break through one layer (for example, by guessing your password), they still need to break a second barrier to access your account. Having an extra step can be inconvenient at first but remember that taking shortcuts leaves your system more vulnerable. You are better off spending a few seconds entering a one-time code now, to avoid spending hours later on trying to regain access to your accounts and dealing with the consequences of your data being stolen. MFA often goes by different names. You may see it called two-factor authentication (2FA) or two-step verification. Options for MFA SMS code This is a random code that you receive to access or use an online service. For example, after you enter your username and password to log in, you will receive an SMS with a ‘one-time password’ (OTP) to enter to access your account. Another example is when you receive an SMS code when using online banking, before transferring money to a new payee for the first time. Authenticator app Authenticator apps are mobile applications that generate a random OTP and are more secure than receiving a code by SMS. You will first need to download an authenticator app on your device. Google Authenticator, LastPass Authenticator, Microsoft Authenticator and Authy Authenticator are a few popular ones. In the settings of your online account (e.g. your social media account), turn on MFA and select the authentication app option. This will reveal a QR code containing a unique key. Use your authenticator app to photograph this QR code or manually enter the key to link your account to the authenticator app. Once this step is done, the app will produce a new six-digit code every 30 seconds. Whenever you log in to your online account with your usual username and password, enter this code too. That’s it, MFA is on! Biometrics With biometrics, your unique characteristics become the authenticator. An example of biometrics is using your face or fingerprint to access your device or mobile apps. Using biometrics as MFA is convenient, because they are always with you and cannot be misplaced or forgotten. Security key A security key is a small physical token without a display screen, which is often plugged into your device via a USB port, or kept in close proximity for wireless versions. It prompts the user to activate authentication processes, and it is a more secure form of MFA than the other options above. Turn on MFA You should turn on MFA wherever possible, starting with your important accounts, such as: User and email accounts, since a cybercriminal with access to your email accounts can reset passwords for your other accounts. Financial services, such as your online banking. Accounts that save or use your payment details (e.g. eBay, Amazon, PayPal). Social media accounts (e.g. Facebook, Instagram). Any other accounts that hold personal information (e.g. myGov). How to turn on MFA depends on the software or service you are using; however the steps are somewhat similar for most applications. Refer here for links to the instructions on how to set up MFA for different services including user and email accounts, financial services, online shopping, social media and communication, government services and gaming. If you don’t see your account listed, try searching online for ‘how to turn on MFA’ for that service or check the settings of your account. If your account does not have an option for MFA, you should protect it with a strong password or passphrase that is not used anywhere else. Security tips Although MFA improves the security of your accounts, motivated cybercriminals may persist and succeed in compromising them. To help keep your account secure, consider the following security tips: Don’t click on account sign-in hyperlinks that you received via SMS or emails. Scammers may impersonate your bank or a government department and trick you into clicking a link and give out information such as your account number, password or credit card numbers. If you have any doubts about a message or call, contact the organisation directly: visit the official website to find their phone number or to log in to your account via the official website. Do not use the links or contact details given to you in the message. Don’t share MFA codes or approve unknown sign in attempts. Requests for sign in approvals and the security codes that you receive are the system’s way of checking that you are the person who signed in. If you give someone else your MFA code or approve unknown sign in attempts, then someone else might be able to log into your account. Never approve unknown sign in attempts or share your MFA code. Add extra layers of protection. You should use MFA whenever possible, especially when it comes to your most sensitive data, such as your primary email, financial accounts and health data. To enhance security, your credentials must come from two different categories: for example, something you know (passphrase) and something you are (facial recognition). The more layers of security between your important information and cybercriminals, the better. Keep up to date. Ensure that any alternative authentication methods such as your recovery email addresses are at least as secure as the primary ones that you use to log into your accounts, and kept up to date. Remember to transfer your authenticator when you change devices. If you are using an authenticator app for MFA and you get a new device, make sure that you transfer it to your new device before disposing of or resetting the old one. We recommend adding a recovery method to your account and saving your backup codes in case you lose access to your authenticator app or delete it. In some cases, you might need to turn off MFA prior to getting a new device and reinstalling the authenticator app. Similarly, if you get a new phone number, make sure that before you lose access to your old phone number, you update your sign-in options for the accounts that normally rely on this number to send you an OTP by SMS. Source: Australian Cyber Security Centre

Spouse super contributions - what are the benefits?

16 May 2025 03:13:00 GMT

If your partner is earning a low income, working part-time, or currently unemployed, boosting their super could be a smart financial move for both of you. When your partner isn’t earning much, or is out of work, their super might not be growing enough to support them in retirement. By contributing to their super, you may not only help them but also enjoy some tax benefits yourself. We’ll explore how the spouse contributions tax offset works and how it differs from contribution splitting. The spouse contributions tax offset Are you eligible? To be entitled to the spouse contributions tax offset: You need to make a non-concessional contribution to your spouse’s super. This means you add money from your after-tax income and don’t claim a tax deduction for it. You must be married or in a de facto relationship together and are not living apart or separately. You must both be Australian residents. Your spouse’s income should be $37,000 or less for the full tax offset, and under $40,000 for a partial tax offset. Your spouse is under 75 years of age, and their total superannuation balance is less than the general transfer balance cap ($1,900,000 for 2024-25) as at 30 June of the prior year. What are the financial benefits? If eligible, you can generally make a contribution to your spouse’s super fund and claim an 18% tax offset on up to $3,000 through your tax return. To be eligible for the maximum tax offset, which works out to be $540, you need to contribute a minimum of $3,000 and your partner’s annual income needs to be $37,000 or less. If their income exceeds $37,000, you’re still eligible for a partial offset. However, once their income reaches $40,000, you’ll no longer be eligible for any offset, but can still make contributions on their behalf. Are there limits to what can be contributed? You can’t contribute more than your partner’s non-concessional contributions cap, which is $120,000 per year for everyone, noting any non-concessional contributions your partner may have already made. However, if your partner is under 75 and eligible, they (or you) may be able to make up to three years of non-concessional contributions in a single income year, under bring-forward rules, which would allow a maximum contribution of up to $360,000. Another thing to be aware of is that non-concessional contributions can’t be made once someone’s super balance reaches $1.9 million or above as at 30 June 2024. So you won’t be able to make a spouse contribution if your partner’s balance reaches that amount. There are also restrictions on the ability to trigger bring-forward rules for certain people with large super balances (more than $1.66 million in 2024-25). There are also different super balance limits in place if you want to take advantage of the bring-forward rules. How contributions splitting differs Another way to increase your partner’s super is by splitting up to 85% of your concessional super contributions with them, which you either made or received in the previous financial year. Concessional super contributions can include employer and or salary-sacrifice contributions, as well as voluntary contributions you may have claimed a tax deduction for. What rules apply for contribution splitting? To be eligible for contributions splitting, your partner must be between age 60 (preservation age) and 65 (and not retired). Are there limits to how much can be contributed? Amounts you split from your super into your partner’s super will count toward your concessional contributions cap, which is $30,000 per year for everyone. On top of this, unused cap amounts accrued in the last 5 years can also be contributed, if they’re eligible. Note, this broadly applies to people whose total super balance was less than $500,000 on 30 June of the previous financial year. Do all super funds allow for this type of arrangement? You’ll need to talk to your super fund to find out whether it offers contributions splitting, and it’s also worth asking whether there are any fees. What else you and your partner should know If either of you exceeds super contribution caps, additional tax and penalties may apply. The value of your partner’s investment in super, like yours, can go up and down, so before making contributions, make sure you both understand any potential risks. The government sets rules about when you can access your super. Generally, you can access it when you’ve reached age 60 (preservation age) and retire. While you can’t personally make further non-concessional contributions into your super once you have a total super balance of $1.9 million or above (as at 30 June of the previous financial year), it’s still possible to make contributions to your partner’s super (noting the caps). Where to go for more information Your circumstances will play a big part in what you both decide to do. And, as the rules around spouse contributions and contributions splitting can be complex, it’s a good idea to chat to your financial adviser to make sure the approach you and your partner take is the right one. Maximise your finances with spouse super contributions Whether you're seeking tax offsets or looking to grow your partner's retirement savings, spouse super contributions can help. Contact our team at Paris Financial to see how spouse super contributions could benefit your household. Source: AMP

Am I too old to get a home loan?

16 May 2025 03:10:00 GMT

One of a property lender’s most important jobs is to make sure a borrower can manage the typical home loan term of 30 years. This becomes even more critical from the age of 50 because that 30-year term can see a borrower well into retirement. We have a retirement age in this country of 67, and yes, a lot of people work past that. But the banks want to make sure that, when someone does retire, they can meet that mortgage and they’ve still got somewhere to live. Lenders are obligated to assess whether a loan will place you in financial difficulty. Is there a home loan age limit in Australia? It’s clear that a lender can’t refuse a loan application purely based on age. Federal government legislation like the Age Discrimination Act prevents such blatant bias. However, under the “responsible lending” laws, a lender must ensure that every home loan application it approves makes sense and doesn’t place borrowers in any financial difficulty. The legislation is there to protect the client – to make sure that the client is always protected in any situation, whether it’s age or not. So, what can older borrowers do to increase their chances of a successful application? Tips for older borrowers applying for a loan While you're never too old to get a home loan, you can take these extra steps to put your best foot forward. Keep your credit score high Lenders use your credit score or rating, together with their own risk criteria, to decide if you’re a safe bet. According to moneysmart.gov.au, your credit score is based on personal and financial information about you that’s kept in your credit report. This will include the amount of money you’ve borrowed, the number of credit applications you’ve made and whether you pay on time. Credit cards, utility bills and personal loans all come into play, as do any bankruptcies or debt agreements, court judgments, or personal insolvency agreements. It could be worth engaging a broker before you approach any lenders. Potential borrowers are also warned about buy now, pay later schemes, which count towards your tally of credit applications. What they’re saying to you is you can buy this now, but you’ll make the repayments over four weekly payments or eight weekly payments, so they’re actually doing a credit hit and can have quite a big impact on your file. If you plan to shop around for a home loan, it can work in your favour to engage a mortgage broker. Do the research first before you apply with a lender so that you don’t have any unnecessary credit hits. Plan your exit strategies Lenders need to have a clear understanding of your exit strategy if the term of your loan extends beyond retirement age. A 49-year-old loan applicant who plans to retire at 67, which leaves them 18 years to make repayments using a regular income. A broker or lender will calculate the loan balance at 67, then do a conservative calculation of the value of any assets and your likely super balance to help determine if there will be adequate funds to continue to service a mortgage in retirement or to pay out the loan. Downsizing is one common exit strategy for older borrowers in Australia. A plan to transition from a larger to a smaller home is another common exit strategy. When you retire, you could downsize. The amortised loan is paid down and the house that they’re selling has gone up in value. So they could have enough to go and buy a property unencumbered and still have their super to retire on. It’s in everyone’s interests to ensure a borrower is protected. It all still comes back to responsible lending … making sure the client has got income and equity, a good credit score. The majority of lenders assess on an individual situation, but obviously do more checks and balances when someone is a bit older to make sure they are looked after for the whole journey. Case study Having relocated to Australia and built up equity in his home, a 54-year-old male was looking to refinance and consolidate his debt. He felt confident about making repayments for the foreseeable future and had post retirement plans to downsize and put his super into play. The first lender approached wasn’t comfortable with his exit strategy. It was marginal because the bank didn’t feel the exit strategy was strong enough, based on the fact they had a requirement to have a minimum amount of super. Sometimes lenders have limits on certain types of borrowers – many factors influence home loan approval. Having completed all the requisite checks, the setback was surprising and disappointing but sometimes a lender hits a limit on a particular type of borrower, such as when investment lending came under the spotlight in 2021. Fortunately, the second lender quickly approved the loan. They would accept the downsizing and the super position, and they could clearly see that the client had so much equity in their home as well, and that they would be able to pay that debt down. Ready to explore home loans for older borrowers? At Paris Financial, we can help you understand your borrowing options and build a strategy around home loans for older borrowers. Reach out today to see how we can support your financial future with home loans for older borrowers. Source: Domain

Instant asset write-off threshold finally confirmed

15 May 2025 03:33:00 GMT

It has been a long time coming, but the Government finally passed legislation increasing the instant asset write-off threshold for the year ending 30 June 2025 to $20,000. This was announced back in the 2024-25 Federal Budget but the Government faced a number of hurdles in terms of passing the legislation. This basically means that individuals and entities who carry on a business with turnover of less than $10m can often claim an immediate deduction for the cost of depreciating assets (eg, plant and equipment) that are acquired during the 2025 financial year as long as the cost of the asset, ignoring GST credits that can be claimed, is less than $20,000. If you are thinking about purchasing an asset before 30 June 2025 with the hope of claiming an immediate deduction, then please reach out to us to confirm the position. The rules contain a number of tricks and traps which we can help you to navigate. The threshold is due to drop back to $1,000 from 1 July 2025 unless further legislation is passed to provide another temporary increase to the threshold or a permanent modification. Interested in learning more? Our team can guide you through the $20,000 instant asset write-off threshold and help you claim it correctly. Feel free to get in touch with us today on: (03) 8393 1000. Note: The material and contents provided in this publication are informative in nature only. It is not intended to be advice and you should not act specifically on the basis of this information alone. If expert assistance is required, professional advice should be obtained.

What Is Aged Care? Understanding Services in Australia

15 May 2025 03:30:00 GMT

Aged care in Australia refers to the wide range of services that support older people who need help with everyday living, health care, and safe accommodation. Whether it's staying at home with some assistance or moving into a residential facility, aged care plays a key role in the wellbeing of older Australians. Types of Aged Care Services 1. Home Care Services These are ideal for older Australians who wish to continue living at home but require help with personal care, cleaning, meals, or transport. Tailored support can be provided through programs like home care packages or other community-based assistance. 2. Residential Aged Care For individuals who can no longer live independently, residential aged care offers full-time accommodation and access to daily living support, meals, and healthcare services. These facilities are staffed by professionals trained to assist with both low and high-level care needs. 3. Short-Term Care Short-term options include respite care (for carers to take a break), transition care (support after a hospital stay), and restorative care to regain independence. These services are temporary but can be vital during periods of change or recovery. Eligibility for Aged Care Services in Australia To access government-subsidised aged care services in Australia, individuals must meet specific eligibility criteria. These criteria ensure that support is provided to those who need it most. Age and Residency Requirements Age: Generally, individuals aged 65 years or older are eligible. For Aboriginal and Torres Strait Islander people, the age criterion is 50 years or older. Residency: Applicants must be Australian citizens, permanent residents, or hold a special category visa. Assessment of Care Needs Eligibility isn't solely based on age and residency; an assessment of care needs is crucial. This assessment determines the level and type of care required. Initial Screening: Contact My Aged Care to discuss your situation. They will conduct a preliminary screening to understand your needs. Comprehensive Assessment: If further evaluation is needed, My Aged Care will arrange for an assessment by an Aged Care Assessment Team (ACAT) or Regional Assessment Service (RAS), depending on the complexity of care required. Special Considerations Certain groups may receive priority or have specific considerations: Financial Hardship: Individuals facing financial difficulties may be eligible for additional support. Homelessness or Risk Thereof: Those who are homeless or at risk of homelessness may receive prioritised assistance. Carers: Carers seeking respite or support services may also access aged care services. Application Process Contact My Aged Care: Call 1800 200 422 or visit the My Aged Care website to initiate the process. Provide Information: Share details about your health, daily activities, and any support currently received. Undergo Assessment: If required, an ACAT or RAS assessor will evaluate your needs, usually through a face-to-face meeting. Receive Outcome: Post-assessment, you'll receive a letter detailing the services you're approved for. Once approved, individuals can select services and providers that best match their requirements. Understanding these eligibility criteria ensures that individuals and their families can navigate the aged care system effectively, accessing the support they need. Understanding the Costs While aged care is heavily subsidised, people may still contribute based on their financial situation. Costs vary by service and may include basic daily fees, income-tested fees, and accommodation payments. Aged Care Reforms Recent changes to aged care in Australia have aimed to improve safety, access, and service quality. This includes updates to quality standards, better oversight, and increased transparency in the sector. Need Assistance in Planning for Aged Care Understanding aged care and planning early allows Australians to make confident, informed choices. Whether staying at home or moving into care, knowing the options available helps ensure dignity, comfort, and security in later life. Need help understanding aged care options or planning financially for aged care services? Contact Paris Financial today, our Financial Planners are here to help you make informed decisions with confidence. Source: Australian Government Department of Health and Aged Care Services Australia My Aged Care

The ATO's updated small business benchmarking tool

08 May 2025 03:36:00 GMT

The ATO has updated its small business benchmarks with the latest data taken from the 2022–23 financial year. These benchmarks cover 100 industries and allow small businesses to compare their performance, including turnover and expenses, against others in their industry. While the ATO doesn’t use the benchmarks in isolation, small businesses who fall outside the ATO’s benchmarks are more likely to trigger a closer examination from the ATO. The ATO uses information reported in business tax return with key performance benchmarks for the relevant industry to identify potential tax risks. Aside from determining the risk of unwanted attention from the ATO, the benchmarks can also be used to compare your business performance against other businesses in the same industry. The benchmarks could help you spot areas where you might be able to reduce costs or improve efficiency. The small business benchmarks can be accessed here. Aside from the small business benchmarks, the ATO also has a business viability assessment tool which can help business owners identify whether there are any obvious financial risks. The ATO consider a business to be viable if it is generating sufficient profits to meet commitments to creditors and provide a return to the business owners. If a business isn’t generating profits, the ATO looks at whether the business has sufficient cash reserves to sustain itself. The business viability assessment tool can be found here. If you’d like support reviewing your business performance, our team can help you make sense of the small business benchmarking tool and offer tailored recommendations to improve your results. Get in touch with us today to see how the small business benchmarking tool can support your growth goals. Note: The material and contents provided in this publication are informative in nature only. It is not intended to be advice and you should not act specifically on the basis of this information alone. If expert assistance is required, professional advice should be obtained.

Year-end tax planning opportunities & risks

06 May 2025 03:39:00 GMT

With the end of the financial year fast approaching we outline some opportunities to maximise your deductions and give you the low down on areas at risk of increased ATO scrutiny. Opportunities Bolstering superannuation If growing your superannuation is a strategy you are pursuing, and your total superannuation balance allows it, you could make a one-off deductible contribution to your superannuation if you have not used your $30,000 cap. This cap includes superannuation guarantee paid by your employer, amounts you have salary sacrificed into super and any amounts you have contributed personally that will be claimed as a tax deduction. If your total superannuation balance on 30 June 2024 was below $500,000 you might be able to access any unused concessional cap amounts from the last five years in 2024-25 as a personal contribution. For example, if you were $8,000 under the cap in each of the last 5 years, you could contribute an additional $40,000 and take the tax deduction in this financial year at your personal tax rate. To make a deductible contribution to your superannuation, you need to be aged under 75, lodge a notice of intent to claim a deduction in the approved form (check with your superannuation fund), and receive an acknowledgement from your fund before you lodge your tax return. For those aged between 67 and 74, you can only claim a deduction on a personal contribution to super if you meet the work test (i.e., work at least 40 hours during a consecutive 30-day period in the income year, although some special exemptions might apply). If your spouse’s assessable income is less than $37,000 and you both meet the eligibility criteria, you could contribute to their superannuation and claim a $540 tax offset. If you are likely to face a tax bill this year and you made a capital gain on shares or property you sold, then making a larger personal superannuation contribution might help to offset the tax you owe. Charitable donations When you donate money (or sometimes property) to a registered deductible gift recipient (DGR), you can claim amounts of $2 and above as a tax deduction. The more tax you pay, the more valuable the tax deductible donation is to you. For example, a $10,000 donation to a DGR can create a $3,250 deduction for someone earning up to $120,000 but $4,500 to someone earning $180,000 or more (excluding Medicare levy). To be deductible, the donation must be a gift and not in exchange for something. Special rules apply for amounts relating to charity auctions and fundraising events run by a DGR. Philanthropic giving can be undertaken in a number of different ways. Rather than providing gifts to a specific charity, it might be worth exploring the option of giving to a public ancillary fund or setting up a private ancillary fund. Donations made to these funds can often qualify for an immediate deduction, with the fund then investing and managing the money over time. The fund generally needs to distribute a certain portion of its net assets to DGRs each year. Investment property owners If you do not have one already, a depreciation schedule is a report that helps you calculate deductions for the natural wear and tear over time on your investment property. Depending on your property, it might help to maximise your deductions. Risks Work from home expenses Working from home is a normal part of life for many workers, and while you can’t claim the cost of your morning coffee, biscuits or toilet paper (seriously, people have tried), you can claim certain additional expenses you incur. But, work from home expenses are an area of ATO scrutiny. There are two methods of claiming your work from home expenses; the short-cut method, and the actual method. The short-cut method allows you to claim a fixed rate of 70c for every hour you work from home for the year ending 30 June 2025. This covers your energy expenses (electricity and gas), internet expenses, mobile and home phone expenses, and stationery and computer consumables such as ink and paper. To use this method, it’s essential that you keep a record of the actual days and times you work from home because the ATO has stated that they will not accept estimates. The alternative is to claim the actual expenses you have incurred on top of your normal running costs for working from home. You will need copies of your expenses, and your diary for at least 4 continuous weeks that represents your typical work pattern. Landlords beware If you own an investment property, a key concept to understand is that you can only claim a deduction for expenses you incurred in the course of earning income. That is, the property normally needs to be rented or genuinely available for rent to claim the expenses. Sounds obvious but taxpayers claiming investment property expenses when the property was being used by family or friends, taken off the market for some reason or listed for an unreasonable rental rate, is a major focus for the ATO, particularly if your property is in a holiday hotspot. There are a series of issues the ATO is actively pursuing this tax season. These include: Refinancing and redrawing loans – you can normally claim interest on the amount borrowed for the rental property as a deduction. However, where any part of the loan relates to personal expenses, or where part of the loan has been refinanced to free up cash for your personal needs (school fees, holidays etc.,), then the loan expenses need to be apportioned and only that portion that relates to the rental property can be claimed. The ATO matches data from financial institutions to identify taxpayers who are claiming more than they should for interest expenses. The difference between repairs and maintenance and capital improvements – while repairs and maintenance costs can often be claimed immediately, a deduction for capital works is generally spread over a number of years. Repairs and maintenance expenses must relate directly to the wear and tear resulting from the property being rented out and generally involve restoring the property back to its previous state, for example, replacing damaged palings of a fence. You cannot claim repairs required when you first purchased the property. Capital works however, such as structural improvements to the property, are normally deducted at 2.5% of the construction cost for 40 years from the date construction was completed. Where you replace an entire asset, like a hot water system, this is a depreciating asset and the deduction is claimed over time (different rates and time periods apply to different assets). Co-owned property – rental income and expenses must normally be claimed according to your legal interest in the property. Joint tenant owners must claim 50% of the expenses and income, and tenants in common according to their legal ownership percentage. It does not matter who actually paid for the expenses. Gig economy income It’s essential that any income (including money, appearance fees, and ‘gifts’) earned from platforms such as Airbnb, Stayz, Uber, YouTube, etc., is declared in your tax return. The tax rules consider that you have earned the income “as soon as it is applied or dealt with in any way on your behalf or as you direct”. If you are a content creator for example, this is when your account is credited, not when you direct the money to be paid to your personal or business account. Squirrelling it away from the ATO in your platform account won’t protect you from paying tax on it. Since 1 July 2023, the platforms delivering ride-sourcing, taxi travel, and short-term accommodation (under 90 days), have been required to report transactions made through their platform to the ATO under the sharing economy reporting regime so expect the ATO to utilise data matching activities to identify unreported income. Other sharing economy platforms have been required to start reporting from 1 July 2024. If you have income you have not declared, do it now before the ATO discover it and apply penalties and interest. For your business Opportunities Write-off bad debts Your customer definitely not going to pay you? If all attempts have failed, the debt can be written off by 30 June to claim a deduction this year. Ensure you document the fact that you have written off the bad debt on your debtor’s ledger or with a minute. Obsolete plant & equipment If your business has obsolete plant and equipment sitting on your depreciation schedule, instead of depreciating a small amount each year, scrap it and write it off before 30 June if you don’t use it anymore. For companies If it makes sense to do so, bring forward tax deductions by committing to pay directors’ fees and employee bonuses (by resolution), and paying June quarter super contributions in June. Risks Tax debt and not meeting reporting obligations Failing to lodge returns is a huge ‘red flag’ for the ATO that something is wrong in the business. Not lodging a tax return will not stop the debt escalating because the ATO has the power to simply issue an assessment of what they think your business owes. If your business is having trouble meeting its tax or reporting obligations, we can assist by working with the ATO on your behalf. Need guidance on year-end tax planning opportunities and risks? Talk to us today about year-end tax planning opportunities and risks before the financial year ends. Note: The material and contents provided in this publication are informative in nature only. It is not intended to be advice and you should not act specifically on the basis of this information alone. If expert assistance is required, professional advice should be obtained.

Property subdivision projects: the tax implications

02 May 2025 03:41:00 GMT

As the urban sprawl continues in most major Australian cities, we are often asked to advise on the tax treatment of subdivision projects. Before jumping in and committing to anything, it is important to understand the tax liabilities that might arise from these projects. Unfortunately, many people make incorrect assumptions about the way that subdivision projects will be taxed, often believing that any tax exposure will be minimal. However, the reality is that there are a number of important issues that need to be considered and that could have a significant impact on the overall profitability of the project. For example, when someone buys a property with the intention of subdividing it into smaller lots and selling them at a profit in the short term this will normally mean that any profit is taxed as ordinary income, rather than being taxed under the CGT rules. This means that the general CGT discount would not be available to reduce the tax liability, even if the property has been held for more than 12 months and it would not be possible to apply capital losses to reduce the taxable amount. Also, in situations like this the sale of the subdivided lots will often trigger a GST liability, further reducing any after-tax profits generated from the project. Many people fail to properly estimate the income tax and GST liabilities that will arise from property projects and can end up with a nasty shock when they realise the impact this has on the economic viability of the project. The ATO has recently updated its guidance in this area, adding a number of new and practical examples to demonstrate how the tax rules will typically apply. The ATO’s examples cover the income tax and GST consequences of common property transactions such as property flipping, subdivision projects and property development activities. For example, in one of the examples the ATO looks at a scenario where the taxpayer repeatedly buys, renovates, and sells properties. They engage in market research, seeking professional advice, taking out business loans, and then carrying out renovations in a business-like manner. The ATO takes the view that the taxpayer is running a business, since the taxpayer’s primary intention is to make a profit from the renovations and reselling of the property. The profits are treated as ordinary income and taxed on revenue account. The CGT provisions don’t apply here since the property is held as trading stock. However, GST doesn’t apply on this particular situation as long as the properties have not undergone “substantial renovations”, which needs to be considered carefully. On the other hand, in another example the ATO deals with a taxpayer who subdivides the vacant land from their main residence because of ill health and growing debt levels. Since they didn’t initially intend to profit from the subdivision and sale of the vacant land, the sale is viewed as the mere realisation of a capital asset rather than a business venture. The activities related to the subdivision are limited to necessary actions for council approval, reflecting a low level of complexity and small scale. The sale of the subdivided lot is taxed on capital account under the CGT rules, qualifying for the general CGT discount if the land has been held for more than 12 months. However, the main residence exemption cannot apply because the land is not being sold together with the dwelling that has been used as the taxpayer’s main residence. You can find the ATO’s guide and examples here Want help navigating property subdivision tax implications? Feel free to get in touch with our team at Paris Financial on: (03) 8393 1000 to discuss your project and get clarity on your property subdivision tax implications. Note: The material and contents provided in this publication are informative in nature only. It is not intended to be advice and you should not act specifically on the basis of this information alone. If expert assistance is required, professional advice should be obtained.

Business Name Renewal Scam - Avoid Costly Mistakes

30 Apr 2025 03:43:00 GMT

You’ve just received an official-looking email or letter in the mail saying your business name is about to expire. It may carry the ASIC logo, sound urgent, and it gives you a link to pay now. But wait, this could be a business name renewal scam, and acting too quickly could cost you. At Paris Financial, we’ve already seen clients caught off guard. One received a letter from a company calling itself something like “Australian Business Names.” The layout, colours, and even the font closely mimicked ASIC branding. It looked completely legitimate. Another client received a similar notice and nearly paid a marked-up renewal fee before realising it wasn’t from the government at all. These scams are becoming more common and more convincing. This guide will walk you through how these scams work, what to look out for, and most importantly, how to protect your business from becoming the next target. What Is a Business Name Renewal Scam? A business name renewal scam typically involves scammers pretending to be ASIC or another authority. They send emails or letters claiming your business name is about to expire and ask for payment. These scams often direct you to pay through unsecured links or even bank details unrelated to the government. The goal of these scammers is to trick you into paying a fee that either goes directly into their pockets or steals your business and personal details. It can be easy to miss the signs, especially if you’re busy or the renewal date is approaching. That’s why it’s so important to know what to look for. Why Are These Scams So Effective? Scammers rely on a few simple tactics that work time and again: The notices look official They often use ASIC logos, branding colours, and even language copied from the real government website. They target your fear of missing deadlines Nobody wants to risk losing their business name, so these notices create urgency and pressure. They charge believable fees Most business owners won’t blink at a renewal fee, they often just pay it, which makes the scam less suspicious. They hit small business owners the hardest When you’re doing everything yourself, these things can fall through the cracks and scammers know it. Red Flags That You’re Looking at a Scam Unusual Email Addresses Real ASIC notices will come from an address ending in .gov.au. If the email is from a Gmail, Hotmail, or something that looks strange, be cautious. Fees That Don’t Match ASIC ASIC’s current fees are $44 for a one-year renewal and $102 for three years (As at 30/04/25). If someone is asking for $99, $120, or more, it’s likely not genuine. Spelling Errors or Weird Formatting Most scammers operate quickly and sloppily. Check for poor grammar, spacing issues, and broken formatting. Urgent or Threatening Language Phrases like “Final Notice” or “Your business will be cancelled immediately” are often used to force fast decisions. Suspicious Payment Links Hover over the link before clicking. If it doesn’t go to asic.gov.au, it’s likely a scam. What To Do if You’re Unsure Verify With Our Team If you’ve received something that doesn’t look quite right, don’t click on any links. Instead, scan and send a copy of the letter or forward the email to our team at Paris Financial: admin@parisfinancial.com.au. We’ll help you confirm whether it’s a legitimate document or a scam. Reaching out quickly can help prevent unnecessary stress or financial loss. Best Practices to Avoid Getting Caught Even if you haven’t been targeted yet, it pays to be proactive. Here’s how you can make sure you don’t fall into the trap: Keep Renewal Dates Handy Set calendar reminders for when your business name is due to be renewed. This way, if you get a notice too early, you’ll know it’s not legitimate. Use ASIC’s Renewal Notification Service ASIC sends genuine renewal reminders 30 days before the expiry date, provided your email and mobile are up to date. Don’t ignore these. Educate Your Team If others in your business have access to the inbox or handle finances, make sure they also know what to look out for. Engage a Trusted Accountant Letting a professional manage these renewals means you’re far less likely to fall for a scam. Plus, it saves you time and ensures accuracy. Real-World Scenarios Here are a few examples of how these scams typically play out: Scenario 1 John runs a small landscaping business in regional Victoria. He receives a renewal letter in the mail asking for $120 to renew his business name. It looks official, and since he’s not tech-savvy, he pays it. A few months later, he finds out his business name was never renewed, and ASIC has listed it as cancelled. Scenario 2 Brenda owns an online store. She gets an email saying her business name is expiring in two weeks and includes a payment link. She’s busy, clicks through, and pays. It wasn’t ASIC, and her banking details were compromised, she had to freeze her account. Both situations could have been avoided with a few checks and a healthy dose of scepticism. Why These Scams Matter It’s not just about the money lost. Falling victim to a business name renewal scam can lead to bigger problems, including: Identity theft Interrupted trading Stress and reputational damage Losing your actual business name Even if you recover, the time and effort involved in sorting it all out is time you could’ve spent growing your business. How to Report a Business Name Renewal Scam If you believe you’ve received a scam renewal notice: Do not reply to the email or letter Do not click on any links or download attachments Forward the email to your accountant or cybersecurity contact Notify your bank immediately if you’ve made a payment Contact ASIC or Scamwatch to report the incident It’s also helpful to inform others in your industry or local business community. The more awareness we create, the harder it becomes for scammers to succeed. Business Name Renewal Scam Help for Business Owners Need help avoiding a business name renewal scam? If you’ve received something that doesn’t look quite right, or if you simply don’t have time to deal with renewals and compliance, let us handle it. Our team at Paris Financial is experienced, knowledgeable, and here to help Australian businesses stay safe and compliant. Contact our team at Paris Financial today on (03) 8393 1000, for trusted support with your business name renewal scam concerns.

Home Loan Types - Choosing the Right Loan for You

28 Apr 2025 03:46:00 GMT

Home Loans 101: Understanding Your Options Buying a home is one of life’s biggest financial decisions, and choosing the right loan type is just as important. With so many home loan options available, it’s easy to feel overwhelmed. From variable loans to SMSF loans, each option has pros and cons that suit different financial needs. In this guide, we break down the key features of popular home loan types to help you make an informed choice. Variable Loans: Flexible but Fluctuating Variable loans have interest rates that change based on market conditions. If interest rates go down, your repayments decrease, but if rates rise, you’ll pay more. 🔹 Pros: ✔ Potentially lower repayments when interest rates drop. ✔ Flexibility to make extra repayments and pay off the loan faster. 🔹 Cons: ✖ Monthly repayments can increase if interest rates rise. ✖ Harder to budget for long-term expenses. Most home loans are taken out over 25 to 30 years and can include principal & interest or interest-only repayments (for a limited period). Fixed-Rate Loans: Stability but Less Flexibility A fixed-rate loan locks in your interest rate for a set period (typically 1 to 5 years). This provides certainty, as your repayments won’t change during that time. 🔹 Pros: ✔ Easier budgeting with predictable repayments. ✔ Protection from interest rate increases. 🔹 Cons: ✖ If interest rates fall, you remain locked in at a higher rate. ✖ Breaking a fixed-rate contract can lead to significant penalties. Fixed loans suit borrowers who prioritise stability over flexibility. Split-Rate Loans: A Balanced Approach A split-rate loan allows you to divide your mortgage into part-fixed and part-variable, offering both stability and flexibility. 🔹 Pros: ✔ Protects against interest rate rises on the fixed portion. ✔ Allows extra repayments on the variable portion. 🔹 Cons: ✖ Less predictability than a fully fixed loan. ✖ Potential for interest rate fluctuations on the variable portion. This is ideal for borrowers who want a mix of certainty and adaptability. Low-Doc Loans: For the Self-Employed Self-employed borrowers or those without traditional payslips may qualify for low-doc loans. These require less documentation but often come with higher interest rates. 🔹 Pros: ✔ Easier access to loans for self-employed individuals. ✔ Less paperwork compared to standard home loans. 🔹 Cons: ✖ Higher interest rates. ✖ Stricter eligibility criteria. If you’re a business owner or freelancer, a low-doc home loan may be your best option. Professional or Packaged Loans: Extra Perks Some lenders offer professional loan packages, which bundle a mortgage with discounted rates, fee waivers, and linked savings accounts. 🔹 Pros: ✔ Lower interest rates for high-value loans. ✔ Potential fee reductions on accounts and credit cards. 🔹 Cons: ✖ Higher income requirements. ✖ Not always the best deal compared to standalone loans. This suits high-income earners who qualify for exclusive banking benefits. Construction Loans: For Building a Home Construction loans provide funds in stages as building work progresses. Interest-only repayments apply for the first 12 months before switching to principal & interest. 🔹 Pros: ✔ Flexible drawdowns based on construction milestones. ✔ Pay interest only on the drawn-down amount. 🔹 Cons: ✖ Additional fees for undrawn funds. ✖ Requires detailed builder contracts and approvals. If you’re building a new home, this loan helps manage cash flow efficiently. Line-of-Credit Loans: Accessing Home Equity A line-of-credit loan lets you borrow against the equity in your property, similar to a credit card. You only pay interest on the funds used. 🔹 Pros: ✔ Flexible access to funds. ✔ Interest-only payments in the initial period. 🔹 Cons: ✖ Higher interest rates than standard home loans. ✖ Can lead to overspending if not managed wisely. This loan is useful for renovations, investments, or large expenses. Bridging Loans: For Buying Before Selling If you’re purchasing a new property before selling your current home, a bridging loan offers short-term financing. 🔹 Pros: ✔ Covers the gap between buying and selling. ✔ Short-term loan duration. 🔹 Cons: ✖ Higher interest rates. ✖ Requires a clear repayment plan. Bridging loans minimise stress when transitioning between homes. SMSF Loans: Buying Property Through Super Self-managed super funds (SMSFs) can borrow money to buy property, but strict regulations apply. These loans must be structured under a limited recourse borrowing arrangement (LRBA). 🔹 Pros: ✔ Allows property investment within super. ✔ Tax advantages for SMSF property owners. 🔹 Cons: ✖ Complex regulations and compliance requirements. ✖ Must follow strict lending rules. Professional advice is essential before applying for an SMSF loan. Choosing the Right Home Loan Type With so many home loan types available, choosing the right one depends on your financial goals, income stability, and repayment preferences. 🔹 Looking for flexibility? Consider a variable loan. 🔹 Prefer stable repayments? A fixed-rate loan is ideal. 🔹 Building a home? A construction loan suits you. 🔹 Self-employed? A low-doc loan could work. Get Expert Home Loan Advice Need help choosing the best home loan types? The team at Paris Financial provide personalised guidance to match your needs. Call our team on (03) 8393 1000 for expert mortgage advice today! Hayley Crow is a Credit Representative (CR No: 486223) of Buyers Choice Licencing Pty Ltd ACN 626 172 281 (Australian Credit Licence No: 509484)

Threshold for tax-free retirement super increases

11 Apr 2025 03:49:00 GMT

The amount of money that can be transferred to a tax-free retirement account will increase to $2m on 1 July 2025. Each year, advisers await the December inflation statistics to the be released. The reason is simple, the transfer balance cap – the amount that can be transferred to a tax-free retirement account – is indexed to the Consumer Price Index (CPI) released each December. If inflation goes up, the general transfer balance cap is indexed in increments of $100,000 at the start of the financial year. In December 2024, the inflation rate triggered an increase in the cap from $1.9m to $2m. The complexity with the transfer balance cap is that each person has an individual transfer balance cap. If you have started a retirement income stream, when indexation occurs, any increase only applies to your unused transfer balance cap. Considering retiring in 2025? If you are considering retiring, either fully or partially, indexation of the transfer balance cap provides a one-off opportunity to increase the amount of money you can transfer to your tax-free retirement account. That is, if you start taking a retirement income stream for the first time in June 2025, your transfer balance cap will be $1.9m but if you wait until July 2025 your transfer balance cap will be $2m, an extra tax-free $100,000. Already taking a pension? If you are already taking a retirement income stream, indexation applies to your unused transfer balance cap - so you might not benefit from the full $100,000 increase on 1 July 2025. Where can I see what my cap is? Your superannuation fund reports the value of your superannuation interests to the ATO. You can view your personal transfer balance cap, available cap space, and transfer balance account transactions online through the ATO link in myGov. If you have a self-managed superannuation fund (SMSF), it is very important that your reporting obligations are up to date. Contact our team to chat with one of our experts. Note: The material and contents provided in this publication are informative in nature only. It is not intended to be advice and you should not act specifically on the basis of this information alone. If expert assistance is required, professional advice should be obtained.

Personal tax cuts

08 Apr 2025 03:59:00 GMT

From 1 July 2026, personal income tax rates will change. On the last sitting day of Parliament, the personal income tax rate reduction announced in the 2025-26 Federal Budget was confirmed. The modest reduction of 1% applies to the $18,201-$45,000 tax bracket, reducing from its current rate of 16% to 15% from 1 July 2026, then to 14% from 2027-28. The saving from the tax cut represents a maximum of $268 in the 2026-27 year and $536 from the 2027-28 year. With a 1 July 2026 start date, the outcome of the Federal election on 3 May 2025 and subsequent budgets will determine whether this change comes to fruition. Medicare levy threshold change for low-income earners Low-income earners do not pay the compulsory 2% Medicare levy until their assessable income reaches the threshold. The threshold is different depending on whether you are a single taxpayer, pensioner, and the number of children you have that are dependent on you. Parliament has confirmed the increase to the Medicare levy threshold announced in the Federal Budget. The threshold change is backdated to 1 July 2024, which means that taxpayers will benefit when they lodge their 2024-25 tax return. See our Budget 2025-26 summary for details. Need Help Navigating the Personal Tax Cuts? If you have any questions about how the personal tax cuts may affect you, get in touch with our team today, we're here to help. Note: The material and contents provided in this publication are informative in nature only. It is not intended to be advice and you should not act specifically on the basis of this information alone. If expert assistance is required, professional advice should be obtained.

Super guarantee rules catch up with venues and gyms

03 Apr 2025 04:02:00 GMT

The super guarantee rules are broad and, in some circumstances, extend beyond the definition of common law employees to some directors, contractors, entertainers, sports persons and other workers. Employers need to pay compulsory superannuation guarantee (SG) to those considered employees under the definition in the SG rules. But, the SG definition of an employee is broad and just how far this definition extends has sparked debate of late about the rights of performers, gym instructors and others not typically considered employees. For employers and business owners, it is crucially important that if there is any uncertainty about the rights of workers to SG, your position is confirmed. This might be an initial assessment of the position by us, confirmed by an employment lawyer, or clarified by applying for a ATO private ruling covering your specific workplace arrangements. One of the things that employers find most alarming is that there is no tangible time limit on the recovery of outstanding SG obligations. In theory, the ATO can go back as far as it determines necessary to recover unpaid superannuation contributions for workers who are classified as employees for SG purposes. One of the key features of the SG system is to ensure that appropriate contributions are being made for employees and deemed employees, to adequately support them in their retirement. The SG laws, and complimentary director penalty regime, ensure that every cent owing to an employee for SG is paid. Who is not paid super guarantee rules? Super guarantee does not need to be paid to: Under 18s who do not work more than 30 hours a week. Private and domestic workers who do not work more than 30 hours a week. Non-resident employees who perform work outside of Australia. Employees temporarily working in Australia covered by an agreement. Some foreign executives who hold certain visas or entry permits. Generally, SG is not payable if you have entered into a contract with a company, trust or partnership. If you have Australian employees temporarily working outside of Australia in a country with a bilateral social security agreement, for example, the United States, you should continue paying SG and apply for a certificate of coverage to avoid paying super (or the equivalent) in the country where the employee is temporarily located. SG’s broader definition of an employee There is a section of the SG rules, section 12, that specifies who is deemed to be an employee for SG purposes. This section extends the definition of an employee beyond common law to cover: Company directors who are remunerated for performing duties; Contractors working under a contract wholly or principally for their labour; Certain state and Commonwealth government contracted workers; and Those paid to perform or present any music, play, dance, entertainment, sport or other similar promotional activity. This includes people who provide services in connection with these activities or people paid in relation to film, tape, disc or television. The ATO have outlined their common ways businesses get the relationship between employee and independent contractor wrong on their website. Contractors and the Super Guarantee Rules If your contractor holds an Australian Business Number (ABN), this of itself will not prevent SG from applying. Where the arrangement looks like it is a contract for the provision of an individual’s labour and skills, it is likely they will meet the definition of an employee and SG will be payable. The SG rules state if, “a person works under a contract that is wholly or principally for the labour of the person, the person is an employee of the other party to the contract.” This definition is alarming to many employers as the rate paid to contractors, and often the terms of the agreement, factor in an uplift for super guarantee and other entitlements that would normally be paid if the person was an employee. But for SG purposes, it does not matter what the contract says, if the person is deemed to be an employee under the rules, they are entitled to SG and the employer is obligated to pay it. The Australian Taxation Office (ATO) states that SG needs to be paid to contractors if you pay them: under a verbal or written contract that is mainly for their labour (more than half the dollar value of the contract is for their labour) for their personal labour and skills (payment isn't dependent on achieving a specified result) to perform the contract work (work cannot be delegated to someone else). In a recent ruling, the ATO says that where the worker is required to use a substantial capital asset (such as a truck) this will help in arguing that the contract is not mainly for the labour of the worker, but this will always depend on the facts. Are directors paid SG? Yes. Directors (members of executive bodies of bodies corporate) should be paid SG if they are remunerated for performing duties for the company. Entertainers, performers and sportspeople Generally, if a performer operates through a company, trust, or partnership then there is not an employment relationship and SG is not payable. However, individual artists, performers and sportspeople are captured as employees under the SG rules (section 12(8)) where they are paid to: perform or present, or to participate in the performance or presentation of, any music, play, dance, entertainment, sport, display or promotional activity or any similar activity involving the exercise of intellectual, artistic, musical, physical or other personal skills; provide services in connection with an activity referred to above; perform services in, or in connection with, the making of any film, tape or disc or of any television or radio broadcast. Whoever is paying the individual for their labour, is generally responsible for the payment of that individual’s SG. For example, a music festival operator that contracts a sole trader to perform at a festival might be liable for SG for that performer. Likewise, if the sole trader contracts band members to perform with them at the festival, then the sole trader is responsible for the SG of the band members. If however, the music festival worked with an agency to supply the performers (the music festival pays the agency, the agency pays the performers), then the agency is likely to be responsible for the SG of the artists if there is a liability. If the agency only charges a booking fee and the festival pays the performers directly, then the festival is likely to be responsible for the performer’s SG. You can see from this how important it is to determine who meets the definition of an employee for SG purposes, and if so, to understand the parties to the deemed employment relationship. What’s a service “in connection to” The definition of an employee for SG purposes captures workers who work with performers, for example individuals that are producers, videographers, editors, etc. If the person meets the definition of an employee under the SG rules, then it is likely SG is payable. Are Gym Instructors Deemed Employees Under the Super Guarantee Rules? A gym instructor may be captured under the definition of a deemed employee under the SG rules. Whether the gym is liable to pay the instructor SG really depends on the facts of the individual arrangement. Let’s look at the example of a gym instructor operating as a sole trader under an ABN. There is a contract between the instructor and the gym stating that the instructor is an independent contractor and is responsible for their own SG payments and other employment obligations. The instructor is paid per class, and per training session with clients, covering their time and labour. The instructor utilises the equipment of the gym and its scheduling system. The instructor wears the uniform of the gym. The instructor is trained by the gym in how to deliver the services of the gym. Employee? Most likely because the ATO places a heavy significance on whether an individual is working to build their own business or someone else’s. If the instructor “..works under a contract that is wholly or principally for the labour of the person” then this also brings them into the SG net. If the employer, the gym, had not been paying SG, is it exposed to SG payments for the instructor since the employment relationship began. Worried About Your Super Guarantee Obligations? If you’re unsure about your business’s compliance with super guarantee rules, contact our team for a detailed assessment. Getting it right protects both your staff and your business. Note: The material and contents provided in this publication are informative in nature only. It is not intended to be advice and you should not act specifically on the basis of this information alone. If expert assistance is required, professional advice should be obtained.

Ban on foreign property purchases

11 Mar 2025 04:06:00 GMT

The Government has announced a temporary ban on investors buying established homes between 1 April 2025 to 31 March 2027. The measure aims to curb foreign “land banking.” From 1 April 2025, foreign investors (including temporary residents and foreign-owned companies) will be prohibited from acquiring established dwellings unless they qualify for specific exemptions. While exemptions exist, they are limited. In addition, foreign investors purchasing vacant land will be required to meet development conditions that require the land to be used productively within a reasonable timeframe. Need More Clarity on the Ban on Foreign Property Purchases? If you're unsure how the ban on foreign property purchases affects you, contact our team today. We can guide you through exemptions and ensure you remain compliant with the new regulations. Note: The material and contents provided in this publication are informative in nature only. It is not intended to be advice and you should not act specifically on the basis of this information alone. If expert assistance is required, professional advice should be obtained.

Is there a problem paying your super when you die?

14 Feb 2025 04:10:00 GMT

The Government has announced its intention to introduce mandatory standards for large superannuation funds to, amongst other things, deliver timely and compassionate handling of death benefits. Do we have a problem with paying out super when a member dies? The value of superannuation in Australia is now around $4.1 trillion. When you die, your super does not automatically form part of your estate but instead, is paid to your eligible beneficiaries by the fund trustee according to the fund rules, superannuation law, and any death benefit nomination you made. Complaints to the Australian Financial Complaints Authority (AFCA) about the handling of death benefits surged sevenfold between 2021 and 2023. The critical issue was delays in payments. While most super death benefits are paid within 3 months, for others it can take well over a year. The super laws do not specify a time period only that super needs to be paid to beneficiaries “as soon as practicable” after the death of the member. How to make sure your super goes to the right place Death benefits are a complex area. The superannuation fund trustee has discretion over who gets your super benefits unless you have made a valid death nomination. If you don’t make a decision, or let your nomination lapse, then the fund has the discretion to pay your super to any of your dependants or your estate. There are four types of death nominations: Binding death benefit nomination Directs your super to your nominated eligible beneficiary, the trustee is bound by law to pay your super to that person as soon as practicable after your death. Generally, death benefit nominations lapse after 3 years unless it is a non-lapsing binding death nomination. Non-lapsing binding death benefit nomination If permitted by your trust deed, a non-lapsing binding death benefit nomination will remain in place unless you cancel or replace it. When you die, your super is directed to the person you nominate. Non-binding death nomination A guide for trustees as to who should receive your super when you die but the trustee retains control over who the benefits are paid to. This might be the person you nominate but the trustees can use their discretion to pay your super to someone else or to your estate. Reversionary beneficiary If you are taking an income stream from your superannuation at the time of your death (pension), the payments can revert to your nominated beneficiary at the time of your death and the pension will be automatically paid to that person. Only certain dependants can receive reversionary pensions, generally a spouse or child under 18 years. Who is eligible to receive your super? Your super can be paid to a dependant, your legal representative (for example, the executor of your will), or someone who has an interdependency relationship with you. A dependant for superannuation purposes is “the spouse of the person, any child of the person and any person with whom the person has an interdependency relationship”. An interdependency relationship is where someone depends on you for financial support or care. What happens if I don’t make a nomination? If you have not made a death benefit nomination, the trustees will decide who to pay your superannuation to according to state or territory laws. This will be a superannuation dependant or the legal representative of your estate to then be distributed according to your Will. Where it can go wrong There have been a number of court cases over the years that have successfully contested the validity of death nominations. For a death nomination to be valid it must be in writing, signed and dated by you, and witnessed. The wording of your nomination also needs to be clear and legally binding. If you nominate a person, ensure you use their legal name. If your super is to be directed to your estate, ensure the wording uses the correct legal terminology. One of the reasons for delays in paying death benefit nominations cited by the funds is where there is no nomination (or it is expired or invalid), there are multiple potential claimants, and the trustee needs to work through sometimes complex family scenarios. The bottom line is, young or old, check your nominations with your superannuation fund and make sure you have the right type of nomination in place, and it is valid and correct. While there still might be a delay in getting your super where it needs to go if you die, the process will be a lot quicker and less onerous for your loved ones. Ensure Your Super Goes Where It Should If you have concerns about paying super after death, our team can help navigate nominations and compliance. Contact us for expert financial planning on paying super after death. Additionally, if you have any Financial Planning questions, our amazing Private Wealth team is here to help. Reach out to us for expert guidance on securing your financial future. Note: The material and contents provided in this publication are informative in nature only. It is not intended to be advice and you should not act specifically on the basis of this information alone. If expert assistance is required, professional advice should be obtained.

Planning to Engage a New Registered Agent? Here's What You Need to Know

23 Jan 2025 04:12:00 GMT

At Paris Financial, we understand how important it is for Australian businesses to work with the right registered agent. Whether you’re changing agents or engaging one for the first time, ensuring that you’re compliant with the Australian Taxation Office (ATO) requirements is essential for smooth operations. This guide will walk you through what you need to know when planning to engage a registered agent and how they can support your business. What Is a Registered Agent? A registered agent acts as an intermediary between your business and government agencies like the ATO. They’re authorised to manage your tax and compliance matters, such as lodging your BAS, preparing your income tax returns, and keeping you informed about important deadlines. Key Responsibilities of a Registered Agent: Lodging tax returns and activity statements. Managing ATO correspondence on your behalf. Providing professional tax and compliance advice. Ensuring your business meets its tax obligations. Engaging a registered agent can save you time, reduce stress, and help you avoid costly compliance mistakes. Why Should You Engage a Registered Agent? If you’re a business owner, you know how complex tax and compliance requirements can be. Here’s why engaging a registered agent could be a smart move: Expert Knowledge: Registered agents are up to date with Australian tax laws and regulations, ensuring your business complies with the latest requirements. Time Savings: With an agent handling your tax affairs, you can focus on running your business. Avoid Penalties: Late or incorrect lodgements can lead to fines. A registered agent ensures deadlines and accuracy are met. ATO Liaison: They handle all ATO communications, so you don’t have to deal with it yourself. How to Choose the Right Registered Agent Selecting the right registered agent is crucial. Here are some tips to guide you: Check Their Registration: Ensure the agent is registered with the Tax Practitioners Board (TPB). This guarantees they meet professional standards and are legally allowed to act on your behalf. Assess Their Expertise: Look for an agent with experience in your industry or business size. At Paris Financial, we specialise in helping small and medium-sized businesses with tailored tax solutions. Ask About Their Services: Not all agents offer the same services. Confirm that they can handle all your specific requirements, such as BAS lodgements, tax planning, and advisory services. Review Client Testimonials: Check reviews or ask for references to understand their reliability and customer service quality. Steps to Engage a New Registered Agent Switching to a new registered agent is a straightforward process when done correctly. Here’s how to do it: Step 1: Notify Your Current Agent If you’re already working with an agent, notify them about your decision to change. Clear communication ensures a smooth transition. Step 2: Sign an Authority Document Your new agent will ask you to sign a form authorising them to act on your behalf with the ATO. Step 3: Transfer Your Records Ensure all relevant records, such as past BAS lodgements and correspondence, are transferred to your new agent. Step 4: Update the ATO Your new agent will notify the ATO about the change, ensuring they are recognised as your authorised representative. Benefits of Switching to Paris Financial as Your Registered Agent At Paris Financial, we pride ourselves on providing exceptional service to Australian businesses. Here’s why so many clients choose us: Our Expertise: With years of experience, we understand the unique challenges faced by small and medium businesses. From compliance to tax planning, we’ve got you covered. Personalised Service: We take the time to understand your business and tailor our solutions to meet your needs. Advanced Technology: Using tools like Xero and MYOB, we streamline processes and ensure accuracy in every transaction. Common Mistakes to Avoid When Engaging a Registered Agent While engaging a registered agent simplifies tax compliance, there are pitfalls to watch out for: Not Verifying Registration: Always check their TPB registration. Ignoring Their Advice: Your agent’s recommendations are based on expertise—ignoring them could lead to issues. Delaying Communication: Timely responses to your agent’s requests are essential for staying compliant. Choosing Based on Price Alone: The cheapest option isn’t always the best. Focus on value and expertise. Final Thoughts: Engage a Registered Agent with Confidence Working with the right registered agent can transform how your business handles tax and compliance. From saving time to reducing stress, the benefits are clear. At Paris Financial, we’re here to support you every step of the way. Ready to Simplify Your Tax Compliance? Contact our team today to learn more about how we can help as your registered agent. Let’s work together to keep your business on track and compliant with ATO requirements.

What's ahead in 2025?

11 Dec 2024 04:16:00 GMT

What’s Ahead in 2025? The last few years have been a rollercoaster ride of instability. 2025 holds hope, but not a guarantee, of greater stability and certainty. We explore some of the key changes and challenges. An election Welcome to political advertising slipping into your social media, voicemail, and television viewing - most likely with messages from the opposition asking if you are better off, and from the incumbents telling you all the reasons why you are. The 2025-26 Federal Budget has been brought forward to 25 March 2025. This suggests an election will be held in either March or May 2025 but no later than 17 May 2025. Legislation in limbo The Senate pushed through 32 Bills on the final sitting day of parliament for 2024 including seven of direct relevance to business and to the financial interests of some Australians. However, two key announcements remain in limbo: $3m tax on earnings in a superannuation fund The proposed Division 296 tax, which imposes a 30% tax rate on future earnings for superannuation balances above $3 million, is proposed to commence from 1 July 2025. The Bill enabling the new tax is stalled in the Senate. It’s unlikely that this tax will pass parliament prior to the election; at which point, the Bill lapses. It then becomes a question of whether the elected Government chooses to rectify the concept or let it fade into oblivion as a bad idea. $20,000 instant asset write-off for small business In the 2024-25 Federal Budget, the government announced the extension of the $20,000 instant asset write-off threshold for small business for a further year to 2024-25. The concession enables businesses with an aggregated turnover of less than $10 million to immediately deduct the full cost of eligible depreciating assets costing less than $20,000. Without this measure, the threshold returns to $1,000. This concession was removed by amendment from the enabling legislation at the last minute in the final sitting of Parliament of 2024. The removal of this measure is unfortunate, as once again, SMEs now have no confidence about the tax treatment of investments in assets that they might be looking to make, or have made, in the current financial year. Tax & super changes Foreign resident capital gains withholding changes on sale of property One of the Bills pushed through Parliament at the end of 2024 changes how capital gains withholding applies to foreign residents from 1 January 2025. Currently, residents selling taxable Australian property must provide a clearance certificate to the purchaser at or before settlement to avoid having 12.5% withheld from a property sale where the value of the property is $750,000 or more. If applicable, the withholding is then made available as a credit against any tax liability. The vendor only receives any refund due after their next income tax return is processed at tax time. From 1 January 2025 however, the threshold will be removed and the withholding rate increased so that: The withholding is increased from 12.5% to 15%; and The withholding applies to the sale of all Australian land and buildings by foreign residents, regardless of the value of the assets. The reforms apply to acquisitions made on or after 1 January 2025. Superannuation rate increases to 12% The Superannuation Guarantee (SG) rate will rise from 11.5% to 12% on 1 July 2025 - the final legislated increase. Super on Paid Parental Leave From 1 July 2025, superannuation will be paid on Paid Parental Leave payments. Eligible parents will receive an additional payment based on the superannuation guarantee (i.e. 12% of their PPL payments), as a contribution to their superannuation fund. Interest rates At the last Reserve Bank Board (RBA) meeting, RBA governor Michele Bullock recognised the easing of headline inflation from 5.4% to 2.8% over the year to September 2024 but suggested that the economy still has some way to go before inflation is sustainably within the 2% to 3% target range. The RBA appears wary of volatility and wants to see inflation sustainably trending down before making any move. Commbank is predicting a February 2025 rate cut, ANZ and Westpac May 2025, and NAB June 2025. Cost of living pressures The National Accounts released in early December took economists by surprise with living standards growing by a mere 0.2% in the September quarter – the expectation was much higher. Discretionary spending only increased by 0.1%. The personal income tax cuts that came into effect from 1 July 2024 helped households, as did energy subsidies, but the impact is still working its way through the system. At the same time, mortgage costs continue to rise as past increases continue to impact. Through the year, Australia’s economy grew 0.8%, the lowest rate since the COVID-19 affected December quarter 2020. Economic activity in the Australian economy right now is heavily dependent on Government spending. Slow and steady is the expectation for 2025. The ‘Trump effect’ President-elect Trump will recite his oath of office on 20 January 2025. The Trump administration will hold the presidency, Senate and the House. For Australia, the question is the likely impact of some of President-elect Trump’s stated policy objectives including the imposition of tariffs. On social media, Trump has said: “…as one of my many first Executive Orders, I will sign all necessary documents to charge Mexico and Canada a 25% Tariff on ALL products coming into the United States, and its ridiculous Open Borders.” “…we will be charging China an additional 10% Tariff, above any additional Tariffs, on all of their many products coming into the United States of America.” This in response to claims that China is responsible for massive amounts of drugs, in particular Fentanyl being sent into the US. The issue for Australia is the secondary impact of a trade war. China is Australia's largest two-way trading partner, accounting for 26% of our goods and services trade with the world in 2023. A slowdown in the Chinese economy impacts Australia and the region generally. An immediate impact of the idea of a trade war has been the decline of the AUD/USD, currently sitting at around 64c. Fuel efficient cars New standards for vehicle manufacturers come into effect from 1 January 2025. Vehicle manufacturers will have a set average CO2 target for all new cars they produce, which they must meet or beat. The target will be reduced over time and car companies must provide more choices of fuel-efficient, low or zero emissions vehicles. Suppliers can still sell any type of vehicle they choose but with more fuel-efficient models offsetting any less efficient models. If suppliers meet or beat their target, they'll receive credits. If they don’t, they will have two years to either trade credits with a different supplier, or generate credits themselves, before a penalty becomes payable. Wage theft criminalised As of 1 January 2025, the intentional underpayment of workers will be criminalised. Employers will commit an offence if: they’re required to pay an amount to an employee (such as wages), or on behalf of or for the benefit of an employee (such as superannuation) under the Fair Work Act, or an industrial instrument; and they intentionally engage in conduct that results in their failure to pay those amounts to or for the employee on or before the day they’re due to be paid. Employers convicted of wage theft face fines of up to 3 times the amount of the underpayment and $7.825 million. Phasing out cheques The Government has announced a transition plan to phase out the use of cheques. Under the plan, cheques will stop being issued by 30 June 2028 and stop being accepted on 30 September 2029. The use of cheques has declined dramatically over the last 10 years, declining by around 90%. In response, banks have stopped issuing chequebooks to new customers. However, financial institutions have a legislated requirement to accept cheques until the Government no longer requires them to do so. Danish banks stopped accepting cheques in 2017 and New Zealand's banks in 2021. Cheques out but cash remains king While Australians have moved to digital payment methods, the Government has been careful to maintain cash as a payment method. Around 1.5 million Australians use cash to make more than 80% of their in‑person payments. Cash also provides an easily accessible back‑up to digital payments in times of natural disaster or digital outage. According to the most recent data, up to 94% of businesses continue to accept cash. The Government has stated that they will mandate that businesses must accept cash when selling essential items, with appropriate exemptions for small businesses. Currently, businesses don’t have to accept cash – business can specify the terms and conditions that they will supply goods and services. The issue of card surcharges often comes up when a business adds a surcharge rather than recognising this cost of doing business in their pricing. A business can charge a surcharge for paying by card, but the surcharge must not be more than what it costs the business to use that payment type. What’s Ahead in 2025: Stay Prepared for the Year Looking to navigate what’s ahead in 2025? Our expert team can help you prepare for upcoming changes, including tax updates and economic shifts. Reach out to discuss what’s ahead in 2025 and ensure your business is ready for the challenges and opportunities to come. Note: The material and contents provided in this publication are informative in nature only. It is not intended to be advice and you should not act specifically on the basis of this information alone. If expert assistance is required, professional advice should be obtained.

ATO Scam Alert for myID

26 Nov 2024 04:51:00 GMT

At Paris Financial, your security is our priority. We want to alert you to the latest scams targeting taxpayers and provide tips to safeguard your personal and financial information. Latest ATO Scam Alert for myID The ATO has reported new scams involving impersonation through emails, phone calls, and text messages. These scams attempt to steal personal identifying information and access accounts. Below are the key details to help you identify and protect yourself against such fraud: Scam Examples Email Scam Scammers, posing as the ATO or myGov, are claiming taxable incomes have been recalculated, promising compensation in exchange for personal information. Requested details include payslips, TFNs, driver’s licences, and Medicare details. These details can be used for identity theft, refund fraud, or to access your superannuation. myGovID to myID Scam Fact: myGovID has changed its name to myID. You don’t need to do anything for this change like setting up a new myID or re-confirming your details. But, if you’re asked to do this, it’s a scam. Scammers are exploiting the name change of myGovID to myID, occurring mid-November 2024. They may send fake emails requesting you to reconfirm your details via fraudulent links. These links direct you to fake myGov sign-in pages to steal credentials. Find out more at: www.myID.gov.au/DiscovermyID How to Stay Safe Do not engage with emails, calls, or SMS claiming to be from the ATO unless you are sure they are legitimate. Always access services directly by typing ato.gov.au or my.gov.au into your browser. Never provide personal identifying information like TFNs or driver’s licence numbers via unsolicited requests. Verify suspicious interactions by calling the ATO directly at 1800 008 540 or visiting the ATO’s official Verify or report a scam Only download the myID app (formerly myGovID) from trusted app stores (Google Play or the App Store). Key Reminders The ATO will never send SMS or emails with links to log on to online services. Unsolicited messages asking for personal information are always a scam. Avoid clicking on links, opening attachments, or downloading files from suspicious emails or SMS. The ATO will not use social media platforms to discuss personal information, send payment requests, or provide links. The following image is one example of the format this scam can take. We encourage you to remain vigilant and stay informed about these scams to protect yourself and your business. For further scam alerts, visit the ATO website or contact the ATO directly. Stay safe!

Finding the Right Home Loan Features for You

20 Nov 2024 04:44:00 GMT

Choosing the right home loan isn’t a one-size-fits-all situation. Your personal finances, lifestyle, and even how you feel about money can all shape the type of loan that’s best for you. The key is to find home loan features that fit where you are in life right now. Don’t Get Stuck in the “Set and Forget” Mindset One common mistake many homeowners make is treating their home loan as a “set and forget” deal. Sure, you may have found the right mortgage when you first bought your home, but life happens, and circumstances change. Whether it’s a new job, growing family, or a shift in income, these events can mean it’s time to revisit your home loan and see if a new option would work better for you. Your Loan Options: Variable, Fixed, or Combo Rate Loans Before you start shopping around for a new loan or thinking about refinancing, it’s helpful to know your main options. The three most common types of home loans are variable rate loans, fixed rate loans, and combo rate loans. Variable Rate Loans A variable rate loan gives you more flexibility. It’s great if you don’t want to be locked into one interest rate for a set period. With this option, you often can: Make extra payments without any extra fees Access funds electronically through redraw facilities Pay off your loan quicker if you’re able to make additional payments A variable rate loan is a good choice if you want to take advantage of potential interest rate drops or have the ability to make extra payments. Fixed Rate Loans If stability and predictability sound more like your style, a fixed rate loan could be the way to go. You’ll lock in your interest rate for a set period (usually between 1 to 5 years), meaning your repayments won’t change during that time. This provides peace of mind because you know exactly how much you’ll be paying each month. Fixed rate loans are perfect if you like certainty and want to avoid interest rate fluctuations. Combo Rate Loans A combo rate loan combines the best of both worlds: you get the flexibility of a variable rate and the predictability of a fixed rate. With this option, part of your loan has a fixed rate, while the other portion is variable. You can: Make extra repayments on the variable portion Enjoy the stability of fixed repayments on the rest Combo loans are ideal if you like the idea of a little flexibility but still want some predictability in your monthly repayments. Home Loan Features: Not Sure Which Option Is Best for You? Choosing the right home loan features can be overwhelming, but you don’t have to do it alone. As an independent broker, we work with a variety of lenders, so we can give you independent, unbiased advice that’s tailored to your unique situation. For personalised guidance, give us a call at 03 8393 1000 or book a consultation. We’re here to help you make the right decision for your future. Hayley Crow is a Credit Representative (CR No: 486223) of Buyers Choice Licencing Pty Ltd ACN 626 172 281 (Australian Credit Licence No: 509484)

Economic and market overview November 2024

19 Nov 2024 04:37:00 GMT

Investors maintained a healthy risk appetite for much of October, which enabled major share markets to make further progress. Movements in the US set the tone, with the S&P 500 Index rising to fresh all-time highs during the month. Towards month end, however, subdued results from some of the largest technology firms in the US saw markets reverse direction and close the month slightly lower. Returns from bond markets were also negative. Despite a 0.50% cut to the Federal Funds rate in September, investors remain concerned that inflation could creep higher – especially if Trump pursues expansionary fiscal policies after becoming President. Treasury yields rose sharply – dragging bond valuations lower – as some of the interest rate cuts anticipated in the US for 2025 were removed from consensus forecasts. US Initial estimates suggested the US economy grew at an annual rate of 2.8% in Q3. This was marginally below expectations and was a slowdown from Q2, but nonetheless highlighted the resilience of the economy. Growth was supported by strong consumer spending, with encouraging demand for both goods and services. It seems discretionary expenditure was underpinned by a buoyant labour market and the associated impact on consumer confidence. Payrolls data showed that more than 250,000 jobs were created in September, which was more than 100,000 ahead of forecasts. Employment growth in October – released at the beginning of November – was much less strong. The labour market will therefore remain very closely monitored in the months ahead, as investors try and work out the likely interest rate path. For now, inflationary trends seem quite persistent. The Core PCE measure showed consumer prices still rising at an annual rate of 2.7% in September, which makes it less certain that policymakers will lower interest rates aggressively in the near term. Rate cuts are still anticipated both this year and next, but consensus forecasts now indicate official borrowing costs will settle around 3.5% by the end of 2025, rather than 3.0% that was anticipated at the beginning of October. Australia No formal Reserve Bank of Australia meetings were scheduled in October and so official interest rates were unchanged at 4.35% during the month. Policymakers will meet once more before the end of this year and continue to monitor incoming economic data to gauge whether changes in monetary policy settings are warranted. The ‘trimmed mean’ measure of inflation showed consumer prices rising at an annual rate of 3.5% in Q3. This was down slightly from the prior quarter, but was still above the Reserve Bank of Australia’s 2% to 3% target range. With inflation still running above target and given ongoing strength in the labour market, few observers are expecting interest rates to be lowered any time soon. Australian unemployment remained at 4.1% in September and more than 60,000 jobs were created over the month. New job adverts also increased, suggesting the unemployment rate could remain low for the foreseeable future, in turn exerting upward pressure on wages. Against this background, policymakers might even consider raising borrowing costs further, rather than lowering them as many homeowners and businesses are hoping. New Zealand Interest rates were lowered by 0.50% at the Reserve Bank of New Zealand’s October meeting, following an initial 0.25% cut in August. The annual inflation rate fell to 2.2% in Q3, down from 3.3% in Q2 and 4.0% in Q1, highlighting the extent of the moderation in pricing pressures. There appears to be excess capacity in the New Zealand economy following a recent slowdown, increasing the case for lower borrowing costs. Europe At 0.9% year-on-year, GDP growth in the Eurozone came in higher than expected in Q3. Acceleration from Q2 was supported by another strong contribution from Spain. Growth in Germany and France, the two largest economies, was also above expectations. The Olympic Games provided a boost in France, while there was an encouraging improvement in activity levels in Germany. Recent commentary from European Central Bank officials suggests policymakers are increasingly confident they are winning the fight against inflation. In turn, interest rates were lowered by 0.25% during the month; the third cut in the past five months. It seems almost certain that borrowing costs in the Eurozone will be lowered further in the months ahead. The release of the new Labour government’s first Budget was the main focus in the UK. As anticipated, the Chancellor outlined plans to raise an additional GBP40 billion through taxation in order to improve the country’s budget deficit. Asia Interest rates were lowered in China, as officials in Beijing tried to boost borrowing and investment. The one-year loan prime rate – used as a reference for consumer and business lending – was cut by a further 0.25%, following an earlier 0.10% cut in July. Separately, there was an unexpected improvement in Chinese manufacturing data following five months of deterioration. This raised hopes that recent stimulus measures may be feeding through to the real economy. The increase in factory output also supported a steady improvement in business confidence, which augurs well for investment. In Japan, the latest commentary from central bank policymakers suggested the Bank of Japan will continue to rise interest rates if the inflation target is met. Officials are expecting 2.5% inflation for the 2024 year and annual GDP growth of 0.6%. Australian dollar The revised outlook for US interest rates meant the US dollar fared very well. The greenback enjoyed its strongest month of performance in two years and appreciated against almost all major currencies worldwide, including the Australian dollar. The AUD depreciated by around 5% against the US dollar over the month. This move lifted returns from overseas assets for local investors. While returns from global shares were negative in local currency terms, e.g. they added value in AUD terms owing to currency market movements. Australian equities Australian shares lost ground in October, following five consecutive months of gains. Volatility in commodity prices, owing to ongoing geopolitical tension in the Middle East and mixed economic data from China dampened sentiment. Company news flow from AGMs, trading updates and other announcements also caused some meaningful share price reactions during the month, both positively and negatively. Overall, the S&P ASX 200 Accumulation finished the month 1.3% lower. All constituents in the Utilities sector closed the month lower, dragging the sector down 7.2%. AGL Energy and APA Group fared the worst in this area of the market, falling between 10% and 12%. The Consumer Staples sector (-7.0%) also lagged, with negative sentiment continuing to stem from the ongoing regulatory investigation into supermarket operators. Metcash (-14.5%) was among the worst performers, with the business communicating weaker trading conditions impacting its Hardware business. Woolworths’ 1Q25 trading update also disappointed investors, with earnings falling short of investor expectations. Margins came under pressure as customers became increasingly value conscious and pushed the shares down 10.0%. More positively, all of the ‘big four’ banks made positive progress, adding between 1% and 6%, which helped the Financials sector add 3.3%. Company-specific news supported gains in other Financials stocks including HMC Capital (+24.0%) and HUB24 (+18.4%). The latter pleased investors with a trading update that highlighted an 8% increase in its Platform funds under administration over the quarter, driven by record net inflows of $4 billion. Gains in the Health Care sector were also attributed to company-specific factors. Sigma Healthcare added more than 35% after suggesting it is willing to make concessions that could alleviate regulatory concerns over its proposed acquisition of Chemist Warehouse. The sector closed the month 1.0% higher. Small caps outperformed their larger cap peers, with the Small Ordinaries Index adding 0.8%. Selected Small Materials stocks fared well, with solid contributions from gold miners as the gold price continued to trend higher. Arcadium Lithium was another standout performer, almost doubling in value after receiving a takeover offer from Rio Tinto. Global equities Many of the largest listed companies in the US and Europe announced their earnings for the three months ending 30 September. The tone of these releases was generally positive for much of the month, which translated into steady gains in major markets. In the US, the S&P 500 Index rose to fresh all time highs in mid-month. Several of the ‘Magnificent Seven’ technology-related stocks announced their earnings in the last week of the month. Underwhelming results from companies including Microsoft and Meta weighed on sentiment towards month end. As a result, the US share market gave back its earlier gains and closed the month slightly below its end-September level. The S&P 500 Index closed October down 1.0%, while the tech-heavy NASDAQ also closed slightly lower but both indices are up over 20% in the calendar year to date. In Europe, major bourses including Germany and France lost ground despite the improvement in GDP growth data. The FTSE 100 Index in the UK also drifted lower. In Asia, the performance of Japanese shares was a highlight. In fact, the Nikkei was the only major global share index to make positive progress over the month. Elsewhere in the region, shares in China and Hong Kong closed lower, giving back some of September’s exceptional gains. Property securities Exchange rate movements meant global property securities added value in October for AUD-denominated investors. The FTSE EPRA/NAREIT Developed Index retreated in local currency terms, with all international property markets closing the month lower, but added 0.6% in AUD terms. Macroeconomic uncertainty weighed on sentiment during the month, with persistent inflation, the upcoming US election and the announcement of a new UK budget affecting investor confidence. Japan (-1.5%) was the best performing market, although it still lost ground. The yen weakened by around 6% against the US dollar over the month and the Liberal Democratic Party lost its parliamentary majority following a snap election. Other outperforming countries in local currency terms were Australia (-2.6%) and the US (-2.9%). Laggards included Sweden (-11.1%) and Spain (-9.3%). Generally speaking, persistent inflation in Europe hampered local property stocks. Investors became less confident that interest rates will be lowered significantly in the near term, which weighed on interest rate sensitive property sectors. Fixed income and credit Trump is expected to boost government spending which could see inflation gather pace – particularly at a time when the Federal Reserve is lowering official interest rates. Yields on Treasuries rose sharply over the month against this background. The yield on benchmark 10-year securities soared around 0.50%. The change in sentiment and the extent of the movement in yields resulted in unfavourable returns from global fixed income. Yields in other major sovereign bond markets rose too. UK gilt yields moved higher following the release of the Budget. Existing debt rules were amended, opening the door for an increase in gilt issuance in the years ahead. Other things being equal, a significant increase in supply is expected to result in lower prices and higher yields over time. Yields on German and Japanese government bonds also rose, albeit by less than comparable securities in the US and UK. Locally, yields on Australian Commonwealth Government Bonds rose sharply. Like in the US, yields on 10-year securities closed the month around 0.50% higher. Credit spreads tightened to three-year lows, reflecting the broad ‘risk on’ sentiment that was evident for much of the month and the generally pleasing earnings releases from listed companies. Default risk appears contained, making the additional prospective yields from credit securities attractive for income seeking investors in particular. Source: First Sentier Investors, November 2024 Chat with our team Have any questions? our experts can assist, contact our Private Wealth team today. Stay ahead of market trends with November 2024 insights.

Are Australian student loans too big?

13 Nov 2024 04:07:00 GMT

Australian voters tend to reject US style education favouring more egalitarian systems where income does not determine access. In the US, average student debt is USD $37,693 (public and private debt) taking an average of 20 years for individuals to repay. But, students often have a gap not fulfilled by loans. For Australian domestic students, the cost of completing a bachelor degree is generally between $20,000 and $45,000, excluding some of the higher value courses. HECS-HELP loans are available for eligible students to cover the cost of tuition up to $121,844 for most degrees, and $174,998 for higher value degrees like medicine. The average higher education student debt in Australia is around $27,000 and on average takes just over 8 years to repay. Close to 3 million Australians have a student loan debt with debt totalling over $81 bn. Over 7 million have loans above $100,000. Currently, Australian student loans start to be paid back when an individual’s income reaches $54,435, with a repayment rate that scales according to income ranging from 0% to 10% when income reaches $159,664. The Government has announced a series of changes to HECS-HELP including: Indexation rate calculation change to the lower of consumer price index (CPI) or wage price index (WPI) – currently CPI. Intended to be backdated to student loans on 1 June 2023, effectively removing the 7.1% spike that occurred in 2023. Increased minimum repayment threshold to $67,000 in 2025-26. The repayments will also be calculated on the income above the new $67,000 threshold rather than total annual income. 20% loan reduction for all study and training support loans before 1 June 2025 (around $16bn). Note; These changes are subject to the passage of legislation and are not yet law. Do you have Australian Student Loans? Have a student loan? Reach out to our team to explore how to manage your loan effectively. Note: The material and contents provided in this publication are informative in nature only. It is not intended to be advice and you should not act specifically on the basis of this information alone. If expert assistance is required, professional advice should be obtained.

What to Do After Winning a Property Auction: Step-by-Step Guide

02 Nov 2024 04:04:00 GMT

You’ve secured the property with a winning bid—now what? Understanding what to do after winning a property auction is essential to avoid complications. Congratulations on Winning the Auction! In this article, we’ll walk you through the process after the hammer drops, covering everything from contracts and deposits to settlement. Sale Contract and Deposit One of the key things to know about property auctions in Australia is that there is no cooling-off period. Once you’ve made the winning bid, you are legally bound to follow through with the purchase. This means signing the sale contract and paying the deposit—typically 10%—right away. Each state and territory may have specific rules governing this process. For example, in New South Wales, you’re required to sign the contract and pay the deposit immediately. The selling agent will likely accept payment via bank cheque or EFT, and the deposit is then held in trust until settlement. In Victoria, the process is similar. However, the deposit is generally held in a trust account managed by the seller’s real estate agent, solicitor, or conveyancer. If the vendor is not represented by an agent, the deposit goes into a special-purpose bank account set up by both the buyer and seller. Legal Checks The legal process begins with your solicitor or conveyancer, who will conduct legal checks on the property to ensure everything is in order. They’ll confirm the settlement date with the seller’s legal representative and prepare for the next steps. Finance Approval Even if you have pre-approval for your mortgage, you’ll need to get formal approval from your lender. This can take 3-5 days, during which the lender will conduct a property valuation. Ensure you haven’t bid above market value, as your loan could be affected. Mortgage Contract Once your mortgage is approved, the lender will send a letter of offer and a mortgage contract. According to the National Consumer Credit Protection Act, the lender must provide you with a clear breakdown of all fees, interest rates, and charges in the contract. Make sure your conveyancer reviews the documents before signing. Each state offers specific guidance, so check the resources available to you. For example, South Australia provides a breakdown of what must be included in your credit contract, such as: The total loan amount Interest rates and calculation methods Fees, charges, and any commissions How you’ll be informed of contract changes Preparing for Settlement Before settlement, your solicitor or conveyancer will conduct a final inspection to ensure everything is as agreed in the sale contract. They will also prepare the necessary paperwork, including securing the transfer of land document from your state or territory’s titles office. Settlement Day On settlement day, your lender, conveyancer, and the seller’s legal team will finalise the transaction. This involves exchanging documents, paying the balance of the purchase price, and transferring ownership of the property. You don’t need to be present for this process, as your legal team will handle it. Once the settlement is complete, your conveyancer will notify you that the transfer has been registered, and you can pick up the keys to your new property. Final Tips for New Homeowners Winning a property at auction is just the beginning. Ensuring that your post-auction steps are seamless is crucial to making your home ownership dream a reality. Always seek legal advice to ensure all steps are followed correctly, and remember, time is of the essence when handling post-auction paperwork. For more information about buying a property at auction or assistance with your post-auction steps, contact our office at 03 8393 1000. Hayley Crow is a Credit Representative (CR No: 486223) of Buyers Choice Licencing Pty Ltd ACN 626 172 281 (Australian Credit Licence No: 509484)

Buying a House: Your No-Nonsense Guide and What to Really Look For

25 Oct 2024 03:54:00 GMT

Let’s be honest – buying a house is one of the biggest decisions you’ll make. While that stunning kitchen or dreamy backyard might steal your heart, let’s talk about what really matters when you’re checking out your potential new home. Here’s a friendly guide to help you look beyond the fresh paint and staged furniture. Property Inspection Checklist Is This Home “The One”? Before falling head over heels, let’s get practical: Need that extra bedroom for guests or a home office? Dreaming of an ensuite to avoid morning bathroom battles? Got pets? Make sure they’ve got space to live their best life Those stairs might look elegant, but are they practical for everyone in the family? Remember, being honest about your deal-breakers now saves heartache later! Living Spaces That Actually Work Walk through the space like you already live there: Will your furniture fit, or are you up for a shopping spree? Is the kitchen layout perfect for your cooking style? Can the whole family pile into the living room comfortably? Does the dining space work for both quick breakfasts and dinner parties? The Sunshine Factor Natural light is a game-changer: Try visiting at different times of day if you can Don’t be shy – turn off those lights during inspection! Watch out for trees or buildings that might block your sunshine Think about where the sun hits during different seasons Getting Along with the Neighbours Let’s talk about the neighbourhood vibe: Take a peek at privacy – can neighbours see your every move? Any development plans nearby that could change your view? How well-kept are other homes on the street? Listen for noisy pets, traffic, or other potential disruptions The Practical Stuff That Really Matters Here’s where we get into the details that make daily life better (or worse): Parking & Access: Enough space for all your vehicles? Street parking rules and permit costs? How’s the access during busy times? Climate Control & Comfort: Heating and cooling systems up to scratch? High ceilings? Beautiful, but consider those heating bills Ventilation in kitchens and bathrooms Window and door seals doing their job? Water Works: Give that shower pressure a test run Hot water system big enough for everyone? Don’t forget to flush those toilets! Check the taps for good pressure Storage Solutions: Built-in wardrobes or space for standalone ones? Garage storage potential General storage spots throughout the house Space for those seasonal items The Little Things That Count: Power points – location and number Condition of blinds, curtains, and screens Security features and locks Noise levels between rooms and from outside Outdoor Living: Ready for the maintenance reality? Garden upkeep requirements Pool care commitment Outdoor entertaining spaces practical? Security Smarts: Window and door security External lighting Shared entrance security (for apartments) Neighborhood safety vibe Our Final Word on Buying a House While you’ll definitely want a professional building inspection, this checklist helps you evaluate the day-to-day livability factors that really matter. Take your time, ask questions, and imagine your daily life in the space. And remember – it’s okay to visit multiple times before making your decision! Pro Tip: Keep this guide handy during inspections, and don’t be afraid to take notes and photos. Your future self will thank you! Before buying a house, make sure to follow this property inspection checklist for a thorough evaluation. Contact us for more advice on finding your perfect home. Hayley Crow is a Credit Representative (CR No: 486223) of Buyers Choice Licencing Pty Ltd ACN 626 172 281 (Australian Credit Licence No: 509484)

Payday super: the details

17 Oct 2024 04:52:00 GMT

‘Payday super’ will overhaul the way in which superannuation guarantee is administered. We look at the first details and the impending obligations on employers. From 1 July 2026, employers will be obligated to pay superannuation guarantee (SG) on behalf of their employees on the same day as salary and wages instead of the current quarterly payment sequence. The rationale is that speeding up the payment sequence for SG will not only help reduce the estimated $3.4 billion gap between what is owed to employees and what has been paid, but will also improve outcomes for employees – the Government estimates that a 25‑year‑old median income earner currently receiving super quarterly and wages fortnightly could be around 1.5% better off at retirement. Announced in the 2023-24 Federal Budget, payday super is not yet law. However, given the structural changes required to administer the new law, Treasury has released a fact sheet to help employers better understand the implications of the impending change. How will payday super work? Under payday super, the due date for SG payments will be seven days from when an ordinary times earning* payment is made. That is, employers have seven days from an employee’s payday for their SG to be received by their super fund. The only exceptions are for new employees whose due date will be after their first two weeks of employment, and for small and irregular payments that occur outside the employee’s ordinary pay cycle. Over the last few years, employers have moved to single touch payroll (STP) reporting for employee salary and wages. It is expected that payday super will fold into the existing electronic systems and some changes will be made to STP to collect ordinary times earning data. The impact for some employers however will not be the compliance cost of administering the regular SG payments, but the cashflow. Employers will not be holding what will be 12% of their payroll until 28 days after the end of the quarter, but instead paying this amount out on the employee’s payday. The upside is that where an employer has either fallen behind or not paying SG, particularly when the business is insolvent, the damage is contained. What happens if SG is paid late? The penalties for underpaying or not paying SG are deliberately punitive and this approach will continue under payday super. Currently, a super guarantee charge (SGC) applies to late SG payments – comprised of the employee’s superannuation guarantee shortfall amount, interest of 10% per annum from the start of the quarter the SG payment was due, and an administration fee of $20 for each employee with a shortfall per quarter. And, unlike normal superannuation guarantee contributions, SGC amounts are not deductible to the employer, even when the liability has been satisfied. Under payday super, employees are fully compensated for delays in receiving SG amounts and larger penalties apply for employers that repeatedly fail to comply with their obligations. If you make a payment late, the SGC is made up of: Outstanding SG shortfall Calculated based on OTE, rather than total salaries and wages as it is currently. Notional earnings Daily interest on the shortfall amount from the day after the due date, calculated at the general interest charge rate on a compounding basis. Administrative uplift An additional charge levied to reflect the cost of enforcement and calculated as an uplift of the SG shortfall component of up to 60%, subject to reduction where employers voluntarily disclose their failure to comply. General interest charge Interest will accrue on any outstanding SG shortfall and notional earnings amounts, as well as any outstanding administrative uplift penalty. SG charge penalty Additional penalties of up to 50% of the outstanding unpaid SG charge, that apply where amounts are not paid in full within 28 days of the notice of assessment. As you can see, if the proposed SGC becomes law, late SG payments can spiral out of control quickly. This will be a particular issue for employers that pay employees less than their entitlements over time, or have misclassified employees as contractors and have an outstanding SG obligation. But, unlike the current SGC, the new SGC will be tax deductible (excluding penalties and interest that accrue if the SG charge amount is not paid within 28 days). Payday super is not yet law. We will keep you up to date as change occurs and work with you to get it right once the details have been confirmed. Stay Prepared for Payday Super Changes If you have any questions or would like to know more about payday super and how it will impact your business, please don’t hesitate to contact us. Our team is here to help you navigate the upcoming payday super changes and ensure you’re fully prepared once the law takes effect. *Ordinary time earnings are the gross amount your employees earn for their ordinary hours of work including over-award payments, commissions, shift loading, annual leave loading and some allowances and bonuses. Note: The material and contents provided in this publication are informative in nature only. It is not intended to be advice and you should not act specifically on the basis of this information alone. If expert assistance is required, professional advice should be obtained.

01 Succession: the series

16 Oct 2024 04:47:00 GMT

Ok, not that Succession series. Each month we’ll bring you a new perspective on transferring property. Be it estate planning, managing an inheritance, or the various forms of business succession. This month, we look at the tax consequences of inheriting property. Beyond the difficult task of dividing up your assets and determining who should get what, it’s essential to look at the tax consequences of how your assets will flow through to your beneficiaries. When assets pass from a deceased individual to a beneficiary of the estate, the tax impact will generally depend on the nature of the asset and the tax characteristics of the beneficiary, such as their residency status. Inheriting cash When cash passes from a deceased individual to their estate and then to a beneficiary, generally, there should not be any direct tax issues to deal with, assuming that the cash is denominated in AUD. Inheriting assets Death is a taxing event. When a change of ownership of an asset occurs, generally, a capital gains tax event (CGT) is triggered. However, the tax rules provide some relief from CGT when someone dies. The basic rule is that a capital gain or loss triggered by a death is disregarded unless the asset is transferred to one of the following: An exempt entity (although there are some exceptions to this where the entity is a charity with deductible gift recipient status); The trustee of a complying superannuation fund; or A foreign entity and the asset is not classified as taxable Australian property. The exemption applies if the asset passes to the deceased’s legal personal representative (i.e., executor) or to a beneficiary of the estate, which is not one of the entities listed above. Once the asset has been transferred to the beneficiary, the beneficiary will need to manage the tax impact when they sell the asset. Inheriting shares Let’s assume you inherit an ASX listed share portfolio under your mother’s will. The tax outcome will depend on whether your mother was an Australian resident for tax purposes when she died, and whether the shares were acquired by your mother before or after 20 September 1985 (i.e., pre-CGT or post-CGT). If your mother was an Australian resident for tax purposes when she died, and the shares were acquired post-CGT, then the cost base of the shares is normally based on the original purchase price. That is, the tax rules treat the inherited shares as if you purchased them. For example, if your mother purchased BHP shares for $17.82 on 2 January 1997, when you sell the shares, the gain is calculated based on your mother’s purchase price of $17.82. If your mother was a resident of Australia when she died, and the shares were acquired pre-CGT, then the cost base of the shares is normally reset to their market value at the date of death. That is, if your mother passed away on 1 October 2024, the share price at close was $45.96. If you subsequently sold the shares in three years, the gain or loss is calculated using this value. If your mother was a non-resident when she died, then the cost base of the shares is normally based on their market value at the date of death. But it’s not all about the tax. Managing shares in your will can be difficult as prices and allocations change over time, and the companies you are invested in evolve. A portfolio that was once worth a small amount 20 years ago, might be worth significantly more when you die. Inheriting property Let’s assume you inherit an Australian residential property from your father under his will. For certain tax purposes, you are taken to have acquired the property at the date of his death. The general rule is that the executor and/or beneficiaries of the estate inherit the cost base and reduced cost base of the CGT assets (the house) owned by the deceased just before their death, but this isn’t always the case, especially when it comes to pre-CGT properties and a property that was the main residence of the deceased individual just before they died. Special rules exist that enable some beneficiaries or estates to access a full or partial main residence exemption on the inherited property. If the house was your father’s main residence before he died, he did not use the home to produce income (did not rent it out or use it as a place of business) and he was a resident of Australia for tax purposes, then a full CGT exemption might be available to the executor or beneficiary if either (or both) of the following conditions are met: The house is disposed of within two years of the date of death; or The dwelling was the main residence of one or more of the following people from the date of death until the dwelling has been disposed of: The spouse of the deceased (unless they were separated); An individual who had a right to occupy the dwelling under the deceased’s will; or The beneficiary who is disposing of the dwelling. For example, if the house was your father’s main residence and was eligible for the full main residence exemption when he died, if you sell the house within the 2 year period, no CGT will apply. However, if you sell the house 10 years later, the CGT impact will depend on how the property has been used since the date of your father’s death. An extension to the two year period can apply in limited certain circumstances, for example when the will is contested or is complex. If your father did not live in the property just before he died, it still might be possible to apply the full exemption if your father chose to continue treating the home as his main residence under the ‘absence rule’. For example, if he was living in a retirement village for a few years but maintained the property as his main residence for CGT purposes (even if it was rented out). If your father was not an Australian resident for tax purposes when he died, the cost base for CGT purposes will normally be based on the purchase price paid by your father if he acquired it post-CGT. Inheriting foreign property If you are an Australian resident who has inherited a foreign property or asset from an individual who was a non-resident just before they died, the cost base is normally taken to be the market value at the time of death. For example, if you inherited a house from your uncle in the UK, the cost base is likely to be the value of the house at the date of his death. If a taxable gain arises on sale, then it is necessary to consider whether the CGT discount can apply, but the discount will sometimes be less than 50%. If the gain is also taxed overseas, then a tax offset can sometimes apply to reduce the amount of tax payable in Australia. Need Help with Tax Consequences of Inheriting Property? Managing the tax consequences of inheriting property can become complex. For assistance with estate planning, or to understand the tax implications of an inheritance, please contact our team today. Note: The material and contents provided in this publication are informative in nature only. It is not intended to be advice and you should not act specifically on the basis of this information alone. If expert assistance is required, professional advice should be obtained.

The ban on genetic test insurance discrimination

10 Oct 2024 04:43:00 GMT

The ability for life insurers to discriminate based on adverse predictive genetic test results will be banned under a new Government proposal. Predictive genetic tests detect gene variants associated with heritable disorders that appear after birth, often later in life, but are not clinically detectable at the time of testing. To overcome concerns about discrimination by life insurers, the Government has announced a total ban on predictive genetic testing. Life insurance and genetic testing Voluntary insurance, including life insurance is individually underwritten and ‘risk-rated’. The cost of premiums is proportionate to the unique risks of the person seeking the cover. Most of us would be familiar with the questions about family history, personal medical history and habits. As life insurance is a guaranteed renewable product, once a policy has been underwritten and commenced, the life insurer cannot change or cancel a person’s cover, provided they pay all future premiums when due – premium prices will change across a risk pool, for example based on age. This is why it’s important to carefully assess changing life insurance policies if health issues or conditions have arisen since you put the original policy in place. In 2019, Australia’s life insurance industry introduced a partial moratorium on the requirement to disclose genetic test results. The moratorium, which is in place for life insurance applications received from 1 July 2019, prevents genetic results being used for certain types of insurance cover below certain thresholds. However, using APRA data, when compared to the average sum insured, the moratorium coverage thresholds are well below par: Policy cover Moratorium limit APRA average Death $500,000 $713,959 Total permanent disability $500,000 $849,128 Trauma and/or critical illness $200,000 $207,414 Disability income insurance $4,000* a month $7,706 a month * any combination of income protection, salary continuance or business expenses cover. Genetic test discrimination Despite the moratorium, there is evidence that people are not undertaking genetic tests or participating in scientific research because of concerns about obtaining affordable life insurance. And, discrimination still exists. The Australian Genetics and Life Insurance Moratorium: Monitoring the Effectiveness and Response Report by Monash University found that of the consumers surveyed who had undertaken a genetic test, 35% reported difficulties obtaining life insurance including insurers rejecting life insurance applications, financial advisers advising participants that their applications would be rejected, and insurers placing conditions on insurance policies or charging higher premiums. Alarmingly, a 43 year old woman with a BRCA2 variant and no personal history of cancer, was denied life cover outright despite having her ovaries and fallopian tubes removed, and regular intensive breast imaging. The Government response The Government has stepped in and announced a total ban on the use of genetic testing in life insurance underwriting. The ban will be subject to a 5 year review. However, the Government has not introduced legislation enabling the reforms nor has it announced the date that the ban will take effect. And, the total ban impacts predictive genetic testing only – it does not cover clinical diagnostic genetic testing to confirm a suspected condition based on signs or symptoms. A global issue Australia is not the first country to grapple with the issue of adapting to the increase in available genetic data. In the UK, insurers cannot use predictive genetic test results unless the result is favourable, or the result has been given to the insurer (voluntarily or accidently). Huntington’s disease is a specific exception for life cover worth more than £500,000. Canada’s Genetic Non-Discrimination Act prohibits any entity (including insurers) from requesting or using genetic test results. The exception is for individuals to voluntarily disclosure a test result showing they do not have a genetic change that runs in the family. In the USA, the Genetic Information Nondiscrimination Act (GINA), prevents genetic test results being used in health insurance and employment contexts but not life insurance. The US state of Florida however introduced a law prohibiting life insurers from using predictive genetic test results in underwriting. How Will the Ban on Life Insurance and Genetic Testing Discrimination Affect You? If you have any questions about life insurance or how the ban may affect your premiums, feel free to contact our team today. Stay informed on life insurance and genetic testing discrimination with expert insights. Source: Knowledge Shop | https://www.knowledgeshop.com.au/ Note: The material and contents provided in this publication are informative in nature only. It is not intended to be advice and you should not act specifically on the basis of this information alone. If expert assistance is required, professional advice should be obtained.

More women using 'downsizer' contributions to boost super

10 Oct 2024 03:27:00 GMT

If you are aged 55 years or older, the downsizer contribution rules enable you to contribute up to $300,000 from the proceeds of the sale of your home to your superannuation fund (eligibility criteria applies). In 2023-24, over 57% of people making a ‘downsizer’ contribution to super were women. And, the average value of the contribution was marginally higher at $262,000 versus $259,000 contributed by men. The most likely age someone makes a downsizer contribution is between 65 and 69. From age 65, a downsizer contribution can be withdrawn from super if your circumstances change, even if you are still working. Those aged 55 to 64 generally won’t have access to these funds until they are at least 60 and retired. Downsizer contributions are excluded from the existing upper age test, work test, and the total super balance rules (but the amount that can be moved to a retirement pension is limited by your transfer balance cap). For couples, both members of a couple can take advantage of the concession for the same home. That is, if you or your spouse meet the other criteria, both of you can contribute up to $300,000 ($600,000 per couple). This is the case even if one of you did not have an ownership interest in the property that was sold (assuming they meet the other criteria). To be eligible to make a downsizer contribution you do not have to buy another home once you have sold your existing home, and you are not required to buy a smaller home – you could buy a larger and more expensive one and make a downsizer contribution if you have access to other funds. Please contact us if you would like the facts about downsizer contributions, or speak to your financial adviser for advice on your personal scenario. Our team is ready to assist you in making the most of downsizer contributions to secure a better financial future. Note: The material and contents provided in this publication are informative in nature only. It is not intended to be advice and you should not act specifically on the basis of this information alone. If expert assistance is required, professional advice should be obtained.

Residential aged care changes - what could they mean for me?

02 Oct 2024 03:21:00 GMT

The Government has proposed a number of changes to the support available for ageing Australians at home, as well as in residential aged care services. The changes will apply from 1 July 2025. Why are the changes happening? With the number of Australians over the age of 80 expected to triple over the next 40 years, the sustainability of the aged care industry is under threat. In 2022/23, 46% of aged care providers made a loss from aged care accommodation.1 In 2023, the Aged Care Taskforce was established to explore these issues and to make recommendations on how to improve the sustainability of the sector. Their final report was released in March 2024 where a number of recommendations were made for the Government’s consideration. The proposed changes adopt several of the Aged Care Taskforce recommendations. At a high level, the proposed changes seek to ensure that those who can afford to contribute towards the cost of their care do so. Government support will be targeted those who are not as financially secure. The changes also seek to increase investment in the aged care sector to improve the facilities available to residents. Will the changes impact me if I’m already in residential aged care? The changes will only impact new aged care residents entering care from 1 July 2025. The ‘no worse off’ principle ensures that if you’re receiving care before 1 July 2025, you will continue to have your fees determined under the existing rules, unless you leave aged care or move to a new aged care provider. Will the changes to fees impact private aged care facilities? Private aged care facilities are not governed by the aged care rules that apply to Government subsidised aged care facilities. Instead, the fees payable are agreed between you and the private facility. Therefore, the proposed changes to fees do not impact private aged care providers. Will the changes increase the cost of residential care? If your income and/or assets are above certain levels, you may need to contribute more to the cost of your care if you enter care from 1 July 2025. The actual increase in your personal contribution to the cost of your care will depend on your personal circumstances. The Government has confirmed that it’s expected that half of all new residents entering residential care from 1 July 2025 will not pay more under the new system. Specifically: no ‘fully supported’* resident will contribute more 7 in 10 receiving the full Age Pension will not contribute more, and 1 in 4 part Age Pensioners will not contribute more. *A fully supported resident is a person who has income and assets below set thresholds and is eligible to have their accommodation fee and most of their ongoing care fees covered by the Government. Can you give me any case study comparisons to help me understand how much fees could change from 1 July? The Government has released a handout with case studies that show how the fee contribution may change for people who are full Age Pensioners, part Age pensioners and self-funded retirees. You can access these case studies by clicking here. Will the Government still contribute to the cost of aged care? The Government will continue to pay the majority of aged care costs for all aged care residents. However, the amount that they will contribute for each person will change to ensure that those who need financial support most are able to access aged care services in a sustainable way. The amount you will need to contribute towards the cost of your care, and the amount that the Government will contribute on your behalf is determined based on your circumstances at the time you enter care, and for some fees, may vary after you enter care, including if your financial circumstances change. Services Australia and/or the Department of Veterans’ Affairs will calculate the Government support that you’re eligible for (paid directly to the facility as a subsidy) when you complete the assessment process at or just before entry to care. Should I aim to enter care before 1 July 2025? There are a number of considerations when determining the right time to enter care. This includes: completing the assessment process to confirm that you’re eligible for support in a residential aged care facility (based on factors such as your health, mobility and support needs), and availability of the room of your choice at a facility that meets your needs (including any lifestyle, care, religious, cultural or geographical needs). Moving into residential aged care is a significant change for many people and it can be an emotional time for everyone involved without making rushed decisions. Often, a lot of planning is required, and you may be able to optimise your overall outcomes by seeking advice from professionals such as financial advisers, accountants and solicitors to ensure that all your affairs are in order. It’s also important to consider that the Government is also focussing on expanding the in-home support available through a new ‘Support at Home’ program, to assist ageing Australians to stay in their homes for longer. Support will be available for differing levels of care and support needs and could be an option to help you retain your independence at home. Before you make any decisions, it’s important to talk to someone about your circumstances and how these changes could impact you financially and your lifestyle. Residential aged care fees At a glance, what’s changing? Residential care fees are broken down into ‘accommodation fees’ and ‘ongoing care fees’. The proposed changes impact accommodation fees as well as ongoing care fees. What’s an accommodation fee? You can think of the accommodation fee as the cost of the room. You can choose to pay this fee as a lump sum amount (often referred to as a ‘bond’ or ‘refundable accommodation deposit’ or ‘RAD’). Alternatively, it may be paid as a non-refundable daily fee (referred to as a ‘daily accommodation payment or contribution’). Currently, when you leave aged care, any lump sum fee that you’ve paid is generally refunded (less any other fees that you’ve agreed to have debited from the amount). While there’s no limit on the lump sum fee that can be charged for a room, there is a limit on the amount that a facility can charge you for a room without getting specific approval from the Aged Care Pricing Authority. Changes to accommodation fees Proposed changes to the accommodation fee include: increasing the maximum RAD that a facility can charge without approval to keep up with inflation introducing a ‘retention amount’ which will require aged care providers to retain an amount of any lump sum paid (reducing the amount refunded when you leave the facility), and allowing certain daily fees to be adjusted during your stay in care to keep up with rising costs. What are ongoing care fees? Ongoing care fees cover the daily costs of your ongoing care. This includes the cost of meals, bathing, and services that may be provided during your stay. Changes to ongoing care fees Proposed changes to ongoing fees include: the introduction of a ‘Hotelling Contribution’ if you have income and assets above set limits as a contribution to the cost of your care, and replacing the current ‘Means-tested Fee’ with a ‘Non-Clinical Care Contribution’, with the Government paying the full cost of any clinical care provided for all residents. The below graphic compares the current fees you may need to pay compared to those for new residents from 1 July 2025: Pre 1 July 2025 entry Accommodation fee Ongoing care fees Paid as lump sum and/or daily payment (or contribution if eligible for Government support) Lump sum fully refundable Daily Accommodation Payment fixed at entry based on set rate Maximum lump sum $550,000 (unless additional approval) Basic Daily fee Paid by all residents 85% of full single rate of Age Pension Currently $61.96 per day (to 19 September 2024) Means-tested fee Calculated based on income and assets Annual and lifetime caps apply (currently $33,309.29 and $79,942.44 respectively) Extra-services fee Additional fee agreed by facility and resident for additional and premium services such as accommodation and food options Post 1 July 2025 entry Accommodation fee Ongoing care fees Paid as lump sum and/or daily fee Facility retains an amount of 2% of balance for 5 years with the rest remaining refundable Daily Accommodation Payment indexed to CPI after entry From 1 January 2025: Maximum lump sum $750,000 – indexed (unless additional approval) Basic Daily fee Paid by all residents 85% of full single rate of Age Pension Currently $61.96 per day (to 19 September 2024) Non-clinical Care Contribution Calculated based on income and assets Lifetime cap of $130,000 (indexed), or after 4 years in residential care – whichever is reached first Paid if assets above $502,981 and/or income above $131,279 (indexed) Up to maximum of $101.16 per day (indexed) Hotelling Contribution Payable if assets over $238,000, income over $95,400 or a combination (indexed) Up to maximum of $12.55 per day (indexed) Fee for higher everyday living Additional fee which is agreed between resident and facility for additional or premium services Can you explain the changes to the lump sum refundable accommodation fees in more detail? Currently, any lump sum paid is fully refundable (unless you authorise the facility to deduct other fees from the deposit). From 1 July 2025, facilities will charge a ‘retention amount’, which means 2% per year (for a maximum of 5 years) will be deducted from any lump sum fee you pay to the facility. This will be calculated daily and charged no more than monthly. The maximum amount that a facility can currently charge as a RAD without special approval from the Aged Care Pricing Authority is $550,000. This amount has not been indexed or adjusted to account for inflation or the rising costs of construction since 2014. Many facilities charge more than this amount for certain rooms, however the requirement to receive additional approval can be time consuming. The Government is proposing to increase this limit to better reflect the cost of providing accommodation today. From 1 January 2025, the maximum amount of RAD that can be charged without specific approval from the Pricing Authority will increase to $750,000 and will be indexed on 1 July each year. Legislation does not need to be passed to give effect to this change. The current rules provide the Aged Care Pricing Authority with the ability to change this amount at any time. If you’re living in residential aged care before 1 January 2025, the RAD already agreed between you and your provider will not change, as it was set in your Accommodation Agreement at the time you entered care. Facilities can only re-price rooms for new residents from 1 January 2025. Will there be rooms cheaper than $750,000? The change will only impact the maximum fee that can be charged, and facilities will still be able to offer cheaper rooms, as they do today. Often, facilities will provide several different room options, priced according to their features (such as private facilities, location on the premises and whether the room is shared for example). What will be the process to work out whether I must pay the new Hotelling Contribution or Non-clinical care contribution? At the time you enter care, an assessment will be completed where any contribution you must pay will be worked out based on your income and assets (for aged care purposes). Similar to the current process, it’s expected that Services Australia will facilitate this assessment. If you’re a member of a couple, this assessment will include your spouse’s income and assets. 1 Response to the Aged Care Taskforce – Accommodation Reform Source: MLC Understanding Residential Aged Care Changes and Your Next Steps If you’re unsure how the residential aged care changes will impact you, contact our team for personalised advice. The residential aged care changes are significant, and we’re here to help you navigate them.

It wasn't me: the tax fraud scam

19 Sep 2024 03:16:00 GMT

You login to your myGov account to find that your activity statements for the last 12 months have been amended and GST credits of $100k issued. But it wasn’t you. And you certainly didn’t get a $100k refund in your bank account. What happens now? In what is rapidly becoming the most common tax scam, myGov accounts are being accessed for their rich source of personal data, bank accounts changed, and personal data used to generate up to hundreds of thousands in fraudulent refunds. For all intents and purposes, it is you, or at least that’s what it seems. And, the worst part is, you probably gave the scammers access to your account. But it’s not just activity statements. Any myGov linked service that has the capacity to issue refunds or payments is being targeted. Scammers are using the amendment periods available to adjust existing data and trigger refunds on personal income tax, goods and services tax (GST), and through variations to pay as you go (PAYG) instalments. In some cases, the level of sophistication and knowledge of how Australia’s tax and social security system operates is next level. Once the scammers have access to your myGov account, there is a lot of damage they can do. Common scams utilise emails (78.9% of reported tax related scams in the last 12 months) or SMS (18.4% of reported scams) that mimic communication you might normally expect to see. The lines of attack used by tax related scammers are commonly: Fake warnings about attempted attacks on your account (and requiring you to click on the link and confirm your details); Opportunistic baiting where some form of reward is flagged, like a tax refund, that you need to click on the link to confirm and access; and Mimicking common administrative notifications from the Australian Taxation Office (ATO) like a new message accessible from a link. Approximately 75% of all email scams reported to the ATO to March 2024 were linked to a fake myGov sign in page. How to spot a fake Often the first sign that something is amiss is alerts about activity on your myGov account or a change in details – which might seem a little ironic if the way in which scammers got into your account in the first place is via these very same messages. But, there are ways to spot a fake: The ATO, Centrelink and MyGov don’t use hyperlinks in messages. If you receive a message with a link, it’s a fake. The ATO will not use QR codes as a method for you to access your account. The ATO will never ask for your tax file number (TFN), bank account details or your myGov login details over social media. Some scammers have used fake social media accounts mimicking the ATO and other Government agencies. When a query comes in, they respond by asking for information to verify it’s you. ATO Assistant Commissioner Tim Loh said, “it’s like giving your house keys to a stranger and watching them change your locks.” The ATO do not use pre-recorded messages to alert you to outstanding tax debt. The ATO will not cancel your TFN. Some scammers suggest that your TFN has been cancelled or suspended due to criminal activity or money laundering and then tell you to either pay a fee to correct it, or transfer your money to a ‘safe’ bank account to protect you against your corrupted TFN. The ATO will not initiate a conference call between you and your tax agent and someone from a law enforcement agency. In one case, the taxpayer was told that the caller was from the ATO and a person from her accounting firm was on the call as well to represent her and work through a problem. The ATO caller and the tax agent were fake. Just hang up and call our office if you are ever concerned. The ATO will never initiate a conference call of this type. The ATO will also not ask you to reconfirm your details because of security updates to myGov. The link, when activated, takes you to a fake myGov web page that can look very convincing. In general, you should always log into your myGov account directly to check on any details alerted in messages rather than clicking on links. This way, you know that you are not being redirected to somewhere you should not be. And, don’t log into your myGov account on free wifi networks. Ever. Who is getting scammed? There is a pervasive view that older, technology challenged individuals are the most at risk. And while this might be the case generally, scamming is impacting all age groups. The ATO says that the demographic who most reported providing personal information to scammers was 25 to 34 year olds. And, the younger generation are more likely to fall for investment scams. According to the AFP-led Joint Policing Cybercrime Coordination Centre (JPC3), people under the age of 50 are overtaking older Australians as the most reported victims of investment scams. Australians reported losing $382 million to investment scams in the 2023-24 financial year. Nearly half (47%) of the investment scam losses involved cryptocurrency. Other scams Scammers are in the business of scamming and they will use every trick and opportunity to part you from your money. Investment scams. Pig butchering. Pig butchering is a tactic where scammers devote weeks or months to building a close relationship with their victims on social media or messaging apps, before encouraging them to invest in the share market, cryptocurrency, or foreign currency exchanges. Victims think they are trading on legitimate platforms, but the money is siphoned into an account owned by the scammers, who created fake platforms that look identical to well-known trading and cryptocurrency sites. Scammers will show fake returns on these platforms to convince victims to invest more money. Once they have extracted as much money as possible, the scammers disappear with all the invested funds. Deepfakes. Deepfakes are lifelike impersonations of real people created by artificial intelligence technologies. Scammers create video ads, images and news articles of celebrities and other trusted public figures to promote fake investment schemes, which can appear on social media feeds or be sent by scammers through messaging apps. Unusual pauses, odd pitches, or facial movement not matching their speaking tone are often giveaways but increasingly, the fakes are difficult to spot. Invoice scams The names and details of legitimate businesses are used to issue fake invoices with the money transferred to the scammer’s account. These scams are often tied to cyber breachers where hackers have accessed your systems and have identified your suppliers. Bank scams There has been a lot in the media of late about people receiving phone calls purporting to be from their bank, advising them there is a problem with their account, and then walking them through a resolution that involves transferring all their money into a ‘safe’ scammers account. Victims commonly state that they believed the scammer because of the level of personal information they relayed. Your bank will never send an email or text message asking for any account or financial details, this includes updating your address or log in details for phone, mobile or internet banking. A CHOICE survey found that four out of five of the victims of banking scams in their report said their banks did nothing to flag a scam before they transferred their money to the perpetrator. The Australian Banking Association have stated that, if not already, banks will introduce warnings and payment delays by the end of 2024. And, in addition to other measures, they will limit payments to high-risk channels such as crypto platforms. What to do if you have been scammed myGov If you have downloaded a fake myGov app, have given your details to a scammer, or clicked on a link from an email, text message or scanned a QR Code, contact Services Australia Scams and Identify Theft Helpdesk on 1800 941 126. Tax scams Before acting on any instructions, please contact us and we will verify the information for you. If you have already acted, contact the ATO to verify or report a scam on 1800 008 540. The Government use external agency recoveriescorp for debt collection but we will advise you if you have a tax debt outstanding. How to Protect Yourself from a Tax Scam If you’re concerned about falling victim to a tax scam, contact our team today. We’ll help you stay safe from tax scams and protect your personal information. Note: The material and contents provided in this publication are informative in nature only. It is not intended to be advice and you should not act specifically on the basis of this information alone. If expert assistance is required, professional advice should be obtained.

Is the RBA to blame? The economic state of play

19 Sep 2024 03:05:00 GMT

The politicians have weighed in on the Reserve Bank of Australia’s economic policy and their reticence to reduce interest rates in the face of community pressure. We look at what the numbers are really showing. Treasurer Jim Chalmers has stated that global uncertainty and rate rises are “smashing the economy”. Former Treasurer Wayne Swan weighed in and told Channel 9 that the RBA was, “putting economic dogma over rational economic decision making, hammering households, hammering Mums and Dads with higher interest rates, causing a collapse in spending and driving the economy backwards” and that the RBA was, “simply punching itself in the face.” Australian mortgage holders and renters have had no relief from interest rates following 13 successive interest rate rises to the official cash rate since May 2022. The Reserve Bank’s position and the flow through effects The Reserve Bank of Australia (RBA) Board opted to maintain the official cash rates at 4.35% at its September Board meeting. The rationale is that inflation remains persistently high and has been for the last 11 quarters. The consumer price index (CPI) rose 3.9% over the year to the June quarter and remains above the RBA’s target range of 2-3%. But, it is not persistently high inflation that is causing the politicians to weigh in. RBA Governor Michele Bullock has warned that “it is premature to be thinking about rate cuts” and “the Board does not expect that it will be in a position to cut rates in the near term.” The Australian Bureau of Statistics (ABS) June Quarter National Accounts paint a bleak picture of the Australian economy. Per capita GDP fell for the sixth consecutive quarter by -0.4% to -1.5%. The longest consecutive period of extended weakness ever recorded. Household spending weakest since COVID Delta Household spending fell by -0.2% in the quarter, the weakest growth rate since the Delta-variant lockdown affected September quarter 2021. Discretionary spending – travel and hospitality impacted most The ABS says that we spent less on discretionary items (-1.1%), particularly for events and travel. It will come as no surprise that spending on hotels, cafes and restaurants was down 1.5%. Spending on food also fell -0.1% as households looked to reduce grocery bills. Household savings lowest since 2006 The savings ratio remains low. Households saved only 0.9% of their income over the year. This was the lowest rate of annual saving since 2006-07. Net savings reduce when household income grows slower than household spending. Economic growth from Government spending The Australian economy did grow by 0.2%, the eleventh consecutive quarter of growth but the growth rate was unimpressive. The ABS says that, “the weak growth reflects subdued household demand, which detracted 0.1 percentage points from GDP growth while government consumption contributed 0.3 percentage points, the same contribution to growth as previous quarter.” Government spending increased by 1.4% over the quarter. Commonwealth social assistance benefits to households led the rise, with continued strength in expenditure on national programs providing health services. State and local government expenditure also rose with increased employee expenses across most states and territories. The RBA’s position on interest rates The RBA is on a narrow path. It’s trying to bring inflation back to target within a reasonable timeframe while preserving the gains in the labour market over the last few years. The RBA expects to reach this target range by the end of 2025. Through 2022 and 2023, most components of the CPI basket were growing faster than usual (the CPI is literally a basket of 87 types of expenditure across 11 groups such as household spending, education and transport.) Over the last 18 months, the price of goods has come down as supply disruptions like COVID-19 and the war in Ukraine have eased, and are now growing close to the historical average. The key problem areas are housing costs and services. In housing, the growth is from increased construction costs and strong increases in rent. For services, while discretionary spending is down, as we can see from the June National Accounts, inflation in this category remains high at 5.3% to the June quarter. Wage increases and lower productivity, combined with the increased costs of doing business (electricity, insurance, logistics, rent etc) are all impacting. The RBA is keen to point out that inflation causes hardship for the most vulnerable in our community. Lower income households tend to allocate more of their spending towards essentials, including food, utility bills and rent. Higher income households tend to spend more on owner-occupied housing as well as discretionary items such as consumer durables. Younger households and lower income households have been particularly affected by cost-of-living pressures. Interest Rates and Economic Impact If you’re concerned about the effect of interest rates on your finances, contact our team for insights. Understanding the latest interest rates is crucial for managing your business or personal finances. Note: The material and contents provided in this publication are informative in nature only. It is not intended to be advice and you should not act specifically on the basis of this information alone. If expert assistance is required, professional advice should be obtained.

$81.5m payroll tax win for Uber

13 Sep 2024 03:01:00 GMT

Multinational ride-sharing system Uber has successfully contested six Revenue NSW payroll tax assessments totalling over $81.5 million. The assessments were issued on the basis that Uber drivers were employees and therefore payroll tax was payable. The Payroll Tax Act 2007 (NSW) imposes the tax on all taxable wages paid or payable by an employer. The Act also extends to contractors by capturing payments made “by a person who, during a financial year, supplies services to another person under a contract (relevant contract) under which the first person (designated person) has supplied to the designated person the services of persons for or in relation to the performance of work.” So, are Uber drivers employees? The New South Wales Supreme Court says no. Among the reasons is that, “amounts paid or payable by Uber to the drivers or partners were not for or in relation to the performance of work …and are not taken to be wages paid or payable.” The payroll tax assessments were revoked. Uber is a special case because of its method of operation. Businesses working with contractors need to be vigilant that they have assessed the relationship with their contractors correctly. Note: The material and contents provided in this publication are informative in nature only. It is not intended to be advice and you should not act specifically on the basis of this information alone. If expert assistance is required, professional advice should be obtained. Need guidance? Contact our team for more information on payroll tax implications for businesses working with contractors. Our experts can assist with your queries.

Property and lifestyle assets in the spotlight

09 Sep 2024 02:55:00 GMT

Own an investment property or an expensive lifestyle asset like a boat or aircraft? The ATO are looking closely at these assets to see if what has been declared in tax returns matches up. The Australian Taxation Office (ATO) has initiated two data matching programs impacting investment property owners and those lucky enough to hold expensive lifestyle assets. Investment property What investment property owners declare and claim in their income tax returns is a constant focus for the ATO. Coming off the back of data matching programs reviewing residential investment property loan data, and landlord insurance, the ATO have initiated a new program capturing data from property management software from the 2018-19 financial year through to 2025-26. Data collected will include: Property owner identification details such as names, addresses, phone numbers, dates of birth, email addresses, business name and ABNs, if applicable; Details of the property itself – property address, date property first available for rent, property manager name and contact details, property manager ABN, property manager licence number, property owner or landlord bank details; and Property transaction details – period start and end dates, transaction type, description and amounts, ingoings and outgoings, and rental property account balances. While the ATO commit to specific data matching campaigns, since 1 July 2016, they have also collected data from state and territory governments who are required to report transfers of real property to the ATO each quarter. This latest data matching program ramps up the ATO’s focus on landlords, specifically targeting those who fail to lodge rental property schedules when required, omit or incorrectly report rental property income and deductions, and who omit or incorrectly report capital gains tax (CGT) details. Lifestyle assets Data from insurance providers is being used to identify and cross reference the ownership of expensive lifestyle assets. Included in the mix are: Caravans and motorhomes valued at $65,000 or over; Motor vehicles including cars & trucks and motorcycles valued at $65,000 or over; Thoroughbred horses valued at $65,000 or over; Fine art valued at $100,000 per item or over; Marine vessels valued at $100,000 or over; and Aircraft valued at $150,000 or over. The data collected is substantial including the personal details of the policy holder, the policy details including purchase price and identification details, and primary use, among other factors. The ATO is looking for those accumulating or improving assets and not reporting these in their income tax return, disposing of assets and not declaring the income and/or capital gains, incorrectly claiming GST credits, and importantly, omitted or incorrect fringe benefits tax (FBT) reporting where the assets are held by a business but used personally. Ensure Your Property Asset Compliance with Expert Guidance If you own a property asset or lifestyle asset, it’s essential to stay compliant with ATO regulations. Contact our team today to learn how we can help ensure your property asset remains compliant. Note: The material and contents provided in this publication are informative in nature only. It is not intended to be advice and you should not act specifically on the basis of this information alone. If expert assistance is required, professional advice should be obtained.

When is a gift not a gift?

29 Aug 2024 02:50:00 GMT

The Tax Commissioner has successfully argued that more than $1.6m deposited in a couple’s bank account was assessable income, not a gift or a loan from friends. The case of Rusanova and Commissioner of Taxation is enough for a telemovie. The plot features an Australian resident Russian couple ‘gifted’ over $1.6m in unexplained bank deposits, over $67,000 in interest, the Russian father-in-law seafood exporter, a series of Australian companies, and the generous friend loaning money in $20,000 tranches. The crux of the case before the Federal Court is whether you can prove to the Australian Tax Office (ATO) that unexplained deposits should be treated as gifts or loans and what happens when the Tax Commissioner thinks otherwise? If the Commissioner suspects the deposits are income, he can issue a default tax assessment and decide what tax should be paid. The burden of proof is then on the taxpayer to prove the Tax Commissioner wrong. The unexplained deposits Between 2012 and 2016, an Australian resident husband and wife had an estimated $1,636,000 deposited into their bank accounts. The ATO became curious when neither spouse had lodged tax returns in the mistaken belief that they had not earned any income. The money deposited, they said, was a gift from the wife’s father and therefore not assessable income. Curiously, there were no records produced to support the deposits and not a single text or email notifying that money had been remitted, or acknowledging its receipt. In addition, a friend of the couple deposited money into the husband’s account including a series of $20,000 transactions over about a week. These, the friend said, were interest-free loans with no agreed terms but an expectation that they would be repaid. The friend could not remember how he was requested to make the loans and there were no loan documents, emails, or texts disclosed to support the loans. Around the same time as the loans were being advanced, there was evidence of the husband ‘repaying’ amounts in excess of what had been lent. In addition, documents show the husband transferred a Porsche Cayenne to his friend in Russia, said to be repayment of the loan. Compounding the issue were the four directorships of Australian companies held by the husband, none of which had lodged tax returns. One of the companies was a seafood wholesaler, distributing the product of his father-in-law’s American registered Russian export company. The dedicated son-in-law stated that he was merely trying to develop his father-in-law’s business during 2010 and 2016, without remuneration. Contesting the Tax Commissioner In 2017, a covert tax audit utilised entries in the couple’s bank accounts to assess their income tax liability and the ATO issued a default assessment based on the unexplained deposits and expenses. The couple objected to the assessment and this objection was partly allowed. A second assessment was then issued to which the couple again objected before the Administrative Appeals Tribunal (AAT) on the grounds that the assessment was excessive. Can the Tax Commissioner really decide how much tax you should pay? The Tax Commissioner has the power to issue a ‘default assessment’ for the amount he believes is owing from overdue tax returns or activity statements. The assessment is the amount the ATO believes is owing, not what has been declared. The problem with a default assessment is not just the Tax Commissioner deciding how much tax you should pay, it is the potential addition of an administrative penalty of 75% of the tax-related liability for each default assessment issued. This penalty may be increased to 95% of the tax-related liability in certain circumstances for taxpayers who have a pattern of non-compliance. But, here is the problem for the couple. While genuine gifts of money are not taxable, the burden is on the taxpayer to prove that the gift is truly a gift, if the ATO asks. The AAT held that, “absent any reliable evidence…, there is no proper basis to make any findings as to whether the deposits constitute part of the applicants’ taxable income or not.” The Tax Commissioner can rely on a “deficiency of proof”. The couple’s stance that the deposits were either gifts from the father or loans from a friend were rejected by the AAT. This is despite an affidavit and evidence from the wife’s father stating that the amounts transferred to them were gifts. The couple did not demonstrate what their income actually was to prove the Tax Commissioner’s assessment was unreasonable, and they could not substantiate that the gifts were indeed gifts from a very generous father. The Federal Court dismissed the couple’s appeal with costs, leaving the Tax Commissioner’s default tax assessment and penalties in place. Avoiding the gift tax trap A gift of money or assets from an individual is generally not taxed if the gift is given voluntarily, nothing is expected in return, and the gift giver does not materially benefit. However, there are some circumstances where tax might apply. Gifts from a foreign trust If you are a tax resident of Australia and the beneficiary of a foreign trust, it’s possible that at least some of the amounts paid to you (or applied for your benefit) will need to be declared in your tax return. This applies even if you were not the direct beneficiary of the foreign trust, for example, a family member received money from a foreign trust and then gifted it to you. This applies to cash, loans, land, shares, etc. Inheritances Money or property you inherit from a deceased estate is often not taxed. However, there are circumstances where capital gain tax (CGT) might apply when you dispose of an asset you inherited. For example, if you inherit your parents’ house, CGT generally does not apply if: The property was their main residence; and Your parents are Australian residents for tax purposes; and You sell the property within 2 years. However, CGT is likely to apply if for example: You sell your parents former main residence more than 2 years after you inherit it; or The property you inherit was not your parents’ main residence; or Your parents were not Australian tax residents at the time of their death. Managing the tax consequences of an inheritance can become complex quickly. Please contact us for assistance when planning your estate to maximise the outcome for your beneficiaries, or managing the tax implications of an inheritance. These issues are often not taken into account if you are drafting or updating a will. Gifting an asset does not avoid tax Donating or gifting an asset does not avoid CGT. If you receive nothing or less than the market value of the asset, the market value substitution rule might come into play. The market value substitution rule can treat you as having received the market value of the asset you donated or gifted when calculating any CGT liability. For example, if Mum & Dad buy a block of land then eventually gift the block of land to their daughter, the ATO will look at the value of the land at the point they gifted it. If the market value of the land is higher than the amount that Mum & Dad paid for it, then this would normally trigger a CGT liability. It does not matter that Mum & Dad did not receive any money for the land. Mum & Dad might have a CGT bill for land they gifted with nothing in return. Donations of cryptocurrency might also trigger CGT. If you donate cryptocurrency to a charity, you are likely to be assessed on the market value of the crypto at the point you donated it. You can only claim a tax deduction for the donation if the charity is a deductible gift recipient and the charity is set up to accept cryptocurrency. Clarifying Gift or Income: Protect Yourself from Tax Penalties If you’re unsure whether funds qualify as a gift or income, contact our team today. Understanding gift or income classification is essential to avoid costly tax penalties. Note: The material and contents provided in this publication are informative in nature only. It is not intended to be advice and you should not act specifically on the basis of this information alone. If expert assistance is required, professional advice should be obtained.

There remain five reasons to expect the $A to rise

27 Aug 2024 02:02:00 GMT

Back in November we saw five reasons to expect a higher $A. These largely remain valid and the $A seems to be perking up again. Firstly, from a long-term perspective the $A remains somewhat cheap. The best guide to this is what is called Purchasing Power Parity (PPP) according to which exchange rates should equalise the price of a basket of goods and services across countries – see the red line in the first chart. If over time Australian prices and costs rise relative to the US, then the value of the $A should fall to maintain its real purchasing power. And vice versa if Australian inflation falls relative to the US. Consistent with this, the $A tends to move in line with relative price differentials or its PPP implied level over the long-term. This concept has been popularised over many years by the Big Mac Index in The Economist magazine. Over the last 25 years the $A has swung from being very cheap (with Australia being seen as an old economy in the tech boom) to being very expensive into the early 2010s with the commodity boom. Right now, it’s modestly cheap again at just above $US0.67 compared to fair value around $US0.72 on a PPP basis. Source: RBA, ABS, AMP Second, after much angst not helped by another US inflation scare, relative interest rates might be starting to swing in Australia’s favour with increasing signs that the Fed is set to start cutting rates from September whereas there is still a high risk that the RBA will hike rates further. Central banks in Switzerland, Sweden, Canada and the European Central Bank have already started to cut rates. Money market expectations show a narrowing of the negative gap between the RBAs cash rate and the Fed Funds rate as the Fed is expected to cut by more than the RBA. As can be seen in the next chart, periods when the gap between the RBA cash rate and the Fed Funds rate falls have seen a fall in the value of the $A (see arrows – and this being the case more recently) whereas periods where the gap is widening have tended to be associated with a rising $A. More broadly the $US is expected to fall further against major currencies as US interest rates top out. The dashed part of the rate gap line reflects money mkt expectations. Source: Bloomberg, AMP Third, global sentiment towards the $A remains somewhat negative and this is reflected in short or underweight positions. In other words, many of those who want to sell the $A may have already done so and this leaves it susceptible to a further rally if there is any good news. Source: Bloomberg, AMP Fourth, commodity prices look to be embarking on a new super cycle. The key drivers are the trend to onshoring, reflecting a desire to avoid a rerun of pandemic supply disruptions and increased nationalism, the demand for clean energy and vehicles and increasing global defence spending, all of which require new metal intensive investment compounded by global underinvestment in new commodity supply. This is positive for Australia’s industrial commodity exports. Source: Bloomberg, AMP Finally, Australia’s current account surplus has slipped back into a small deficit as commodity prices have cooled and services imports have risen (particularly, Australians travelling overseas) but it remains much better than it used to be over the decades prior to the pandemic. A current account around balance means roughly balanced natural transactional demand for and supply of the $A. This is a far stronger position than pre-COVID when there was an excess of supply over demand for the $A which periodically pushed the $A down. Source: ABS, AMP Where to from here? We expect the combination of the Fed cutting earlier and more aggressively than the RBA, a falling $US at a time when the $A is undervalued and positioning towards it is still short, to push the $A up to around or slightly above $US0.70 into next year. Recession and a new Trump trade war are the main risks There are two main downside risks for the $A. The first is if the global and/or Australian economies slide into recession – this is not our base case but it’s a very high risk. The second big risk would be if Trump is elected and sets off a new global trade war with his campaign plans for 10% tariffs on all imports and a 60% tariff on imports from China. If either or both of these occur, it could result in a new leg down in the $A, as it is a growth sensitive currency, and a rebound in the relatively defensive $US. What would a rise in the $A mean for investors? For Australian-based investors, a rise in the $A will reduce the value of international assets (and hence their return), and vice versa for a fall in the $A. The decline in the $A over the last three years has enhanced the returns from global shares in Australian dollar terms. When investing in international assets, an Australian investor has the choice of being hedged (which removes this currency impact) or unhedged (which leaves the investor exposed to $A changes). Given our expectation for the $A to rise further into next year there is a case for investors to stay tilted towards a more hedged exposure of their international investments. However, this should not be taken to an extreme. First, currency forecasting is hard to get right. And with recession and geopolitical risk remaining high, the rebound in the $A could turn out to be short lived. Second, having foreign currency in an investor’s portfolio via unhedged foreign investments is a good diversifier if the economic and commodity outlook turns sour, as over the last few decades major falls in global shares have tended to see sharp falls in the $A which offsets the fall in global share values for Australian investors. So having an exposure to foreign exchange provides good protection against threats to the global outlook. Source: AMP Why You Should Expect the AUD to Rise To learn more about why we expect the AUD to rise and how it might affect your investments, contact our team today. Stay informed as you expect the AUD to rise.

Is it worth salary sacrificing into super?

26 Aug 2024 03:26:00 GMT

Let’s explore the ins and outs of salary sacrificing into your super and help you determine if it’s worth considering as part of your financial strategy. We’re all familiar with the concept of super. It’s that portion of our salary that employers are required to contribute to a super fund on our behalf, with the goal of providing us with financial security in retirement. But what not everyone is aware of, is that relying solely on your employer’s contributions might not be enough to ensure a comfortable retirement. That’s where salary sacrificing into super comes into play. What is salary sacrificing into super? Salary sacrificing into super involves redirecting a portion of your pre-tax salary into your super fund. Instead of receiving this portion as part of your take-home pay, it goes straight into your super account. Here’s how it works: Agreement – You and your employer agree to salary sacrifice a specific amount or percentage of your pre-tax salary into your super fund. This amount is in addition to the compulsory employer contributions. Pre-tax – The sacrificed amount is deducted from your gross (pre-tax) salary, reducing your taxable income. This means you pay less income tax on your take-home pay. Super contributions – The sacrificed amount is added to your superannuation contributions, helping you build a more substantial retirement nest egg. The benefits of salary sacrificing into super Tax savings – One of the primary advantages of salary sacrificing into super is the potential for significant tax savings. The sacrificed amount is taxed at the concessional super tax rate of 15%, which is typically lower than the tax rate you pay on your income. This means you get to keep more of your money while still saving for retirement. You may pay additional 15% tax on all or part of your salary sacrifice if your income exceeds $250,000. In this case, the effective tax on your contributions may be up to 30%, which is still less than the highest tax rate of 45%. Faster retirement savings growth – By contributing more to your super fund through salary sacrificing, you’re accelerating the growth of your retirement savings. Your money is invested over an extended period, potentially leading to more substantial gains through compound investment returns. Compound investment returns refer to earning money not just on the original investment but also on the accumulated growth gained over the period since the investment was made. Lower taxable income – Since the sacrificed amount is deducted from your pre-tax salary, your taxable income is reduced. This can have several additional benefits, such as qualifying you for certain concessions, reducing the Medicare Levy and helping you stay in a lower tax bracket (salary sacrifice contributions are not subject to the Medicare Levy or the Medicare Levy Surcharge. This can lead to significant tax savings, especially for higher income earners.) Automatic savings – Salary sacrificing is an automated process. The money is taken out of your pay before you even see it, which can help you build disciplined savings habits. Long-term financial security – Salary sacrificing into super is a smart way to attain long-term financial security during your retirement years. It provides peace of mind, knowing that you’re taking proactive steps to build a comfortable retirement nest egg. Things to consider before salary sacrificing into super Contribution caps – The annual limit on the amount you can salary sacrifice into super without incurring additional tax in Australia is $30,000 from 1 July 2024. The cap limits change over time so it’s important to be aware of the current contribution cap limit. Those who have a superannuation balance of less than $500,000 on 30 June 2024 may have a concessional cap of up to $162,500 in 2024/25. This includes the annual $30,000 cap, $25,000 for 2019/20 and 2020/21, and $27,500 for 2021/22, 2022/23 and 2023/24. This is based on the five-year carry forward rules. Your financial goals – Consider your overall financial goals when deciding how much to salary sacrifice into super. You should strike a balance between your short-term and long-term financial needs. If you have pressing financial commitments, it might not be wise to sacrifice too much of your current income. What kind of lifestyle do you envision for your retirement? The more comfortable you want it to be, the more you may need to save. Reduced take-home pay – Salary sacrificing means you’ll have less money in your take-home pay. This can be challenging if you’re on a tight budget or have immediate financial needs, such as your mortgage. Investment risk – Your salary sacrifice contributions are invested, and like any investment, they come with inherent risks. Depending on market performance, your super balance can fluctuate. Access to funds – Remember that once your money is in your super fund, you generally can’t access it until retirement or you meet certain conditions. Ensure you have enough liquid assets outside of super, such as cash or shares, to cover emergencies or short-term financial needs. Super is designed for retirement savings, so accessing your money before you reach preservation age can be challenging. Preservation age varies from 55 to 60, depending on when you were born. If you were born on or after 1 July 1964 your preservation age will be 60. From 1 July 2024, the preservation age will be 60. Seeking advice – It’s a good idea to consult with a financial adviser or accountant before implementing a salary sacrifice strategy. They can help you assess your unique financial situation and provide personalised recommendations. Is it worth salary sacrificing into super? The answer depends on your individual financial circumstances and goals. Do you have outstanding debts or immediate financial needs that should take priority over extra super contributions? It’s crucial to have a solid financial foundation before diverting funds into super. For many Australians, especially those who can afford to do so, salary sacrificing into super can be a highly effective way to boost retirement savings, enjoy tax benefits, and secure long-term financial stability. Higher income earners tend to benefit more from salary sacrificing due to the potential for substantial tax savings but the benefits are not exclusive to that income bracket. It is sensible to strike a balance that suits your overall financial plan and to stay informed about any changes in legislation or contribution caps. As your financial circumstances are unique to you, consider seeking professional advice to help you make the best decision for your future. Source: MLC Is Salary Sacrificing into Super the Right Move for You? For personalised advice on salary sacrificing and super, contact our team today. Ensure salary sacrificing into super aligns with your financial goals.

Mortgage versus super - a common dilemma

26 Aug 2024 01:52:00 GMT

Conventional wisdom used to dictate Australians were better paying off their home loans, and then, once debt free turning their attention to building up their super. But with interest rates ramping up over the past two years and uncertainty as to when they are likely to reduce, what’s the right strategy in the current market? It’s one of the most common questions financial advisers get. Are clients better off putting extra money into superannuation or the mortgage? Which strategy will leave them better off over time? In the super versus mortgage debate, no two people will get the same answer – but there are some rules of thumb you can follow to work out what’s right for you. One thing to consider is the interest rate on your home loan, in comparison to the rate of return on your super fund. As banks ramped up interest rates following the RBA hikes over the past two years, you may find the returns you get in your super fund has potentially shrunk in comparison. Super is also built on compounding interest. A dollar invested in super today may significantly grow over time. Keep in mind that the return you receive from your super fund in the current market may be different to returns you receive in the future. Markets go up and down and without a crystal ball, it’s impossible to accurately predict how much money you’ll make on your investment. Each dollar going into the mortgage is from ‘after-tax’ dollars, whereas contributions into super can be made in ‘pre-tax’ dollars. For the majority of Australians, saving into super will reduce their overall tax bill – remembering that pre-tax contributions are capped at $30,000 annually and taxed at 15% by the government (30% if you earn over $250,000) when they enter the fund. So, with all that in mind, how does it stack up against paying off your home loan? There are a couple of things you need to weigh up. Consider the size of your loan and how long you have left to pay it off A dollar saved into your mortgage right at the beginning of a 30-year loan will have a much greater impact than a dollar saved right at the end. The interest on a home loan is calculated daily The more you pay off early, the less interest you pay over time. In a higher interest rate environment many homeowners, particularly those who bought a home some time ago on a variable rate, will now be paying much more each month for their home loan. Offset or redraw facility If you have an offset or redraw facility attached to your mortgage you can also access extra savings at call if you need them. This is different to super where you can’t touch your earnings until preservation age or certain conditions of release are met. Don’t discount the ‘emotional’ aspect here as well. Many individuals may prefer paying off their home sooner rather than later and welcome the peace of mind that comes with clearing this debt. Only then will they feel comfortable in adding to their super. Before making a decision, it’s also important to weigh up your stage in life, particularly your age and your appetite for risk. Whatever strategy you choose you’ll need to regularly review your options if you’re making regular voluntary super contributions or extra mortgage repayments. As bank interest rates move and markets fluctuate, the strategy you choose today may be different from the one that is right for you in the future. Case study where investing in super may be the best strategy Barry is 55, single and earns $90,000 pa. He currently has a mortgage of $200,000, which he wants to pay off before he retires in 10 years’ time at age 65. His current mortgage is as follows: Mortgage $200,000 Interest rate 6.80% pa Term of home loan remaining 20 years Monthly repayment (post tax) $1,526.68 per month Barry has spare net income and is considering whether to: make additional / extra repayments to his home mortgage (in post-tax dollars) to repay his mortgage in 10 years, or invest the pre-tax equivalent into superannuation as salary sacrifice and use the super proceeds at retirement to pay off the mortgage. Assuming the loan interest rate remains the same for the 10-year period, Barry will need to pay an extra $775 per month post tax to clear the mortgage at age 65. Alternatively, Barry can invest the pre-tax equivalent of $775 per month as a salary sacrifice contribution into super. As he earns $90,000 pa, his marginal tax rate is 32% (including the 2% Medicare levy), so the pre-tax equivalent is $1,148 per month. This equals to $13,776 pa and after allowing for the 15% contributions tax, he’ll have 85% of the contribution or $11,710 working for his super in a tax concessional environment. To work out how much he’ll have in super in 10 years, we’re using the following super assumptions: The salary sacrifice contributions, when added to his employer super guarantee contributions, remain within the $30,000 pa concessional cap. His super is invested in 70% growth / 30% defensive assets, returning a gross return of 3.30% pa income (50% franked) and 2.81% pa growth. A representative fee of 0.50% pa of assets has been used. If these assumptions remain the same over the 10-year period, Barry will have an extra $161,216 in super. His outstanding mortgage at that time is $132,662 and after he repays this balance from his super (tax free as he is over 60), he will be $28,554 in front. Of course, the outcome may be different if there are changes in interest rates and super returns in that period. Case study where paying off the mortgage may be the best strategy 40 year old Duy and 37 year old Emma are a young professional couple who have recently purchased their first apartment. They’re both on a marginal tax rate of 39% (including the 2% Medicare levy) and they have the capacity to direct an extra $1,000 per month into their mortgage, or alternatively, use the pre-tax equivalent to make salary sacrifice contributions to super. Given their marginal tax rates, it would make sense mathematically to build up their super. However, they’re planning to have their first child within the next five years and Emma will only return to work part-time. They will need savings to cover this period, as well as assist with private school fees. Given their need to access some savings for this event, it would be preferable to direct the extra savings towards their mortgage, and redraw it as required, rather than place it into super where access is restricted to at least age 60. Before weighing up your options and considering which approach may be right for you, talk to your financial adviser. Source: AMP Making the Mortgage Versus Super Decision For personalised advice on the mortgage versus super debate, contact our team today. Ensure your mortgage versus super strategy aligns with your financial goals.

The rise in business bankruptcy

19 Aug 2024 03:21:00 GMT

ASIC’s annual insolvency data shows corporate business failure is up 39% compared to last financial year. The industries with the highest representation were construction, accommodation and food services at the top of the list. Restructuring appointments grew by over 200% in 2023-24. Small business restructuring allows eligible companies – those whose liabilities do not exceed $1 million plus other criteria – to retain control of its business while it develops a plan to restructure its affairs. This is done with the assistance of a restructuring practitioner with a view to entering into a restructuring plan with creditors. Of the 573 companies that entered restructuring after 1 January 2021 and had completed their restructuring plan by 30 June 2024, 89.4% remain registered, 5.4% have gone into liquidation, and 5.2% were deregistered as at 30 June 2024. In the latest statement from the Reserve Bank of Australia, Michelle Bull stated that, “…there’s also some signs that the business sector is under a bit of pressure, that the business outlook isn’t as rosy as it was.” Productivity is also lagging. Strategically, managers need to be on top of their numbers to identify and manage problems before they get out of hand. If you do not know what the key drivers of your business are – the things that make the difference between doing well and going under – then it’s time to find out. A business becomes insolvent when it can’t pay its debts when they fall due. The top three reasons why companies fail are: Poor strategic management Inadequate cashflow or high cash use Trading losses It’s easy to miss the warning signs and rely on optimism that things will get better if you can just get past a slump. The common problem areas are: Significant below budget performance. Substantial increases in fixed costs without an increase in revenues – Fixed costs are costs that you incur irrespective of your business activity level. When fixed costs go up, they have a direct impact on your profitability. If your fixed costs are increasing, such as leasing more space, hiring more people, buying more plant and equipment, but there is no measurable increase in your turnover and gross profit, it might tip you over. Falling gross profit margins – Your gross profit margin is the margin between your sales, minus cost of goods sold. Every dollar you lose in gross profit is a dollar off your bottom line. Funding your business primarily from debt rather than equity finance. Falling sales – If sales are falling, it is going to have a ripple through effect on your business, reducing profit contribution and inhibiting growth. Delaying payment to creditors – Your sales are good but you don’t seem to have enough cash in the business to pay your creditors on time. Spending in excess of cashflow – Trying to pay today’s expenses with tomorrow’s income. Poor financial reporting systems – Driving your business with a blindfold over your eyes! Growing too quickly – You’re making more sales than your business can sustain. Substantial bad debts or ‘dead’ stock – Customers who won’t pay their accounts and stock that you can’t sell. Business Bankruptcy: Navigating Financial Challenges For expert advice on managing business bankruptcy and avoiding financial pitfalls, contact our team today. Understanding business bankruptcy is essential to safeguarding your company’s future. Note: The material and contents provided in this publication are informative in nature only. It is not intended to be advice and you should not act specifically on the basis of this information alone. If expert assistance is required, professional advice should be obtained.

Divorce, you, and your business

16 Aug 2024 03:19:00 GMT

Breaking up is hard to do. Beyond the emotional and financial turmoil divorce creates, there are a number of issues that need to be resolved. What happens when there is a family company? For couples that have assets tied up in a company, the tax consequences of any settlements paid from the company will need to be assessed. Settlements paid out by a corporate entity can sometimes be treated as taxable dividends and taxed at the relevant spouse’s marginal tax rate. If you are receiving assets from a corporate entity as part of a property settlement, it’s essential that you understand the tax implications prior to settlement or a sizeable portion of the settlement could go to the ATO. For business owners, outside of the tax and financial issues, it’s important to not lose focus on what’s important to keep the business running efficiently. What happens to your superannuation in a divorce? A spouse’s interest in superannuation is a marital asset and can be split as part of the breakdown agreement. It’s important to be aware however that superannuation cannot be paid directly to a spouse unless the spouse is eligible to receive superannuation (they have met a condition of release) but it can be rolled over into the spouse’s fund until they are eligible to receive it. Laws exist to prevent taxes such as CGT being triggered when superannuation assets are transferred. This is particularly important where your superannuation fund holds property. A Court order or Superannuation Agreement is required to give effect to the agreed split in the SMSF assets or to execute a rollover eligible for the CGT rollover concession. If you have an SMSF and both spouses are members, it’s important to get advice to make sure that all of the appropriate administrative issues are taken care of. Where a divorce is not amicable, it’s important to keep in mind that the SMSF trustee is required under law to act in the best interests of the fund and its beneficiaries. Anything less and the fund members may seek compensation for loss or damage. Can you protect both parties from divorce? In a divorce, assets are split based on a multitude of factors such as earning capacity, maintenance of children, and the assets held pre-marriage. Most couples don’t enter into their marriage with a plan for how assets and income should be attributed in the event of divorce. However, the law does allow for married and de facto couples to enter into a Financial Agreement that sets out what happens to their assets should they separate. These agreements can be used to protect inheritance or property and other assets accumulated by the parties prior to the start of their relationship together. A legal advisor can provide advice on these types of agreements. Divorce and Business: Expert Guidance Navigating divorce and business concerns can be overwhelming. For personalised advice on managing your business through divorce, contact our experienced team today. We’re here to help you navigate the complexities of divorce and business. Note: The material and contents provided in this publication are informative in nature only. It is not intended to be advice and you should not act specifically on the basis of this information alone. If expert assistance is required, professional advice should be obtained.

Allied Health Accountants Are Crucial For Your Practice's Success

13 Aug 2024 03:17:00 GMT

Allied health professionals wear many hats, don’t they? Whether you’re a dietitian, physiotherapist, podiatrist, speech pathologist, or psychologist, you’ve got your hands full with unique financial hurdles. Each field comes with its own set of billing quirks, insurance hoops to jump through, and regulatory mazes to navigate. That’s where allied health accountants come in handy. They’re like financial GPS systems, guiding you through the complexities of your practice’s finances. Need help with Medicare reimbursements for your physio sessions? Or maybe you’re scratching your head over private health insurance claims for speech therapy? A savvy accountant can be your financial lifeline. Being an allied health professional in Australia means honing your skills in healing and rehabilitation over the years. However, successfully running a practice goes beyond patient care—it involves financial management. This is where allied health accountants play a crucial role. These accounting professionals understand the dynamics of the health sector and can have a substantial impact on your practice. At Paris Financial, we’ve witnessed first-hand how partnering with our allied health accountants has revolutionised practices. Let’s delve into why financial specialists are not just advantageous but indispensable for ensuring prosperity in your allied health practice. Navigating Financial Challenges Managing an allied health practice entails more than providing treatments; it demands navigating through the business obstacles and possibilities. Allied health accountants are well acquainted with these complexities. They comprehend cash flow management in an allied health practice encompassing aspects like Medicare reimbursements and processing claims from health insurance. Distinct Financial Landscape The financial landscape of managing an allied health practice is complex for the business owner. From handling delayed payments from insurance firms to making investments, in equipment and managing fluctuating patient numbers there exist hurdles. Unlike businesses that experience cash transactions, allied health practices often deal with intricate billing cycles and reimbursement procedures. Experts in Allied Health Accounting At Paris Financial, we specialise in staying updated on changes that could impact your practice. We make sure that your financial operations always comply with regulations helping you steer clear of penalties and legal issues. We are here to assist with how to; Enhance your billing processes to improve cash flow Efficiently handle your practices expenses Create customised strategies tailored to the field of allied health For instance, we can help establish an accounting system to track and follow up on outstanding payments ensuring a steady income stream. Moreover, we provide advice on navigating payment models such as billing and private fees empowering you to make informed financial decisions. Maximising Savings for Growth By managing your practice and saving money effectively, every dollar saved can be reinvested back into your practice for patient care and business growth. Adapting to Regulatory Changes Remaining abreast of changing regulations in the healthcare sector is crucial for allied health professionals. Keeping up with updates in Medicare policies, private health insurance regulations and tax laws requires attention to detail and specialised knowledge. While the National Disability Insurance Scheme (NDIS) presents opportunities for allied health professionals, it also brings about challenges in terms of billing processes and reporting requirements. Changes made to the Medicare Benefits Schedule (MBS) items could directly impact the revenue of your practice. At Paris Financial we specialise in staying updated on shifts that could influence your practice. We make sure that your financial activities adhere to all regulations assisting you in avoiding penalties and legal troubles. Our services include; Support during Medicare audits Guidance on structuring your practice for financial compliance By staying compliant you can mitigate risks and quickly adapt to changes capitalising on opportunities. Boosting Your Earnings and Minimising Tax Obligations Collaborating with accountants specialising in allied health provides an advantage in maximising your earnings while reducing tax burdens. Australia’s tax system can be intricate for healthcare professionals. The team at Paris Financial specialise in managing tax affairs for allied health professionals. We can support you with; Identifying all tax deductions for allied health practices Organising your practices finances to optimise tax efficiency Planning for the tax year, not just during tax season There are numerous tax deductions that you might overlook without expert guidance such as expenses, for professional development courses, journal subscriptions and a portion of your home office expenses if you work remotely. Different business structures also carry tax implications. For example, deciding to operate as a trader of a company or trust can have an impact on your tax obligations and asset protection. Our team is here to assist you in selecting the structure based on your individual circumstances. Effective tax management isn’t about finding loopholes; it’s about comprehending the system and leveraging it to your benefit. By collaborating with us you can ensure that you’re not paying more than necessary in taxes enabling you to reinvest those funds into enhancing your practice or personal pursuits. Providing Expert Financial Guidance for Practice Growth Whether you’re launching a practice or aiming for expansion, allied health accountants offer advice and assistance. Paris Financial has been supporting allied health professionals throughout their careers by providing guidance. Our team specialise in; Assisting with establishing your business structure Creating strategies for practice growth Planning for the success of established practices When contemplating expansion, there are financial considerations to think about. Expanding into locations requires cash flow projections, evaluation of market conditions and plans, for maintaining consistent quality across multiple sites. We can help you assess whether it’s financially feasible to lease or purchase property and assist you in securing financing if needed. Another critical area where financial advice plays a role is investing in equipment or technologies. We have the expertise to help you assess the benefits of investing in assets, considering factors such as; increased productivity, expanded service offerings and tax implications. Each allied health clinic is different. Thats why we make it a point to grasp your objectives and obstacles. Our suggestions are customised to suit your situation empowering you to make informed choices about the future of your practice. Improving Financial Effectiveness Time is precious in an allied health setting. Ineffective financial procedures can eat up time that could be better utilised for care. Accountants specialising in allied health play a role, in optimising these processes enhancing efficiency and ensuring precision. At Paris Financial our services include configuring and assisting with accounting software for allied health clinics, handling certain bookkeeping duties and offering statements and reports. Selecting the accounting software has the potential to transform how your clinic handles its finances. Cloud based solutions for example enable you to access data from anywhere at any time and seamlessly integrate with practice management tools to streamline billing and record keeping tasks. Regular financial reporting goes beyond monitoring finances. The information provided in financial reports offers insights, into performance measures specific to allied health practices. These insights empower you to pinpoint areas that need improvement and make decisions based on data to enhance the performance of your practice. By entrusting us with these responsibilities you can focus on delivering high quality care to your patients without the added concern of managing finances. With our expertise you can be confident that these crucial tasks are being handled accurately and efficiently. Strategic Decision Making In today’s healthcare environment making informed strategic decisions holds significance than ever before. Allied health accountants do more than crunch numbers; they analyse data to provide insights that aid decision making. The team at Paris Financial is here to support you by; Analysing data to spot trends and opportunities Benchmarking your practices performance against industry standards Creating forecasts for planning For instance, we can assist you in assessing the profitability of the services you provide helping you prioritise the aspects of your practice. We can also help with pricing strategies to ensure that your fees remain competitive yet profitable. Comparing your practice against industry benchmarks can yield insights. Are your operating costs in line with those of other practices? Is your revenue per practitioner above or, below average? Comparisons, between aspects can shed light on strengths and areas that require enhancement. Forecasting is crucial for achieving long term success. By analysing data and market trends we can assist you in developing forecasts that enable you to prepare for investments, staffing needs, and potential obstacles. These insights empower you to make decisions, whether it’s about investing in equipment or expanding your team, ensuring that your business remains competitive and financially stable. Supporting Your Financial Objectives As an allied health professional your personal finances are often intertwined with your business finances. Accountants who specialise in allied health understand this correlation and can help align your business strategies with your financial objectives. At Paris Financial we provide a variety of financial planning services tailored specifically for allied health professionals including; Retirement planning Investment guidance tax planning Retirement Planning When preparing for retirement its essential to consider aspects such as the value of your practice, succession planning and superannuation strategies. Our aim is to develop a plan that ensures security during retirement while maximising the value of your practice. Investment Guidance Our investment recommendations extend beyond managing profits from your practice. We can assist you in diversifying investments to manage risk and returns effectively, by investing in properties, shares or other ventures outside of your practice. Strategies, for Managing Personal Taxes When it comes to tax planning, how you structure your business and earn income is crucial. Our assistance can help you put in place tactics that reduce your tax liabilities while ensuring adherence to all regulations. Our goal is to take an approach to managing your matters aiding you in building wealth both within and beyond your practice setting the stage for sustained financial prosperity. In the realm of allied health services having a team of accountants specialised in allied health is not just beneficial – it’s absolutely necessary! From navigating frameworks to optimising tax plans these accountants play a role in safeguarding the financial stability and triumph of your practice. Enhance Your Practice Here at Paris Financial, we’ve seen it all when it comes to allied health practices. We’re not just number crunchers – we’re your financial partners. Got a dietitian practice? We’ll help you keep tabs on those nutritional counselling expenses. Running a podiatry clinic? We’ll make sure your orthotics inventory doesn’t trip you up financially. And for our psychologist friends, we’ve got your back with those tricky health billing regulations. By teaming up with us, you can pour your energy into what really matters – top-notch patient care. We’ll take care of the dollars and cents, making sure your practice isn’t just staying afloat, but sailing smoothly towards financial success. After all, a healthy practice means healthier patients, right? That’s right, we are your specialised: – Allied health accountant – Dietitian accountant – Podiatry accountant – Psychologist accountant Are you prepared to advance your practice with expert allied health accountants? Don’t let financial obstacles impede the growth of your practice. Get in touch with us at Paris Financial. With our ranging expertise and background in allied health accounting our aim is to bolster the success of your practice. Let our committed team assist, in enhancing the well-being of your practice. Book a free consultation to discuss your finances today at (03) 8393 1000. Download E-Book: Allied Health Accountants Book A Free Consultation

Is your family home really tax free?

12 Aug 2024 03:13:00 GMT

The main residence exemption exempts your family home from capital gains tax (CGT) when you dispose of it. But, like all things involving tax, it’s never that simple. As the character of Darryl Kerrigan in The Castle said, “it’s not a house. It’s a home,” and the Australian Taxation Office’s (ATO) interpretation of a main residence is not fundamentally different. A home is generally considered to be your main residence if: It’s where you and your family live Your personal belongings have been moved into the dwelling It is where your mail is delivered It’s your address on the electoral roll You have connected services such as telephone, gas and electricity (in your name); and It is your intention for the home to be your main residence. The length of time you have lived in the home is important, but there are no hard and fast rules. Your intention takes precedence over time spent as every situation is different. When does the main residence exemption apply? In general, CGT applies to the sale of your home unless you have an exemption, partial exemption, or you can offset the capital gain against a capital loss. If you are an Australian resident for tax purposes, you can access the full main residence exemption when you sell your home if: Your home was your main residence for the whole time you owned it (see Can the main residence apply if you move out?).; and You did not use your home to produce any income (see Partial exemption below), and The land your home is on is 2 hectares or less. If your home is on more than 2 hectares, for example on farmland, the exemption can apply to the home and up to 2 hectares of adjacent land. Partial exemption If you have used your home to produce income, you won’t normally be able to claim the full main residence exemption, but you might be able to claim a partial exemption. Common scenarios impacting your main residence exemption include: Running a business from home (working from home is ok), and Renting the home or part of the home. In these scenarios, from the time you started to use the home to generate income, that part of the home is likely to be subject to CGT. And, a word of caution here, as of 1 July 2023, platforms such as Airbnb must report all transactions to the ATO every 6 months. This data will be used to match against the income reported on income tax returns. Foreign residents and changing residency Foreign residents cannot access the main residence exemption even if they were a resident for part of the time they owned the property. If you are a non-resident at the time you enter into the contract to sell the property, you are unlikely to be able to access the main residence exemption. Conversely, if you are a resident at the time of the sale, and you meet the other eligibility criteria, the rules should apply as normal even if you were a non-resident for some of the ownership period. For example, an expat who maintains their main residence in Australia could return to Australia, become a resident for tax purposes again, then sell the property and if eligible, access the main residence exemption. It’s important to recognise that the residency test is your tax residency, not your visa status. Australia’s tax residency rules can be complex. If you are uncertain, please contact us and we will work through the rules with you. Can the main residence exemption apply if you move out? You might have heard about the ‘absence rule’. This rule allows you to continue to treat your home as your main residence for tax purposes: For up to 6 years if the home is used to produce income, for example you rent it out while you are away; or Indefinitely if it is not used to produce income. When you apply the absence rule to your home, this normally prevents you from applying the main residence exemption to any other property you own over the same period. Apart from limited exceptions, the other property is exposed to CGT. Let’s say you moved overseas in 2020 and rented out your home while you were away. Then, you came back to Australia in 2023 and moved back into your house. Then in early 2024, you decided it is not your forever home and sold it. You elected to apply the absence rule to your home and didn’t treat any other property as your main residence during that same period. In this case, you should be able to access the full main residence exemption assuming you are a resident for tax purposes at the time of sale. The 6 year period also resets if you re-establish the property as your main residence again, but later stop living there. So, if the time the home was income producing is limited to six years for each absence, it is likely the full main residence exemption will be available if the other eligibility criteria are met. Timing Your home normally qualifies as your main residence from the point you move in and start living there. However, if you move in as soon as practicable after the settlement date of the contract, that home is considered your main residence from the time you acquired it. If you buy a new home but haven’t yet sold your old home, you can treat both properties as your main residence for up to six months without impacting your eligibility to the main residence exemption. This applies if the old home was your main residence for a continuous period of 3 months in the 12 months before you disposed of it and you did not use your old home to produce income in any part of that 12 months when it was not your main residence. If the sale takes more than six months and if eligible, the main residence exemption could apply to both homes only for the last six months prior to selling the old home. For any period before this it might be possible to choose which home is treated as your main residence (the other becomes subject to CGT). If your new home is being rented to someone else when you purchase it and you cannot move in, the home is not your main residence until you move in. If you cannot move in for some unforeseen reason, for example you end up in hospital or are posted overseas for a few months for work, then you still might be able to access the main residence exemption from the time you acquired the home if you move in as soon as practicable once the issue has been resolved. Inconvenience is not a valid reason and you will need to ensure that you have documentation to support your position. Can a couple have a main residence each? Let’s say you and your spouse each own homes that you have separately established as your main residences. The rules don’t allow you to claim the full CGT exemption on both homes. Instead, you can: Choose one of the dwellings as the main residence for both of you during the period; or Nominate different dwellings as your main residence for the period. If you and your spouse nominate different dwellings, the exemption is split between you: If you own 50% or less of the residence chosen as your main residence, the dwelling is taken to be your main residence for that period and you will qualify for the main residence exemption for your ownership interest; If you own greater than 50% of the residence chosen as your main residence, the dwelling is taken to be your main residence for half of the period that you and your spouse had different homes. The same rule applies to your spouse. The rule applies to each home that the spouses own regardless of how the homes are held legally, i.e., sole ownership, tenants in common or joint tenants. What happens in a divorce? Assuming the home is transferred to one of the spouses (and not to or from a trust or company), both individuals used the home solely as their main residence over their ownership period, and the other eligibility conditions are met, then a full main residence exemption should be available when the property is eventually sold. If the home qualified for the main residence exemption for only part of the ownership period for either individual, then a partial exemption might be available. That is, the spouse receiving the property may need to pay CGT on the gain on their share of the property received as part of the property settlement when they eventually sell the property. The main residence exemption looks simple enough but it can become complex quickly. You will need more than a ‘vibe’ to work with the exemption. In the words of the character of Dennis Denuto in The Castle, “it’s the vibe of it. It’s the constitution. It’s Mabo. It’s justice. It’s law. It’s the vibe and ah, no that’s it. It’s the vibe. I rest my case.” Is Your Home Tax Free? We’re Here to Help Navigating the complexities of the main residence exemption can be challenging. If you’re unsure whether your home is tax free or have questions about your specific situation, don’t hesitate to reach out. Our expert team is ready to assist you in understanding the nuances of keeping your home tax free and maximising your exemptions. Contact us today for personalised advice on ensuring your family home remains as tax-free as possible under current regulations. Note: The material and contents provided in this publication are informative in nature only. It is not intended to be advice and you should not act specifically on the basis of this information alone. If expert assistance is required, professional advice should be obtained.

How to Reduce Capital Gains Tax: 5 Strategies for Australians

30 Jul 2024 03:09:00 GMT

Are you looking to reduce capital gains tax on your investments? As an Australian taxpayer, understanding how to minimise your Capital Gains Tax (CGT) liability is crucial for maximising your investment returns. This comprehensive guide will walk you through effective strategies to reduce capital gains tax, helping you keep more of your hard-earned money. From utilising capital loss offsets to making smart choices about which gains to offset first, we’ll cover everything you need to know to navigate the complex world of CGT in Australia. Understanding Capital Gains Tax in Australia Before diving into strategies to reduce capital gains tax, it’s essential to grasp the basics. Capital Gains Tax is levied on the profit you make when you sell an asset, such as shares, property, or collectables. In Australia, CGT is not a separate tax but forms part of your income tax. The amount you pay depends on various factors, including your marginal tax rate and how long you’ve held the asset. Key points to remember: The tax is calculated on the capital gain, which is the difference between the asset’s cost base and its sale price Individuals and small businesses may be eligible for CGT discounts Leveraging Capital Losses to Offset Gains One of the most effective ways to reduce capital gains tax is by offsetting your gains with capital losses. Here’s how it works: You can use capital losses from the current financial year to offset capital gains If you have leftover losses, you can carry them forward to future years You must use carried-forward losses before current-year losses For example, if you’ve made a $10,000 capital gain on shares but have a $5,000 capital loss from a previous year, you can reduce your taxable gain to $5,000. Remember: You can’t claim a capital loss on personal use assets like your home or car. Strategic Selection of Gains to Offset Did you know you have the power to choose which capital gains to offset with your losses? This strategic approach can significantly reduce your overall CGT liability. Here are some tips: Prioritise offsetting gains that aren’t eligible for the CGT discount Consider the timing of realising gains and losses Be aware of special rules for collectables By carefully selecting which gains to offset, you can maximise your tax savings and potentially defer CGT on other assets. Understanding Non-Offsettable Losses While capital losses can be a powerful tool to reduce capital gains tax, not all losses can be used as offsets. It’s crucial to understand which losses you can’t use: Losses from personal use assets (e.g., boats, furniture) Losses from CGT exempt assets (e.g., cars, motorcycles) Losses from collectables that cost $500 or less Losses from certain leases Losses from personal services income paid to yourself through an entity Knowing these exceptions will help you plan your investments and asset sales more effectively. Timing Your Asset Sales Strategically The timing of your asset sales can have a significant impact on your CGT liability. Consider these strategies: Hold assets for at least 12 months to qualify for the 50% CGT discount Spread large capital gains over multiple financial years Time your asset sales to coincide with years when your income is lower By carefully planning when you sell assets, you can potentially reduce your overall tax burden. Utilising the Main Residence Exemption For many Australians, their home is their most valuable asset. The good news is that the main residence exemption can help you reduce or eliminate CGT on the sale of your home. Key points to remember: Your primary residence is generally exempt from CGT Partial exemptions may apply if you’ve used your home to produce income There are special rules for absences and temporary residences Understanding the nuances of the main residence exemption can lead to significant tax savings when it’s time to sell your home. Small Business CGT Concessions If you’re a small business owner, you may be eligible for additional CGT concessions. These can include: 15-year exemption 50% active asset reduction Retirement exemption Small business rollover These concessions can substantially reduce or eliminate CGT on the sale of business assets, making them a powerful tool for small business owners looking to reduce capital gains tax. Seeking Professional Advice While this guide provides a comprehensive overview of strategies to reduce capital gains tax, tax laws can be complex and subject to change. It’s always advisable to seek professional advice from a registered tax agent like our expert team. They can help you: Develop a tailored CGT strategy Ensure compliance with current tax laws Maximise your tax savings based on your specific circumstances Remember, investing in professional advice can often lead to significant tax savings in the long run. Conclusion Reducing capital gains tax requires careful planning and a good understanding of Australian tax laws. By implementing the strategies discussed in this guide, you can potentially save thousands of dollars in CGT. Remember to keep accurate records of your investments, stay informed about changes in tax legislation, and consider seeking professional advice for complex situations. Need Help to Reduce Capital Gains Tax? For personalised advice on how to reduce capital gains tax, contact our team of expert tax professionals today. We specialise in strategies to reduce capital gains tax and can help you navigate the complexities of CGT to maximise your savings.

Sharing Economy Platform Income – ATO's New Reporting Rules

14 Jul 2024 02:10:00 GMT

The landscape of income reporting is changing for users of sharing economy platforms. If you’ve earned money through services like Airbnb, Stayz, or Uber, it’s crucial to understand how new Australian Taxation Office (ATO) regulations affect your tax obligations. This article explores the recent changes in reporting requirements for sharing economy platforms and what they mean for your tax return. Sharing Economy Platform Reporting: What You Need to Know Since 1 July 2023, the platforms delivering ride-sourcing, taxi travel, and short-term accommodation (under 90 days), have been required to report transactions made through their platform to the ATO under the sharing economy reporting regime. 2023-24 is the first year that the ATO will have access to this data and will have the ability to match it against the income tax returns of taxpayers. All other sharing economy platforms will be required to start reporting from 1 July 2024. ATO’s Data Matching: Ensuring Accurate Income Declaration This reporting regime, combined with the ATO’s data matching programs, mean that if income is not declared, it’s likely you will receive a “please explain” request from the regulator. Need Help Navigating Sharing Economy Platform Rules? For expert guidance on declaring income from sharing economy platforms and ensuring compliance with new ATO regulations, contact our team today. Our specialists in sharing economy platform tax matters are here to help you navigate these changes confidently. Note: The material and contents provided in this publication are informative in nature only. It is not intended to be advice and you should not act specifically on the basis of this information alone. If expert assistance is required, professional advice should be obtained.

What's ahead for 2024-25? Tax, Wages, and Business Trends

05 Jul 2024 07:02:00 GMT

Will 2024-25 be another year of volatility or a return to stability? What’s ahead for 2024-25 in personal tax & super As you would be aware (at least we hope so after a $40m public education campaign), the personal income tax cuts came into effect on 1 July 2024. At the same time, the superannuation guarantee (SG) rate increased by 0.5% to 11.5%. For employers, it’s critically important to ensure that your payroll system, and all interactions with it, like salary sacrifice agreements, are assessed and updated. Your PAYG withholding will also be impacted. While we are on the topic of obligations, the ATO have recently warned employers to be vigilant about their super guarantee obligations: Are you paying super guarantee to the right people? The definition of an employee for SG purposes is broad and, in some cases, extends beyond typical classifications. Temporary residents, backpackers, and some company directors working in the business, family members working in the business, and some contractors must be paid SG. Check your classifications are correct for SG purposes. Check the fund details are correct for the employee and the employee’s tax file number has been provided to the super fund. It’s the employer’s obligation to ensure that SG for the employee is directed to the correct super fund account. Ensure SG is paid into the employee’s fund by the quarterly due date (next SG payments are due by 28 July). If your business misses the deadline, the super guarantee charge applies (even if you pay the outstanding amount quickly after the deadline). The SG charge (SGC) is particularly painful for employers because it is comprised of the outstanding SG, 10% interest p.a. from the start of the quarter, and an administration fee. And, unlike normal SG contributions, SGC amounts are not deductible. Wages On 1 July 2024, the national minimum wage increased by 3.75% ($24.10 per hour, or $915.90 per week). The increase applies from the first full pay period starting on or after 1 July 2024. Traditionally, there is no correlation between an increase in minimum wages and inflation. Annual wage growth in the private sector fell slightly to 4.1% in the March quarter 2024 from 4.2% in December 2023 – the first fall since September quarter 2020, suggesting that wages growth is starting to even out. Interest rates and cost of living Reserve Bank of Australia (RBA) Governor Michelle Bullock has stated on several occasions that inflation, not interest rates, are at the heart of cost of living pressures. Interest rates are the RBA’s “blunt instrument” to bring inflation under control. With inflation easing more slowly than anticipated, the RBA is not ruling anything out because the path of interest rates is determined by the actions required to bring inflation to target. Inflation has reduced from its peak of 7.8% in December 2022 to 3.6% in the March quarter, but increased again in May to 4% dampening expectations of an interest rate reprieve. Business confidence The latest NAB business survey is not happy reading with business confidence falling back into negative territory in May as conditions continued to gradually soften. Having experienced eight consecutive months of forward order declines, businesses are understandably circumspect over the outlook. GDP grew marginally in the March quarter and consumption per capita continued to decline. However, labour market conditions are strong with unemployment at 4% for May. Treasury forecasts that economic growth (GDP) will marginally improve to 2% in 2024-25. Not exciting but credible. Migration & labour Always a controversial topic. Post pandemic, Australia’s migration levels surged with the return of international students, working holiday makers, and an influx of temporary skilled labour to meet shortages. In the year ending 30 June 2023, overseas migration contributed a net gain of 518,000 people to Australia’s population – the largest net overseas migration estimate since records began. The 2024-25 Federal Budget estimates that net migration will fall to 260,000. While demand pressures from migration have been well publicised, particularly on housing, the positive impact was the impact on supply. Post COVID, Australia faced crippling labour shortages that impeded the return and growth of supply. From 1 January 2025, student visa numbers will be capped, and according to the University of Melbourne Deputy Vice-Chancellor Professor Michael Wesley, student visa grants are already down 34% in March 2024 compared to the same time in 2023. The Government’s focus is on skilled migration. Employer sponsored places will rise by 7,175, however skilled independent visas will reduce by 13,475. The minimum salary requirement to sponsor an employee (Temporary Skilled Migration Income Threshold) will also increase to $73,150 on 1 July 2024. What now? Businesses fail (or fail to thrive) for a myriad of reasons, but the precursor is often a failure to understand what is occurring within the business and what to monitor. Strategically, managers need to be on top of their numbers to identify and manage problems before they get out of hand. If you do not know what the key drivers of your business are, then it’s time to find out (we can help you with that). A lack of profit will erode your business, but not enough cash will kill it stone dead. Businesses often fail because they don’t manage their cash position. Plan, track, and measure your cashflow. This not only means closely monitoring your debtor collections and inventory but also running a rolling three month cashflow position. This should provide an early warning of any brewing problems. Cash flows, operating budgets, cost control and debt management all need to be part of your business management. The more in control you are the lower your risk position. Many small businesses also tend to absorb increasing costs. Putting up your prices during difficult times is not an act of social betrayal. If the cost of doing business has increased, you should flow these through unless you are comfortable making less for the same amount of effort, or you are in an industry that is so price sensitive you have no choice but to follow the lead of larger businesses. What’s Ahead for 2024-25: Contact Us for Guidance For more insights on what’s ahead for 2024-25, contact our team. We can help you navigate the upcoming changes and ensure your business thrives in 2024-25. Note: The material and contents provided in this publication are informative in nature only. It is not intended to be advice and you should not act specifically on the basis of this information alone. If expert assistance is required, professional advice should be obtained.

$20k instant asset write-off passes Parliament

02 Jul 2024 06:49:00 GMT

Understanding the $20k Instant Asset Write-Off Legislation increasing the instant asset write-off threshold from $1,000 to $20,000 for the 2024 income year passed Parliament just 5 days prior to the end of the financial year. Maximising Your Deductions Purchases of depreciable assets with a cost of less than $20,000 that a small business makes between 1 July 2023 and 30 June 2024 can potentially be written-off in the year of purchase. It’s a major cashflow advantage because the tax deduction can be taken in the year of purchase instead of over a number of years. Eligibility Criteria To be eligible, the asset must be first used, or installed ready for use, for a taxable purpose between 1 July 2023 and 30 June 2024. For example, you cannot simply have a receipt for an industrial fridge, it must have been delivered and installed to be able to claim the write-off in 2024. Important Deadlines The write-off threshold applies per asset, so a small business entity can potentially deduct the full cost of multiple assets across the 2024 year as long as the cost of each asset is less than $20,000. A Bill to extend the instant asset write-off threshold increase to 30 June 2025 is currently before Parliament. Contact Us for More on $20k Instant Asset Write-Off For more information on how your small business can benefit from the $20k instant asset write-off, contact our team today. Maximise your deductions and take advantage of the $20k instant asset write-off now. Note: The material and contents provided in this publication are informative in nature only. It is not intended to be advice and you should not act specifically on the basis of this information alone. If expert assistance is required, professional advice should be obtained.

Work Clothing Deductions for 2023-24

20 Jun 2024 06:46:00 GMT

Navigating the Australian Taxation Office (ATO) rules on work clothing deductions can be a bit tricky. Here’s a straightforward guide to help you figure out what you can and can’t claim for the 2023-2024 tax year when it comes to clothing, laundry, and dry-cleaning expenses. What You Can Claim You can claim deductions for: Occupation-specific clothing: These are clothes that clearly mark you out as being in a particular job. Think of: A chef’s chequered pants. A judge’s robe. Protective clothing: These are items that keep you safe from work-related risks. Examples include: Fire-resistant gear. Sun-protection clothing with a UPF rating. Safety-coloured vests, non-slip nurse’s shoes. Protective boots like steel-capped boots for construction workers. Gloves, heavy-duty shirts and trousers, and wet-weather gear. Distinctive uniforms: Uniforms that are unique to your employer and aren’t available to the general public. They usually have the company’s logo. What You Can’t Claim You can’t claim deductions for everyday work clothes, even if your employer says you must wear them. This includes: Black trousers for waiters. Business attire for office workers. Jeans or drill shirts for tradespeople. Also, if your employer buys, repairs, replaces, or launders your work clothes, or reimburses you for these expenses, you can’t claim a deduction. Real-life Examples Occupation-specific clothing: Joe is a chef with two jobs. At a restaurant, he wears the traditional chef’s uniform (chequered pants, white jacket, and chef’s toque), which he can claim. However, he can’t claim the jeans and t-shirt he wears while working on a food truck. Protective clothing: Bert works on a building site and wears heavy denim abrasion-resistant trousers and steel-capped boots. He can claim these items as they protect him from injury at work. Conventional clothing: Bob, another construction worker, wears jeans and T-shirts at work for comfort. He can’t claim these items as they are conventional clothing, even if worn exclusively for work. Compulsory Work Uniform A compulsory work uniform is something that identifies you as an employee and is required by your workplace policy. You can claim costs for: Uniforms distinctive to your organisation. Shoes, socks, and stockings if they are an essential part of the uniform and specified by your employer. Example: Rick works at a supermarket with a policy requiring a shirt with the supermarket’s logo and black pants. Rick can claim the shirt but not the pants, as they are considered conventional clothing. Non-Compulsory Work Uniform You can’t claim non-compulsory work uniforms unless they are registered on the Register of Approved Occupational Clothing. Shoes, stockings, and underwear can’t be claimed as part of these uniforms. Example: Lena works in administration for a bus company. Her employer has registered the company suit as a non-compulsory uniform. Lena can claim the cost of the suit because it is on the Register of Approved Occupational Clothing. Laundry, Dry-Cleaning, and Repair Expenses You can claim costs for laundering, dry-cleaning, or repairing work clothing if it is: Occupation-specific. Protective. A compulsory uniform. A registered non-compulsory uniform. Laundry Expenses: $1 per load if it only contains work clothing. 50c per load if mixed with personal items. Example: Jelani washes her uniforms separately twice a week, working 48 weeks a year. She claims $96 for laundry expenses, calculated as 96 loads at $1 per load. Jelani also claims $250 in union fees, and although her laundry claim is under $150, she must keep records for her total work-related expenses, which exceed $300. Keeping Records Keep receipts showing: Supplier’s name. Amount spent. Date and nature of the items. If receipts aren’t available, use alternative evidence such as bank statements, invoices, or purchase orders. For claims under $300, you don’t need receipts but must explain the total amount. For laundry claims under $150, receipts aren’t required unless total work-related expenses exceed $300. Use the myDeductions tool in the ATO app to record expenses or upload photos of receipts. For detailed record-keeping information, visit Records you need to keep. Contact Us for More on Work Clothing Deductions If you need further assistance with your work clothing deductions, don’t hesitate to reach out to our team. We’re here to help you navigate work clothing deductions and ensure you get the most out of your tax return.

The essential 30 June guide

11 Jun 2024 06:43:00 GMT

The end of the financial year is fast approaching. We outline the areas at risk of increased ATO scrutiny and the opportunities to maximise your deductions. For you Opportunities Take advantage of the 1 July 2024 tax cuts by bringing forward your deductible expenses into 2023-24. Prepay your deductible expenses where possible, make any deductible superannuation contributions, and plan any philanthropic gifts to utilise the higher tax rate. Bolstering superannuation If growing your superannuation is a strategy you are pursuing, and your total superannuation balance allows it, you could make a one-off deductible contribution to your superannuation if you have not used your $27,500 cap. This cap includes superannuation guarantee paid by your employer, amounts you have salary sacrificed into super, and any amounts you have contributed personally that will be claimed as a tax deduction. And, if your superannuation balance on 30 June 2023 was below $500,000 you might be able to access any unused concessional cap amounts from the last five years in 2023-24 as a personal contribution. For example, if you were $8,000 under the cap in each of the last 5 years, you could contribute an additional $40,000 and take the tax deduction in this financial year at the higher personal tax rate. To make a deductible contribution to your superannuation, you need to be aged under 75, lodge a notice of intent to claim a deduction in the approved form (check with your superannuation fund), and get an acknowledgement from your fund before you lodge your tax return. For those aged between 67 and 75, you can only make a personal contribution to super if you meet the work test (i.e., work at least 40 hours during a consecutive 30-day period in the income year, although some special exemptions might apply). And, if your spouse’s assessable income is less than $37,000 and you both meet the eligibility criteria, you could contribute to their superannuation and claim a $540 tax offset. If you are likely to face a tax bill this year, for example, you made a capital gain on shares or property you sold, then making a larger personal superannuation contribution might help to offset the tax you owe. Charitable donations When you donate money (or sometimes property) to a registered deductible gift recipient (DGR), you can claim amounts over $2 as a tax deduction. The more tax you pay, the more valuable the tax deductible donation is to you. For example, a $10,000 donation to a DGR can create a $3,250 deduction for someone earning up to $120,000 but $4,500 to someone earning $180,000 or more (excluding Medicare levy). To be deductible, the donation must be a gift and not in exchange for something. Special rules apply for amounts relating to charity auctions and fundraising events run by a DGR. Philanthropic giving can be undertaken in a number of different ways. Rather than providing gifts to a specific charity, it might be worth exploring the option of giving to a public ancillary fund or setting up a private ancillary fund. Donations made to these funds can often qualify for an immediate deduction, with the fund then investing and managing the money over time. The fund generally needs to distribute a certain portion of its net assets to DGRs each year. Investment property owners If you do not have one already, a depreciation schedule is a report that helps you calculate deductions for the natural wear and tear over time on your investment property. Depending on your property, it might help to maximise your deductions. Risks Work from home expenses Working from home is a normal part of life for many workers, and while you can’t claim the cost of your morning coffee, biscuits or toilet paper (seriously, people have tried), you can claim certain additional expenses you incur. But, work from home expenses are an area of ATO scrutiny. There are two methods of claiming your work from home expenses; the short-cut method, and the actual method. The short-cut method allows you to claim a fixed 67c rate for every hour you work from home. This covers your energy expenses (electricity and gas), internet expenses, mobile and home phone expenses, and stationery and computer consumables such as ink and paper. To use this method, it’s essential that you keep a record of the actual days and times you work from home because the ATO has stated that they will not accept estimates. The alternative is to claim the actual expenses you have incurred on top of your normal running costs for working from home. You will need copies of your expenses, and your diary for at least 4 continuous weeks that represents your typical work pattern. Landlords beware If you own an investment property, a key concept to understand is that you can only claim a deduction for expenses you incurred in the course of earning income. That is, the property needs to be rented or genuinely available for rent to claim the expenses. Sounds obvious but taxpayers claiming investment property expenses when the property was being used by family or friends, taken off the market for some reason or listed for an unreasonable rental rate, is a major focus for the ATO, particularly if your property is in a holiday hotspot. There are a series of issues the ATO is actively pursuing this tax season. These include: Refinancing and redrawing loans – you can normally claim interest on the amount borrowed for the rental property as a deduction. However, where any part of the loan relates to personal expenses, or where part of the loan has been refinanced to free up cash for your personal needs (school fees, holidays etc.,), then the loan expenses need to be apportioned and only that portion that relates to the rental property can be claimed. The ATO matches data from financial institutions to identify taxpayers who are claiming more than they should for interest expenses. The difference between repairs and maintenance and capital improvements. While repairs and maintenance can often be claimed immediately, a deduction for capital works is generally spread over a number of years. Repairs and maintenance expenses must relate directly to the wear and tear resulting from the property being rented out and generally involve restoring the property back to its previous state, for example, replacing damaged palings of a fence. You cannot claim repairs required when you first purchased the property. Capital works however, such as structural improvements to the property, are normally deducted at 2.5% of the construction cost for 40 years from the date construction was completed. Where you replace an entire asset, like a hot water system, this is a depreciating asset and the deduction is claimed over time (different rates and time periods apply to different assets). Co-owned property – rental income and expenses must normally be claimed according to your legal interest in the property. Joint tenant owners must claim 50% of the expenses and income, and tenants in common according to their legal ownership percentage. It does not matter who actually paid for the expenses. Gig economy income It’s essential that any income (including money, appearance fees, and ‘gifts’) earned from platforms such as Airbnb, Stayz, Uber, OnlyFans, youtube, etc., is declared in your tax return. The tax rules consider that you have earned the income “as soon as it is applied or dealt with in any way on your behalf or as you direct”. If you are a content creator for example, this is when your account is credited, not when you direct the money to be paid to your personal or business account. Squirrelling it away from the ATO in your platform account won’t protect you from paying tax on it. Since 1 July 2023, the platforms delivering ride-sourcing, taxi travel, and short-term accommodation (under 90 days), have been required to report transactions made through their platform to the ATO under the sharing economy reporting regime. This is the first year that the ATO will have the income tax returns of taxpayers to match to this data. All other sharing economy platforms will be required to start reporting from 1 July 2024. If you have income you have not declared, do it now before the ATO discover it and apply penalties and interest. For your business Opportunities Bonus deductions There are a series of bonus deductions available to small business in 2023-24, these include the instant asset write-off, energy incentive, and the skills and training boost. Announced in the 2023-24 Federal Budget, the increase to the instant asset write-off threshold enables small businesses with an aggregated turnover of less than $10 million to immediately deduct the full cost of eligible depreciating assets costing less than $20,000. In the 2024-25 Federal Budget, the Government extended this measure to 30 June 2025. Without these measures, the instant asset write-off threshold would be $1,000. However, legislation to enact the 2023-24 measure has not passed Parliament following a disagreement between the House of Representatives and the Senate about the amount of the threshold, and whether the measure should apply to medium businesses as well (up to $50m). Similarly, the $20,000 energy incentive that provides an additional 20% deduction on the cost of eligible depreciating assets or improvements to existing depreciating assets that support electrification and more efficient use of energy in 2023-24, is not yet law. Assuming both measures pass Parliament by 30 June 2024, any assets need to be first used or installed ready for use, or the improvement costs incurred, between 1 July 2023 and 30 June 2024 to be written off in 2023-24. What is certain is the bonus 20% deduction for eligible expenditure for external training provided to your employees. The ‘skills and training boost’ is available to businesses with an aggregated annual turnover of less than $50 million. To claim the boost, the training needs to have been provided by a registered training provider and registered and paid for between 29 March 2022 and 30 June 2024. Typically, this is vocational training to learn a trade or courses that count towards a qualification rather than professional development. Write-off bad debts Your customer definitely not going to pay you? If all attempts have failed, the debt can be written off by 30 June. Ensure you document the bad debt on your debtor’s ledger or with a minute. Obsolete plant & equipment If your business has obsolete plant and equipment sitting on your depreciation schedule, instead of depreciating a small amount each year, scrap it and write it off before 30 June. For companies If it makes sense to do so, bring forward tax deductions by committing to directors’ fees and employee bonuses (by resolution), and paying June quarter super contributions in June. Risks Tax debt and not meeting reporting obligations Failing to lodge returns is a huge ‘red flag’ for the ATO that something is wrong in the business. Not lodging a tax return will not stop the debt escalating because the ATO has the power to simply issue an assessment of what they think your business owes. If your business is having trouble meeting its tax or reporting obligations, we can assist by working with the ATO on your behalf. Professional firm profits For professional services firms – architects, lawyers, accountants, etc., – the ATO is actively reviewing how profits flow through to the professionals involved, looking to see whether structures are in place to divert income to reduce the tax they would be expected to pay. Where professionals are not appropriately rewarded for the services they provide to the business, or they receive a reward which is substantially less than the value of those services, the ATO is likely to take action. Need support or have questions? Talk to us today about maximising your outcomes and reducing your risks. Maximising Benefits with the Essential 30 June Guide For personalised advice, contact our team today. Understanding and leveraging the essential 30 June guide can significantly impact your financial health. Don’t miss out on maximising your benefits—reach out now for expert assistance. Note: The material and contents provided in this publication are informative in nature only. It is not intended to be advice and you should not act specifically on the basis of this information alone. If expert assistance is required, professional advice should be obtained.

ATO fires warning shot on trust distributions

10 Jun 2024 06:39:00 GMT

The ATO has warned that it is looking closely at how trusts distribute income and to who. The way in which trusts distribute income has come under intense scrutiny in recent years. Trust distribution arrangements need to be carefully considered by trustees before taking steps to appoint or distribute income to beneficiaries. What does your trust deed say? An area of concern is that trustees are not considering the trust deed before income is appointed. The answer to what the trust can do, and who it can allocate income to and how, is normally in the trust deed. This should be your first point of call. Review your deed Conduct a review of the trust deed and any amendments to ensure trustees are making decisions consistent with the terms of the deed; Check the trust vesting date. The trust deed will specify what happens when the trust vests. If the trust vests, the trustees might be directed to distribute the income and property of the trust to particular beneficiaries. The trustee may no longer have the discretion to decide who to appoint income or capital to; Check who the intended beneficiaries are, and also keep in mind that some beneficiaries might have different entitlements to income and capital under the trust deed; Timing and requirements for resolutions – Check the deed for any conditions and requirements for trustee resolutions, including the need to have the resolution in writing and the timing of when it’s required to be made. For example, the deed might require trustees to take certain actions before 30 June; If you are looking to stream capital gains or franked distributions to certain beneficiaries, check the trust deed doesn’t prevent this and the streaming requirements have been met. Family trust and interposed entity elections A family trust election helps wrap the workings of the trust around a specific individual’s family group. These elections can help protect trust losses, company losses, and franking credits but can also cause significant tax problems if they are used incorrectly. An interposed entity election makes an entity a member of the family group of an individual. Where these elections are in place, it is essential that trustees understand the implications before making any decisions on distributions. Distributions of trust income outside the specified individual’s family group will trigger family trust distribution tax at penalty rates. Who receives the benefit? The ATO is also on the lookout for arrangements where amounts are allocated or appointed to beneficiaries, but they don’t receive the real financial benefit of the distribution. If the arrangement has the effect of reducing the overall tax paid on the income of the trust, then this will normally increase the level of risk involved and attract the ATO’s attention. Increased reporting on tax returns Changes have been made to capture more information on the tax return about how trusts distribute income. These include: Trust tax return – four new capital gains tax labels have been added. This information should be provided to beneficiaries to match what is reported in their returns. Beneficiaries – all beneficiaries of trust income will be required to lodge a new trust income schedule. This schedule should align to your distributions as set out in the trust’s statement of distribution. Trusts can be an excellent vehicle for many reasons including the flexibility to determine how income is distributed. The cost of that flexibility is strong controls and compliance. The ATO is increasingly strident about how trusts are distributing income, and the tax impact of those distributions. It’s important for trustees to get it right because if trust distributions are found to be invalid, the tax ramifications can be significant. Ensuring Compliance with Trust Distributions To avoid penalties and ensure compliance with trust distributions, contact our team today. Understanding your obligations regarding trust distributions is crucial for legal and financial security. Don’t let uncertainty in trust distributions lead to costly mistakes—reach out for expert guidance. Note: The material and contents provided in this publication are informative in nature only. It is not intended to be advice and you should not act specifically on the basis of this information alone. If expert assistance is required, professional advice should be obtained.

What's changing on 1 July 2024? Major updates & benefits

06 Jun 2024 06:29:00 GMT

Here’s a summary of the key changes coming into effect on 1 July 2024: Tax cuts reduce personal income tax rates and change the thresholds. Superannuation guarantee increases from 11% to 11.5% – check the impact on any salary package arrangements. Superannuation caps increase from $27,500 to $30,000 for concessional super contributions and from $110,000 to $120,000 for non-concessional contributions. Luxury car tax threshold increases to $91,387 for fuel-efficient vehicles and $80,567 for all others. Car limit for depreciation increases to $69,674. $300 energy relief credit for households comes into effect (credited automatically quarterly). For business $325 energy relief credit for small business commences (for small businesses that meet the relevant State or Territory definition of a ‘small customer’). $20k instant asset write-off extended to 30 June 2025 (subject to the passage of legislation). Ready for the Changes on 1 July 2024? If you need more information or have any questions about what’s changing on 1 July 2024, don’t hesitate to contact our team. We’re here to help you understand what’s changing on 1 July 2024 and how it impacts you. Note: The material and contents provided in this publication are informative in nature only. It is not intended to be advice and you should not act specifically on the basis of this information alone. If expert assistance is required, professional advice should be obtained.

Accessing money in your SMSF

19 May 2024 23:47:00 GMT

The ATO has made a call to professional accountants to help identify and manage illegal early access to superannuation by members of self-managed superannuation funds (SMSFs). In general, access to your super is only possible if: You retire and turn 60; or You turn 65 (regardless of whether you’re working). Early access to superannuation is only possible in very limited circumstances such as terminal illness, permanent incapacity, and severe financial hardship and there are very strict protocols to follow before any amounts are paid out. One of the benefits of an SMSF is the control that it provides to members. The flip side of full control is the temptation to dip into the super account and approve transfers without proper controls. There are two common ways illegal early access occurs: When the trustees (or their business) are in financial distress and they use the superannuation account for a short-term loan; or A promoter offers access through a scheme – often getting people to establish the SMSF and roll over their superannuation into the SMSF. Illegal access to the SMSF’s account or assets is not difficult to identify and generally will be picked up by your auditor. Where illegal access has occurred, not only is it likely that your retirement savings have been lost or impaired, but you are likely to face additional tax, penalties and interest, and be disqualified as a trustee. In addition, your name will be published online. One of the signs that there is a problem is when SMSF annual returns are not lodged on time or at all so ensure you are up to date with your SMSF compliance. For more information on safely accessing money in your SMSF and ensuring compliance, contact our team today. Let us help you navigate the regulations and keep your superannuation secure while accessing money in your SMSF. If you need further assistance or have any queries, feel free to get in touch! Note: The material and contents provided in this publication are informative in nature only. It is not intended to be advice and you should not act specifically on the basis of this information alone. If expert assistance is required, professional advice should be obtained.

Outliving your savings

16 May 2024 23:49:00 GMT

While living a long and healthy life is a goal for most of us, it does raise a valid question. Is there a chance that you could outlive your savings? Why does living longer matter in retirement? The risk of outliving your savings is known as longevity risk. With Australians living for longer it is more important than ever to make sure your savings will go the distance. Research* shows that Australians retiring today are living a staggering ten years longer than in the 1990s. When improvements in medical care and living standards are taken into account a 65-year-old today can expect to live well into their 90’s and may now spend up to three decades in retirement. Source: Challenger Life Company estimates The retirement income challenge A big challenge for Australian retirees is how to plan for retirement income that will last a lifetime. Income from super such as an account-based pension is generally not guaranteed which means payments will stop as soon as your account balance runs out. Poor share market performance can also put you at risk of outliving your savings. Adding a source of regular income such as a lifetime annuity to your retirement income plan can help you manage the risk of outliving your savings. Feel confident your retirement income will last as long as you do Living for longer requires a smarter approach to planning your income in retirement. The good news is that it doesn’t need to be complicated. It starts with three key steps. Understand how long your super and savings will last. As a rule of thumb, you should plan to be able to meet your essential expenses for the rest of your life. Get support from the Age Pension. If you’re eligible, the Age Pension can form part of your safety net income. Bear in mind that even the full Age Pension entitlement may not be enough to cover the cost of living of a modest retirement. Secure your retirement income with a regular lifetime income stream. A lifetime annuity can boost your safety net income with regular income for life, giving you confidence you can pay for your essential expenses even if you live to age 100 or older. Managing the risk of outliving your savings – what are the options? Talk to a financial adviser about how long your super and/or savings may last. Check your eligibility for the Age Pension. The sooner you prepare to apply for the Age Pension the better, as it cannot be back-paid. Consider a regular lifetime income stream such as a lifetime annuity to complement your retirement income. *Challenger Retirement Income Research, September 2019 Source: Challenger Concerned about outliving your savings? Our expert Private Wealth team is here to help. Contact us today to discuss your retirement plan and ensure you won’t outlive your savings.

2024-25 Budget Breakdown: How It Affects You and Your Wallet

14 May 2024 23:52:00 GMT

The 2024-25 Budget arrives on the pre-election stage, echoing the excitement of a “The Price Is Right” episode where everyone has something to gain. This budget is crafted to ease cost of living pressures, making it a pivotal element in the upcoming elections. Check out the budget summary: Federal Budget 2024-25 Key measures include: Previously announced Stage 3 tax cuts $300 energy bill relief for all Australian households and $325 for eligible small businesses – applied as an automatic quarterly credit. Student HELP debts will be cut by changing the way indexation is calculated. From 1 June 2023, it will be the lower of the CPI or the Wage Price Index (WPI), reducing the debt accumulated by more than 3 million Australians when the CPI spiked to 7.1%. Increase to the Commonwealth rent assistance maximum rates by 10% from 20 September 2024. One year freeze on the maximum Pharmaceutical Benefits Scheme (PBS) patient co-payment for Medicare card holders and a five-year freeze for pensioners and other concession cardholders. Extension of the $20k instant asset write-off until 30 June 2025. For foreign residents, the capital gains tax (CGT) regime will be amended to broaden the type of assets subject to CGT and introduce a modified 365-day principal asset testing period. The 2024-25 Budget is a clear demonstration of the government’s dedication to supporting both individuals and businesses. As the electoral “checkout” approaches, the effectiveness of these measures will ultimately be judged by the voters. Want to learn more about how the 2024-25 Budget can benefit you? Contact our team today for detailed insights and how these changes impact you.

May 2024 Economic and market overview

14 May 2024 00:09:00 GMT

Encouragingly the International Monetary Fund (IMF) raised its global growth forecast for 2024, following ‘surprisingly resilient’ economic conditions. IMF officials now expect global GDP growth of 3.2% this year. Despite this positive news, major share markets lost ground in April following five months of unbroken gains. Ongoing geopolitical uncertainty, particularly in the Middle East, was unsettling and prompted some investors to lock in profits from the recent strong rally. Inflation also remains above central bank targets in most key regions, prompting investors to reassess their outlook for interest rates. According to consensus forecasts, only one rate cut is now anticipated in the US in the remainder of 2024. Notwithstanding a moderation in the growth rate in the March quarter, the world’s largest economy appears to be performing well despite elevated borrowing costs. This could reduce the urge for policymakers to lower interest rates. Government bond yields in the US and other key regions moved sharply higher against this background, which was a headwind for bonds and resulted in negative returns from major fixed income indices. US Somewhat alarmingly, US inflation has re-accelerated. Headline consumer price inflation rose to an annual rate of 3.5% in March and the ‘personal consumption expenditure’ measure, favoured by Federal Reserve officials, also ticked higher in the first quarter of 2024. These readings arguably make it more difficult for policymakers to justify lowering interest rates. Labour market trends remain firm too. More than 300,000 new jobs were created in March, which was nearly 50% above the estimate. Combined with historically low unemployment, the hiring frenzy is exerting upward pressure on wages and making it less likely that inflation will fall meaningfully in the near term. Australia Both headline consumer price inflation and the trimmed mean measure came in higher than expected in the March quarter, which was a blow to Reserve Bank of Australia officials and anybody hoping for a rate cut in the near term. Unfortunately, despite some movement in the right direction, pricing pressures are proving persistent and could prevent policymakers from lowering official interest rates. At the beginning of April, two rate cuts in 2024 had been priced into markets. By month end, these expectations had been fully removed from forecasts. Most observers now expect Australian interest rates to remain at 4.35% for the foreseeable future. Consumer confidence remained subdued against this backdrop and deteriorated for a second consecutive month in April. New Zealand There are lingering hopes that interest rates will be lowered in New Zealand this year, although it is worth noting that the country already has some of the highest borrowing costs among developed countries. Although inflation is running well above target, investors are still hoping for one or two rate cuts in the remainder of the year. Elevated borrowing costs have undoubtedly affected confidence levels in the country. Business confidence fell sharply in April and firms reduced staff numbers in the March quarter. The unemployment rate has ticked up to 4.3%, which is the highest level for three years. Europe The initial estimate of GDP growth in the Eurozone suggested last year’s recession in Europe is over. The economy grew 0.3% in the first three months of 2024. According to other preliminary estimates, consumer price inflation in Germany eased to an annual rate of 2.2%, down from 2.5% in February. This was the lowest inflation rate for nearly three years. More importantly, with inflation in Europe’s largest economy now close to the European Central Bank’s 2.0% target, investors were increasingly hopeful that interest rates could be lowered in either June or July. There were growing suggestions that the Bank of England could lower interest rates in next few months too. Consensus forecasts indicate official borrowing costs in the UK could be lowered in either August or September. Asia Chinese officials hinted they will consider lowering interest rates to support activity levels, if required. This may not be required, with the world’s second largest economy showing some signs of improvement. Chinese GDP grew 1.6% in the first quarter of the year, taking the annual growth rate to 5.3%. Factory output has improved, suggesting export demand remains intact, although services-related demand appears less strong. Retail sales fell short of consensus expectations in March. Most of the attention in Japan was on the yen, which weakened to its lowest level in more than 30 years against the US dollar. There was speculation that the Bank of Japan had intervened in FX markets to try and arrest the very sharp currency sell off. Australian dollar The Australian dollar drifted slightly lower against the US dollar, closing down 0.7% to 64.7 US cents. This move appeared to reflect broad-based strength in the US dollar. The AUD actually appreciated by more than 1% against a trade-weighted basket of international currencies. The AUD added 3.6% against the Japanese yen, breaking through ¥100 and closing at its strongest level since 2007. Australian equities The S&P/ASX 200 Accumulation Index returned -2.9% over the month, breaking a five-month winning run. The prospect of interest rates remaining high for longer than was previously forecast affected sentiment towards consumer discretionary stocks. The sector fell more than 5%, with investors mindful that high borrowing costs could impede spending on discretionary goods and services. On the positive side, utilities stocks tended to fare relatively well. The sector returned 4.8% in April, making it the best performer in the S&P/ASX 200. AGL Energy was a standout performer, closing the month up 13.4%. Materials stocks (+0.6%) benefited from improving economic indicators in China, which augur well for future demand for various commodities including iron ore, copper and aluminium. Gold-related stocks also continued to perform well, with the gold price reaching a record high of US$2,391/oz in mid month. BHP Group (-4.6%) announced a US$39 billion takeover bid for UK-based miner Anglo American. The proposal was rejected by Anglo American. Small caps fared slightly worse than their larger cap peers, with the S&P/ASX Small Ordinaries Index declining 3.1%. Online retailer Kogan.com was among the worst performers in the small cap space, falling more than 35%. Global equities The interest rate outlook was a further headwind. More bullish commentators suggested the stock market rally can persist even if interest rates remain unchanged this year, but some other investors seem concerned about the outlook for equities if borrowing costs are not lowered as early or as much as previously anticipated. These factors resulted in some equity market weakness, particularly as some investors looked to lock in profits from the recent strong rally. By mid month, the bellwether S&P 500 Index in the US was down by more than 5%, although a partial recovery helped claw back some of these losses. Despite the release of generally favourable financial results from large, listed US-based banks, the Index closed the month down 4.1%. The NASDAQ fell 4.4%, as technology shares were caught up in the broader sell-off. Netflix was among the worst performers, after the company announced it will stop reporting subscriber numbers. Meta, which owns the Facebook social media platform, also struggled following the release of subdued financial results, while Apple announced weaker than expected sales of iPhones in the first quarter. European stocks also struggled, with most of the major markets in the region closing the month down between 2% and 4%. There were some unusual moves in Asia. Hong Kong’s Hang Seng powered ahead 7.4%, but China’s CSI 300 Index closed ‘only’ 1.9% higher. In Singapore the Straits Times added 3.1%, although Japan’s Nikkei closed the month down nearly 5%. Property securities Global property securities were caught up in the broader equity market sell-off, with the FTSE EPRA/NAREIT Developed Index closing the month 5.4% lower in Australian dollar terms. The USA and Canada were among the worst performing markets. Markets to register positive returns included Spain (+4.3%), France (+3.6%), and Japan (+0.8%). Stocks in the industrial and data centres sub sectors seemed most affected by the interest rate uncertainty, while healthcare-related stocks were more resilient and registered modest gains over the month. Locally, A-REITs fell 7.8% with all but one index constituent losing ground. Volatility in the fixed income market and higher Australian Commonwealth Government Bond yields impacted the likes of Charter Hall, Mirvac Group and Ingenia Communities Group, all of which closed the month between 10% and 13% lower. Global and Australian fixed income Higher than expected inflation and suggestions that interest rates are unlikely to be lowered in the near term exerted further upward pressure on government bond yields. Yields on 10-year US Treasuries closed the month up 48 bps, to 4.68%. The moves were slightly less severe in Europe. Yields on 10-year gilts and bunds rose 41 bps and 29 bps in the UK and Germany, respectively. Yields on 10-year Japanese Government Bonds climbed too, as the bond sell-off extended to all major markets. Unfortunately, these moves resulted in negative returns from fixed income. The Bloomberg Global Aggregate Index closed the month 1.7% lower in Australian dollar terms. Similar moves were observed locally, as anticipated interest rate cuts by the Reserve Bank of Australia were removed from investors’ forecasts. Yields on 10-year Australian Commonwealth Government Bond yields rose 46 bps, to 4.42%, resulting in a -2.0% return from the Bloomberg AusBond Composite 0+ Year Index. Global credit Global credit was among few asset classes to generate positive returns in April. Spreads on investment grade and high yield securities continued to tighten, which was particularly pleasing considering both equities and sovereign bonds struggled. Overall, earnings releases for the first quarter of the year from large companies in the US and Europe affirmed that profitability remains solid. This reduces the likelihood of corporate defaults and means the prospective income from higher yielding credit securities remained appealing for investors. Source: First Sentier Investors, May 2024 For more insights on the economic and market overview, contact our team today. Our experts can help you navigate the complexities of the economic and market overview and make informed investment decisions.

Seven lasting impacts from the COVID pandemic

14 May 2024 00:07:00 GMT

Key points Seven key lasting impacts from the Coronavirus pandemic are: “bigger” government; tighter labour markets; reduced globalisation and increased geopolitical tensions; higher inflation; worse housing affordability; working from home; and a faster embrace of technology. On balance these make for a more fragmented and volatile world for investment returns. But it’s not all negative. Introduction It’s four years since the COVID lockdowns started. The pandemic ended when it morphed into the less deadly Omicron variant in late 2021, but just as a sound can reverberate around a room the effects of the pandemic continue to reverberate in economies. Putting aside the long-term health impacts this note looks at 7 key lasting economic impacts. Bigger government and more public debt The malaise of the 1970s ushered in “smaller” government in the 1980s in the Thatcher, Reagan, Hawke and Keating era. But the political pendulum started to swing back to “bigger” government after the GFC and COVID has given it another push. Memories of the problems of high government intervention in the 1970s have faded and there is rising support for the view that government is the solution to most problems – via regulation, taxes, spending or education campaigns. The pandemic added to support for “bigger” government: by showcasing the power of government to protect households and businesses from shocks; enhancing perceptions of inequality; and adding support to the view that governments should ensure supply chains by bringing production back home. It’s combining with a desire for governments to pick and subsidise clean energy “winners”. Source: IMF, Australian Government, AMP IMF projections for government spending in advanced countries show it settling nearly 2% of GDP higher than pre-COVID levels. The success of governments in protecting households from the worst of the pandemic has also reinforced expectations they would do the same in the next crisis. The pandemic ushered in even bigger public debt just as the GFC did. While high inflation helped lower debt to GDP ratios in 2022 it’s settling at higher levels than pre-pandemic. Source: IMF, AMP Implications – While there may initially be a feel good factor, the long-term outcome of “bigger” government is likely to be less productive economies, lower than otherwise living standards and less personal freedom. It will take time before this becomes apparent though. Meanwhile, higher public debt means: less flexibility to respond with fiscal stimulus to a crisis; a greater incentive for politicians to inflate their way out; and interest payments being a high share of tax revenue. Tighter labour markets and faster wages growth In the pre-pandemic years, wages growth was relatively low and a key driver was high levels of underemployment, particularly evident in Australia. After the pandemic, labour markets have tightened reflecting the rebound in demand post pandemic, lower participation rates in some countries and a degree of labour hoarding as labour shortages made companies reluctant to let workers go. As a result, wages growth increased, possibly breaking the pre-pandemic malaise of weak wages growth. Source: ABS, AMP Implications – Tighter labour markets run the risk that wages growth exceeds levels consistent with 2% to 3% inflation. Reduced globalisation/more geopolitical tensions A backlash against globalisation became evident last decade in the rise of Trump, Brexit and populist leaders pushing a nationalist gender when the benefits of free trade were being questioned. Also, geopolitical tensions were on the rise with the relative decline of the US and faith in liberal democracies waning resulting in a shift from a unipolar world dominated by the US, to a multipolar world as regional powers (Russia, Iran, Saudi Arabia and notably China) flexed their muscles. The pandemic inflamed both – with supply side disruptions adding to pressure for the onshoring of production; conflict over the source of and management of coronavirus; it heightened tensions between the west and China; and it appears to have added to nationalism and populism. So, the days of global free trade agreements and falling defence spending seem long gone for now. Rather we are seeing more protectionism (e.g. with subsidies and regulation favouring local production) and increased defence spending. Implications – Reduced globalisation risks leading to reduced potential economic growth for the emerging world and reduced productivity if supply chains are managed on other than economic grounds. And combined with increased geopolitical tensions resulting in more defence spending it could result in a more inflation prone world than was the case. Higher prices, inflation and interest rates A big downside of the pandemic support programs was the surge in inflation. The combination of massive money printing along with a big increase in government payments to households (e.g. Job Keeper) resulted in a massive boost to spending once lockdowns were lifted which combined with supply chain disruptions, also flowing from the pandemic, to cause a surge in inflation. Inflation is now starting to come under control as the monetary easing and spending boost has been reversed and supply has improved again but the pandemic has likely ushered in a more inflation prone world by boosting “bigger” government; adding to a reversal in globalisation; and adding to geopolitical tensions. All of which combine with aging populations to potentially result in more inflation. Implications – Higher inflation than seen pre-pandemic means higher than otherwise interest rates over the medium term which reduces the upside potential for growth assets like shares and property. Worse housing affordability At the start of the pandemic, it was thought the economic downturn and higher unemployment and a freeze in immigration would cause a collapse in home prices and they did initially fall. But not by much as it was quickly turned around by policy measures to support household income, allow a pause in mortgage payments and slash interest rates and mortgage rates to record lows. What’s more the lockdowns and working from home drove increased demand for houses over units and interest in smaller cities and regional locations. As a result, Australian home prices surged to record levels. Meanwhile the impact of higher interest rates in the last two years on home prices was swamped by housing shortages as immigration surged in a catch up. The end result is now record low levels of housing affordability for buyers (who are hit by a double whammy of higher prices relative to incomes – see the next chart – and higher mortgages rates) and renters (who have seen surging rents). Source: ABS, CoreLogic, AMP Implications – Ever worse housing affordability means ongoing intergenerational inequality and even higher household debt. Working from home likely here to stay While there has been a return to the office, for many its only two or three days a week. Basically, the lockdowns resulted in a step jump towards working from home (WFH). A UK study of over 2000 firms is indicative. It showed that while around 90.8% of employees were fully onsite in 2018, last year this had fallen to 62.3%, with 30.2% with hybrid (working in the office and at home) arrangements. Similarly, the ABS found 37% of employed people in Australia regularly worked from home. Of course, this masks a huge range with industries with a high proportion of computer-based workers having more hours working at home. And firms expect this to remain the case. There are huge benefits to physically working together around culture, collaboration, idea generation and learning but there are also benefits to working from home with no commute time, greater focus, less damage to the environment, better life balance and for companies – lower costs, more diverse workforces and happier staff. So the ideal is probably a hybrid model. The proportion of workers in a hybrid model may even rise as new firms are quicker to embrace WFH. Working arrangements for UK employees Source: K Shah, and others, Managers say working from home here to stay, CEPR Implications – Less office space demand as leases expire resulting in higher vacancy rates/lower rents, more people living in cities as vacated office space is converted and reinvigorated life in suburbs and regions. Faster embrace of technology Lockdowns dramatically accelerated the move to a digital world. Everyone was forced to embrace new online ways of doing things. Many have now embraced online retail, working from home and virtual meetings. It may be argued that this fuller embrace of technology will enable the full productivity enhancing potential of technology to be unleased. The rapid adoption of AI will likely help. Implications – This has meant a faster embrace of online retailing (up from 7% of retailing pre-pandemic to around 11%) at the expense of traditional retailing, virtual meeting attendance becoming the norm for many (even in the office) and business travel settling at a lower level. Concluding comments Perhaps the biggest impact is that the pandemic related stimulus broke the back of the ultra-low inflation seen pre-pandemic. Together with bigger government and reduced globalisation, this means a more inflation-prone world. So, a return to pre-pandemic ultra-low inflation and interest rates looks unlikely. It’s not all negative though – apart from the faster technology uptake, the global and Australian economies have come through the last four years in far better shape than might have been imagined at the start of the lockdowns! Source: AMP For more insights on the seven lasting impacts from the COVID pandemic, contact our Private Wealth team today. Our experts can help you navigate the complexities of the seven lasting impacts from the COVID pandemic and plan effectively for the future.

Millions to get more Age Pension starting from 20 March 2024

14 May 2024 00:05:00 GMT

Government Age Pension payments increased on 20 March, so if you’re one of the millions of eligible Australians, you’ll have a little more to spend. The increases are designed to help address inflation and cost of living increases. Here’s what happened. Age Pension payments increase in March 2024 due to indexation Here are the maximum Age Pension payment rates that came into effect from 20 March, which are paid fortnightly, along with their respective annual equivalents. Single payments rose by $19.60 per fortnight, while combined payments for couples increased by $29.40. Maximum Age Pension payments from 20 March 2024 Fortnightly* Annually* Single $1,116.30 $29,023.80 Previous payment $1,096.70 $28,514.20 Couple (each) $841.40 $21,876.40 Previous payment $826.70 $21,494.20 Couple (combined) $1,682.80 $43,752.80 Previous payment $1,653.40 $42,988.40 *Includes basic rate plus maximum pension and energy supplements The payment rate increased 1.8%, indexed to inflation. Payments last increased in September 2023 and are likely to change again when they are next assessed this coming September. Tip: Depending on how much super you have, you may be eligible to receive Age Pension payments in addition to income from your super savings. Income and assets test thresholds increase for the Age Pension The government reviews the Age Pension income and assets test thresholds in July each year. The upper thresholds also increase in March and September each year in line with Age Pension payment increases. Whether you are eligible for the Age Pension depends on your age, residency and your income and assets. If your income and assets are below certain limits (also known as thresholds), you may be eligible. When determining how much you’re entitled to receive under the income and assets tests, the test that results in the lower amount of Age Pension applies. Here are the income and assets test thresholds that apply as at 20 March, compared with previous thresholds. Assets test thresholds comparison The lower assets test threshold determines the point where the full Age Pension starts to reduce, while the upper assets test thresholds determine what the cutoff points are for the part Age Pension. If the value of your assets falls between the lower and upper assets test thresholds, your entitlement will reduce. The higher your assessable assets, the lower the amount of Age Pension you are eligible to receive. Your family home is exempt from the assets test but, your investments, household contents and motor vehicles may be included. Asset test thresholds from 20 March 2024 Full Age Pension limit Part Age Pension cutoff Single – Homeowner $301,750 (unchanged) $674,000 Previous threshold $301,750 $667,500 Single – Non-homeowner $543,750 (unchanged) $916,000 Previous threshold $543,750 $909,500 Couple (combined) – Homeowner $451,500 (unchanged) $1,012,500 Previous threshold $451,500 $1,003,000 Couple (combined) – Non-homeowner $693,500 (unchanged) $1,254,500 Previous threshold $693,500 $1,245,000 Income test thresholds comparison The lower income test threshold determines the point where the full Age Pension starts to reduce, while the upper income test threshold determines what the cutoff point is for the part Age Pension. Income includes things like payment for employment or self-employment activities, rental income, and a deemed rate of income from financial investments such as managed funds, super (if you are over the Age Pension age) or account-based pensions commenced after 1 January 2015. Income doesn’t include things like emergency relief payments. Income test thresholds from 20 March 2024 Full Age Pension limit Part Age Pension cutoff Single $204 per fortnight (unchanged) $2,436.60 per fortnight Previous threshold $204 per fortnight $2,397.40 per fortnight Couple (combined) $360 per fortnight (unchanged) $3,725.60 per fortnight Previous threshold $360 per fortnight $3,666.80 per fortnight If you have income between the lower and upper income test thresholds, your entitlement will reduce as your level of income rises. For example, the Age Pension payment for a single person earning more than $204 per fortnight will reduce by 50 cents for each dollar earned over $204. For a couple earning more than $360 per fortnight combined, the Age Pension payment for each person will reduce by 25 cents for each dollar earned over $360. Tip: The Work Bonus may allow you to receive more income from working, without reducing your Age Pension. The maximum Work Bonus balance that you can accrue is $11,800. Source: Colonial First State For more details contact our Private Wealth team today. Let us help you understand the changes and ensure you benefit.

What is risk appetite?

14 May 2024 00:04:00 GMT

Risk is about tolerating the potential for losses. Understanding your risk appetite allows you to make well informed decisions about your money. For some people, risk means excitement and opportunity. For others, it invokes feelings of fear and discomfort. We all experience a degree of risk in our everyday lives – whether it’s simply walking down the street or having investments in the share market. Everyone has a risk profile that defines their willingness to accept risk. It’s usually shaped by age, lifestyle and goals and is likely to change over time. Risk is about tolerating the potential for losses, the ability to withstand market movements and the inability to predict what’s ahead[1]. In financial terms, risk is the chance that an outcome will differ from the expected outcome or return. It includes the possibility of losing some or all of your original investment[2]. Often you may not be aware of your risk appetite until you’re facing a potential loss, so loss aversion becomes a significant factor when making decisions related to risk. What is risk appetite and risk tolerance? Risk appetite and risk tolerance are used interchangeably but are different. Risk appetite is a broad description of the amount of risk an investor is willing to accept to achieve their objectives. It’s a statement or series of statements that describes their attitude towards risk taking[3]. Risk tolerance is the practical application of risk appetite3 and considers the degree of variability in returns an investor is willing to bear. As an investor, you should have a good understanding of your attitude towards risk. If you take on too much risk, you might panic and sell at a bad time. But if you don’t expose yourself to enough risk, you may be disappointed with your returns and potentially unable achieve your objectives. How do I work out my risk appetite? Think about how you might answer these questions: How much money do I have to invest? How much money am I willing to lose? How worried would I be if share markets fell dramatically? Am I planning to track your investments daily? Would I consider investing in different types of investments? Your age, income and investment objectives all help determine your risk appetite. Age: generally younger investors with a longer time horizon to invest are more willing to take greater risk with their money to earn higher potential returns. Older investors with a shorter investment timeframe may be more cautious as they’ll need their money to be more readily available and have less time to recover from a loss. Income: people who earn more money and have a higher disposable income can typically afford to take greater risks with their investments. Investment objectives: be clear about why you’re investing and when you think you’ll need to withdraw your money, as well as how long you need the money to last. Saving for a holiday or a deposit on a home is quite different from investing for your retirement. Risk and Return The relationship between risk and return underpins all financial decisions. The more risk an investor is willing to take, the greater the potential return. However, investors expect to be compensated for taking on this additional risk and should realise that taking on more risk doesn’t guarantee higher returns. What type of investor are you? High: willing to risk losing more money for the possibility of better returns. Moderate: willing to endure short-term loss for the prospect of better long-term growth opportunities. Conservative: willing to accept lower returns for a higher degree of liquidity or stability. Whatever your risk appetite, you should always consider both risk and return before making decisions about what to do with your money. Although shares and property are generally considered to be higher-risk investments, even more conservative investments like bonds can experience short-term losses. No investment is completely risk free. This explains why smart investors typically have a diversified portfolio that includes several different types of investments. Risk and Diversification Don’t think that just because your friends invest in shares you should too. If you don’t have a lot to invest or you’ll want to access your money in a few years, shares may not be the right type of investment for you. By understanding your risk appetite and being honest about what you want to achieve, you’re more likely to be comfortable with your investment decisions. A financial adviser can help you understand your risk appetite, as well as create a portfolio that suits you. The simplest way to minimise investment risk is through diversification. A well diversified portfolio will usually include different asset classes, like shares, property, bonds and cash, with exposure across different industries, markets and countries. The idea is to reduce the correlation between the different types of investment and have a good balance of assets which move in different directions and at different times. So, if some of your assets perform poorly, others may be performing well, offsetting the poor performers. Although diversification doesn’t guarantee you won’t suffer a loss, it’s an effective way to minimise risk and help investors realise their financial goals. Make informed decisions You should monitor both your risk appetite and your investment portfolio over time. Your risk appetite is likely to change as you get older, and as your income or family situation changes. Similarly, you should review your portfolio to ensure the risk level is still suited to your overall investment objectives. Financial markets are constantly changing, which means the underlying assets you’re invested in could change too. If you’re a confident investor, you should check that it’s still on track to generate the level of return you want and importantly, at a comfortable level of risk. If you prefer to speak with a financial adviser, they too can help you undertake regular reviews and rebalance your portfolio, as necessary. By understanding your risk appetite, you’re in a better position to make well informed and transparent financial decisions. It will help you identify opportunities to take on more risk where appropriate or see where you’re exposed to unnecessary risk and adjust accordingly. You’ll also avoid being caught up in the emotion of market activity, where panic can lead to a poorly timed and costly decision. [1] Charles Schwab: How to Determine Your Risk Tolerance Level https://intelligent.schwab.com/public/intelligent/insights/blog/determine-your-risk-tolerance-level.html. [2] Investopedia https://www.investopedia.com/terms/r/risk.asp. [3] Australian Government Department of Finance: Defining Risk Appetite and Tolerance https://www.finance.gov.au/government/comcover/education/risk-appetite-and-tolerance. Source: BT For more insights on what is risk appetite, contact our Private Wealth team today. Our experts can help you understand risk appetite and create a personalised investment strategy that aligns with your financial goals.

The First Home Super Saver Scheme (FHSSS): a handy guide for homebuyers

14 May 2024 00:02:00 GMT

The First Home Super Saver Scheme is a valuable initiative to help first time buyers overcome the challenges of entering the property market. Purchasing a home is a significant financial milestone, but the ever increasing property prices make it challenging for first time buyers in Australia to enter the market. To help ease this burden, the Australian government created the FHSSS. The FHSSS is an initiative aimed at helping first time buyers save for their first property purchase. It enables eligible individuals to make voluntary contributions into their super fund, which can later be withdrawn for the purpose of financing their first home deposit. One of the main benefits of the scheme, which became operational from 1 July 2017, is it allows aspiring homeowners to save money for their first property within their super fund, taking advantage of tax concessions and potentially accelerating their path to home ownership. In this guide, we will outline the details of the FHSSS, including how it works, how to participate in it and the benefits it offers. Qualifying for the First Home Super Saver Scheme To participate in the FHSSS, you must meet certain eligibility requirements: Be at least 18 years old. Never have owned property in Australia (including an investment property, commercial property or land). Have not previously released FHSSS funds. Occupy the property you buy as soon as practicable and for at least 6 months within the first 12 months you own it once it’s practical to move in. Contributions under FHSSS Under the scheme, you can make voluntary contributions to your super fund specifically for the purpose of purchasing your first home. These contributions fall into two categories: Concessional contributions – these are before tax contributions made through salary sacrificing or employer contributions. The maximum concessional contribution allowed per financial year is $27,500. Non-concessional contributions – these are after tax contributions made from your personal savings. The total non-concessional contribution allowed is $110,000. Accessing the savings Once you have made voluntary contributions, you can apply to release these funds along with associated earnings for purchasing your first home. The released amount is subject to the following limits: Maximum of $15,000 of voluntary contributions made in a financial year. Maximum of $50,000 in total across all years. Tax benefits The primary advantage of the FHSSS lies in the tax concessions it offers. Voluntary super contributions under the scheme are taxed at a concessional rate of 15% within your super fund, which is generally lower than most peoples’ marginal tax rate (the rate you pay on your income). Additionally, when you withdraw the funds to buy your first home, they are taxed at your marginal tax rate, but you receive a 30% tax offset, effectively reducing the tax burden. Steps to utilise the FHSSS There are quite a few stages involved in the process of participating in the scheme and accessing the funds when the time comes to buy your home, but by following these steps, the process will be fairly straightforward: Check eligibility – Before diving into the scheme, ensure that you meet all the eligibility criteria outlined earlier. Determine savings goal – Assess how much you need to save for your first home purchase and how long it might take you to reach that goal. This will help you plan your contributions accordingly. Super contribution strategy – Create a super contribution strategy that combines before and after-tax super contributions to maximise your savings. Keep in mind the annual contribution limits to avoid exceeding them. Inform your super fund – Notify your super fund about your intention to utilise the FHSSS. They will provide you with the necessary information and forms to make eligible contributions. Make voluntary contributions – Begin making voluntary contributions to your super fund, ensuring they are designated as FHSSS contributions. Regularly monitor your progress towards your savings goal. Apply for release – Once you are ready to purchase your first home, apply to the Australian Taxation Office (ATO) to release your FHSSS funds. The ATO will assess your eligibility and process your request. Use the savings – Upon approval, you will receive the released funds and earnings into your bank account. These funds can now be used to purchase or construct your first home. Benefits and considerations The FHSSS offers several benefits for aspiring homeowners, including: Tax savings – The scheme provides significant tax benefits, allowing you to save money faster than with a regular savings account. Accelerated savings – By contributing through your super, you can take advantage of compound interest and potentially accumulate a larger deposit for your home. Flexible contributions – You can adjust your contributions as per your financial situation and take advantage of bonus contributions from employers if available. Joint applications – If you are purchasing a property with your partner, both of you can use the FHSSS to maximise your savings. Despite its advantages, there are some considerations to bear in mind: Early release penalty – If you decide not to purchase a property after releasing your FHSSS funds, you may face a tax penalty, which can offset some of the scheme’s benefits. Impact on retirement savings – Withdrawing funds from your super may reduce your retirement savings. Ensure that you are comfortable with the tradeoff between home ownership and retirement savings. Property market fluctuations – The real estate market is subject to fluctuations and the value of your potential home may decrease over time. Summary The FHSSS is a valuable initiative to help first time buyers overcome the challenges of entering the property market. By taking advantage of the tax concessions and the savings opportunities it offers, eligible applicants can accelerate their path to home ownership. However, it’s essential to consider the long-term impact on your retirement savings and understand the eligibility criteria and withdrawal process before committing to the scheme. If you meet the eligibility criteria and plan wisely, the FHSSS can be a powerful tool to help make your dream of home ownership a reality. Source: MLC To learn more about the First Home Super Saver Scheme and how it can help you buy your first home, contact our Private Wealth team today. Our experts are here to guide you through the First Home Super Saver Scheme process and ensure you maximise your savings.

Why it's time to consider currency hedging your portfolio

14 May 2024 00:01:00 GMT

With the Australian dollar trading below long-term averages and expected to rise as the US dollar peaks, it’s time to think about protecting overseas investments with hedging. The following are the reasons why: Hedging can offset currency movements Rising AUD could crimp returns on overseas assets. The Aussie dollar is below its long-term average against the US dollar, indicating it might be time for investors to consider adding currency hedging to global equities portfolios. Hedging can protect a portfolio against foreign-exchange fluctuations by offsetting currency movement effects on the Australian dollar value of an overseas investment. The Australian dollar’s floating exchange rate means its value is determined by the market through supply and demand. This allows the currency to adjust naturally to economic situations, helping protect Australia from economic shocks. But the currency’s movements can add an extra layer of uncertainty to global investments. This can add to returns from overseas assets when the Aussie falls or crimp returns as the Aussie rises. One of the conundrums of investing globally is what to do about currency, as foreign currency exposure presents an additional risk for global equity investors. An investor needs to consider not only whether the global asset they are invested in will generate a return, but whether exchange rates will move in their favour – or against them. This is why some investors opt for currency hedging, to reduce the impact of currency fluctuations on their portfolio. What is hedging? Simply put, a currency hedge is an instrument that offsets any currency movement effect on the returns of an overseas investment. As a result, investment returns should reflect the actual returns in the overseas country in which they were made, without any additional impact from foreign exchange movements. This gives investors the option of being able to invest offshore without having to worry about currency movements impacting on their investment choice. What does hedging mean for investing? Consider an Australian investor who buys a US stock and finds that it doubles in value. If the Australian dollar did not move relative to the US dollar during the period of investment, then the gain would be 100 percent. But if the Australian dollar halved in value, the value of the investment in Australian dollar terms would rise by a further 100 percent – reflecting both the original return on the shares, as well as the exchange rate effect. The same process could happen in reverse. If the Australian dollar doubled in value, then this would completely offset the USD rise in the value of investment, leaving the investment value in Australian dollars unchanged. These examples are extreme, but they highlight the degree to which currency movements can significantly boost, or significantly negate, the value of overseas investments when they are made. Is now the right time to hedge? Foreign exchange movements can often be supportive for Australian investors and augment global returns. Most global equity funds in Australia are ‘unhedged’ – meaning returns reflect both the stock and exchange rate movements. But with the Australian dollar trading below its average exchange rate since floating in 1983, it may be time to consider taking a hedged position. Since the float in 1983, the Australian dollar has risen as high as $1.10 relative to the US dollar in July 2011 and as low 48c in April 2001. These large swings in currency exchange rates can have significant impacts on investors returns. No one can be certain about the future value of the Australian dollar, but it now trades below the average exchange rate it’s enjoyed against the US since 1983. The dollar has sold down to current levels partly because the RBA’s cash rate is lower than that of many offshore central banks, including the US Federal Reserve. Australia’s battle against inflation has been a few months behind America’s. The RBA is under pressure to keep interest rates a bit higher for a bit longer to contain inflation, just as the Fed appears poised to reduce interest rates. That could well be a catalyst for a strengthening in the Australian dollar. Impact of commodity prices Stronger commodity prices could also be supportive of a higher Australian dollar. All investing involves risk, no matter the asset. That’s why some active portfolio managers use different hedging tools to help balance risks and opportunities within portfolios. For those who do not want exposure to currency movements, a fully hedged global equity fund would serve that purpose. Investors could also choose to have a mixture of fully hedged and unhedged funds if they do not have a firm view regarding currency movement. Source: Perpetual For more insights on protecting overseas investments with hedging, contact our Private Wealth team today. Our experts can guide you through the process of protecting overseas investments with hedging to ensure your portfolio remains resilient against currency fluctuations.

Will cash remain king?

13 May 2024 23:59:00 GMT

Cash has been one of the best performing defensive assets over the past three years. When compared with global bonds (a riskier asset class), a typical portfolio of term deposits would have returned a cumulative 12.6% in comparison to -8.5% for global bonds over the three years to December 2023. With interest rates expected to stay higher for longer, cautious investors would be right to question whether other asset classes are worth the risk. But are the tides changing? On paper cash still appears to be king; however, these healthy returns are attributed to accelerated inflation and rising interest rates, an environment we may be moving away from. Inflation has been trending downwards for months and rate cuts are predicted to begin before the end of 2024. In this paper we explain why we believe now is a good time to revisit your asset allocation. What is a bond? A bond is a loan made by an investor to a borrower, generally a company or government. Typically, the borrower pays the investor interest (coupons) periodically over the term of the loan and then returns the initial value (principal) of the loan back to the investor at an agreed upon future date. Bond values are linked to the borrowers perceived ability to pay back the loan as well as interest rates. For example, when interest rates rise, newly issued bonds offer higher coupons, making them more attractive and equivalent existing bonds with lower coupons less attractive, reducing their value. How do bonds differ from term deposits? Bonds are expected to provide higher returns over the long term because investors require compensation for assuming investment risk. Bonds also provide the opportunity for capital growth as well as higher income. This compares with term deposits where interest payments are lower but guaranteed by a bank – providing more security. Whilst income is guaranteed, the real value of a term deposit often diminishes over time due to inflation, which erodes your purchasing power (figure 1). Figure 1 also shows that bonds are subject to greater risk over shorter time horizons which means they won’t be suitable for everyone. Your initial investment can go down in value and when you invest in funds this can be offset through the distributions, reducing your income. This primarily occurs when interest rates are rising and become unpredictable as they have in recent times. Investors need to determine, with support from their adviser, whether trading term deposits capital guarantee for the potential increased return of a bond investment is suitable to their circumstances. Why now? In an environment where inflation is trending down and rates are expected to be cut, long term bonds should perform well as this is the environment when you typically experience the most capital growth (see figure 2). Term deposit rates are also forward looking. In other words, you don’t need to wait for central banks to reduce cash rates before you start to see term deposit returns fall. There are already signs of this happening. Whilst very recent, 1-year term deposit rates came down by 0.05% in January and we expect this trend to continue (although this won’t necessarily be a smooth journey). Whilst seemingly insignificant, this could be meaningful for larger investors. Particularly where capital growth has no role to play and investors don’t require the capital guarantee of cash. What happens if the economy deteriorates? If a recession were to occur, interest rates are more likely be cut quicker to encourage spending, resulting in bond prices rising. This would be supported by increased demand as investors move away from higher risk assets such as equities. If we don’t enter a recession and achieve a soft-landing scenario, rates will likely trend down more slowly to bring inflation in line with central banks’ targets; once again favouring bonds due to the inverse relationship between interest rates and bond values. Conclusion We believe it is critical to take a diversified approach to investing to help manage portfolio risks through different market conditions. The balance and mix of assets will depend on each investor’s ability and willingness to take on investment risk as well as how much of their capital they need guaranteed. That said, we believe now is a great time to be reassessing your asset allocation. Investors looking for capital growth who don’t need capital guarantees should consider introducing bonds into, or back into, their investment portfolio and doing so before central banks begin to cut rates. While cash rates may seem alluring, it is important to remember the distinct roles bonds and cash play in a portfolio. Cash is best reserved for short-term spending needs that require a guarantee as it will not provide the long-term capital growth and inflation protection of other assets. It may seem daunting as we have been through a period of significant market volatility but over the long term, we have high conviction that bonds will provide better risk adjusted return outcomes for investors who are able to take on the increased risks offered by bonds. As always, we recommend speaking to your financial adviser to get tailored advice based on your unique circumstances prior to making any investment changes. Source: Perpetual For personalised advice on whether cash will remain king in your portfolio, contact our Private Wealth team today.

Are bonds a good investment?

13 May 2024 23:56:00 GMT

Let’s look at why you might consider including bonds in your investment portfolio and how interest rates affect their value. Key takeaways Bonds can provide a stable source of income and can protect the money you invest. They can generally be considered less risky than growth assets like shares and property in normal market conditions and can help to diversify your investment portfolio. Bond prices and interest rates move in opposite directions. When it comes to investing, bonds can provide a reliable source income, capital appreciation and relatively low volatility. But like all types of investments, they do have drawbacks. In this article, we look at why you might consider investing in bonds and how rising interest rates can impact their value. What are bonds? Bonds are like loans that investors give to companies or governments. In return, these entities pay regular interest payments (like periodic interest on a loan) to the investors. How bonds work When you lend money by buying a bond, the issuer (company or government) promises to pay you back the initial amount (the face value) when the bond matures (loan finishes). Meanwhile, you receive regular interest payments throughout the life of the bond. Interest payments Think of this like interest on your savings account. You get paid a certain amount of money at regular intervals, usually every few months. This can be a fixed amount or vary based on market conditions. Investment period This is referred to as ‘maturity’ or the life of the loan. Once you reach the end date, the original amount you invested is paid back to you. For example, if you have a 10-year bond that you bought in 2020, it will mature in 2030. At that point, the issuer will return the initial investment amount to you, and the bond’s life comes to an end. Market price All bonds have a set value when they’re first issued. If you hold the bond until it reaches its end date (maturity), you will receive what you originally invested. However, if you sell a bond before maturity, you’ll receive the market value of the bond which may be lower than your original investment. Factors like interest rate changes, the risk of the issuer defaulting, how easy it is to sell the bond (liquidity), and how much time is left until the bond matures, all affect its price. How do investors gain access to bonds? The primary issuers of bonds in Australia are governments and companies. Investors can gain access to unlisted bonds through several channels, including: Australian Government Bonds (AGBs) represent sovereign debt issued by the Federal Government. The bonds typically guarantee a rate of return if held until maturity and can be bought on the Australian Securities Exchange (ASX) at market value with a brokerage fee incurred. The Federal Government also issues inflation-linked or indexed bonds with coupon payments and the face value of the bonds increasing in line with changes in the Consumer Price index (CPI). Semi-Government bonds (semis) are semi-sovereign debt issued by Australian states and territories, bought and sold through treasury corporations. Corporate bonds are primarily issued and traded on the over-the-counter (OTC) market. The minimum amount required to trade is typically up to $500,000. As with government bonds, investors will recoup the face value of the corporate bond at maturity unless the issuer defaults. But investors should consider the credit risk of corporate bonds before they buy, while consulting the issuer’s prospectus and product disclosure statement (PDS). Investors can also gain access to ASX-listed Exchange Traded Bonds (XTBs). Why invest in bonds? Bonds can play several key roles in an investment portfolio, providing diversification, stability and income. Steady income stream: bonds can provide a steady stream of income through regular interest payments paid on a quarterly, half yearly or annual basis. This can be attractive if you’re seeking a reliable source of cash flow. Diversification: bonds provide a buffer during periods of share market volatility – when share prices are falling, bond prices may not be affected in the same way. Including bonds in your investment portfolio can therefore help to reduce risk. Capital preservation: Unlike shares, bonds have a fixed maturity date where the issuer repays the principal amount you invested. This can be appealing if you prioritise the return of your initial investment. Reduced volatility: for retirees or those approaching retirement, bonds can provide a more stable investment option, helping to preserve capital and reduce exposure to the potentially higher volatility of shares. Protection against rising interest rates: certain types of bonds, like inflation-protected bonds, can provide protection against rising interest rates. This can be valuable in times when interest rates are expected to increase. What are the risks of investing in bonds? Just like all kinds of investments, investing in bonds does carry some risks. Here are some of the most common: Liquidity risk: Some bonds may be less liquid, meaning it can be challenging to sell them quickly without impacting the price. So, if you need to sell a less liquid bond in a hurry, you might have to accept a lower price. Interest rate risk: The value of existing bonds can fluctuate based on changes in interest rates. When interest rates rise, the market value of existing bonds tends to fall, and vice versa. If you need to sell a bond before it matures when interest rates are higher, you may experience a loss. Credit or default risk: An issuer of your bond may be unable to make interest payments or return the principal amount at maturity. If the issuer defaults, you may lose part or all of your investment. Market risk: General market conditions, economic events, or global crises can impact bond prices. Bond values can therefore be influenced by broader market movements which can affect returns. Inflation risk: Inflation erodes the purchasing power of money over time. Fixed-interest payments may not keep pace with inflation. If inflation rises more than expected, the real (inflation-adjusted) return on bonds may be lower than anticipated. Why are bond prices affected by rising interest rates? When interest rates go up, the prices of existing bonds typically fall. This happens because higher interest rates make newly issued bonds more attractive with better returns. Existing bonds, offering lower fixed interest rates, become less appealing in comparison. Additionally, there is an inverse relationship between bond prices and yields (interest rates). Investors demand higher yields when rates rise, leading to a willingness to pay less for existing bonds. The sensitivity of bond prices to interest rate changes, inflation concerns, and market expectations also contribute to the impact of rising interest rates on bond prices. Source: MLC For personalised advice on whether bonds are a good investment for your portfolio, contact our Private Wealth team today. Our experts can help you understand if bonds are a good investment and how they can fit into your financial strategy.

Should you be the ‘bank of Mum & Dad'?

13 May 2024 00:10:00 GMT

The great wealth transfer from the baby boomer generation has begun and home ownership is the catalyst. The average price of a home in NSW is $1,184,500, the highest in the country. Canberra is next at $948,500, followed by Victoria at $895,000, with the Northern Territory the lowest at $489,2001. With the target cash rate expected to remain steady at a 12 year high of 4.35% over 2024, the pressure is on parents and family to help the younger generation become homeowners. Over the last 15 years, home ownership has fallen from 70% to 67% of the population. Over time, declining home ownership will increase the wealth gap in Australia as for many, home ownership is a significant factor in wealth accumulation. According to the Actuaries Institute, wealth inequality is significantly higher now than in the 1980s, with the wealthiest 20% of households currently having six times the disposable income of the lowest 20%2. The Domain’s First Home Buyer Report 2024 estimates the time for a couple aged between 25 and 34 to save a 20% deposit for an entry level home to be 6 years and 8 months in Sydney, and 5 years and 5 months in Melbourne (the Australian average is 4 years and 9 months). In that time, they are begrudgingly paying rent (or staying with Mum and Dad). So, should you help your children buy a home? If they can, many parents would prefer to assist their children when they need it most, rather than benefiting from an inheritance later in life. However, it’s essential that any support does not risk your financial security, and that means looking at what support you can afford to provide. The downside of cash gifts A cash gift towards a deposit or mortgage is a simple and effective method of helping a family member. However, there are a few downsides: Where the gift forms all or a significant portion of the deposit, lenders may want to ensure that the loan is serviceable and may require verification of the source of the funds to ensure the amount is not a loan and does not require repayment (i.e., a gift letter). In the event of a divorce or separation, the gift may not overtly benefit your child, and instead form part of the property pool to be divided. For income tax purposes, gifts from a family member out of natural love and affection are not normally taxed. The ‘bank of Mum & Dad’ If you provide a loan to your child to purchase a home, it’s essential that the terms of the loan are documented, preferably by a lawyer. There are many ways to structure the loan depending on what you’re trying to achieve. For example, the loan might mimic a bank loan with interest and regular payments, require repayment when the property is sold or ownership changes, and/or managed by your estate in the event of your death (treated as an asset of the estate, offset against the child’s share of the estate, or forgiven). There is a lot to think about before lending large amounts of money; what should happen in a divorce, if your child remortgages the property, if you die, if your child dies, if the relationship becomes acrimonious, etc. As always, hope for the best but plan for the worst. Providing security to lenders A family guarantee can be used to support a loan in part or in full. For example, with some lenders you can use your security to contribute towards your child’s deposit to avoid lender’s mortgage insurance (which ranges between 1% to 5% of the loan). When you act as a guarantor for a loan, you provide equity (cash or often your family home) as security. In the event your child defaults, you are responsible for the amount guaranteed. If you have secured your child’s loan against your home and you do not have the cashflow or capacity to repay the loan, your home will be sold. If you are contemplating acting as guarantor for your child, you need to look at the impact on your finances and planning first. Your retirement should not be sacrificed to your child’s aspirations. And, where you have more than one child, look at equalising the impact of the assistance you provide in your estate. Co-ownership There are two potential structures for buying property with your children: Joint tenants – the property is split evenly and in the event of your death, the property passes to the other owner(s) regardless of your will. Tenant-in-common – the more popular option as it allows for proportions other than 50:50 (i.e., 70:30). If you die, your share is distributed according to your will. Regardless of ownership structure, if the property is mortgaged and the other party defaults on the loan, the loan might become your responsibility. It is vital to consider this before loan arrangements are entered into. It’s also essential to have a written agreement in place that defines how the co-ownership will work. For example, what happens if your circumstances change and you need to cash out? What if your children want to sell and you don’t? Will the property be valued at market value by an independent valuer if one party wants to buy the other one out? It’s not uncommon for children to assume that they will only need to pay the original purchase price to buy your share with no recognition of tax, stamp duty or interest. And, what happens in the event of death or dispute? If you are not living in the home as your primary residence, then it is likely that capital gains tax (CGT) will apply to any increase in the market value of the property on disposal of your share (not the price you choose to sell it for). And, you will not benefit from the main residence exemption. In these situations, it is essential to keep records of all costs incurred in relation to the property to maximise the CGT cost base of the property and reduce any capital gain on disposal. Utilising a family trust A more complex option is to purchase a property in a family trust where you or a related company acts as trustee. This strategy is often used for asset protection purposes. Typically, at some point in the future, you would pass control of the trust to your child and it might be possible to do this without triggering material CGT or stamp duty liabilities, although this would need to be checked. On the eventual sale of the property, CGT will apply to any increase in value of the property and the main residence exemption cannot be used to reduce the tax liability, even if the child was living in the home. Be wary of state tax issues. For example, in some states, owning property through a trust will mean that the tax-free land threshold will not apply, increasing any land tax liability. Also, if the trust has any foreign beneficiaries, this could result in higher rates of stamp duty. Reduced or rent free property Buying a house and allowing your child to live in the house rent-free or at a reduced rent enables you to put a roof over their heads but adds no value to your child’s ability to secure a loan or utilise the equity of the property to build their own wealth. If you intend to treat the property your child is living in as an investment property and claim a full deduction for expenses relating to the property, then rent needs to be paid at market rates. If rent is below market rates, the ATO may deny or reduce deductions for losses and outgoings depending on the discount provided. Any rental income received is assessable to you. In addition, CGT will be payable on any gain when the property is sold, or ownership is transferred. If the intention is to provide this property to your child in your estate, ensure your will is properly documented to support this intent. Contact our team at Paris Financial to explore how parental support might be your gateway to homeownership. Note: The material and contents provided in this publication are informative in nature only. It is not intended to be advice and you should not act specifically on the basis of this information alone. If expert assistance is required, professional advice should be obtained.

13 Tips for Tax Planning in 2024

12 May 2024 00:19:00 GMT

The end of the financial year is fast approaching, which means it’s time to start thinking about your tax! We have 13 tips for tax planning in 2024 to help you prepare and manage your business’s financial accounts throughout the year. What tax claims are the ATO targeting? As tax time approaches, the ATO like to let Aussies know what is going to be on their watchlist for the year. For the 2024 financial year, the ATO have put work-related expenses, rental property deductions and omitted income on their hit list. Strategic tax planning with your accountant Short- term and long-term tax planning are two essential items that should be on your accountants agenda! Short term planning should look at anything you can or should be doing before financial year ends. Long term tax planning will go further and look at things like the flow of funds through your group structure and using your business and investment structures to protect and grow your family’s wealth while appropriately managing your tax liabilities. Do you have the best tax structures? It’s a good idea to examine your personal assets, business structure, and where your investments are held. Certain structures can benefit from reduced or capped tax rates. For instance, the company tax rate is a flat 25% for small businesses in 2024, which can make a huge difference if your business is generating significant revenue. Keep detailed records Maintaining accurate and detailed tax records is not only a requirement for the ATO but will allow your accountant to claim all available deductions for you. It also means that you can view more accurate and up to date figures for your business, enabling you to make timely strategic decisions. Carry out a stocktake Performing a stocktake enables you to be able to get an accurate stock valuation, whilst also writing off any damaged, out of date or discontinued stock. Stock holdings can be valued at either cost or net realisable value, whichever is lower. Update your vehicle logbook/s To make sure you claim the most on your motor vehicle expenses, ensure that your logbooks are up to date. Logbooks need to be renewed at least every 5 years, or when the use of the car changes materially. Look at your debtors Have a look at your debtors with a view to writing off any debts you won’t recover. Written off debts will reduce your income in the year that you write them off, even if it’s not the year you invoiced them in. Document any trust resolutions Trustees of discretionary trusts are obligated to document their resolutions on how the income from the trust is distributed to its beneficiaries before the 30th June each year. If a valid resolution has not been completed by the 30th June, any default beneficiaries are eligible to the trust’s income, and are subject to tax. For any income which is obtained, but not distributed by the trust, the trust will be assessed at the highest marginal tax rate on this income. Take advantage of Instant Asset Write-Off Using the small business depreciation rules for 2024 should allow businesses with a turnover less than $10m claim the full cost of new assets less than $20,000 installed and ready for use between 1 July 2023 and 30 June 2024. Note that this measure is still with Parliament so is yet to become law. Contribute to your super Make sure you review your contribution caps and consider adding to your voluntary superannuation contributions! The concessional contribution cap for the 2024 financial year is $27,500 per person meaning you can contribute up to this cap before 30 June. Also, if your super balance is below $500,000 you may be able to contribute even more this year by taking advantage of your unused contribution caps of prior years. Make sure you review your superannuation and retirement plans before considering extra contributions and seek the help of a licensed advisor if needed. Pre-pay your expenses You may be able to pre-pay some expenses that you will incur in the next financial year in the current financial year. For example, professional subscriptions, rent and insurance etc. Take advantage of negative gearing on any investment properties When the expenses outweigh the income you receive on an investment property, you can claim the difference as a tax deduction. Now is a good time to review if there are any repairs to take care of or other expenses that can be paid before 30 June. Look into income protection Should something ever happen to you, having income protection insurance can help to ensure your family is taken care of if you are out of action for any length of time. A licensed advisor can assist you in reviewing your insurance needs and find suitable products to suit your family. Income protection insurance is also tax deductible! If you need to discuss any of the above, please do not hesitate to contact our office on: (03) 8393 1000.

Do your kids really want to take over your business?

10 May 2024 00:21:00 GMT

Generational succession – handing your business across to your kids or family – sounds simple enough but, many families end up in a dispute right at the point when the parents, business, and children are most vulnerable. It’s important that generational succession is managed as closely and diligently as if you were selling your business to a stranger to avoid misunderstandings and disputes. If you are looking to hand your business to your children or relatives, there are a few key issues to think about: Capability and willingness of the next generation – do your kids really want the business? There needs to be a realistic assessment of whether or not the business can continue successfully after the transition. In some cases, the exiting generation will pursue generational succession either as a means of keeping the business in the family, perpetuating their legacy, or to provide a stable business future for the next generation. All of these are reasonable objectives, however, they only work where there is capability and willingness. The alternative scenario can also exist where generational succession is pursued by the younger generation. In some cases, it’s seen as their birth right. In these cases, the willingness will exist but this does not automatically translate to capability. Capital transfer – how much money needs to be taken out of the business during the transition? What level of capital do the current business owners, generally the parents exiting the business, need to extract from business at the time of the transition? The higher the level of capital needed, the greater the pressure that will be placed on the business and the equity stakeholders. In most cases, the incoming generation will not have sufficient capital to buy out the exiting generation. This will require the vendors to maintain a continuing investment in the business or for the business to take on an increased level of debt. In many cases, the exiting generation will want to maintain a level of equity investment. This might be a means of retaining an interest in the business or alternatively staging their transition. In either case, it is important to map the capital transition both from a business and shareholder perspective. This needs to be documented and signed off firstly from the business’s perspective and then by both generational groups. No generational transition should be undertaken without a clear and agreed capital program. Income needs – ensuring remuneration is on commercial terms In many SMEs, the owners arrange their remuneration from the business to meet their needs rather than being reasonable compensation for the roles undertaken. This can result in the business either paying too much or too little. Under a generational succession, there should be an increased level of formality around compensation to directors and shareholders. Compensation should be matched to roles and where performance incentives exist these should be clearly structured. Operating and management control Once the capability and capital assessments have been completed, it is important to look at the transition of control. This can be a very sensitive area. It’s essential to establish and agree in advance how operating and management control will be maintained and transitioned. The plan for operating and management control should be documented and signed off by all parties with either timelines for time driven succession or milestones for event-focussed transitions. Transition timeframes and expectations Generational succession is often a process rather than an event and achieved over an extended period of time. The critical issue is to identify and ensure that all parties have a common understanding and acceptance of the time period over which the transition will take place. This should be included in the documented succession plan. The need for greater formality and management structure Generational succession often requires a greater level of formality in the management and decision making process. This formality should achieve a separation of function between management, the Board, and shareholders. Often in an SME business, these roles merge and there are no clear dividing lines or boundaries. Roles, responsibilities, and clear key performance indicators (KPIs) for management should be agreed and documented. Need assistance? We can work with you to successfully transition your business. Note: The material and contents provided in this publication are informative in nature only. It is not intended to be advice and you should not act specifically on the basis of this information alone. If expert assistance is required, professional advice should be obtained.

Fringe Benefit Tax in Australia: Optimise Phone & Internet Perks

08 May 2024 00:25:00 GMT

In the evolving landscape of workplace flexibility, Fringe Benefit Tax in Australia plays a crucial role. More employers are adapting to trends that see employees working from home, necessitating a fresh look at the tools they use. This discussion explores whether tools like phones and the internet can be classified as fringe benefits under Australian tax laws. Understanding Fringe Benefit Tax in Australia (FBT) Fringe Benefit Tax is a levy employers pay on certain benefits they provide to their employees, beyond the salary. These benefits might include company cars, tools of trade and notably for our discussion, potentially the use of phones and internet services. Phones and Internet as Expense Payment Fringe Benefits When employers reimburse employees for their phone or internet expenses incurred due to work, this qualifies as an ‘expense payment fringe benefit’ under FBT regulations. What Qualifies as an Expense Payment Fringe Benefit? Reimbursement: If an employer reimburses an employee for phone or internet expenses used for work purposes, this is considered a fringe benefit. Direct Payment: Employers may also pay the service provider directly for the portion of services used by the employee for work. Calculating the Taxable Value Employers typically pay the service provider or reimburse the employee to determine the taxable value of these benefits. They then adjust this value by any amount the employee could deduct for business use. Substantiation Requirements For expenses up to $50: Employees need to provide a declaration that details their business use of the service. For expenses over $50: Detailed records of the expenses must be maintained by both the employer and employee to substantiate the claims. Benefits of Including Phones and Internet in Fringe Benefits Utilising Fringe Benefit Tax in Australia for phone and internet costs can greatly boost your benefits package. It supports employees, particularly those working remotely. This approach also fosters a positive workplace culture by adapting to employees’ changing needs. Navigating Fringe Benefits with Expertise Due to the complexities associated with FBT, consulting with a tax professional is advisable. Specialists in small business taxes offer advice to maximise benefits and ensure compliance for employers and employees alike. Seeking Further Guidance? For more insights on managing fringe benefits, contact the tax professionals at Paris Financial. We offer personalised assistance tailored to your business needs and circumstances.

Unrelated Business Partners: Unit Trusts in Commercial Property

05 May 2024 00:27:00 GMT

Welcome to our comprehensive guide on how unrelated business partners can successfully invest in commercial properties using a unit trust structure. This approach, while intricate, offers significant benefits for businesses aiming to expand their physical footprint without the complications of personal ownership ties. If you’re exploring this strategy for the first time or preparing to discuss it with your advisors, this guide will clarify the process and set you up for success. Understanding the Unit Trust Structure What is a Unit Trust? A unit trust is a specific type of trust arrangement where property is held by a trustee on behalf of the unitholders who own units in the trust. This structure is particularly advantageous for commercial property investments because it allows for a clear separation of ownership and operation, which is ideal for unrelated business partners. Key Rules for Investment: Commercial Property Only: The use of a unit trust is restricted to commercial properties to avoid the complexities and legal restrictions associated with residential investments. No Blood Relations: Investors in the unit trust must not be related by blood, ensuring that the investment remains strictly business-focused and minimises personal conflicts. Equitable Ownership: No single partner can own more than 50% of the unit trust, promoting fairness and shared responsibility among all parties. Case Study: Living Pets Proprietary Limited Company Background Living Pets Proprietary Limited, a thriving business, reached a point where expansion was necessary. The owners, previously operating solo, needed a larger space to accommodate their growing operations. Formation of Partnership Smithy, Jonesy, and Chany, three unrelated business individuals, joined forces to tackle the challenge. They decided to invest in a commercial property that would house their expanding enterprise. Investment Structure Each partner invested equally, acquiring 33.33% of the units in the unit trust which owns the property. This arrangement ensures that no single partner has a controlling stake, maintaining balance and shared decision-making. Financial Benefits and Tax Implications Using Superannuation Funds The partners utilised their self-managed super funds (SMSFs) to purchase units in the trust. This strategy not only secures the property investment but also aligns with their long-term financial planning. Tax Efficiency Investing through a unit trust allows the super funds to benefit from a lower tax rate on rental income—only 15% compared to higher corporate tax rates. Additionally, the business itself enjoys tax deductions for the rent paid to the unit trust, enhancing overall tax efficiency. Long-term Financial Benefits One of the most significant advantages comes into play during the pension phase. The investments held within the SMSFs can potentially become tax-free, providing substantial savings and financial security in retirement. Investing in commercial property through a unit trust with unrelated business partners is a sophisticated strategy that can lead to substantial rewards. However, its complexity necessitates careful planning and expert advice. It’s crucial to work with both tax professionals and licensed superannuation experts to fully realise the benefits and ensure compliance with legal standards. Are you considering expanding your business through innovative investment strategies? Consult with your advisors to customise this approach to your needs. Ready to elevate your investment game? Contact our team for specialised guidance to ensure your venture into commercial property investment is a resounding success.

Company money crackdown

01 May 2024 00:29:00 GMT

The ATO is cracking down on business owners who take money or use company resources for themselves. It’s common for business owners to utilise company resources for their personal use. The business is often such a part of their life that the line distinguishing ‘the business’ from their life can be blurred. While there are tax laws preventing individuals accessing profits or assets of the company in a tax-free manner, mistakes are being made and the Australian Taxation Office (ATO) has had enough. The ATO has launched a new education campaign to raise awareness of these common problems and the serious tax consequences that can arise. What the tax law requires Division 7A is an area of the tax law aimed at situations where a private company provides benefits to shareholders or their associates in the form of a loan, payment or by forgiving a debt. It can also apply where a trust has allocated income to a private company but has not actually paid it, and the trust has provided a payment or benefit to the company’s shareholder or their associate. Division 7A was introduced to prevent shareholders accessing company profits or assets without paying the appropriate tax. If triggered, the recipient of the benefit is taken to have received a deemed unfranked dividend for tax purposes and taxed at their marginal tax rate. This unfavourable tax outcome can be prevented by: Paying back the amount before the company tax return is due (this is often done by way of a set-off arrangement involving franked dividends); or Putting in place a complying loan agreement between the borrower and the company with minimum annual repayments at the benchmark interest rate. The problem areas Division 7A is not a new area of the tax law; it has been in place since 1997. Despite this, common problems are occurring. These include: Incorrect accounting for the use of company assets by shareholders and their associates. Often, the amounts are not recognised; Loans made without complying loan agreements; Reborrowing from the private company to make repayments on Division 7A loans; The wrong interest rate applied to Division 7A loans (there is a set rate that must be used). Like life, managing the tax consequences of benefits provided to shareholders and their associates can get messy quickly. Avoiding problems can often come down to a few simple steps: Don’t pay private expenses from a company account; Keep proper records for your company that record and explain all transactions, including payments to and receipts from associated trusts and shareholders and their associates; and If the company lends money to shareholders or their associates, make sure it’s on the basis of a written agreement with terms that ensure it’s treated as a complying loan – so the full loan amount isn’t treated as an unfranked dividend. There are strict deadlines for managing Division 7A problems. For example, if the borrower is planning to repay the loan in full or put a complying loan agreement in place, this needs to be done before the earlier of the due date and actual lodgement date of the company’s tax return for the year the loan was made. Stay Ahead with Division 7A Compliance Guidance For personalised guidance on Division 7A compliance and to ensure your business stays on the right side of tax law, don’t hesitate to contact our expert team today. Note: The material and contents provided in this publication are informative in nature only. It is not intended to be advice and you should not act specifically on the basis of this information alone. If expert assistance is required, professional advice should be obtained.

How much is my business worth?

16 Apr 2024 00:33:00 GMT

For many small business owners, their business is their largest asset and for many, one that is expected to help fund their retirement. But what is your business really worth and what sets a high value business apart? Every business owner is naturally curious about just how much their business is worth. However, for every business that sells at an attractive price, there are others that struggle to sell, let alone fetch a premium. The question is, what makes a difference? When you come to sell a business the first question is, what are you selling? In most cases, this is fixtures and fittings, plant and equipment, stock on hand, and the goodwill of the business. Generally, a buyer won’t want to purchase your liabilities or your business structure, nor will they want to collect your outstanding debtors. Most business sales become a sale of business assets. These assets are relatively easy to value with the exception of the goodwill. The value of plant and equipment and trading stock can generally be agreed. The tension tends to be around the value of the goodwill because goodwill is made up of many intangible assets that can’t be readily quantified. We can all agree that there is value in these assets but the question is, how much? Goodwill is basically the value of the future free cashflow of the business. Based on how your business is structured, it is the value of the profits the business can generate in the future. This is what a buyer is prepared to pay for. If a buyer has a reasonable certainty of profits and free cashflow in the future, then this is worth something. By comparison, a start-up business will have a higher level of risk and no certainty that profits can be generated. In general, a new business may need to trade for a number of years at a loss before it can establish itself and generate profits. Goodwill is what you are prepared to pay to avoid the risk and the ‘time to establish’ factor. So, what influences business value and what will people pay for? A history of profits, profits, and more profits Returns on capital invested (better than 30%) Strong growth and growth prospects Brand name and value A business not dependent on the owners A strong, verifiable customer list Monopoly income – exclusive territories A sustainable competitive advantage Good systems and procedures It is possible to get a price that is widely different from the norm. Unique businesses, unique circumstances, and unique opportunities can always produce ‘an out of the box’ price. If you can build something unique, then you may achieve a price beyond normal expectations. At the end of the day however, the market will set the price. If you are planning on selling your business, identify who your buyers might be. There could be a purchaser who is prepared to pay a large premium to own your business because of the accretive value or because it is pivotal to their growth strategy. And, even if you are not thinking about selling your business, the reality is that one day you will. If you build your business with this in mind, then you should look to do the things that will grow your business value from year to year. If you’ve been wondering ‘How much is my business worth?’, our experts at Paris Financial are here to provide clear guidance. Note: The material and contents provided in this publication are informative in nature only. It is not intended to be advice and you should not act specifically on the basis of this information alone. If expert assistance is required, professional advice should be obtained.

Non-compete clauses and worker restraints under review

15 Apr 2024 00:35:00 GMT

A new issues paper from Treasury’s Competition Review questions whether non-competes and other restraints are limiting job opportunities and movement. A recent Australian Bureau of Statistics (ABS) survey found that 46.9% of businesses surveyed used some kind of restraint clause, including for workers in non-executive roles. The survey also found 20.8% of businesses use non-compete clauses for at least some of their staff and 68.2% for more than three-quarters of their employees. Over the last 30 years, Australia has seen a decline in job mobility. Australia is not alone in this and other advanced economies have experienced the same issue. While restraint clauses are not the only factor contributing to the decline – an ageing population and a rise in post-pandemic market concentration in some industries has also contributed, it is specifically the role of restraints that is the focus of the Competition Review issues paper (submissions close 31 May 2024). From an economic perspective, declining job mobility impacts wage growth and innovation as restraints prevent access to skilled workers within the economy. Productivity is a key concern as Australia’s productivity has declined in the last 20 years. The review states that, “The direct consequence of a non-compete clause is that it hinders competition among businesses: it disincentivises workers from leaving their current job, creating a barrier to the entry of new businesses and the expansion of existing businesses.” For business however, this is the point – restricting the knowledge developed by a worker during their employment from benefiting a competitor, limiting the likelihood of a ‘mass exodus’ of key workers from the business to a competitor, preventing clients from employing key workers, and protecting the value of the business by preventing employees from walking away with customers that were hard won, at a cost, by the business. However, the impact of restraints appears to be a psychological deterrent given that most are not contested. Of the 115 matters relating to restraints of trade between 2020 and 2023 dealt with by Legal Aid NSW, only one business commenced proceedings in court against a former worker. And, a further study indicates that where employers seek legal redress in the courts, they are more likely than not to fail. The international trend is to either ban restraints for workers under a certain income level and time limit restraints for higher paid workers, or to limit the duration of restraints generally but specify a level of compensation to the worker for the restraint period. Non-compete clauses prevent workers from joining a competitor or starting a new business in competition with their current employer for a period of time. Non-solicitation clauses prevent workers from soliciting former customers and co-workers. Non-disclosure clauses prevent workers from disclosing confidential information relating to their employment. Discover More About Non-Compete Clauses To get further insights into how non-compete clauses could affect you and explore your options, contact our team today. We’re ready to assist with expert advice on non-compete clauses and workplace flexibility. Note: The material and contents provided in this publication are informative in nature only. It is not intended to be advice and you should not act specifically on the basis of this information alone. If expert assistance is required, professional advice should be obtained.

SMSF Property Investment: Your 5-Step Guide to Success

14 Apr 2024 00:36:00 GMT

Embarking on an SMSF property investment journey signifies a proactive step towards securing a prosperous financial future. Drawing on the expertise of our team, this in-depth guide delves into the strategic facets of property investment within your SMSF, offering a roadmap to navigate this complex yet rewarding terrain. Establishing a Robust Foundation Strategic Setup for Success Initiating your property investment journey requires a meticulous approach to structuring. Our team suggests establishing a dedicated entity to serve as the cornerstone of your investment. Structural Overview: Structure Component Purpose and Importance Company Name Example company: ‘Bare Property Pty Ltd’ – Serves as the titleholder on the property’s title, aligning the investment with SMSF regulations. Role Facilitates the legal holding of the property, ensuring a clear distinction in ownership and compliance with SMSF investment rules. ACN/Registration Mandatory for legitimising the company’s existence and enabling transactional operations, such as property acquisition. Bare Trust Setup Ensures the SMSF’s beneficial ownership of the property, providing a layer of protection and benefit direction towards the SMSF. The strategic setup of our example company ‘Bare Property Pty Ltd’ not only complies with regulatory mandates but also secures the investment’s foundation, paving the way for a seamless property acquisition process. Navigating the Acquisition Process Securing Your Investment Transitioning from planning to execution, the acquisition phase is pivotal. Registering the company name on your property title under a Bare Trust arrangement ensures that your SMSF reaps the full benefits of the investment, directing all gains and advantages towards bolstering your superannuation fund. Detailed Acquisition Insights: Property Selection: Identifying a property that meets both your investment criteria and SMSF compliance requirements is crucial. Consider factors such as location, growth potential, and rental yield. Legal and Financial Due Diligence: Engage with legal and financial advisors to navigate the complexities of property transactions within a SMSF framework, ensuring all regulatory and compliance boxes are ticked. The Role of Structures Post-Purchase After the property purchase, the operational dynamics shift. The company and the Bare Trust serve as silent guardians of your investment, maintaining the title and ensuring ongoing compliance. This stage emphasises the importance of diligent structure maintenance and regulatory adherence to safeguard your investment’s integrity. Maximising Operational Efficiency Activating Your SMSF’s Potential With the property securely under your SMSF’s umbrella, the focus turns to optimising operational efficiency and financial performance. Effective management of the property, from tenant relations to maintenance, plays a critical role in realising your investment’s full potential. Financing Your Vision Crafting a Tailored Financial Strategy SMSF property financing demands a bespoke approach, differentiating it from conventional property loans. Establishing a loan directly with your SMSF, using the company and the Bare Trust as security, offers a flexible and compliant financing solution tailored to your investment needs. Realising Your Financial Ambitions Navigating the journey of SMSF property investment with a strategic, informed approach can transform your financial landscape, offering a pathway to significant growth and stability. Leveraging the structured methodologies outlined in this guide, underpinned by professional advice and diligent management, positions your SMSF to capitalise on the tangible benefits of property investment. FAQs for SMSF Property Investment 1. Can my SMSF purchase an existing property of mine? Only commercial properties, under specific professional advice. 2. Is a separate P/L company required for the property if my SMSF has a corporate trustee? Yes, when leveraging loans. No, for outright purchases. 3. What should the shareholder structure look like for the company set up for property investment? It should mirror the structure of your SMSF’s corporate trustee for consistency and compliance. For a deep dive into crafting your SMSF property investment strategy and to explore personalised solutions, the experts at Paris Financial stand ready to guide you every step of the way. Embark on your investment journey with confidence, backed by a partnership that aims for your financial success!

Budget 2024-25: Key Insights & Impacts Revealed

10 Apr 2024 00:42:00 GMT

The 2024-25 Federal Budget is the third for the Albanese Government and consistent with previous years, the primary themes are expected to be the cost of living and the economic shift to net zero. According to election guru Antony Green, the window for the next election starts on Saturday, 3 August 2024, “the first possible date for an election if writs are issued on 1 July. The election window will stay open until mid-May 2025, the last date being 17 or 24 May.” No doubt, the Government will have the election in mind when it presents the Budget on 14 May at 7.30pm AEST. Stage 3 tax cuts The redesigned stage 3 tax cuts have been passed by Parliament and will apply from 1 July 2024. The amendments broadened the benefits of the tax cut by focussing on individuals with taxable income below $150,000. Investment incentives for small business It remains to be seen whether an increased instant asset write-off threshold will apply to smaller businesses in the 2024-25 income year. The increased threshold to $20,000 announced in the 2023-24 Budget still has not passed Parliament (the Senate increased the threshold to $30,000). If the intent of this measure is to encourage investment, it is essential that legislation enabling these measures is passed by Parliament in a reasonable time to give business operators the certainty they need to commit to any additional investment spending. Energy bill relief The Prime Minister has hinted at another round of energy bill relief to ease cost of living pressures for low-income households and small business. The measure is subject to support from State and Territory governments. Look out for our analysis on how the 2024-25 Federal Budget will impact you, your business, and your superannuation. Explore More on Budget 2024-25 For detailed insights and expert guidance on Budget 2024-25, contact our team today. Let us help you navigate the complexities of Budget 2024-25 and its effects on your financial landscape. Note: The material and contents provided in this publication are informative in nature only. It is not intended to be advice and you should not act specifically on the basis of this information alone. If expert assistance is required, professional advice should be obtained.

Warning on SMSF asset valuations

10 Apr 2024 00:38:00 GMT

The ATO has issued a warning to trustees of SMSFs about sloppy valuation practices. ATO data analysis has revealed that over 16,500 self managed superannuation funds (SMSFs) have reported assets as having the same value for three consecutive years. With many of these assets residential or commercial Australian property, you can forgive the ATO for being incredulous. For trustees of SMSFs, where asset values are consistently reported at the same value, it’s likely your SMSF will be flagged for closer scrutiny by the ATO. The value of assets in your SMSF impacts on member balances and by default, can impact the amount you can contribute, ability to segregate assets for exempt current pension income, the work test exemption and access to catch-up concessional contributions. And, as we move closer to the implementation of the Division 296 $3m superannuation tax, valuations will be very important for anyone with a member balance close to or in excess of $3m. If the asset is an in-house asset, for example a related unit trust, then an accurate valuation is essential to ensure the fund remains within the 5% in-house asset limit. If the value of in-house assets rises above 5% of total assets, the asset/s need to be sold to bring the limit back below 5%. Valuing at market value Each year, the assets of your SMSF must be valued at ‘market value’ and evidence provided to your auditor. Broadly, market value is the amount that a willing buyer of the asset could reasonably be expected pay to acquire the asset from a willing seller assuming that the buyer and seller are dealing at arm’s length, and everyone acts knowledgeably and prudentially. It’s a common sense test that looks at the value you could reasonably expect to achieve for an asset. If your SMSF holds collectible and personal use assets like artwork, jewellery, motor vehicles etc., a valuation must be performed by a qualified independent valuer on disposal. This does not necessarily mean that an independent valuation needs to be completed every year but at least every three years would be prudent. If you are not utilising an independent valuer, you will still need to make an active assessment based on market conditions. For example, if you hold artwork and the artist who created your investment artwork died, has this changed the value? Are the primary and secondary markets for the artwork transacting at a higher value? Leaving the value of the asset at its acquisition price calls into question the rationale for acquiring the asset within the fund in the first place. If the asset is unlikely to add any value to your retirement savings, then should it be held in your SMSF when you could achieve a higher rate of return elsewhere? In most cases, the ATO require trustees to value an asset based on “objective and supportable data”. This means that you should document the asset being valued, a rational explanation for the valuation, and the method in which you arrived at it. Valuing real property Commercial and residential real estate does not need to be valued by an independent valuer. But, if there have been significant changes to the property, the market, or the property is unique or difficult to value, it is a good idea to have a written independent valuation from a valuer or estate agent undertaken (their report should also document the valuation method and list comparable properties). If you are completing the valuation yourself, ensure that you document the time period the valuation applies to and the characteristics that contribute to the valuation. For example, a 10 year old brick four bedroom property on 640m2 of land in what suburb and any features that make it more or less attractive to a buyer, for example proximity to transport. And, you should access credible sales data either on similar properties in the same suburb that have sold recently or from a property data service. More than one source of data is recommended. The estimates on a lot of online property sales sites are general in nature and not reliable for a valuation of a specific property. The average price change for the suburb however could be used as supporting evidence of your valuation. For commercial property, net income yields are required to support the valuation. Where the tenants are related parties, for example your business leases a commercial property owned by your SMSF, you will need evidence that a comparative commercial rent is being paid and the rent is keeping pace with the market. Valuing unlisted companies and unlisted trust investments Valuing unlisted companies and unlisted investments can be difficult. The financials alone are not enough. But, if your SMSF invested in an unlisted company or shares in a unit trust, then there is an expectation that the trustees made the decision to make the initial acquisition based on the value of the asset, its potential for capital growth and income generation. That is, if you assessed the market value going into the investment, then it should not be a stretch to value the asset each year. The difficulty for many investors is that in unlisted companies or trusts, the initial investment was broadly equivalent to the cash requirements of the activity being undertaken. Generally, the starting point is the value of the assets in the entity and/or the consideration paid for the shares/units. For widely held shares or units, this is the entry and exit price. Where property is the only asset, then the valuation principles for valuing real property are likely to apply. Where there is no reliable data or market We’ve seen a few scenarios where the assets purchased or created by the SMSF have no equal or there is no market – the true extent of the value will only really be known when the asset is realised. These unusual items default to either a professional valuation or a viable market assessment. This might be a derivative of the purchase price or data from a related market. Valuations and the impending Division 296 tax on super earnings The value of assets will be particularly important for those with super balances close to or above the $3m threshold for the impending Division 296 tax on fund earnings. Because the tax will measure asset values and tax the growth in earnings above the $3m threshold, accurate valuations will be important to ensure that the fund does not pay tax when it does not need to, and to reduce the likelihood of anomalies artificially inflating tax payable. Learn More About SMSF Asset Valuations For personalised advice and deeper insights into SMSF asset valuations, contact our expert team today. We’re here to help you navigate your SMSF asset valuations with precision and care, ensuring you meet ATO standards and optimise your superannuation fund’s performance. Reach out to explore how our tailored services can assist with your SMSF asset valuations and safeguard your financial future. Note: The material and contents provided in this publication are informative in nature only. It is not intended to be advice and you should not act specifically on the basis of this information alone. If expert assistance is required, professional advice should be obtained.

Master Your Employer Tax Obligations and Avoid Penalties

01 Apr 2024 00:45:00 GMT

As an employer, navigating the complexities of tax and super obligations is crucial to maintaining compliance and avoiding unnecessary penalties and interest. This guide is designed to help you understand and meet your tax and super obligations with ease. Understanding Your Tax and Super Obligations as an Employer Being well-informed about your responsibilities as an employer is the first step towards compliance. Your primary obligations include the accurate calculation and reporting of Pay As You Go (PAYG) withholding, timely payment of the Super Guarantee (SG) to the correct fund, proper calculation and reporting of your Fringe Benefits Tax (FBT), and correctly classifying workers. The Importance of Staying Informed Changes in legislation and compliance requirements can happen frequently. Staying updated with the latest information is vital to avoid falling behind on new rules and regulations. Overview of Obligations: PAYG, SG, FBT PAYG Withholding: Deduct tax from your employees’ pay to meet income tax obligations. Super Guarantee (SG): Contribute to your employees’ super funds to ensure their retirement savings grow. Fringe Benefits Tax (FBT): Manage taxes related to non-cash benefits you provide to employees. Leveraging Single Touch Payroll (STP) for Compliance Single Touch Payroll (STP) is a game-changer for reporting salaries, wages, PAYG withholdings, and super information to the Australian Taxation Office (ATO). Benefits of Using STP-Enabled Software STP-enabled software simplifies the reporting process, ensuring real-time compliance and reducing the likelihood of errors. How STP Simplifies Reporting With STP, reporting becomes an integrated part of your payroll process, automatically sending required information to the ATO each time you run your payroll. Navigating PAYG Withholding and Super Guarantee (SG) Payments Accurate calculation and timely payment of PAYG withholdings and SG contributions are fundamental to employer compliance. Calculating PAYG Withholdings Correctly Understanding the variables that affect PAYG calculations, such as employee declarations and tax tables, is crucial for accurate withholdings. Ensuring Timely and Accurate SG Payments Timely SG contributions are not just a legal requirement but also a crucial part of your employees’ retirement planning. Missing or late payments can result in penalties. Fringe Benefits Tax (FBT): Calculation and Reporting FBT management requires understanding which benefits are taxable and the appropriate methods for calculating and reporting these taxes. Understanding FBT Obligations Identifying which employee benefits qualify as fringe benefits and applying the correct FBT rates are vital steps in compliance. Strategies for Accurate FBT Reporting Employing effective record-keeping strategies and using FBT software can help streamline the reporting process and ensure accuracy. Tips for Employer Compliance: Avoiding Penalties and Interest Meeting reporting, lodgement, and payment deadlines is essential to avoid penalties and interest. Here are some top tips for staying on top of your employer obligations: Use resources and tools provided by the ATO, such as the Employer Obligations Factsheet. Consider engaging a tax professional like the experts at Paris Financial to assist with compliance and reporting. Stay informed about deadlines and new compliance requirements by subscribing to ATO updates. By following these guidelines and utilising available resources, you can master your tax obligations and avoid penalties, ensuring your business remains compliant and your employees are supported. For more detailed guidance, visit the ATO website or chat with our team at Paris Financial

The Fringe Benefit Tax Traps

20 Mar 2024 00:46:00 GMT

The Fringe Benefits Tax year (FBT) ends on 31 March. We explore the problem areas likely to attract the ATO’s attention. Electric vehicles causing sparks In late 2022, the Government introduced a concession that enables employers to provide some electric vehicles to employees without incurring the 47% fringe benefits tax (FBT) on private use. The exemption applies to the use of electric cars, hydrogen fuel cell electric cars or plug-in hybrid electric cars if: The value of the car is below the luxury car tax (LCT) threshold for fuel efficient vehicles ($89,332 for 2023-24 financial year) at the time it is first sold in a retail sale; and The car is both first held and used on or after 1 July 2022. If your business is planning on acquiring an electric vehicle, be aware that from 31 March 2025, the FBT exemption will no longer apply to plug-in hybrid electric vehicles unless the vehicle met the conditions for the exemption before this date and there is already a binding agreement to continue to use the vehicle privately after this date. The problem areas The exemption only applies to employees – For the FBT exemption to apply, the vehicle needs to be supplied by the employer to an employee (including under a salary sacrifice agreement). Partners of a partnership and sole traders are not employees and cannot access the exemption personally. If LCT applies to the car it will never qualify for the FBT exemption. For example, if the EV failed the eligibility criteria in 2022-23 when it was first purchased because it was above the luxury car limit of $84,916, the fact that it resold in 2023-24 for $50,000 does not make it eligible for the exemption on resale. Likewise, if the car was used by anyone (including a previous owner) before 1 July 2022 then it will probably never qualify for the FBT exemption. Home charging stations are not included in the exemption. The FBT exemption includes associated benefits such as registration, insurance, repairs or maintenance, but it does not include a charging station at the employee’s home. If the employer instals a home charging station at the employee’s home or pays for the cost, then this is a separate fringe benefit. FBT might not apply but you do the paperwork as if it did. While the FBT exemption on EVs applies to employers, the value of the fringe benefit is still taken into account when working out the reportable fringe benefits of the employee. That is, the value of the benefit is reported on the employee’s income statement. While you don’t pay income tax on reportable fringe benefits, it is used to determine your adjusted taxable income for a range of areas such as the Medicare levy surcharge, private health insurance rebate, employee share scheme reduction, and certain social security payments. What about the cost of electricity? The ATO’s short-cut method can potentially be applied to calculate reportable fringe benefit amounts and applies a rate of 4.20 cents per kilometre. If you are not using the short-cut method, you need to have a viable method of isolating and calculating the electricity consumption of the car. The exemption does not apply if the employee directly purchases or leases the EV. If an employee purchases or leases the EV directly, and the employer reimburses them under a salary sacrifice arrangement, the FBT exemption does not apply because this is not a car fringe benefit. However, the exemption can potentially apply to novated lease arrangements if they are structured carefully. Not all electric vehicles are cars. To qualify for the exemption, the EV needs to be a car – electric bikes and scooters do not count, nor do vehicles designed to carry a load of 1 tonne or more or that carry 9 passengers or more. Other Fringe Benefit Tax problem areas Not registering. If you have employees, it is unusual not to provide at least some fringe benefits. If your business is not registered for FBT but you have provided entertainment, salary sacrifice arrangements, forgiven debts, paid for or reimbursed private expenses, or have provided accommodation or living away from home allowances, it’s important that the FBT position is reviewed carefully. The ATO targets businesses that aren’t registered for FBT. When employees travel. There has been a renewed focus recently on whether employees are travelling in the course of performing their work (deductible and not subject to FBT) or travelling from home to their place of work (not deductible and subject to FBT). The Federal Court decision in the Bechtel Australia case is a good example. The case dealt with the travel of fly-in-fly-out workers between home and their worksite – involving flights, ferry and bus travel. The Court found that the employees were travelling before they commenced their shift and that the employer was liable for FBT in connection with the transport that was provided. The case highlights the need for employers to ensure that they are fully aware of the connection between work and travel. If you have any queries, please reach out to the team at Paris Financial. Note: The material and contents provided in this publication are informative in nature only. It is not intended to be advice and you should not act specifically on the basis of this information alone. If expert assistance is required, professional advice should be obtained.

How to take advantage of the 1 July super cap increase

18 Mar 2024 03:03:00 GMT

From 1 July 2024, the amount you can contribute to super will increase. We show you how to take advantage of the change. The amount you can contribute to superannuation will increase on 1 July 2024 from $27,500 to $30,000 for concessional super contributions and from $110,000 to $120,000 for non-concessional contributions. The contribution caps are indexed to wages growth based on the prior year December quarter’s average weekly ordinary times earnings (AWOTE). Growth in wages was large enough to trigger the first increase in the contribution caps in 3 years. Other areas impacted by indexation include: The Government super co-contribution – Income threshold The super guarantee maximum contribution base (the limit for compulsory super guarantee payments) The tax-free thresholds for redundancy payments The CGT contribution cap (amount that can be contributed to super following the sale of eligible business assets) For those with the disposable income to contribute, superannuation can be very attractive with a 15% tax rate on concessional super contributions and potentially tax-free withdrawals when you retire. For business owners who might have had an exceptional year or sold their business, it’s an opportunity to get more into super. However, the timing of contributions will be important to maximise outcomes. If you know you will have a capital gains tax liability in a particular year, you may be able to use ‘catch up’ contributions to make a larger than usual contribution and use the tax deduction to help offset your capital gain tax bill. But, this strategy will only work if you meet the eligibility criteria to make catch up contributions and you lodge a Notice of intent to claim or vary a deduction for personal super contributions, with your super fund. Using the bring forward rule The bring forward rule enables you to bring forward up to 2 years’ worth of future non-concessional contributions into the year you make the contribution – this is assuming your total superannuation balance enables you to make the contribution and you are under age 75. If you utilise the bring forward rule before 30 June, the maximum that can be contributed is $330,000. However, if you wait to trigger the bring forward until on or after 1 July, then the maximum that can be contributed under this rule is $360,000. ‘Catch up’ contributions If your super balance is below $500,000 on the prior 30 June, and you want to quickly increase the amount you hold in super, you can utilise any unused concessional super contributions amounts from the last 5 years. Let’s look at the example of Gary who has only been using $15,000 of his concessional super cap for the last few years. Gary’s super balance at 30 June 2023 was $300,000, so he is well within the limit to make catch up contributions. Gary could access his $27,500 concessional cap for 2023-24 plus the unused $55,000 from the prior 5 financial years. If Gary doesn’t access the unused amounts from 2018-19 by 30 June 2024, the $10,000 will no longer be available. Transfer balance cap unchanged The general rate for the transfer balance cap (TBC), that limits how much money you can transfer into a tax-free retirement account, will remain at $1.9 million for 2024-25. The TBC is indexed by the December consumer price index (CPI) each year. Contact our team at Paris Financial if you have any queries. Note: The material and contents provided in this publication are informative in nature only. It is not intended to be advice and you should not act specifically on the basis of this information alone. If expert assistance is required, professional advice should be obtained.

2024 Tax Cuts: Revised stage 3 tax cuts confirmed for 1st July

15 Mar 2024 02:59:00 GMT

Before the new tax rates come into effect, check any salary sacrifice agreements to ensure that they will continue to produce the result you are after. Contact our team at Paris Financial if you have any questions. Note: The material and contents provided in this publication are informative in nature only. It is not intended to be advice and you should not act specifically on the basis of this information alone. If expert assistance is required, professional advice should be obtained.

The ATO Debt Dilemma

12 Mar 2024 02:52:00 GMT

Late last year, thousands of taxpayers and their agents were advised by the Australian Taxation Office (ATO) that they had an outstanding historical tax debt. The only problem was, many had no idea that the tax debt existed. The Legal Framework and Tax Debt The ATO can only release a taxpayer from a tax debt in limited situations (e.g., where payment would result in serious hardship). However, sometimes the ATO will decide not to pursue a debt because it isn’t economical to do so. In these cases, the debt is placed “on hold”, but it isn’t extinguished and can be re-raised on the taxpayer’s account at a future time. For example, these debts are often offset against refunds that the taxpayer might be entitled to. However, during COVID, the ATO stopped offsetting debts and these amounts were not deducted. The Impact of COVID-19 on Tax Debts In 2023, the Australian National Audit Office advised the ATO that excluding debt from being offset was inconsistent with the law, regardless of when the debt arose. And by this stage, the ATO’s collectible debt had increased by 89% over the four years to 30 June 2023. Navigating Historical Debts: ATO’s Approach The response by the ATO was to contact thousands of taxpayers and their agents advising of historical debts that were “on hold” and advising that the debt would be offset against any future refunds. These historical debts were often across many years, some prior to 2017, and ranged from a few cents to thousands of dollars. For many, the notification from the ATO was the first inkling they had of the debt, because debts on hold are not shown in account balances as they have been made “inactive”. In other words, taxpayers were accruing debt but did not know as the debts were effectively invisible because they were noted as “inactive.” ATO’s Response to Community Concerns In a recent statement, the ATO said: “The ATO has paused all action in relation to debts placed on hold prior to 2017 whilst we review and develop a pragmatic and sensible way forward that takes into account concerns raised by the community. It was never our intention to cause frustration or concern. It’s important to us that taxpayers have trust in our tax system and our records.” For any taxpayer with a debt on hold, it is important to remember that just because the ATO might not be actively pursuing recovery of the debt, this doesn’t mean that it has been extinguished. Small business tax debt blows out Out of the $50bn in collectible debt owing to the ATO, two thirds is owed by small business. As of July 2023, the ATO moved back to its “business as usual” debt collection practices. For entities with debts above $100,000 that have not entered into debt repayment terms with the ATO, the debt will be disclosed to credit reporting agencies. Taking Action Against Your Tax Debt If your business has an outstanding tax debt, it is important to engage with the ATO about this debt. Hoping the problem just goes away will normally make things worse. Note: The material and contents provided in this publication are informative in nature only. It is not intended to be advice and you should not act specifically on the basis of this information alone. If expert assistance is required, professional advice should be obtained.

New Business Launch Guide: Navigating Australian Tax Essentials

11 Mar 2024 02:48:00 GMT

Embarking on a new business journey in Australia is filled with anticipation and complexity. At Paris Financial, we understand that being knowledgeable about tax obligations is paramount for any business’s success. This guide aims to provide a comprehensive overview of the key tax duties involved in setting up a new business, ensuring you’re well-prepared to navigate the path to sustainable growth and compliance from the outset. Securing Your Australian Business Number (ABN) The acquisition of an ABN marks the initial step in establishing your new business. It serves as the identifier for your business in tax and other official matters. Essential for trading and ensuring compliance, the ABN acts as your gateway to the Australian business landscape. Understanding GST Registration For new businesses, registering for the Goods and Services Tax (GST) becomes imperative once the annual turnover hits $75,000. This step is not just about legal compliance; it’s about smart financial management. Registering for GST early can aid in offsetting costs through expense credits and is obligatory for certain services regardless of turnover. Strategic inclusion of GST in your pricing can enhance competitiveness while adhering to tax standards. Navigating Tax Obligations Navigating the taxes applicable to your business, such as Income Tax on profits, Capital Gains Tax (CGT) on asset disposals, and Fringe Benefits Tax (FBT) on employee perks, is critical. A solid understanding of these taxes is essential for safeguarding your business’s financial health and ensuring profitability. Implementing PAYG Withholding For businesses with employees, implementing the Pay As You Go (PAYG) withholding system is crucial. This involves registering with the Australian Taxation Office (ATO) and ensuring accurate tax withholding from wages. Utilising ATO tools for precise tax calculations and adhering to reporting requirements is essential for compliance. Payroll Tax Compliance Payroll tax, a state-based tax on wages, requires attention from businesses whose payroll exceeds certain thresholds. This tax varies across territories, necessitating a comprehensive approach to compliance, particularly for businesses operating in multiple regions. Superannuation Fundamentals Adhering to the Superannuation Guarantee (SG) is a non-negotiable aspect of employer responsibility, ensuring employees’ future financial security. Timely and correct superannuation contributions underscore the importance of fulfilling this fundamental duty. Documenting Business Expenses Efficient tracking and documentation of business expenses not only streamline tax preparation but also maximise deductions, reducing taxable income. Leveraging digital accounting solutions can transform this critical task, ensuring no deduction opportunities are missed. Maintaining Accurate Financial Records The importance of accurate financial record-keeping cannot be overstated. Required by the ATO for at least five years, meticulous transaction recording aids compliance and informs strategic decision-making. Digital accounting platforms can facilitate this process, ensuring data integrity and compliance. Annual Tax Return Lodgement Annual tax return lodgement is a critical aspect of tax compliance, offering a review of your business’s financial activities over the year. Accuracy and adherence to deadlines can prevent penalties and foster business growth. Quarterly BAS Reporting For GST-registered entities, submitting Quarterly Business Activity Statements (BAS) is a routine yet critical compliance activity. Accurate BAS reporting ensures smooth financial management and strategic planning, aligning with compliance requirements. Staying Updated on Tax Changes In the ever-evolving tax landscape, staying informed on tax changes is crucial for maintaining compliance and leveraging new tax advantages. Proactive learning and adaptation can prevent legal issues and enhance financial outcomes. The Value of Professional Tax Advice Navigating the complexities of tax compliance can be daunting, but Paris Financial is here to guide you. Our expertise in tax planning and compliance can significantly ease the burden, ensuring accuracy, efficiency, and strategic financial management. By partnering with us from the start, you’re setting your business on a path toward success and fulfillment. In Conclusion Mastering the tax essentials is indispensable for any new business in Australia, ensuring compliance and laying a solid financial foundation. While the process may seem challenging, the right resources and expert guidance can make all the difference. Paris Financial stands ready to provide specialised support in tax planning and compliance, helping your business thrive. Reach out to our team for expert assistance with your new business setup.

Home Ownership – Your No-Nonsense Guide

01 Mar 2024 03:27:00 GMT

In today’s economy, achieving financial wellness is more critical than ever. With the landscape of personal finance constantly evolving, one factor remains steadfast in its importance: home ownership. This ultimate guide provides the essential steps and benefits of owning a home, illustrating its undeniable impact on financial health. The Impact of Home Ownership Individuals with their own homes report significantly higher levels of financial stability than renters. This gap highlights the value of investing in real estate as a way to reduce financial stress and secure long-term well-being. Overcoming the Hurdles The path to acquiring a home is filled with financial challenges, from saving a sufficient down payment to choosing the right mortgage plan. Many aspiring homeowners, especially those aged 20–34, struggle with saving for a home. Despite these obstacles, the advantages of navigating these challenges successfully are clear. Why Home Ownership Wins – The Advantages Owning your place offers unmatched financial benefits. This ownership leads to a sense of security and stability unavailable to renters, resulting in higher financial wellness scores. Furthermore, homeowners are less likely to suffer from the financial stress that affects many renters, showing the profound impact on overall financial health. Policy and Support for Home Ownership The current focus on making housing more affordable and available is crucial for supporting prospective homeowners. Effective policies that make it easier to own a home can greatly improve financial wellness, demonstrating the government’s role in creating a stable economic environment. In Short The connection between owning a home and financial wellness is clear. It’s a crucial factor in achieving financial stability and reducing stress. For those aiming for this milestone, knowing the benefits and challenges is essential. With appropriate support and policies, the dream can become a reality, leading to a financially stable future. So, Are You Ready to Begin? If home ownership interests you, let Hayley Crow and the lending team at Paris Financial guide you. We offer the insights and support you need to navigate the home-buying process. Contact us at: (03) 8393 1000 to start your journey toward enhanced financial health through home ownership. Hayley Crow is a Credit Representative (CR No: 486223) of Buyers Choice Licencing Pty Ltd ACN 626 172 281 (Australian Credit Licence No: 509484)

Small Business Tax Concessions – Essential Tips for 2024

26 Feb 2024 03:22:00 GMT

Navigating the complexities of small business taxation can feel daunting, but understanding the concessions available to you can significantly reduce your tax liability and enhance your financial health. In 2024, several tax concessions are designed to support small businesses across various sectors, helping to stimulate growth and sustainability. This article explores the eligibility criteria for these tax concessions, practical tips for managing your tax obligations, and how to leverage these opportunities to benefit your business. Whether a sole trader or managing a small business under $10 million, continue reading. Discover how to capitalise on tax benefits. Understanding Small Business Tax Concessions Eligibility and Types of Concessions Tax concessions for small businesses are tailored to assist in reducing the tax burden, promoting growth, and facilitating easier management of tax affairs. The eligibility for these concessions varies, primarily depending on your business structure, industry, and annual turnover. Here are the main types of tax concessions available: Small Business CGT Concessions: These are available for businesses with an aggregated turnover of less than $2 million. These concessions can provide significant tax relief on capital gains from business assets. Small Business Income Tax Offset: Targets businesses with a turnover of less than $5 million, offering a reduction in tax payable on business income. Small Business Restructure Roll-over: This is applicable for businesses with an aggregated turnover of less than $10 million, facilitating tax-neutral restructures. Annual Eligibility Check It’s crucial to assess your eligibility for these concessions each year as your business evolves. Changes in turnover, business activities, or structure can affect your eligibility, making it essential to stay informed and compliant with the latest tax regulations. Record Keeping Requirements Maintaining accurate records is a cornerstone of managing your small business tax obligations. Typically, you must retain records for five years, substantiating your claims. Please note; record-keeping methods vary, electronic systems enhance efficiency and access, thus easing proof of tax concession eligibility. Practical Tips for Small Business Owners Leveraging Technology for Tax Management For sole traders, the Australian Taxation Office (ATO) offers digital solutions like the ATO app, which simplifies tax and superannuation management. The app’s myDeductions tool is particularly beneficial for recording expenses on-the-go, ensuring you’re well-prepared for tax time. Utilising ATO Resources The ATO website is a valuable resource for detailed information on tax concessions, eligibility criteria, and application processes. It provides comprehensive guides and tools to support small business owners in understanding and accessing the concessions available to them. Seeking Professional Advice While navigating tax concessions can be manageable with the right resources, consulting with tax professionals can offer personalised advice and ensure you’re maximising your tax benefits. Tax agents, like those at Paris Financial, specialise in small business taxation and can provide tailored support and guidance. In Conclusion Tax concessions pave the way for small businesses to lower taxes, thus fostering growth and stability. By grasping eligibility, keeping precise records, and utilising resources and expert advice, owners can adeptly maneuver through tax regulations. Moreover, staying informed and proactive is crucial in harnessing the financial advantages aimed at bolstering your business’s triumph. Remember to review your eligibility for tax concessions annually, keep comprehensive records, and seek professional advice from the team at Paris Financial when necessary to ensure your small business thrives. FAQs 1. How do I know if my business is eligible for small business tax concessions? Eligibility hinges on structure, industry, and turnover. Importantly, thresholds are under $2 million for CGT, $5 million for income offset, and $10 million for roll-overs. Consequently, verify eligibility yearly. 2. What records do I need to keep to qualify for these concessions? You must maintain financial records, tax returns, and documents of capital gains or losses for five years. Significantly, this can be in paper or electronic format, thereby supporting your concession claims effectively. 3. Can I use digital tools to manage my tax and superannuation? Yes, the ATO app and other digital tools are available for managing taxes, recording expenses, and understanding superannuation, simplifying tax management for small businesses. 4. Where can I find more information about the specific tax concessions available to my business? The ATO website is the best resource for detailed information on tax concessions, including eligibility criteria and application processes. 5. How can a tax professional help me with my small business tax concessions? Tax professionals can offer personalised advice, help maximise tax benefits, and ensure compliance, supporting your business’s financial health and tax efficiency. 6. Are there any changes to the small business tax concessions in 2024 I should be aware of? Stay updated with the ATO website or consult a tax professional for any changes to tax concessions in 2024, as legislation and benefits may change.

ABN Essentials: Reactivation, Compliance, and Navigating Cancellations

19 Feb 2024 03:10:00 GMT

Hey there, business enthusiasts! In this article we explore deeper into the realm of Australian Business Numbers (ABNs), especially focusing on how to reactivate ABNs to those asking “Why has my ABN been cancelled?” If your ABN has been inactive in the Australian Business Register (ABR), it might be at risk of cancellation. What we often hear from new clients is, “Is my ABN currently active?” Well, now’s the perfect opportunity to consult your accountant or bookkeeper for clarity. Curious about the reasons behind ABN cancellations? The ABR keeps a vigilant eye on ABN activities. If your tax lodgements or other vital paperwork seem dormant, your ABN might be flagged for cancellation. This is the ATO’s method of ensuring adherence to the small business benchmarks standard. If you’re concerned your ABN is on the brink of cancellation, remember the importance of keeping your records pristine. Ensuring you are reporting business activity in your tax return including the supplementary section and business and professional items schedule for individuals. If there are no signs of business activity in other lodgements or third-party information, the ABN’s may be selected for cancellation. Now are you wondering “How can I reactivate my ABN?” after a break or a change in your business strategy? Reactivating your ABN is straightforward when you’re ready to dive back into business, you can go to the ABR Website or contact our team to assist. It’s essential, however, to continue meeting any tax obligations during your ABN’s inactive period. Reporting all income under your ABN, no matter its size, is vital. This informs the ATO of your ongoing business activities, essential for keeping your cancelled ABN from becoming a reality. If you’ve wound up your business, there’s no further action required. But if you’re surprised to find your ABN has been cancelled and you still need it, reapplying is your best course of action. A common oversight is failing to update your ABN details in the ABR when undergoing changes. Staying up-to-date with your ABN information helps you avoid complications and aligns with the ATO benchmarks. Do you have any questions about how to reactivate an ABN or have concerns about ABN cancellations? Our team at Paris Financial is always here to assist you in navigating these processes, ensuring your business is on par with ATO requirements. Reach out to us for any help you need!

The transfer balance cap – how does it work again?

15 Feb 2024 03:08:00 GMT

In the 2016 Federal Budget, the Government introduced the transfer balance cap as part of a broader superannuation reform package. The transfer balance cap imposes a lifetime limit on the amount of superannuation that can be transferred into a tax free retirement pension account. While it may appear straightforward, understanding its nuances is essential for effective retirement planning. What is it? The transfer balance cap places a restriction on the amount of superannuation savings that can be transferred into one or more retirement pension phase accounts. It is important to understand that this cap doesn’t restrict the total amount a member can have in a pension account; rather, it limits the amount that can be transferred. Currently, the general transfer balance cap is set at $1.9 million. This cap applies individually, which means that a couple can collectively transfer up to $3.8 million into the pension phase if they begin their pensions today. If a member’s superannuation exceeds their personal transfer balance cap before starting a pension, the excess amount may stay in the accumulation phase or withdrawn from superannuation. When an individual starts a retirement phase income stream for the first time, their personal transfer balance cap will be equal to the general transfer balance cap at that time. However, the personal transfer cap will change based on usage and indexation, which we’ll explain in further detail. How does it work? The transfer balance cap comes into effect when a member moves from saving in the accumulation phase to starting a retirement income in the pension phase. When assets are held in the pension phase, the balance can grow, and the earnings will remain tax free. It is important to remember that a member cannot top up their pension balance once they have used their personal transfer balance cap, even if the balance falls due to unrealised losses or pension payments. The ATO maintains a record of all members’ personal transfer balance caps, which is accessible through MyGov. The record includes balances from different superannuation funds. Additionally, self managed super fund (SMSF) members must report specific events like starting an account based pension to the ATO. This reporting must be done quarterly as part of the transfer balance account report. Interestingly, the transfer balance cap is not indexed in line with Average Weekly Ordinary Time Earnings, like other superannuation caps such as contributions. Instead, the general transfer balance cap is annually adjusted based on the Consumer Price Index (CPI) in increments of $100,000. The cap was introduced at $1.6 million on 1 July 2017, and now thanks to the recent surge in CPI, it’s $1.9 million. Now, let’s dive into indexation. Since its establishment in 2017, the general transfer balance cap has been indexed twice, first to $1.7 million, and then to $1.9 million. If a member has used a portion of their personal transfer balance cap, any indexation increase is determined by the unused cap percentage. Put simply, if a member initially used 80%, they could then use 20% of any indexation increase. Members who have exhausted their personal transfer balance cap won’t receive an increase. Additionally, various factors like starting another pension or taking a lump sum withdrawal can affect the remaining personal transfer balance cap. What happens if you exceed the cap? The complexity of the cap makes it easy to see how a member could unintentionally go over the limit. If the ATO finds that a member has exceeded the cap, they will get a notice called an ‘excess transfer balance determination’. This notice will show the excess amount, the estimated earnings on that excess, the deadline to fix it, and which superannuation fund will get the commutation authority if it’s not rectified on time. Once it’s corrected, the member will receive an ‘excess transfer balance tax assessment’, which is essentially a 15% tax on the estimated earnings to replicate what would have happened if the excess had stayed in the accumulation phase. If the member exceeds the cap again, the tax goes up to 30%. Opportunities? The recent increase in the general transfer balance cap means members can now transfer more funds from the accumulation phase to the tax free pension phase where there is space in their personal transfer balance cap. When combined with the contribution changes, it doesn’t get much better, it’s an ideal time to think about making additional contributions and moving more funds into the tax free pension phase. Source: Bell Potter

Mortgage vs super: where should I put my extra money?

15 Feb 2024 03:06:00 GMT

It’s a dilemma many of us face – are we better off directing extra money to our mortgage or super? As with most financial decisions, it’s not a one size fits all approach and here are some factors to consider in deciding what’s right for you. Key takeaways: There may be tax advantages when you contribute to super, especially if you salary sacrifice or you’re eligible to claim a tax deduction for personal super contributions. The power of compounding returns could mean that even small contributions to your super over many years could make the world of difference. By making extra mortgage repayments, coupled with any potential increase in the value of your property, you will build equity in your property at a faster rate than if you were to make just the minimum repayments. Building the case for super over mortgage You might think your super is already being taken care of – after all, that’s what your employer’s compulsory Superannuation Guarantee contributions are all about. But these contributions alone often aren’t enough to ensure you achieve the retirement lifestyle you want to live. Making extra contributions to your super is a great way to boost your retirement savings. As an investment vehicle, super is a very tax effective way to save for the future. The power of compounding returns Super is a long term investment, at least until you retire, and potentially much longer if you leave your money in super and draw a pension after you retire. This long investment term, coupled with the rate of tax on your super investment (generally 15%), means your money can add up and generate further investment returns on those returns. This is known as compound returns, or compounding. The expenses of daily life can be considerable. Thinking about directing money to super might not seem like a priority when we feel overwhelmed by the effort to save a deposit for a home, paying down debt, and the costs of raising a family. However, the benefit of compounding returns means that even small, frequent contributions can make a big difference down the track. It’s about striking a balance that is right for you today and remember, nothing has to be forever. As your life changes, you can simply adjust your contributions strategy to suit your needs. Building super early To maximise your retirement savings while allowing compounding returns to do the heavy lifting, the best approach is to start early. The longer compounding continues, the bigger your savings could be. Entering retirement debt free is an attractive prospect. It can be easy to think that you need to repay your debt before you can start thinking about saving for retirement. However, it doesn’t have to be one or the other. You can see the difference small, regular contributions could make to your final retirement income using the MoneySmart retirement planner calculator. Tax benefits of super From a tax point of view, super can be incredibly beneficial. Salary sacrificing some of your before-tax salary or making a voluntary after-tax contribution for which you can claim a tax deduction, can be effective ways to not only grow your retirement savings but also reduce your taxable income. One great benefit of investing in super is that concessional (before tax) contributions are taxed at a maximum rate of 15%. This can be higher though if you earn over $250,000. Mortgage repayments are usually made from your take home pay after you’ve paid tax at your marginal tax rate. Your marginal tax rate could be as high as 47%. So, depending on your circumstances, making a voluntary deductible contribution to super or salary sacrificing may result in an overall tax saving of up to 32%. There is a limit on the amount you can contribute into super every year. These are referred to as contribution caps. Currently, the annual concessional contributions cap is $27,500. If you’re eligible to use the catch-up concessional contributions rules, you may be able to carry forward any unused concessional contributions for up to 5 years. If you exceed these caps, you may be liable to pay more tax. Tax on super investment earnings The initial tax savings are only part of the story. The tax on earnings within the super environment are also low. The earnings generated by your super investments are taxed at a maximum rate of 15%, and eligible capital gains may be taxed as low as 10%. Once you retire and commence an income stream with your super savings, the investment earnings are exempt from tax, including capital gains. Also, when it comes time to access your super in retirement, if you’re aged 60 or over, amounts that you access as a lump sum are generally tax free. However, it’s important to remember that once contributions are made to your super, they become ‘preserved’. Generally, this means you can’t access these funds as a lump sum until you retire and reach your preservation age, between 55 and 60 depending on when you were born. Before you start adding extra into your super, it’s a good idea to think about your broader financial goals and how much you can afford to put away because with limited exceptions, you generally won’t be able to access the money in super until you retire. In contrast, many mortgages can be set up to allow you to redraw the extra payments you’ve made or access the amounts from an offset account. Building the case for reducing your mortgage over super For many people, paying off debt is the priority. Paying extra off your home loan now will reduce your monthly interest and help you pay off your loan sooner. If your home loan has a redraw or offset facility, you can still access the money if things get tight later. Depending on your home loan’s size and term, interest paid over the term of the loan can be considerable – for example, interest on a $500,000 loan over a 25-year term, at a rate of 6% works out to be over $460,000. Paying off your mortgage early also frees up that future money for other uses. Before you start making additional payments to your mortgage, it’s suggested that you should first consider what other non-deductible debt you may have, such as credit cards and personal loans. Generally, these products have higher interest rates attached to them so there is greater benefit in reducing this debt rather than your low interest rate mortgage. Conclusion: mortgage or super It’s one of those debates that rarely seems to have a clear-cut winner – should I pay off the mortgage or contribute extra to my super? The answer, probably somewhat annoyingly, is that it depends on your personal circumstances. There is no one size fits all solution when it comes to the best way to prepare for retirement. On the one hand, contributing more to your super may increase your final retirement income. On the other, making extra mortgage repayments can help you clear your debt sooner, increase your equity position and put you on the path to financial freedom. When weighing up the pros and cons of each option, there are a few key points to keep in mind. One of the key questions to consider is what is the likely balance you’ll need in your super? Work backwards starting with working through what retirement looks like for you, the type of lifestyle you’d like, and how much you need to live on each year. From there, you can start to consider your sources of income in retirement. This is likely to include super but could also include a full or part Age Pension, or income from an investment property or other sources. You can then start thinking about your current balance, contributions strategies and whether you’re on track to have enough saved to supplement your other retirement income sources. The MoneySmart retirement planner calculator can help you to estimate how much super you may have in retirement and how long your super may last. You also need to think about how you plan to spend your money in retirement. In most cases, there isn’t one set strategy that you should follow and it can quickly change as you grow older, start a family and reach retirement age. You should also consider whether you’ll need to access any additional funds you put aside before you reach retirement. If it’s in your super, it’s locked away. If it’s in your mortgage, there are generally options to redraw. Home ownership and comfortable retirement are financial goals that many strive towards. If you reach a point where there’s some surplus cash flow to consider where to put your extra money, it’s a good dilemma to have. Life is complex, so it pays to speak with a financial adviser before you make any big financial decisions when it comes to your super or mortgage. Source: MLC

5 tips for managing your SMSF

15 Feb 2024 03:04:00 GMT

Setting up your SMSF is just the beginning. Make sure you’re aware of your obligations as an SMSF trustee and get the most out of your fund with this quick guide. While the list of SMSF administrative tasks and responsibilities may seem daunting, it’s there for a good reason: to ensure your fund’s decisions protect your retirement savings and provide financial security for your SMSF members in the future. If you need guidance with any of the following, your SMSF administrator, accountant or financial adviser will be able to help. Here are five tips that can help you build a foundation for managing your SMSF. Know your responsibilities as a trustee Ongoing administrative tasks include, but are not limited to: Accepting and allocating super guarantee contributions in line with required standards. Valuing fund assets to complete the SMSF’s financial statements and annual return, as well as member benefits reports. The annual reporting date is typically 30 June. Engaging an approved auditor for the annual audit. Lodging your SMSF annual return with the ATO. Reporting certain events within the required time frame (such as commencement of a pension within 28 days of the end of the relevant quarter). Notifying the ATO of any change in fund details, such as contact details, name, address, membership and trustees, within 28 days of the change. Keeping proper and accurate tax and superannuation records to manage the fund effectively and efficiently. Transferring part of or all benefits to another superannuation fund (a rollover) if required by the member. The rollover must be performed via SuperStream and generally initiated within three business days of receiving the completed request. Making benefit payments as a lump sum or income stream. Withholding Pay As You Go (PAYG) tax if a taxable benefit is paid to a member (such as when the member is under age 60). For more information on your obligations, visit the ATO website. Supercharge your SMSF cash hub Your SMSF bank account manages the full lifecycle of your fund. It’s important to make sure you have enough cash on hand for SMSF expenses – such as life insurance premiums, advice fees or tax. You can also hold some of your cash in a higher interest account. Once a member retires, that cash account can also be linked to an everyday transaction account to receive pension payments. Your SMSF cash account is your one stop shop for making investments, receiving distributions and paying expenses. Then when you retire, you can start drawing that cash out as your pension. Scenario 1: Getting started with your SMSF bank account Brian and Kathryn recently established an SMSF and now need a bank account within their SMSF to manage a number of transactions, including: accept the rollover of superannuation benefits from Kathryn and Brian’s existing super funds accept personal contributions from Kathryn, so she can claim a tax deduction to offset some of her self-employment income accept employer contributions from Brian’s employer receive investment income from the planned investment portfolio set up regular investment from surplus inflows pay fees and expenses. As their SMSF trustee has decided not to allocate specific assets to Brian and Kathryn’s member accounts, multiple bank accounts are not required. That means the SMSF can use one bank account. Brian and Kathryn have taken the steps for their SMSF to comply with the requirement to accept rollovers and employer contributions electronically via SuperStream, and documented an investment strategy for their SMSF. Their SMSF bank account will help them meet the investment strategy’s requirements, including: risk and likely return of the fund’s investments investment composition and diversification liquidity to meet expected cash flow requirements, and ability to pay benefits such as pension payments and lump sums after retirement. Regularly review your investment strategy The ATO expects SMSF trustees to review their investment strategy at least once a year to ensure it remains appropriate. When a new member joins or leaves the fund, or if a member transitions to pension phase, you will also need to review and potentially reallocate funds. It is possible to manage different investment goals for each member by apportioning the fund’s investments to suit their needs. For example, you could invite your adult children to join your SMSF as members while also managing the retirement of a member. SMSFs are very flexible, and it’s common to have one member in pension phase while others are still accumulating. Scenario 2: Making sure your SMSF cash account is retirement ready Brian is now ready to retire and wants to set up an account based pension. Kathryn is still working and wants to maximise her super over the last decade of her career. Once the documentation is completed, Brian can access his accumulated benefits. The SMSF will not pay any tax on earnings related to Brian’s account based pension, where previously earnings were taxed at 15%. Brian and Kathryn know that the SMSF must pay at least the minimum pension from Brian’s account-based pension each year, based on his age. Pension payments must also be made by cash payment, not by transferring an asset from the SMSF. The SMSF makes the required pension by regular monthly payments from its existing SMSF bank account to Brian’s personal transaction account outside the SMSF. Each financial year, the minimum annual pension requirement from Brian’s account based pension may change, so Brian and Kathryn have diarised to confirm the monthly payment each year. They have also diarised to check towards the end of each financial year to ensure the minimum pension will be paid by 30 June of that year. This may mean topping up the SMSF’s bank account by selling an asset within the SMSF to ensure they have sufficient liquidity to meet the ongoing pension payments. By taking these steps to pay the minimum pension each year, Brian and Kathryn can receive tax free income from Brian’s account based pension. Understand the potential tax advantages available The superannuation environment is typically more tax effective than investing outside super. So having more control over your own investment strategy through an SMSF also gives you more flexibility to manage the tax implications. For example, you can buy and hold investment assets while you are accumulating your super, then sell them in the pension phase after you retire. As the proceeds support the payment of a pension, the fund may not pay Capital Gains Tax (CGT) on the sale of those assets. Other potential tax benefits can include: Tax deductions for contributions made by members, up to their concessional contribution cap. Concessional tax on employer contributions, including salary sacrifice, up to the concessional contribution cap. Tax rebates for certain contributions made on behalf of a low income earning spouse. Lower tax on investment earnings. Within super, you’ll pay up to 15% on investment earnings, whereas marginal tax rates may be as high as 47% outside super. Effective CGT rate of 10% on the sale of fund assets held for 12 months or more. Once benefits can be accessed, tax free payments to members aged 60 or over. Be ready to manage life changes The most common SMSF structures involve two members. If separation occurs, or the death of one member, having the right structures in place can help protect members and reduce the complexity of navigating a difficult time. Dealing with a divorce can be especially challenging, particularly if the fund’s main investment is property. If that property is also one member’s business premises, it can get quite difficult. You may need to sell that asset to wind up the fund, or to rollover into the exiting member’s new fund. While no one starts an SMSF expecting things to turn out badly, it’s important to be prepared. Estate planning should also include watertight steps for what happens to the SMSF in the event of either member passing. A lot of this depends on who is in control of the SMSF at that time. If the surviving spouse has not been directly involved in managing the SMSF investment decisions, they may decide to engage a financial adviser to help them run it, rather than rush the decision. Having the right structures, agreements and advisers in place can help you manage these unexpected changes, as well as the more predictable administration tasks involved with an SMSF. Source: Macquarie

Australian household wealth

15 Feb 2024 03:02:00 GMT

Is high Australian household wealth a source of support for consumers? Key points Australia ranked as having one of the lowest rates of disposable income growth per capita amongst OECD countries in mid 2023. An increasing income tax burden and mortgage repayments have weighed on income growth, despite solid wages and salaries. But, household balance sheets in Australia look stronger compared to incomes. Household wealth increased in 2023, as home prices rose. However, growth in household wealth will decline in 2024 as home prices are expected to fall. Household incomes will also be under pressure as earnings growth slows from a softening labour market. As a result, high household wealth holdings will not be enough to offset a challenging environment for households in 2024, despite some easing in cost of living challenges. Introduction Household income data from the OECD showed that Australia had one of the lowest rates of annual real household disposable income per person compared to its OECD peers (see the chart below). Over the year to June 2023, Australia’s real per capita household disposable income was down by 5.1%, compared to a 2.6% rise across OECD countries. Source: AMP, Macrobond This occurred despite very healthy labour market conditions in Australia which saw employment growth running above 3.0% per annum all year, the unemployment rate remaining below 3.9% and underemployment continuing to be low, all of which boosted wages growth. Despite this positive earnings backdrop, the income tax burden increased in 2023 as households have been moving into higher income tax brackets (otherwise known as “bracket creep”), as well as the end of income tax concessions. Mortgage interest repayments are also an increasing drag on incomes (see the chart below) as the cash rate has been increased by 425 basis points since May 2022. Australia’s very high population growth in 2023 (running at 2.4% over the year to June 2023) also masked a fall in household disposable income growth per person, relative to other OECD countries. Source: ABS, AMP Just looking at household income accounts does not show everything about the position of households. In a country like Australia where home ownership rates are high (66% of Australian households own their home, with or without a mortgage), looking at household wealth is also important. Household wealth in Australia The Australian Bureau of Statistics estimates the value of a household’s assets, liabilities and therefore wealth. Net worth or wealth is calculated as a household’s total assets minus its liabilities. Total wealth is close to 11 times the size of household disposable income (or 1083%) and net wealth is 896% of income. The latest data for the year to June 2023 showed a slight fall in wealth as a share of income, after it reached a record high in 2022 – see the chart below. Non financial wealth is worth 647% of income, larger than financial wealth at 436% and well surpassing household debt, which is 187% of income. Source: RBA, AMP Around 70% of Australian household wealth is tied to the value of homes (which is made up of land and dwellings) and moves closely in line with home prices (see the chart below). Household wealth rose throughout 2023, in line with solid growth in home prices. Source: ABS, AMP Other components of household wealth are shown in the chart below. Assets include superannuation, shares and currency and deposits. Loans which are mostly for housing are the source of household liabilities. Source: ABS, AMP How does household wealth compare around the world? Australian household wealth, as a share of household disposable income, is at the top end of its OECD peers (see the chart below). Source: OECD, AMP High holdings of wealth could be considered a source of support for households, especially against record levels of household debt in Australia. This is a concept known as the “wealth effect”. When household wealth increases, households feel more secure with their financial position and household savings tend to decrease which lifts consumer spending. When wealth decreases, households feel less secure which leads to an increase in savings and decline in spending. However, this relationship does not always work. Most recently in the pandemic, household wealth rose in 2021/22 alongside the lift in home prices but the savings ratio also surged thanks to government driven stimulus cheques. Since then, the household savings ratio has been falling but growth in total consumer spending has been low. We expect that the household savings rate will continue to fall in 2024 as it normalises after the pandemic but growth in consumer spending will still be low. Implications for investors Households dealt with a cost of living challenge in 2023 because of high inflation and rising interest rates. Inflation is expected to slow in 2024 and we expect the RBA to start cutting interest rates by mid year which should ease the repayment burden for households with a mortgage, as mortgage interest repayments as a share of income are rising to a record high (see the chart below). Source: ABS, AMP So, while cost of living issues should improve for consumers, household wealth will come under pressure in 2024 as we expect home prices will decline by 3.0% to 5%. This is likely to occur alongside a slowing in household incomes as the labour market weakens and the unemployment rate increases. This environment is expected to be negative for consumer spending and GDP growth. We see GDP growth rising by 1.2% over the year to June 2024, below the RBA’s forecast of 1.8% and anticipate the unemployment rate to increase to 4.5% by mid year. This should see the RBA cutting interest rates by June and we expect a total of 3 rate cuts in 2024. Wealth inequality between households is also an issue in Australia. The top 20% of households (by income quintile) owned 63% of total household wealth in 2019-20 but the bottom income quintile (the bottom 20%) owned less than 1.0% of all household wealth. In Australia, there is also increasing generational wealth gap, with wealth across older households increasing significantly over recent decades but this has not been the case for younger Australians. There are numerous government policies that could address these issues of wealth inequality, including improving the housing affordability issue (through lifting housing supply and/or looking at the favourable treatment of housing investment) and doing a tax review (looking at broadening the GST and examining the merits of a wealth or death tax), which could help the wealth inequality issue. Source: AMP

As scams evolve, so can you

15 Feb 2024 03:01:00 GMT

As scams continue to evolve, it’s important to stay on top of the latest information. Here are some tips for staying protected against some of the most common scams impacting Australians today and red flags to watch out for. What can you do to stay protected? Anyone can fall victim to a scam. As well as learning more about the different types of scams and how to spot them, start a conversation with family members or friends. You might know the red flags to watch out for, but do your loved ones? Raising awareness and educating yourself and others are important steps to help combat scams and even prevent them from happening in the first place. Three scams to watch out for Impersonation scams Have you ever received a call and it just didn’t feel right? It may have been part of an impersonation scam, which is when a scammer impersonates a bank or other service company by phone or SMS, asking you to authorise transactions, make a payment, or provide personal information. According to the Australian Government’s Anti-Scam Centre, three in four reported scams include some form of impersonation of a legitimate entity1. So how can you be sure next time that person calling you is really from where they say they’re from? Here’s a few things to remember: most financial institutions will never ask you to transfer funds to another account never share passwords with anyone avoid using phone numbers or links from text messages check contact information using a trusted source such as the company’s website. Investment scams As of 9 November 2023, Australians have lost $240 million to investment scams2. Investment scams are often sophisticated which means they can be hard to spot. Investment opportunities offering fast results and big returns can have the potential makings of a scam. Common investment scams include: unsolicited investment offers such as cryptocurrency, fake corporate or treasury bonds, and fake share IPOs (Initial Public Offerings), claiming to be from reputable businesses fake endorsement of an investment or other business opportunities from celebrities early access to superannuation with a fee. Buyer/seller scams Buying or selling on an online selling platform is great when it’s quick and hassle-free. But scammers are popping up everywhere, so it’s harder to stay safe online. Here are five red flags to look out for: being approached by someone who has no profile photo the price seems too good to be true a request for personal information such as your phone number or email the buyer overpays for an item and wants you to refund the excess amount the buyer wants to pay using a gift card or wants to send a prepaid shipping label. 1scamwatch.gov.au 2scamwatch.gov.au as at 9 November 2023 Source: Macquarie

Want to earn more and keep your Age Pension?

15 Feb 2024 02:59:00 GMT

Many people continue, or even start, working once they’ve reached Age Pension age. This may be for social reasons, personal fulfilment or to maintain their standard of living. With the higher cost of living at the moment, even more pensioners are taking up work. But what does this mean if you’re receiving the Age Pension? The government’s Work Bonus means you can earn a little more without it affecting your pension. The permanent increase to the Work Bonus means you may be able to continue this longer if you choose. Consider this example, of Margaret, to show what this could mean for you. Introducing Margaret Margaret has just reached her Age Pension age of 67 and owns a home with her husband (who has also just reached Age Pension age) and they have $440,000 in joint financial assets including super. Like many others, Margaret was looking to do more in her retirement years. She missed the company of colleagues and doing something purposeful. Through a friend, Margaret was offered an opportunity for some paid work for a charity that she was passionate about. Margaret asked her friend about her work opportunity. Her well-meaning friend mentioned that even a small increase in Margaret’s income would reduce her Age Pension. Regretfully, Margaret turned down the opportunity as she hated losing some Age Pension. However, Margaret didn’t understand the full situation. What is the Work Bonus? The Work Bonus is a scheme offered by the government that increases what a person of Age Pension age can earn from work before it affects their pension amount. It’s essentially an offset for assessable employment income in the Age Pension income test. Assessable income is the amount of income you earn that is assessed under the income test which helps determine how much Age Pension you receive. In simple terms, it means eligible pensioners can keep more of their Age Pension while working. The government provides the Work Bonus as an incentive to keep pensioners, and their valuable skills, in the workforce. How much is the Work Bonus for pensioners? The Work Bonus is $300 per fortnight for eligible pensioners. This means the first $300 earned in a fortnight won’t affect how much Age Pension you receive. If you earn less than $300 in a particular fortnight, the unused bonus amount is accrued as a Work Bonus balance that you can apply to future income. This means, when you earn over $300 in a fortnight, the Work Bonus offsets the first $300 of your earnings and then any Work Bonus balance you have can be used to reduce your remaining employment income. So, your income will have less of an effect on your pension amount. If the Work Bonus applied to you before, then you may be aware the limit that could accrue in a person’s Work Bonus balance was previously $7,800. Margaret was offered work that would pay $800 per fortnight (or $20,800 per year). Margaret went to see a financial adviser. After considering her full financial situation, her adviser determined that her and her husband’s combined Age Pension under the previous Work Bonus rules would have reduced by almost $5,768 per year. On the one hand, Margaret was pleasantly surprised she could still receive some Age Pension while working – but it cost her more than a quarter of her new income. She was eager to understand what the new rules mean for her pension. What are the changes to the Work Bonus? Prior to 1 December 2022, a new Age Pension applicant started with a Work Bonus balance of zero. Any unused Work Bonus each fortnight would accrue in their Work Bonus balance up to a maximum of $7,800. From 1 December 2022, pensioners received a one off $4,000 boost to their Work Bonus balance, while the maximum balance that could be accrued increased to $11,800. These temporary changes were due to cease on 31 December 2023, and amounts in a pensioner’s Work Bonus balance over $7,800 would be forfeited. However, this temporary increase will be permanent from 1 January 2024. This means those already on a pension will keep their Work Bonus balance which is subject to a maximum of $11,800. New pensions will have a starting Work Bonus balance of $4,000. So, you don’t have to build up a balance but have an amount you can start using straight away. Margaret’s adviser explained how the new Work Bonus balance boost of $4,000 meant she could earn $800 per fortnight from working and her Age Pension would not be reduced until her Work Bonus balance is used which would take around eight fortnights. Margaret and her husband receive an extra $1,774 in Age Pension during this time due to the $4,000 boost. Margaret also learned that she could encourage her husband to get out there too as he could also earn up to $800 per fortnight for eight fortnights without their Age Pension being reduced during that time. Margaret and her husband are now doing a mix of paid and unpaid work for the charity. They are loving being able to give back and afford a few more luxuries – not to mention a new social network. They may need to reassess when their Work Bonus balances are used up, as any employment income from that point over $300 per fortnight each is likely to start affecting how much Age Pension they receive. Does the Work Bonus balance reset each year? The Work Bonus balance doesn’t reset. It carries forward without a time limit. However, you can’t grow your balance over the $11,800 cap. Who is eligible for the Work Bonus? To receive the Work Bonus you need to be: of Age Pension age or over, and receiving the Age Pension, Carer Payment, Disability Support Pension, or an eligible payment from the Department of Veterans’ Affairs. The Work Bonus applies to reduce income earned from employment, as well as self employment income from doing gainful work (which is work that requires some effort). Importantly, the Work Bonus applies automatically if you’re eligible. So, you don’t have to do anything to benefit from it. Keep up to date on what you might be entitled to. Rules change often and you may find that you can receive additional benefits. You can check out your Age Pension eligibility using free Age Pension eligibility tools or you can speak to your financial adviser. Source: CFS

Falling inflation – what does it mean for investors?

15 Feb 2024 02:57:00 GMT

Key points Inflation is in retreat thanks to improved supply and cooling demand. A further fall is likely this year. Australian inflation remains relatively high – but this mainly reflects lags rather than a more inflation prone economy. Profit gouging or wages were not the cause of high inflation. The main risks relate to the conflict in the Middle East escalating and adding to supply costs; a surprise rebound in economic activity and sticky services inflation; and floods, the port dispute and poor productivity in Australia. Lower inflation should be positive for investors via lower interest rates, although this benefit may come with a lag. The world is now a bit more inflation prone so don’t expect a return to near zero interest rates anytime soon. Introduction The surge in inflation coming out of the pandemic and its subsequent fall has been the dominant driver of investment markets over the last two years – first depressing shares and bonds in 2022 and then enabling them to rebound. But what’s driving the fall, what are the risks and what does it mean for interest rates and investors? This article looks at the key issues. Inflation is in retreat Inflation appears to be falling almost as quickly as it went up. In major developed countries it peaked around 8% to 11% in 2022 and has since fallen to around 3% to 4%. It’s also fallen in emerging countries. Source: Bloomberg, AMP What’s driving the fall in inflation? The rise in inflation got underway in 2021 and reflected a combination of massive monetary and fiscal stimulus that was pumped into economies to protect them through the pandemic lockdowns that was unleashed as spending (first on goods then services) at a time when supply chains were still disrupted. So it was a classic case of too much money (or demand) chasing too few goods and services. Its reversal since 2022 reflects the reversal of policy stimulus as pandemic support measures ended, pent up or excess savings has been run down by key spending groups, monetary policy has gone from easy to tight and supply chain pressures have eased. In particular, global money supply growth which surged in the pandemic has now collapsed. Why is Australian inflation higher than other countries? While there has been some angst about Australian inflation (at 4.3% year on year in November) being higher than that in the US (3.4%), Canada (3.1%), UK (3.9%) and Europe (2.9%), this mainly reflects the fact that it lagged on the way up and lagged by around 3 to 6 months at the top. The lag partly reflects the slower reopening from the pandemic in Australia and the slower pass through of higher electricity prices. So we saw inflation peak in December 2022, whereas the US, for instance, peaked in June 2022. But just as it lagged on the way up it’s still following other countries down with roughly the same lag. In fact, with a very high 1.5% month on month implied rise in the Monthly CPI Indicator to drop out from December last year, monthly CPI inflation is likely to have dropped to around 3.3% to 3.7% year on year in December last year, which is more in line with other countries. Source: Bloomberg, AMP What about profit gouging? There has been some concern that the surge in prices is due to “price gouging” with “billion dollar profits” cited as evidence. In fact, the Australian Government has set up an inquiry into supermarket pricing. There are several points to note in relation to this. First, it’s perfectly normal for any business to respond to an increase in demand relative to supply by raising prices. Even workers do this (e.g. asking for a pay rise and leaving if they don’t get one when they are getting lots of calls from headhunters). It’s the way the price mechanism works in allocating scarce resources. Second, national accounts data don’t show any underlying surge in the profit share of national income, outside of the mining sector. Finally, blaming either business or labour (with wages growth picking up) risks focusing on the symptoms of high inflation not the fundamental cause, which was the pandemic driven policy stimulus and supply disruption. This is not to say that corporate competition can’t be improved. Source: ABS, RBA, AMP What is the outlook for inflation? Our US and Australian Pipeline Inflation Indicators continue to point to a further fall in inflation ahead. Source: Bloomberg, AMP This is consistent with easing supply pressures, lower commodity prices and slowing demand. It’s not assuming recession, but it is a high risk and if that occurred it would likely result in inflation falling below central bank targets. Out of interest, the six month annualised rate of core private final consumption inflation in the US, which is what the Fed targets, has fallen below its 2% inflation target. In Australia, it’s expected that the quarterly CPI inflation to have fallen to around 3% year on year by year end. The return to the top of the 2% to 3% target is expected to come around one year ahead of the RBA’s latest forecasts. What are the risks? Of course, the decline in inflation is likely to be bumpy and some say that the “last mile” of returning it to target might be the hardest. There are five key risks to keep an eye on in terms of inflation: First, the escalating conflict in the Middle East has the potential to result in inflationary pressures. Disruption to Red Sea/Suez Canal shipping is already adding to container shipping rates due to extra time in travelling around Africa. So far this has seen only a partial reversal of the improvement in shipping costs seen since 2022 and commodity prices and the oil price remain down. The US and its allies are likely to secure the route relatively quickly such that any inflation boost is short lived. The real risk though, is if Iran is drawn directly into the conflict, threatening global oil supplies. Economic activity could surprise on the upside again keeping labour markets tight, fuelling prices and wages, and hence sticky services inflation. Central banks could ease before inflation has well and truly come under control in a re-run of the stop/go monetary policy of the 1970s. In Australia, recent flooding could boost food prices and delays associated with industrial disputes at ports could add to goods prices. At present though, the floods are not on the scale of those seen in 2022 and it’s expected that any impact from both to be modest (at say 0.2%). Finally, and also in Australia if productivity remains depressed, 4% wages growth won’t be consistent with the 2% to 3% inflation target. What lower inflation means for investors? High inflation tends to be bad for investment markets because it means higher interest rates; higher economic uncertainty; and for shares, a reduced quality of earnings. All of which means that shares tend to trade on lower price to earnings multiples when inflation is high, and growth assets trade on higher income yields. We saw this in 2022 with bond yields surging, share markets falling and other growth assets pressured. Source: Bloomberg, AMP So, with inflation falling, much of this goes in reverse as we started to see in the last few months. In particular: Interest rates will start to come down. The Fed is expected to start cutting in May and the European Central Bank (ECB) to start cutting around April, both with 5 cuts this year. There is some chance that both could start cutting in March. The RBA is expected to start cutting around June, with 3 cuts this year. Shares can potentially trade on higher price-to-earnings (PEs) than otherwise. Lower interest rates with a lag are likely to provide some support for real assets like property. Of course, the main risk is if economies slide into recession, which will mean another leg down in share markets before they start to benefit from lower interest rates. This is not our base case but it’s a high risk. Concluding comment Finally, while inflation is on the mend cyclically, it’s worth remembering that from a longer term perspective we have likely now entered a more inflation prone world than the one prior to the pandemic, reflecting bigger government; the reversal of globalisation; increasing defence spending; decarbonisation; less workers and more consumers as populations age. So short of a very deep recession, don’t expect interest rates to go back to anywhere near zero anytime soon. Source: AMP

Economic and market overview

15 Feb 2024 02:54:00 GMT

A rally in the second half of the month helped global share markets generate solid gains in January, extending the rally from November and December. The latest indicators suggest economic conditions are holding up quite well in most regions, which augurs well for corporate earnings. With inflation still above central bank targets, investors pared back their expectations for interest rate cuts this year. At the beginning of January investors had been anticipating six rate cuts in the US this year, with the first expected in March. That timing now seems unlikely, with policy settings more likely to be eased a little later. It was a similar story elsewhere, with investors conceding that policy settings are unlikely to be loosened as much as previously thought in the near term. Bond yields rose against this background, which weighed on returns from fixed income markets. Geopolitical risk remained elevated, particularly in the Middle East. A series of attacks on commercial vessels in the Red Sea by Houthis – a Yemen-based group, backed by Iran – prompted some shipping companies to divert Asia-Europe traffic around the tip of Africa, instead of through the Suez Canal, increasing freight times and costs. In some cases, shipping costs have more than trebled over the past two months, which could feed through to consumer goods inflation and, in turn, make it less likely that central banks will lower interest rates. US GDP growth in the December quarter was stronger than anticipated. The economy grew 2.5% in 2023 as a whole, supported by robust consumer spending. Retailers enjoyed strong pre Christmas trading, according to the latest retail sales data. Discretionary spending appears to be holding up well despite higher borrowing costs, perhaps owing to the strong labour market and a good level of wage growth. The latest employment data suggested US firms remain quite optimistic about their future prospects. More than 200,000 new jobs were created in December, which was above forecasts. Most importantly of all, annualised inflation in December quickened from the prior month and was comfortably above consensus forecasts. Combined, these data led investors to question whether policymakers will be willing to lower interest rates in the near term. There had been speculation that the Federal Reserve would lower borrowing costs in March, but by month end traders were only pricing in a 35% likelihood of such a move. Australia All measures of inflation slowed sharply in the December quarter, which was consistent with previous guidance from Reserve Bank of Australia policymakers. At the headline level, consumer prices rose at an annual pace of 4.1%, down from 5.4% in the September quarter. Inflation remains significantly above the 2.0% to 3.0% target, but officials will nonetheless be happy with the direction of travel. The economy lost more than 65,000 jobs in December, which surprised economists and came after four months of gains. Combined with moderating inflation, any prolonged downturn in the labour market would likely increase the probability of interest rates being cut in the months ahead. The latest projections suggest official borrowing costs will be lowered in the second half of 2024 and by between 0.50% and 0.75% by the end of the year. New Zealand Inflation slowed to 4.7% year on year, which was in line with consensus forecasts. Business confidence levels improved, which prompted some observers to suggest policymakers might be hesitant to lower official borrowing costs as quickly as previously thought. At the beginning of January, a rate cut in May had been fully priced into the market. During the course of the month however, the probability fell to around 50%. Europe Inflation in France and Germany continued to ease, consistent with forecasts from European Central Bank officials. Nonetheless, policymakers poured cold water on investors’ expectations for interest rate cuts in the near term, indicating that official borrowing costs are unlikely to be lowered until the middle of the year at the earliest. This could disappoint manufacturers, which continue to struggle against a background of stalling demand. Industrial output in Germany shrank 2.0% in 2023, for example. Curiously, employment trends are holding up quite well despite the subdued economic backdrop. Unemployment has fallen to a record low of 6.4% in the Eurozone, which could feed through to wage demands and, in turn, further inflationary pressures. According to the European Central Bank, wages rose more than 5.0% in 2023. In the UK, inflation quickened in December for the first time in eleven months. Asia Q4 GDP growth data were released in China. Real GDP was reported at 5.2% for the full 2023 year, while nominal GDP came in at 4.2% owing to the deflation seen last year. Apart from COVID-affected 2020, this was the slowest annual growth rate in the world’s second largest economy since the mid 1970s. Home sales remain subdued and a downturn in import volumes suggests households and business are cutting back on discretionary expenditure. Authorities appear concerned about the outlook for the year ahead too and responded by lowering the reserve requirement ratio, which determines how much cash banks need to keep in reserve. The policy change is designed to make more cash available for lending, in turn boosting spending and supporting overall economic activity levels. In Japan, comments from central bank officials were closely scrutinised, as investors believed policymakers were preparing to raise interest rates for the first time since 2007. Inflation remains significantly above the long term average, questioning the rationale for persevering with negative rates. Australian dollar The AUD weakened by 3.6% against the US dollar in January. This primarily reflected broad based strength in the USD, rather than any local influences affecting the ‘Aussie’. The USD strengthened against most major currencies, following strong employment data and higher than expected inflation. That said, the AUD weakened against other majors too, depreciating by 1.9% against a trade-weighted basket of international currencies. Australian equities Australian equities closed January at an all time high, surpassing levels not seen since August 2021. The market was buoyed by cooler than expected local inflation figures and may have influenced the decision by the Reserve Bank of Australia to leave interest rates unchanged at its February meeting. The S&P/ASX 200 Accumulation Index ended January 1.2% higher. The Energy sector outperformed, soaring 5.2% as escalating tensions in the Middle East bolstered oil prices. Uranium miners, Boss Energy and Paladin Energy also generated stellar returns, between 30% and 40%, given tight global supply and demand fundamentals for the commodity. The Financials sector (+5.0%) also fared well, supported by insurance stocks. AUB Group (+10.5%), QBE Insurance Group (+7.0%) and Insurance Australia Group (+6.7%) all made positive contributions. The lithium price came under pressure, adversely affecting miners such as Sayona Mining (-43.7%), Liontown Resources (-37.6%) and Arcadium Lithium (-20.6%). These stocks were among the worst performers in the Materials sector (-4.8%). Iron ore prices oscillated during the month, initially rising but then dropping back and closing the month, little changed. The price movements were driven by changing expectations for steel demand in China, Australia’s largest iron ore customer, alongside reports of further deterioration in the Chinese property market. The Utilities sector (-1.5%) was among the laggards, with APA Group (-0.6%) and AGL Energy (-8.5%) offsetting a positive contribution from Origin Energy (+0.6%). Small cap stocks underperformed their large cap peers, continuing the trend seen in 2023 where investors typically favoured larger, quality stocks. The S&P/ASX Small Ordinaries added 0.9% in January. Global equities Share markets made a strong start to the new year, with the MSCI World Index adding 4.5% in AUD terms during the month. Favourable moves in US listed stocks set the tone. The S&P 500 Index added 1.7% over the month. Technology stocks continued to fare well too, which helped the NASDAQ rise 1.0%. Interestingly, while the major US indices roared towards record highs, Chinese shares slumped to their lowest levels for more than three years. China’s CSI 300 Index and the Hang Seng in Hong Kong closed January 6.3% and 9.2% lower, respectively, reflecting a broad based economic downturn and underwhelming earnings prospects for the year ahead. Japanese shares performed much more strongly. The Nikkei added 8.4% over the month. After 35 years in the doldrums, Japanese shares are reapproaching record levels seen in the late 1980s. European markets were mixed, but made modest progress in aggregate. Swiss stocks were among the best performers in the region, while those in the UK and Spain underperformed. Global and Australian fixed income The release of inflation data and evolving forecasts for official interest rates continued to affect bond yields and drive returns from fixed income. Government bond yields edged higher in all major markets, as the timing of anticipated rate cuts was pushed out. This was a headwind for fixed income and resulted in a return of -0.3% from the Bloomberg Global Aggregate Index in AUD terms. Despite higher than expected inflation readings in the US, benchmark 10 year Treasury yields were little changed over the month. The timing of the first interest rate cut could be delayed a little, but ultimately investors are still expecting policy settings to be eased significantly over the course of this year. More significant moves were seen in Europe. Yields on 10 year government bonds in the UK and Germany rose 0.26% and 0.14% respectively, as Bank of England and European Central Bank officials indicated rate cuts are unlikely in the near term. Yields on Japanese Government Bonds rose quite meaningfully too. No changes to monetary policy are anticipated at the next central bank meeting in March, but a subtle change in the tone of forward looking commentary from officials was enough to push yields higher. Yields on 10 year Australian Commonwealth Government Bonds closed January slightly above their end December levels. Yields had risen much more significantly in the first half of the month, but trended lower into month end – particularly following the release of lower than expected inflation data for the December quarter. Global credit Global credit continued to fare well in January, following a period of very strong performance during November and December. Spreads on investment grade issues tightened, closing the month at their lowest levels for two years. European issuers performed particularly well, after GDP data showed the Eurozone economy avoided recession in the December quarter. Reasonably resilient activity levels and the prospect of rate cuts later in the year augur well for corporate earnings in the region and are helping support demand for high quality credit. US continued to perform well too. Around US$240 billion of new corporate issues were priced during the month, which underlined the strong demand that exists currently for securities offering yields over and above those on offer from cash and comparable government bonds. In Asia, attention remained focused on the beleaguered property sector. Towards month end, a court in Hong Kong ordered the liquidation of developer, China Evergrande Group. With more than US$300 billion of liabilities, Evergrande was the world’s most indebted developer and had struggled to come up with a credible restructuring program over the past two years. The episode highlights the peril of over leveraging for companies and provides a reminder of the importance of careful security selection in this asset class. Source: First Sentier Investors

Contractor or employee?

07 Feb 2024 02:52:00 GMT

Just because an agreement states that a worker is an independent contractor, this does not mean that they are a contractor for tax and superannuation purposes, new guidance from the ATO warns. Where there is a written contract, the rights and obligations of the contract need to support that an independent contracting relationship exists. The fact that a contractor has an ABN does not necessarily mean that they have genuinely been engaged as a contractor. The ATO says that “at its core, the distinction between an employee and an independent contractor is that: an employee serves in the business of an employer, performing their work as a part of that business an independent contractor provides services to a principal's business, but the contractor does so in furthering their own business enterprise; they carry out the work as principal of their own business, not part of another.” Contracts over time The ATO points out that a contracting agreement at the start of a relationship may not continue to be one over time. For example, if the project the contractor was engaged to complete has finished, but the worker continues working for the company then the classification needs to be revisited. What happens if there is no contract? If no contract exists, then it’s important to look at the form and substance of the relationship to come to a reasonable position about whether an employment or contractor relationship exists. Feel free to contact our team if you have any queries.

Albanese Government's Stage 3 Tax Cut Revisions Offer Benefits for Borrowers

06 Feb 2024 02:43:00 GMT

The Albanese government's recent revision of the stage 3 tax cuts, set to be implemented from 1 July this year, presents potential advantages for Australian borrowers. Prime Minister Anthony Albanese, during his address at the National Press Club on 25 January, highlighted these changes as part of a broader "plan for middle Australia," aiming to benefit taxpayers across the board. The adjustments to the stage 3 tax cuts are seen as a considerable enhancement to the current tax system, especially favouring middle-income families. The shift away from a uniform tax reduction strategy means that families will have more disposable income, directly impacting their borrowing capacity. This is particularly relevant given the government's incentives for first home buyers, likely leading to an increase in market activity from this demographic. What Do the Changes Entail? Originally legislated by the Morrison government in 2019, the stage 3 tax cuts were designed to apply a 30 percent tax rate to incomes between $45,000 and $200,000, while removing the 32.5–37 percent tax brackets and adjusting the thresholds for the 45 percent tax bracket. The Albanese government's revisions include: Reducing the tax rate from 19 percent to 16 percent for incomes between $18,200 and $45,000. Lowering the tax rate to 30 percent from 32.5 percent for incomes between $45,000 and the new $135,000 threshold. Raising the threshold for the 37 percent tax rate from $120,000 to $135,000. Increasing the threshold for the 45 percent tax rate from $180,000 to $190,000. This means individuals earning up to $140,000 will see greater tax cuts, while those earning over $200,000 will experience a reduction in their tax cut, receiving $4,529 instead of the initially legislated $9,075. These changes will result in tax cuts for all 13.6 million Australian taxpayers, 2.9 million more than what was proposed under the original plan by the Morrison government. For personalised advice on how these tax changes might affect your borrowing capacity, contact our lending specialist, Hayley Crow, at Paris Financial today at (03) 8393 1000. Hayley Crow is a Credit Representative (CR No: 486223) of Buyers Choice Licencing Pty Ltd ACN 626 172 281 (Australian Credit Licence No: 509484)

Can my SMSF invest in property development?

02 Feb 2024 02:35:00 GMT

Australians love property and the lure of a 15% preferential tax rate on income during the accumulation phase, and potentially no tax during retirement, is a strong incentive for many SMSF trustees to dream of large returns from property development. We look at the pros, cons, and problems that often occur. An SMSF can invest in property development if trustees ensure the investment complies with the rules. And, there are a lot of rules. A key is the sole purpose test. Trustees need to ensure the fund is maintained to provide benefits for retirement, ill health or death. Breaches of this fundamental tenet are serious and include the loss of the fund’s concessional tax treatment and civil and criminal penalties. By its nature property development is high risk and fund trustees need to ensure that the SMSF is not simply a handy cash-cow for a pipe dream, particularly when the developers are related parties. There are multiple ways an SMSF can invest in property development if the investment strategy of the fund allows: Directly developing property An ungeared unit trust or company (the parties can be related) Investment in an unrelated entity A joint venture Directly developing property from fund assets An SMSF can purchase land from an unrelated party and develop the property in its own right. Common issues that often arise include: Acquiring the land from a related party – An SMSF cannot purchase land from a related party (unless it is business real property used wholly and exclusively in a business). This means that the lovely block of land inherited by one of the members, or owned by a family trust, that is perfect for development cannot be purchased by the SMSF. An SMSF cannot borrow to develop property – An SMSF can borrow money to purchase land using a limited recourse borrowing arrangement but it cannot use a loan to improve the asset. That is, borrowings cannot be used to develop the land. And, where the SMSF has borrowed to purchase land, it cannot change the nature of that asset until the loan has been repaid. That is, no development. Who will develop the property? – Problems often occur when the property developers are related to the fund members. Whilst it is possible to engage a related party builder to undertake the work, there are strict rules that mean that the work and materials must be acquired at market value. That is, there is no advantage from “mates rates”. If you are using a related party builder, ensure that the paperwork is pristine, any transactions are at market value, and all interactions are documented. GST might apply – Goods and services tax might apply to the development and the sale of any developed property. If the ATO considers that an SMSF is in the business of developing property or is undertaking a one-off development in a commercial manner then GST could potentially apply. If your SMSF is not undertaking a property development project in its own right, there are a few ways for an SMSF to invest in property development projects: Related ungeared trust or company An ungeared company or trust is often used (under SIS Regulation, section 13.22C) when related parties want to invest in a property development together. The SMSF can invest in a company or trust that is undertaking a property development as long as the company or trust: Does not lease to a related party (unless business real property) Does not borrow money or have borrowings (must be ungeared) Does not conduct a business Conducts any dealings at arm’s length And, the assets of the unit trust or company: Do not include an interest in another entity (i.e., cannot have shares in a company) Do not have a charge over them (i.e., mortgage over any asset) Are not purchased from a related party (or was ever an asset of a related party) unless the asset is business real property acquired at market rates. See section 13.22C for full details. Profits from the company or trust are then distributed to the SMSF according to its share. Using the provisions of 13.22C means that the SMSF can invest in property development with a related party without the development being considered an in-house asset. However, if the criteria are not met (at any point), the in-house asset rules apply, and the SMSF might have to sell the units in the trust or shares in the company to return to the maximum 5% in-house asset limit. Generally, this means the sale of the underlying property or a significant restructure. Problems arise with 13.22C arrangements where the trust or company: Needs more money to complete the development and borrows money, or issues more units and sells them (is in business) Accepts a loan from a member of the SMSF Overdrafts (may be considered loans and breach 13.22C) Uses a related party builder who either under charges for the work completed or overcharges and strips the profits that should have been returned to the SMSF. Warning on conducting a business One of the criteria for the exemption in 13.22C to apply is that the trust or company cannot be conducting a business. This requirement may prevent short-term property developments that are built and sold for profit. Typically, 13.22C arrangements are used for long term investments where the development enables the creation of an asset that is then leased by the trust or company. This could be commercial premises leased to a related or unrelated party (e.g., premises for a child care centre or manufacturing), or residential premises leased to unrelated parties (e.g., townhouses or small developments). Unrelated property developments Investing in unrelated entities for a property development is attractive as there is no limit to how much of the fund’s assets can be invested (subject to the investment strategy and trust deed allowing the investment), and unlike ungeared entities, the entity is able to borrow money/place charge over the assets. Where related parties are investing in the same entity, there are rules governing the percentage of ownership the SMSF and their related parties can hold. To meet the definition of unrelated entity for in-house asset purposes, the SMSF and their related parties must not own more than 50% of the units available. This is because the SMSF cannot control or hold sufficient influence over the entity and remain an unrelated entity. If the ATO considers the entity is related to the SMSF, then it would become a related party and the investment an in-house asset. Joint venture arrangements An SMSF can potentially invest in a joint venture (JV) property development, but the criteria are necessarily strict and there are a range of issues that need to be considered carefully. One of the issues that needs to be considered up-front is determining the substance of the arrangement between the parties, because the term JV can be used to describe a variety of arrangements. The ATO confirms that care must be taken to ensure that arrangements with related parties are true JVs. Under a JV, the SMSF invests in and has a share of the property being developed (not the entity undertaking the development). Each party bears the costs (time and/or money) of the JV and receives this same proportionate contribution from the returns. If the arrangement is not structured properly then the SMSF’s stake in the JV could be treated as an investment in or loan to a related party and be treated as an in-house asset. For example, this could be the case if the SMSF only provides a capital outlay for the arrangement and has no rights other than a contractual right to a return on the final investment. It is also necessary to consider whether the arrangement between the parties could be treated as a partnership for tax, GST and legal purposes. For example, this could be the case if the arrangement involves the sharing of income, sale proceeds or profits, rather than sharing the output from the project. It’s essential to get advice well in advance – tax, legal and financial – before pursuing a JV. Is your SMSF the best vehicle for property development? Trustees need to carefully consider any investment decisions and have a sound rationale for the investment. Any advice on a property development needs to be from a licenced financial adviser. A lawyer should be used for any contracts or agreements between parties. And, compliance assistance from a qualified accountant.

GST Credit Claims in Australia: Your Essential Guide

25 Jan 2024 02:31:00 GMT

Are you looking to understand how to claim GST credits for your business in Australia? You’re not alone. At Paris Financial, we specialise in guiding businesses through the complexities of GST compliance. In this article, we delve into the essentials of GST credit claims, including eligibility criteria, tax invoice requirements, and the nuances of business and private use purchases. Understanding GST Credits GST credits are vital for efficient tax management in businesses. As a registered GST entity, you can claim credits for the GST included in the price of items used in your business. This process, known as input tax credits, is an essential aspect of your GST registration benefits. Eligibility for Claiming GST Credits To be eligible for GST credits, consider the following criteria: Your purchase must be for business use, either fully or partially. The price must include GST. You must be responsible for the payment of the item. A tax invoice is required for purchases exceeding A$82.50. Ensure your suppliers are GST registered, which you can verify through the ABN Lookup website. Remember, a 4-year limit applies to GST credit claims. GST and Mixed-Use Purchases For items used for both private and business purposes, GST credits can only be claimed for the business portion. Adjustments may be needed if actual use differs from the intended use. For small businesses, there’s an option to account for the private use portion of your business purchases annually instead of with each activity statement lodgment. This requires opting for an annual private apportionment election. Tax Invoice Essentials A valid tax invoice is crucial for claiming GST credits on purchases over A$82.50. If your supplier fails to provide a tax invoice within 28 days of request, contact the ATO to request permission to treat a document as a valid tax invoice. Small Purchases and GST Credits For items costing A$82.50 or less, keep a detailed record if you can’t obtain a tax invoice. This record should include the supplier’s name, ABN, date of purchase, item description, and the amount paid. If you are unable to get one of these, keep a record of the purchase, such as a diary entry with: the name and ABN of the supplier, the date of purchase, a description of the items purchased, and the amount paid. Circumstances Exempt from GST Charges While GST typically applies to imported services, digital products, and low-value imported goods, there are exceptions. If you’re registered for GST, these sales should not include GST charges. It’s important to provide your ABN to the supplier and confirm your GST registration. In these instances, the supplier isn’t required to issue tax invoices. In cases where you’ve been incorrectly charged GST on an imported service, digital product, or low-value good, it’s recommended to pursue a refund directly from the supplier. Understanding Reverse Charge Rules In situations where you haven’t been charged GST on a purchase due to providing your ABN and confirming your GST registration, there may be occasions when ‘reverse charge’ rules apply. These rules necessitate you to account for GST on such purchases through your Business Activity Statement (BAS). Generally, reverse charge rules mean you’re required to pay GST on a purchase when you wouldn’t be eligible for a complete GST credit. For non-resident businesses that sell goods and services to Australia, additional guidelines are available via this link. Calculating GST Credit If your tax invoice just states “price includes GST” without a specific GST amount, calculate the GST by dividing the total price by 11. This figure is your claimable GST credit for business-use items. For items used partly for business, claim GST credit proportional to business use (e.g., claim 50% GST for an item 50% used for business). If you’re on cash accounting and haven’t fully paid, claim GST credit only on the paid portion. After calculating your GST credits, offset them against your GST liability; if your credits exceed what you owe, you’re due a refund. Conclusion Understanding GST credits is key to maximising your tax benefits. At Paris Financial, we’re here to help you navigate through these processes. Contact us for personalised assistance with your GST credit claims and optimise your business’s financial health.

Tax Planning: Turning Franking Credits into Paper Gold

16 Jan 2024 02:11:00 GMT

At Paris Financial, we pride ourselves on being specialists in small business tax planning, catering to the unique needs of small business owners. Here, we practice good tax planning for our clients. And today, we’re focusing on a valuable aspect of tax that could be a game-changer, especially for retirees: maximising franking credits for retirees, or as we like to call them, ‘paper gold. Tax Planning Specialists We delve deep into the tax legislation, mining every last benefit we can find to legally boost our clients’ financial wellbeing. And for retirees, this approach can be particularly beneficial. Franking Credits: A Retiree’s Treasure Think of franking credits as nuggets of gold hidden within the complex structure of a company. Throughout their business life, small business owners accumulate not just wealth but also franking credits in their company. These credits represent the tax already paid by the company and are stored away like treasure in a franking account. The Retirement Plan That Shines Let’s paint a picture: Dad and Mum have sold their business and are ready to savour retirement. They’re drawing a tax-free pension from their self-managed super fund post-60, thanks to smart planning and the right advice. But that’s not all they’re living on. With their investments wisely placed in discretionary trusts, they’re well set up, employing effective retirement tax strategies to secure their financial future. Yet, in their own names, we allocate an extra $25,000 each from their company’s franking account. The Golden Calculation Here’s how the planning happens: Dad and Mum each receive a dividend of $25,000. Attached to this is a franking credit of $10,700, which is the tax the company has already paid. This makes their taxable income $35,700 each. The tax on this would be $3,300, but here’s where the paper gold really glistens. The franking credit covers the tax due and leaves them with a refund of $7,400 each! The Fruits of Labor So, our retirees aren’t just enjoying their pension. They’re also getting a significant dividend from their company and a hefty tax refund, all thanks to the paper gold that’s been accumulating in their company over the years. The Bottom Line This is tax planning at its finest, a strategy that helps retirees enjoy the fruits of their hard work and provides a golden finish to their business journey. Interested in finding out how you can benefit from great tax planning with franking credits? Chat with our small business tax planning specialists today at Paris Financial.

Franchising Tax Essentials for Franchisors & Franchisees

20 Dec 2023 00:38:00 GMT

Understanding the tax implications of franchising is crucial for both franchisors and franchisees. When you start a franchise, it involves unique financial transactions and specific tax treatments. Let's delve into what this means for your franchising venture. Starting Your Franchise Journey In the franchising model, franchisors grant franchisees the right to use their business brand, trademark, or distribute products and services. Both parties operate under separate Australian Business Numbers (ABNs). As a franchisee, you will encounter various franchise-specific payments, which have distinct tax implications. Understanding Common Franchise Fees Franchise Establishment Fees: Often, these initial fees contribute to the cost base of your franchise license, a capital asset. Consequently, these fees are not tax-deductible as they are considered a capital investment. Franchise Renewal Fees: Similar to establishment fees, renewal fees are part of your cost base and are typically not deductible. However, any renewal fees not included in the cost base may qualify as deductible business expenses, following prepayment rules. Ongoing Payments to the Franchisor: Franchise agreements generally include ongoing royalty, interest, or levy payments. These cover various head office expenses and are claimable as business expenses on your annual tax return. Dealing with International Franchisors When making royalty and interest payments to non-resident franchisors, withholding taxes apply. The rates are usually 30% from the gross amount for royalties and 10% for interests. These rates might vary if a tax treaty exists with the non-resident's country. Report and remit the withheld amounts from interest and royalty payments in your Business Activity Statement (BAS) for the appropriate period. Annually, you must declare the total amount of royalty and interest payments, along with the withheld sums, in the PAYG withholding report for interest, dividend, and royalty payments made to non-residents. Training Fees and GST Implications Training Fees: Expenses incurred for ongoing employee training provided by the franchisor are tax-deductible. GST Considerations: If the franchisor is GST-registered, your payments might include GST, which you can potentially claim back in your BAS. Transferring or Ending Your Franchise Exiting or transferring your franchise can have both Capital Gains Tax (CGT) and GST implications. You must calculate the CGT on the transfer or termination and report it in your tax return. Additionally, the sale of a franchise might qualify as a GST-free sale of a going concern, under specific conditions. Final Thoughts Whether you are a franchisor or a franchisee, understanding these tax nuances is vital for compliance and financial efficiency. Remember, each franchise situation is unique, and it's always wise to seek professional advice tailored to your circumstances. Our tax specialists are here to help! Stay informed and make the most of your franchising journey.

The controversial case of the taxpayer who claimed a loss on their home

18 Dec 2023 00:36:00 GMT

A decision by the Administrative Appeals Tribunal has the tax world in a flurry after the Tribunal found in favour of a taxpayer who sold the apartment she lived in for a loss, then claimed the $265,935 loss in her tax return as a deduction. In this case, the taxpayer successfully argued that the purchase and sale of the apartment was a short-term profit making venture and that the loss generated from this could be claimed as a tax deduction. The tax rules generally allow you to deduct losses that relate to a commercial activity, although you cannot claim the loss if it is private or capital in nature. The taxpayer argued that she acquired the apartment in order to make a short-term profit and that the loss that was made on the sale should be deductible, even though she had lived in the property as her private residence across the ownership period. The Australian Taxation Office (ATO), as you can imagine, had a different point of view. The facts of the case were: • July 2015 – The taxpayer lived in a large family home. When her husband passed away, she entered into an ‘off-the-plan’ contract to purchase an apartment intended to be completed by 30 June 2019. • December 2016 – The taxpayer was notified that completion of the off-the-plan apartment was delayed until 30 June 2020. • May 2018 – Taxpayer settles on the sale of her family home on advice from her real estate agent that it was a good time to sell. • May 2018 – Taxpayer settled on another apartment, as a purchaser, in the same complex that had been completed. She had money from the sale of her family home that she could use, and only intended to keep the property for a short period of time as she needed to use the funds to settle the off-the-plan apartment. Her position was that it was an opportunity to make a profit. • April 2020 – The taxpayer entered into a contract to sell the apartment at a loss during the first COVID lockdown. • July 2020 – Settlement on sale of the apartment occurred. • July 2020 – The purchase of the off-the-plan apartment completed and was settled. A substantial portion of the proceeds of the sale of the other apartment, and some of the proceeds of the sale of the family home, were used to settle the off-the-plan apartment. The Tax Commissioner’s position was that someone approaching the opportunity in a business-like manner as a profit-making venture would not live in the apartment and would have waited to sell if the market was not favourable. The Tribunal set a low bar for proof of a profit-making intention and found that the fact that the taxpayer lived in the property was secondary to her profit-making intent. The reason why this case is controversial is not simply because of the loss claimed by one taxpayer. It is because of the broader implications to property owners if the ATO determines that a transaction is commercial in nature and taxes any profit as ordinary income rather than under the Capital Gains Tax (CGT) provisions. For example, if the taxpayer in this case had made a profit instead of a loss, she would have paid tax on the profit at her marginal tax rate. She would not have been able to apply the main residence exemption or the CGT discount. One of the important things to take from this case is that living in a property doesn’t necessarily guarantee that the sale of the property will be taxed under the CGT rules or will qualify for the main residence exemption. For example, property ‘flippers’ who buy and renovate a house may face a significant personal tax bill on any gain they make with no access to the concessions that exist within the CGT rules. It will be some time before we know the full implications of this case and the ATO is yet to confirm whether it will appeal the decision. Either way, determining whether a transaction is taxed on revenue or capital account can be a complex process and it is important to seek advice before entering into transactions involving property. Note: The material and contents provided in this publication are informative in nature only. It is not intended to be advice and you should not act specifically on the basis of this information alone. If expert assistance is required, professional advice should be obtained.

The key influences of 2024

17 Dec 2023 00:33:00 GMT

Uncertainty has reigned over the last few years, but can we expect more consistency as we head into 2024? We explore some of the key issues and influences. Inflation and labour supply RBA Governor Michelle Bullock stated, “Inflation is past its peak and heading in the right direction, but it is likely to return to target a bit more slowly than we previously thought.” While there have been encouraging signs, uncertainty remains. Domestically, inflation is persistent, growth has slowed but the labour market remains tight. And, the Australian economy remains at risk with uncertainty over the Chinese economy and ongoing international conflicts. At this stage, the RBA have not ruled out further interest rate increases. The unemployment rate remains at 3.7% and the labour market tight. Wages grew 1.3% for the September 2023 quarter and 4.0% over the year, pushing wages to a 14 year high. High-skilled workers are particularly difficult to source, and we appear to have reached a point now where employers are unwilling to pay inflated salaries to acquire those willing to move. Income tax cuts and the end of some concessions From 1 July 2024, the stage 3 tax cuts that radically simplify the personal income tax brackets come into effect. The tax cuts collapse the 32.5% and 37% tax brackets into a single 30% rate for those earning between $45,001 and $200,000 – this is assuming the May Federal Budget does not postpone or scrap them! The superannuation guarantee rate will rise again on 1 July 2024 to 11.5%. For small and medium businesses with group turnover of less than $50m, a series of concessions are set to end or reduce back to conventional levels: ♦ The Skills and Training Boost ends on 30 June 2024. The boost provides a bonus deduction equal to 20% of eligible expenditure for external training provided to your workers for costs incurred between 29 March 2022 and 30 June 2024. ♦ The Small Business Energy Incentive is scheduled to end on 30 June 2024, although legislation to introduce this concession still hasn’t passed through Parliament. The incentive is intended to provide an additional 20% deduction on the cost of eligible depreciating assets that support electrification and more efficient use of energy. The instant asset write-off for businesses with group turnover of less than $10m is due to reduce back to $1,000 from 1 July 2024. The cost threshold is meant to be $20,000 for the 2024 financial year, but legislation relating to this measure hasn’t passed through Parliament yet. Worker rights and rewards There have been a myriad of changes and enhancements to workplace laws across 2023 and employers can expect greater scrutiny in 2024: ♦ A 5.75% increase in the minimum wage to $23.23 per hour from 1 July 2023. ♦ New rules and a 2 year limit to some fixed term employment contracts (no renewing). ♦ A landmark case that defined how to determine whether a worker is a contractor or employee. The ATO has followed through with new rulings to ensure employers are paying the correct entitlements. It’s essential that employers have assessed contractors to ensure that they are classified correctly. ♦ Greater flexibility for unpaid parental leave. Note: The material and contents provided in this publication are informative in nature only. It is not intended to be advice and you should not act specifically on the basis of this information alone. If expert assistance is required, professional advice should be obtained.

Are You in Business? Understanding Your Status in Australia

15 Dec 2023 00:31:00 GMT

Navigating the business landscape can often be as thrilling as it is complex. For many Australians, distinguishing between a hobby, a side hustle, and an actual business can be a bit of a grey area. However, understanding your status is critical, particularly when it comes to tax and legal obligations. What Qualifies as a Business? In the simplest terms, you're likely running a business if you're engaged in activities with the intent to make a profit. This doesn't just mean cash transactions; it can also include bartering goods or services. The Australian Taxation Office (ATO) typically considers these key factors: Repetition and Regularity: Are your activities repeated, systematic, and organised? A one-off act might not be a business, but if it's part of a larger, profit-driven plan, it may well be. Profit Motive: Is there an intention to make a profit, or is it more about pursuing a hobby or pastime? Business-like Manner: Do you maintain proper records, have a separate business bank account, or engage in marketing and advertising? Common Misconceptions Many assume that their endeavour’s aren't a business if they're not making a profit or if the activity is secondary to their main income source. However, the intent to profit and the manner in which you conduct your activities are more indicative of business status. Determining Your Status To ascertain whether your activities constitute a business, consider the following: Continuity of Activity: Is what you're doing consistent and ongoing? Scale of Activity: Does the size of your operation suggest a business setup? Documentation and Record Keeping: Are you keeping detailed records and accounts in a business-like manner? Tax Implications Recognising your business status is vital for tax purposes. If you're running a business, you'll need to declare your income and might be eligible for certain deductions. The ATO also looks at whether your activities require GST registration and adherence to other tax obligations. Start and Transition Points Your business officially starts when you decide to launch, gather necessary resources, and initiate business activities. If there’s a significant change in your operations, reassess your status, as this might transition you from a hobbyist to a business owner or vice versa. Seeking Clarity If you're still unsure about your status, the ATO provides resources and tools, like the Business Viability Assessment Tool, to help. Additionally, our tax professionals can provide personalised guidance. In conclusion, whether you’re selling handcrafted goods, offering professional services, or engaging in trade, understanding your business status is crucial. It affects everything from your tax filings to your legal responsibilities. In the dynamic economic landscape of Australia, staying informed and compliant is key to success. Remember, turning your passion into a profitable venture is a journey, and knowing your business status is the first step.

Aggregated turnover and connected entities

14 Dec 2023 00:32:00 GMT

There are a number of tax concessions where eligibility is based on your aggregated turnover being below certain thresholds. In some circumstances you may want to seek the ATO discretion to ignore your controlling interest in another entity you don't actually 'control', because it impacts your aggregated turnover and eligibility to claim tax concessions. To help you understand the matters the ATO consider when determining whether or not to exercise their discretion, they've published a new Taxation Determination with illustrative examples. But first, let's clarify some key terms: Aggregated Turnover – is your annual turnover, plus the annual turnovers of any business entities that are your affiliates or connected with you. Connected with you – an entity (or entities) connected with you is an entity that you control or controls you or where both you and the entity are controlled by a third entity. These may be based in Australia or overseas. The Commissioner's discretion on 'control' The question of ‘control’ is central to determining who is 'connected with you'. You are considered to have control of an entity if you hold a control percentage of at least 40% in the entity. However, the Commissioner has the discretion to determine that you don’t control that entity if your control percentage is at least 40% but less than 50%. Taxation Determination TD 2023/5 Income tax: aggregated turnover and connected entities – Commissioner’s discretion that an entity does not ‘control’ another entity explains that: The ATO can only exercise the Commissioner’s discretion to ignore your controlling interest in an entity if we're satisfied that another unrelated entity (not connected with you or your affiliates) actually controls it responsibility for day-to-day conduct of an entity's business doesn’t amount to actual control a group of unrelated entities won't necessarily 'control' an entity even if their accumulated control percentage is more than 50%. Remember, our registered tax agents can help, feel free to contact our team. Source: ATO Newsroom

Bah humbug: The Christmas tax dilemma

14 Dec 2023 00:25:00 GMT

Don’t want to pay tax on Christmas? Here are our top tips to avoid giving the Australian Tax Office a bonus this festive season. 1. Keep team gifts spontaneous $300 is the minor benefit threshold for FBT so anything at or above this level will mean that your Christmas generosity will result in a gift to the ATO at a rate of 47%. To qualify as a minor benefit, gifts also have to be ad hoc - no monthly gym memberships or giving one person multiple gift vouchers amounting to $300 or more. Gifts of cash from the business are treated as salary and wages – PAYG withholding is triggered and the amount is normally subject to the superannuation guarantee. Aside from the tax issues, think about what will be of value to your team. The most appreciated gift is the one that means something to the individual. Giving a bottle of wine to someone who doesn’t drink, chocolates to a health fanatic, or time off to someone with excess leave, isn’t going to garner much in the way of goodwill. A sincere personal message will often have a greater impact than a generic gift. 2. The FBT Christmas party crunch If you really want to avoid tax on your work Christmas party then host it in the office on a workday. This way, Fringe Benefits Tax (FBT) is unlikely to apply regardless of how much you spend per person. Also, taxi travel that starts or finishes at an employee’s place of work is exempt from FBT. So, if you have a few team members that need to be loaded into a taxi after overindulging in Christmas cheer, the ride home is exempt from FBT. If your work Christmas party is out of the office, keep the cost of your celebrations below $300 per person if you want to avoid paying FBT. The downside is that the business cannot claim deductions or GST credits for the expenses if there is no FBT payable in relation to the party. If the party is held somewhere other than your business premises, then the taxi travel is taken to be a separate benefit from the party itself and any Christmas gifts you have provided. In theory, this means that if the cost of each item per person is below $300 then the gift, party and taxi travel can potentially all be FBT-free. Just remember that the minor benefits exemption requires a number of factors to be considered, including the total value of associated benefits provided across the FBT year. If entertainment is provided to employees and an FBT exemption applies, you will not be able to claim tax deductions or GST credits for the expenses. If your business hosts slightly more extravagant parties and goes above the $300 per person minor benefit limit, you will pay FBT but you can also claim a tax deduction and GST credits for the cost of the event. Just bear in mind that deductions are only useful to offset against tax. If your business is paying no or limited amounts of tax, a tax deduction is not going to help offset the cost of the party. 3. Avoid client lunches and give a gift The most effective way of sharing the Christmas joy with customers is not necessarily the most tax effective. If, for example, you take your client out or entertain them in any way, it’s not tax deductible and you can’t claim back the GST. There are specific rules designed to prevent deductions and GST credits from being claimed when the expenses relate to entertainment, regardless of whether there is an expectation of generating goodwill and increased business sales. Restaurants, a show, golf, and corporate race days all fall into the ‘entertainment’ category. However, if you send your customer a gift, then the gift is tax deductible as long as there is an expectation that the business will benefit (assuming the gift does not amount to entertainment). Even better, why don’t you deliver the gift yourself for your best customers and personally wish them a Merry Christmas. It will have a much bigger impact even if they are not available and the receptionist tells them you delivered the gift. From a marketing perspective, if your budget is tight, it’s better to focus on the customers you believe deliver the most value to your business rather than spending a small amount on every customer regardless of value. If you are going to invest in Christmas gifts, then make it something people remember and appropriate to your business. You could also make a donation on behalf of your customers (where your business takes the tax deduction) or for your customers (where they receive the tax deduction). 4. Charities love cash Charities love cash. They don’t have to spend any of their precious resources to receive it – unlike a lot of charity dinners, auctions, and promotional campaigns. And, from a tax perspective, it’s the safest way to ensure that you or your business can claim a deduction for the full amount of the donation. There are a few rules to giving to charities that make the difference between whether you will or won’t receive a tax deduction. The charity must be a deductible gift recipient (DGR). You can find the list of DGRs on the Australian Business Register (use the advanced search). If you buy any form of merchandise for the ‘donation’ – biscuits, teddies, balls or you buy something at an auction – then it’s generally not deductible. Your donation needs to be a gift, not an exchange for something material. Buying a goat or funding a child’s education in the third world is generally ok because you are generally donating an amount equivalent to the cause rather than directly funding that thing. The tax deduction for charitable giving over $2 goes to the person or entity who made the gift and whose name is on the receipt. 5. Christmas bonuses If you are planning to provide your team with a cash bonus rather than a gift voucher or other item of property, then remember that this will be taxed in much the same way as salary and wages. A PAYG withholding obligation will be triggered and the ATO’s view is that the bonus will also be treated as ordinary time earnings (unless it relates specifically to overtime work) which means that it will be subject to the superannuation guarantee provisions. The Christmas tax quick guide Here’s our quick guide to the tax impact of Christmas celebrations. The information is for GST registered businesses that are not using the 50-50 split method for meal entertainment. Note: The material and contents provided in this publication are informative in nature only. It is not intended to be advice and you should not act specifically on the basis of this information alone. If expert assistance is required, professional advice should be obtained.

Tax on super balances above $3m hits Parliament

13 Dec 2023 00:22:00 GMT

Legislation enabling an extra 15% tax on earnings on super balances above $3m is before Parliament. While not a concern for the average worker, if enacted, those with significant property or other illiquid assets in their superannuation fund are most at risk, for example farmers and business operators who own their business property in their self managed superannuation fund (SMSF). The issue is how the tax is calculated. The tax captures the growth in the balance of a member’s superannuation over the financial year (allowing for contributions and withdrawals). It captures both: Realised gains from the sale of assets, and Unrealised gains triggered by an increase in the value of superannuation assets. For example, if the value of a property increases. If the member’s total super balance has decreased - the loss can be offset against future years. The ATO will calculate the tax each year. Members with balances in excess of $3 million will be tested for the first time on 30 June 2026, with the first notice of assessment expected to be issued to those impacted in the 2026-27 financial year. If you are likely to be impacted by the impending new tax, it is important to speak to your financial adviser. While keeping assets within superannuation will remain the best option for many from a tax and planning perspective, it’s important to ensure that you’re in the best possible position. Note: The material and contents provided in this publication are informative in nature only. It is not intended to be advice and you should not act specifically on the basis of this information alone. If expert assistance is required, professional advice should be obtained.

Record keeping is more than a lock and key

12 Dec 2023 00:18:00 GMT

Good business records include all the information you need to: know if your business is profitable calculate how much cash you need to pay your bills on time meet your tax reporting and other compliance obligations. Accurate and complete records will also help you if the ATO ever asks you about the information you reported in your income tax return. 5 rules for good record keeping These rules will help you keep good records: Keep all relevant tax and super records related to starting, running, changing, selling or closing your business. Store records safely to prevent damage and protect information from being changed (you must not change relevant information in records). Keep most records for 5 years; however, there are some situations where you need to keep your records for longer than 5 years. Be able to show the ATO your records if they ask for them. Ensure your records are in English or easily converted to English. Digital record keeping In addition to securely storing hard copies of your records, you can also keep digital copies. Just make sure: you keep copies of all tax invoices issued from your suppliers the tax invoices your suppliers give you are valid. If amounts have been withheld from payments to your business, ensure your payer has given you a valid payment summary. Another helpful tool to use for storing your receipts if you’re a sole trader, is the myDeductions tool in the ATO app. This can help you capture your expenses on the go. If your tax records are damaged, destroyed or lost, the ATO may be able to help you reconstruct them. Rate your record keeping If you’re not sure how your business ranks with record keeping, you can check by using our record keeping evaluation tool. This helpful tool takes 5 to 10 minutes to use and will let you know how well you’re keeping records. Find out more at ato.gov.au/keepinggoodrecords. Source: ATO Newsroom

Closing your business? What you need to know

10 Dec 2023 00:30:00 GMT

If you decide to close your business, don’t throw out all your records just yet. Record keeping rules still apply when you sell or close your business. You need to keep your records for 5 years after: the records are prepared obtained the transactions are completed (whichever circumstance is the latest). You also need to be mindful of which records you need to keep longer than 5 years. While you’re closing everything down, you’ll need records to help you finalise your: tax obligations – for example, preparing final accounts, lodging all outstanding business activity statements and income tax returns super guarantee obligations – such as finalising super payments and quarterly lodgments Single Touch Payroll data or lodging a payment summary annual report (for payments you don’t report through STP). If you've let your employees go, you don’t need to wait until the end of financial year to finalise your STP data. Finalising is an important step, as it allows your employees to lodge their income tax return at the end of the year. It’s important to remember you may have GST and capital gains tax implications when you dispose of capital assets related to your business. Cancelling your GST registration may affect some - but not all - of your other registrations such as fuel tax credits, luxury car tax and wine equalisation tax. If you’re closing your business and aren’t still engaged in activities required to terminate it, you’ll need to cancel your: GST registration within 21 days of stopping your business activities ABN registration within 28 days of stopping your business activities. You can contact the ATO for further information or seek professional help and advice from our tax professionals to discuss options tailored to your circumstances. Source: ATO Newsroom

Going once, going twice; get your GST right at settlement

06 Dec 2023 00:28:00 GMT

If your income producing activities include selling property and you make $75,000 or more in a year from selling property, even if it’s from a one-off property transaction, you may need to register for GST. Once you’ve registered, GST at settlement may apply when you sell new residential premises or potential residential land. If GST at settlement applies to the sale of your property, you need to notify the buyer before settlement occurs, state the amount they need to withhold and when to withhold. The buyer then needs to withhold the GST amount from the contract price to pay it to the ATO when settlement occurs. Remember to report your property sales at label G1, and GST on these sales at label 1A on your Business activity statement (BAS) in the period that settlement occurs. You’ll receive a credit for the GST amount paid by the buyer in your GST account. The GST credit for the sale will move into your BAS account and offset against any GST you owe after your BAS has been lodged. You can view your GST property credits online through Online services for business or Online services for individuals and sole traders. Remember, our tax team can help, get in touch today! Visit the ATO’s website for more information on GST at settlement. Source: ATO Newsroom

Are you providing entertainment this holiday season?

28 Nov 2023 00:27:00 GMT

With the holiday season on the way you may be planning to celebrate with your staff. Before you hire a restaurant or book an event, make sure you work out if the benefits you provide your employees are considered entertainment related, and therefore subject to fringe benefits tax (FBT). This will depend on: the amount you spend on each employee when and where your celebration is held who attends – is it just employees or are partners, clients or suppliers also invited? the value and type of gifts you provide. Keep all records for the entertainment-related benefits you provide, including how you calculated the taxable value of the benefits. It’s important to get on top of how FBT works before you provide perks and extras, otherwise you may end up with an unexpected FBT liability. Check out the fringe benefits tax and entertainment information on the ATO website. Source: ATO Newsroom

Get super guarantee (SG) contributions back on track

24 Nov 2023 00:26:00 GMT

Super guarantee (SG) contributions were due to eligible workers’ super funds by 28 October. If you didn’t pay in full, on time and to the right fund, you will be liable for the super guarantee charge (SGC) and will need to: lodge a SGC statement to the ATO by 28 November pay the SGC to the ATO. Additional penalties or charges may apply if you don’t lodge an SGC statement by the due date. The ATO explains more about SGC statements in this video. Remember, our tax professionals can help you with your tax and super obligations. Source: ATO Newsroom

Offsetting credits and refunds from debts on hold

23 Nov 2023 00:25:00 GMT

From October 2023, the ATO are writing to small businesses with debts on hold greater than $50. When a debt is on hold, any credits or refunds you become entitled to are used to pay off the debt. This is called offsetting and it’s required by law. When you lodge your tax return or BAS, you may find your credit or refund is less than expected or reduced to zero. Even if you don’t receive a letter, you may still have a debt on hold. You can see if you have a debt on hold or if offsetting has occurred by checking your statement of account or ATO Online services. The ATO website has instructions on how to do this. You can pay all or part of your debt on hold at any time. If you want to start making payments towards your debt on hold and have it included in your account balance, you need to contact the ATO. You can also ask about payment options such as payment plans. Remember, our tax professionals can help, feel free to get in touch! Source: ATO Newsroom

Warning: Redrawing investment loans

18 Nov 2023 00:23:00 GMT

The ATO estimates that incorrect reporting of rental property income and expenses is costing around $1 billion each year in forgone tax revenue. A big part of the problem is how taxpayers are claiming interest on their investment property loans. We’ve seen an uptick in ATO activity focussing on refinanced or redrawn loans. This activity is a result of a major data matching program of residential property loan data from financial institutions from 2021-22 to 2025-26. This data is being matched to what taxpayers have claimed on their tax returns. Those with anomalies can expect contact from the ATO to explain the discrepancy. If you have an investment property loan and redraw on the loan for a different purpose to the original borrowing, the loan account becomes a mixed purpose account. Interest accruing on mixed purpose accounts need to be apportioned between each of the different purposes the money was used for. On the other hand, if the redrawn funds are used to produce investment income, then the interest on this portion of the loan should be deductible. For example, if you have redrawn on the loan to pay for a private holiday, or pay down personal debt, then the interest relating to this portion of the loan balance is not deductible. Not only will the interest expenses need to be apportioned into deductible and non-deductible parts, but repayments will normally need to be apportioned too. Withdrawals from an offset account are treated as savings rather than a new borrowing. If you have a loan account and an interest offset account is attached to this account that reduces the interest payable on the loan, withdrawing funds from the offset account will typically increase the amount of interest accruing on the loan, but won’t change the deductible percentage of the interest expenses. That is, when you withdraw funds from the offset account this is really a withdrawal of savings and won’t impact on the extent to which interest accruing on the loan account is deductible. If you have a home loan that was used to acquire your private home and you have funds sitting in an offset account, withdrawing those funds to pay the deposit on a rental property won’t enable you to claim any of the interest accruing on the home loan. However, if you redraw funds from the home loan to acquire a rental property then interest accruing on this portion of the loan should be deductible. The tax treatment always depends on how the arrangement is structured. Think you might have a problem? Contact us and we can investigate the issue before the ATO contact you. Note: The material and contents provided in this publication are informative in nature only. It is not intended to be advice and you should not act specifically on the basis of this information alone. If expert assistance is required, professional advice should be obtained.

Workers owed $3.6bn in super guarantee

14 Nov 2023 00:22:00 GMT

Workers are owed over $3.6 billion in superannuation guarantee according to the latest Australian Taxation Office estimates – a figure the Government and the regulators are looking to dramatically change. Superficially, the statistics on employer superannuation guarantee (SG) compliance look pretty good with over 94%, or over $71 billion, collected without intervention from the regulators in 2020-21. The net gap in SG has also declined from a peak of 5.7% in 2015-16 to 5.1% in 2020-21. The COVID-19 stimulus measures helped drive up the voluntary contributions with the largest increase in 2019-20, which the Australian Taxation Office (ATO) says they “suspect reflects the link between payment of super contributions and pay as you go (PAYG) withholding by employers. PAYG withholding is linked to the ability to claim stimulus payments such as Cash Flow Boost.” Despite these gains, a little adds up to a lot and 5.1% equates to a $3.6 billion net gap in payments that should be in the superannuation funds of workers. Lurking within the amount owed is $1.8 billion of payments from hidden wages. That is, off-the-books cash payments, undisclosed wages, and non-payment of super where employees are misclassified as contractors. In addition, the ATO notes that as at 28 February 2022, $1.1 billion of SG charge debt was subject to insolvency, which is unlikely to ever be recovered. Quarterly reporting enables debt to escalate before the ATO has a chance to identify and act on an emerging problem. Employers should not assume that the Government will tackle SG underpayments the same way they have in the past with compliance programs. Instead, technology and legislative change will do the work for them. Single touch payroll matched to super fund data Single touch payroll (STP), the reporting mechanism employers must use to report payments to workers, provides a comprehensive, granular level of near-real time data to the regulators on income paid to employees. The ATO is now matching STP data to the information reported to them by superannuation funds to identify late payments, and under or incorrect reporting. Late payment of quarterly superannuation guarantee is emerging as an area of concern with some employers missing payment deadlines, either because of cashflow difficulties (i.e., SG payments not put aside during the quarter), or technical issues where the timing of contributions is incorrect. Super guarantee needs to be received by the employee’s fund before the due date. Unless you are using the ATO’s superannuation clearing house, payments are unlikely to be received by the employee’s fund if the quarterly payment is made on the due date. The super guarantee laws do not have a tolerance for a ‘little bit’ late. Contributions are either on time, or they are not. When SG is paid late If an employer fails to meet the quarterly SG contribution deadline, they need to pay the SG charge (SGC) and lodge a Superannuation Guarantee Statement within a month of the late payment. The SGC applies even if you pay the outstanding SG soon after the deadline. The SGC is particularly painful for employers because it is comprised of: The employee’s superannuation guarantee shortfall amount – i.e., the SG owing. 10% interest p.a. on the SG owing for the quarter – calculated from the first day of the quarter until the 28th day after the SG was due, or the date the SG statement is lodged, whichever is later; and An administration fee of $20 for each employee with a shortfall per quarter. Unlike normal SG contributions, SGC amounts are not deductible, even if you pay the outstanding amount. And, the calculation for SGC is different to how you calculate SG. The SGC is calculated using the employee’s salary or wages rather than their ordinary time earnings (OTE). An employee’s salary and wages may be higher than their OTE, particularly if you have workers who are paid overtime. It’s important that employers that have made late SG payments lodge a superannuation guarantee statement quickly as interest accrues until the statement is lodged. The ATO can also apply penalties for late lodgment of a statement, or failing to provide a statement during an audit, of up to 200% of the SG charge. And, where an SG charge amount remains outstanding, a company director may become personally liable for a penalty equal to the unpaid amount. The danger of misclassifying contractors Many business owners assume that if they hire independent contractors, they will not be responsible for PAYG withholding, superannuation guarantee, payroll tax and workers compensation obligations. However, each set of rules operates slightly differently and, in some cases, genuine contractors can be treated as if they were employees. There are significant penalties faced by employers that get it wrong. A genuine independent contractor who is providing personal services will typically be: Autonomous rather than subservient in their decision-making; Financially self-reliant rather than economically dependent on your business; and Chasing profit (that is, a return on risk) rather than simply accepting a payment for the time, skill and effort provided. ‘Payday’ super from 1 July 2026 The Government intends to introduce laws that will require employers to pay SG at the same, or similar time, as they pay employee salary and wages. The logic is that by increasing the frequency of SG contributions, employees will be around 1.5% better off by retirement, and there will be less opportunity for an SG liability to build up where the employer misses a deadline. Originally announced in the 2023-24 Federal Budget, Treasury has released a consultation paper to start the process of making payday super a reality. Subject to the passage of the legislation, the reforms are scheduled to take effect from 1 July 2026. What is proposed? The consultation paper canvasses two options for the timing of SG payments: on the day salary and wages are paid; or a ‘due date’ model that requires contributions to be received by the employee’s superannuation fund within a certain number of days following ‘payday’. A ‘payday’ captures every payment to an employee with an OTE component. The SGC would also be updated with interest accruing on late payments from ‘payday’. Currently, 62.6% of employers make SG payments quarterly, 32.7% monthly, and 3.8% fortnightly or weekly. We’ll bring you more on ‘payday’ super as details are released. For now, there is nothing you need to do. Note: The material and contents provided in this publication are informative in nature only. It is not intended to be advice and you should not act specifically on the basis of this information alone. If expert assistance is required, professional advice should be obtained.

When is food GST-free?

10 Nov 2023 00:21:00 GMT

Chobani plain yoghurt is GST-free but Chobani’s ‘flip’ range is taxable? A recent case before the AAT demonstrates how fine the dividing line is between GST-free and taxable foods. Back in 2000 when the Goods & Services Tax (GST) was first introduced, basic food was excluded to secure the support of the Democrats for the new tax regime. Twenty three years later, the result of this exclusion is an unwieldy dividing line between GST-free and taxable foods that is consistently tested and altered. It is this dividing line that US yoghurt giant Chobani Pty Ltd recently tested in a case before the Administrative Appeals Tribunal (AAT). At the centre of the case was Chobani’s Flip Strawberry Shortcake flavoured yoghurt and whether the product, composed of a tub of strawberry flavoured yoghurt with a separate tub of baked cookie and white chocolate pieces, is subject to GST. If the two components were sold in isolation, the baked cookie pieces would be taxable and the yoghurt GST-free. Chobani had originally treated the flip yoghurt range as GST-free, relying on a 2001 GST ruling that allowed “a supply that appears to have more than one part but is essentially a supply of one thing” to be a composite supply. A product that is a composite supply could be treated as GST-free if the other components did not exceed the lesser of $3 or 20% of the overall product. In Chobani’s case, this meant that they could treat the flip yoghurt as GST-free. Then in 2021, the ATO advised Chobani that its position had changed and it intended to treat the flip yoghurt as a combination food and therefore taxable. Under the GST system, ‘combination foods’ where at least one of the food components is taxable, are subject to GST. Lunch packs of tuna and crackers, for example, are a combination food and therefore GST applies to the whole product because it is intended that the tuna and crackers are eaten together. But, where the food is a ‘mixed supply’, where each item is separate from the other and not intended to be consumed together, the GST will apply (or not) to each individual product. An example would be a hamper. In the Chobani case, the AAT found in favour of the Commissioner’s interpretation that the flip product was a combination food and therefore subject to GST on the whole product. The outcome of the Chobani test case has a number of implications. The first is that the ATO has issued a new draft GST ruling on combination foods (GST 2023/D1) replacing the previous guidance. The guidance states that three principles apply when determining whether there is a supply of a combination food: There must be at least one separately identifiable taxable food. The separately identifiable taxable food must be sufficiently joined together with the overall product. The separately identifiable taxable food must not be so integrated into the overall product, or be so insignificant within that product, that it has no effect on the essential character of that product. The second implication is that at least one classification on the ATO’s GST status of major product lines list will change. Weirdly, dip (with biscuits, wrapped individually and packaged together), was listed as a mixed supply, not a combination food. In a previous case, Birds Eye (Simplot Australia) was also unsuccessful in its appeal to the Federal Court that their frozen vegetable products that combined omelette, rice or grains were GST-free. The Court determined that the foods were either prepared meals or a combination of foods and therefore taxable. For food manufacturers, importers and distributors, it is important to keep up to date with the changing GST landscape and ensure that you are utilising the correct classifications – it’s a moving feast! Note: The material and contents provided in this publication are informative in nature only. It is not intended to be advice and you should not act specifically on the basis of this information alone. If expert assistance is required, professional advice should be obtained.

Up to 10 years in prison for deliberate ‘wage theft'

06 Nov 2023 00:19:00 GMT

Legislation currently being debated in Parliament will introduce a new criminal offence for intentional “wage theft”. If enacted, in addition to the criminal offence, a fine will apply. The fine is three times the underpayment and: For individuals – 5,000 penalty units (currently $1,565,000). For businesses – 25,000 penalty units (currently $7,825,000). The reforms are not intended to capture unintentional mistakes and a compliance ‘safe harbour’ will be introduced by the Fair Work Ombudsman for small businesses. In addition to addressing wage theft, the Bill also seeks to: Replace the definition of a ‘casual employee’ and create a pathway to permanent work. Change the test for ‘sham contracting’ from a test of ‘recklessness’ to ‘reasonableness.’ Bolster the powers of the Fair Work Commission including the ability to set minimum standards for ‘employee-like’ workers including those in the gig economy. Introduce a new offence of “industrial manslaughter” in the Work Health and Safety Act 2011. The Bill introducing the reforms has been referred to the Senate Education and Employment Legislation Committee. The Committee is scheduled to report back in February 2024. “Wage-theft” is illegal in Queensland, South Australia and Victoria under State laws. While the Federal Bill is not intended to interfere with State legislation, the impact of the interaction between the existing State legislation and the proposed Federal reforms is unclear. Over the last two years, the Fair Work Ombudsman has recovered over $1 billion in back-payments, mostly from large corporates and universities. Court ordered penalties of $6.4 million were paid by employers across this same time period. Note: The material and contents provided in this publication are informative in nature only. It is not intended to be advice and you should not act specifically on the basis of this information alone. If expert assistance is required, professional advice should be obtained.

Fixed-term employment contracts limited to 2 years

02 Nov 2023 00:17:00 GMT

From 6 December 2023, employers can no longer employ an employee on a fixed-term contract that: is for 2 or more years (including extensions) may be extended more than once, or is a new contract: that is for the same or a substantially similar role as previous contracts with substantial continuity of the employment relationship between the end of the previous contract and the new contract, and either: the total period of the contracts is 2 or more years, the new contract can be renewed or extended, or a previous contract was extended. The changes were introduced as part of the Pay secrecy, job ads and flexible work amendments. See the Fair Work Ombudsman’s website for more details. Note: The material and contents provided in this publication are informative in nature only. It is not intended to be advice and you should not act specifically on the basis of this information alone. If expert assistance is required, professional advice should be obtained.

$20k deduction for ‘electrifying' your business

20 Oct 2023 00:15:00 GMT

Electricity is the new black. Gas and other fossil fuels are out. A new, limited incentive nudges business towards energy efficiency. We show you how to maximise the deduction! The small business energy incentive is the latest measure providing a bonus tax deduction to nudge the investment behaviour of small and medium businesses, this time towards more efficient energy use and electrification. Fossil fuels are out, gas is out, electricity is the name of the game. Legislation before Parliament will see SMEs with an aggregated turnover of less than $50 million able to claim a bonus 20% tax deduction on up to $100,000 of their costs to improve energy efficiency in the business. But, the tax deduction is time limited. Assuming the legislation passes Parliament, you only have until 30 June 2024 to invest in new, or upgrade existing assets. How much? Your business can invest up to $100,000 in total, with a maximum bonus tax deduction of $20,000 per business entity. The energy incentive is not provided as a cash refund, it either reduces your taxable income or increases the tax loss for the 2024 income year. What qualifies? The energy incentive applies to both new assets and expenditure on upgrading existing assets. There is no specific list of assets that can qualify. Instead, the rules provide a series of eligibility criteria that need to be satisfied. First, the expenditure incurred in relation to the asset must qualify for a deduction under another provision of the tax law. If your business is acquiring a new depreciating asset, it must be first used or installed for any purpose, and a taxable purpose, between 1 July 2023 and 30 June 2024. If you are improving an existing asset, the expenditure must be incurred between 1 July 2023 and 30 June 2024. If your business is acquiring a new depreciating asset the following additional conditions need to be satisfied: The asset must use electricity; and There is a new reasonably comparable asset that uses a fossil fuel available in the market; or It is more energy efficient than the asset it is replacing; or If it is not a replacement, it is more energy efficient than a new reasonably comparable asset available in the market; or It is an energy storage, time-shifting or monitoring asset, or an asset that improves the energy efficiency of another asset. If you are improving an existing asset the expenditure needs to satisfy at least one of the following conditions: It enables the asset to only use electricity, or energy that is generated from a renewable source, instead of a fossil fuel; It enables the asset to be more energy efficient, provided that asset only uses electricity, or energy generated from a renewable source; or It facilitates the storage, time-shifting or usage monitoring of electricity, or energy generated from a renewable source. What doesn’t qualify? Certain kinds of assets and improvements are not eligible for the bonus deduction, including where the asset or improvement uses a fossil fuel. So, hybrids are out. Solar panels and motor vehicles are also excluded. In addition, the following assets are specifically excluded from the rules: Assets, and expenditure on assets, that can use a fossil fuel; Assets, and expenditure on assets, which have the sole or predominant purpose of generating electricity (such as solar photovoltaic panels); Capital works (such as buildings and structural improvements); Motor vehicles (including hybrid and electric vehicles) and expenditure on motor vehicles; Assets and expenditure on an asset where expenditure on the asset is allocated to a software development pool; and Financing costs, including interest, payments in the nature of interest and expenses of borrowing. What does qualify? The legislation contains a few examples of what would qualify: Electrifying heating and cooling systems Upgrading to more efficient fridges and induction cooktops (for example replacing gas cook tops) Installing batteries and heat pumps Installing an electric reverse cycle air conditioner instead of a gas heater Replacing a coffee machine with a more energy efficient coffee machine if the manufacturer’s electricity consumption information supports this – keep the documentation! Thermal storage that can store heat or cold from a renewable source Solar thermal hot water system (assuming it meets the other criteria) The legislation to implement the energy incentive is before Parliament. We’ll keep you updated on its progress. If you intend to make a major outlay to take advantage of the bonus deduction, talk to us first just to make sure it qualifies. Note: The material and contents provided in this publication are informative in nature only. It is not intended to be advice and you should not act specifically on the basis of this information alone. If expert assistance is required, professional advice should be obtained.

Self-education: What can you claim?

19 Oct 2023 00:14:00 GMT

The Australian Taxation Office have released a new draft ruling on self-education expenses. We revisit the deductibility of self-education expenses and what you can and can’t claim. If you undertake study that is connected to your work you can normally claim your costs of that study as a tax deduction – assuming your employer has not already picked up your expenses. There is also no limit to the value of the deduction you can claim. While this all sounds great and very encouraging there are still issues to consider before claiming your Harvard graduate degree, accommodation, and flights as a self-education expense. Clients are often surprised by what cannot be claimed. Self-education expenses are not deductible if you are undertaking the education to obtain a new job or something not connected to how you earn your income now. Take the example of a nurse’s aide who attendees university to qualify as a registered nurse. The university degree and the expenses associated with degree are not deductible as the nursing degree is not sufficiently connected to their current role as a nurse’s aide. The ATO have recently released a new draft ruling on self-education expenses. While the ruling does not introduce new rules, it does reinforce what the ATO will accept…and what they won’t. Personal development courses While not always the case, one of the key challenges in claiming deductions for self-development or personal development courses is that the knowledge or skills gained are often too general. Take the example of a manager who is having difficulty coping with work because of a stressful family situation. She pays for and attends a 4-week stress management course. In that case, the stress management course is not deductible because the course was not designed to maintain or increase the skills or specific knowledge required in her current position. When your employment ends part the way through your course If your employment (or your income earning activity) ends part the way through completing a course, your expenses are only deductible up to the point that you stopped work. Anything from that point forward is not deductible (that is until you obtain a new role and assuming the course remains relevant). Overseas trips with some work thrown in Overseas study tours are deductible in limited circumstances. If you are travelling overseas, you need to prove that the dominant purpose of the trip is related to how you earn your income. Factors that help demonstrate this include the time devoted to the advancement of your work related knowledge, the trip not being merely recreational, and that the trip was requested by or supported by your employer. The ATO are strict on this. Take the example of a senior lecturer in history at a University. He takes a trip to China with his wife while on leave over the Christmas break to update his knowledge on his area of academic interest. While his job does not require him to undertake research, he incorporated some of the 600 photos he took and some of the learnings from the tour into the courses he teaches. Despite having a relationship to work, the trip is not deductible as, while relevant in some ways to his field of activity, it is incidental to the overall private and recreational nature of the trip. Overseas conference with some recreation thrown in We’ve all had them. Conferences where you spend a few days in sessions and then a day (or more) of touring or golf. When the dominant purpose of the trip is related directly to your work, then the ATO are more accommodating. If the leisure time, for example an afternoon tour organised by the conference, is incidental to the conference itself, then you can claim the full conference expenses. Where you are extending your stay beyond the conference dates and this isn’t considered incidental, then you apportion the expenses and only claim the portion related to the conference. Let’s say you attend a conference for four days, then spend another four days on holiday. Assuming the conference is directly related to your work, you can claim your expenses related to the conference (assuming they were not picked up by your employer), and half of your airfare (as it’s a 50/50 split on how you spent your time between the conference and recreation). Not fully deductible? Part of the course might qualify If a particular course is not entirely deductible, a deduction may still be available for some of the course fees where there are particular subjects or modules in that course that are sufficiently related to your employment or income earning activities. In these cases, the course fees would be apportioned. Take the example of a civil engineer who is completing her MBA. While the MBA itself may not have a sufficient connection to her engineering role to be fully deductible, her expenses related to the project management subject she took as part of the degree could qualify. Interaction with government assistance If your course is a Commonwealth supported place, you cannot claim the course fees. But, the deductibility of course fees are not impacted merely because you borrow money to pay for those fees, for example a full-fee paying student using a government FEE-HELP loan to pay for course fees. A warning on large claims There is no limit on the amount you can claim as a self-education expense but the ATO is more likely to target large self-education expenses. For anyone who has completed post graduate study you know that these expenses can ratchet up very quickly, particularly when you add in any other expenses such as books or travel. It’s important to ensure that there is a clear connection between your current job or business activity and the self-education expenses before you claim them. Airfares incurred to participate in self-education, provided you are not living at the location of the self-education activity, are deductible. Airfares are part of the cost of undertaking the self-education activities. Note: The material and contents provided in this publication are informative in nature only. It is not intended to be advice and you should not act specifically on the basis of this information alone. If expert assistance is required, professional advice should be obtained.

The ‘Airbnb' Tax

17 Oct 2023 00:13:00 GMT

Property investors that choose to utilise their property for short-term stays (or leave it vacant) are firmly in the sights of the regulators. The Victorian Government’s recent Housing Statement announced Australia’s first short-stay property tax. The additional tax, which is scheduled to come into effect from 1 January 2025, is expected to generate $70 million plus annually. The Short Stay Levy will be set at 7.5% of the short stay accommodation platforms’ revenue – so, a few days in Melbourne at $850 will cost an extra $63.75 taking the stay to $913.75. According to the statement there are more than 36,000 short stay accommodation places – with almost half of these in regional Victoria. More than 29,000 of those places are entire homes. Airbnb’s ANZ Country Manager Susan Wheeldon however says that “short-term rentals in Victoria make up less than one percent of total housing stock. Acute housing issues existed long before the founding of Airbnb, and targeting these properties is not a long term solution.” Property investors are now braced for an onslaught of similar taxes at either the local Government or State level. For Victorian investment property owners this comes after a temporary land tax surcharge from the 2024 land tax year and for those keeping a property vacant, an increase to the absentee owner surcharge rate from 2% to 4% including a reduction in the tax-free threshold from $300,000 to $50,000 (for non-trust absentee owners). Some local Government taxes on Airbnb style accommodation will be removed once the new tax comes into effect. Some Councils already impose a surcharge on short stay accommodation. Brisbane City Council for example imposed a 50% rate surcharge on properties listed for short-term rental for more than 60 days a year in their 2022-23 Budget, only to increase it to 65% in 2023-24. What happens overseas? Bed taxes in some form are not uncommon internationally but it is unusual to isolate one form of tourist accommodation from another as the Victorian Government have chosen to do. Also unusual is the 7.5% rate – many local taxes on short stay accommodation are in the 5% range (despite California’s Transient Occupancy Tax of up to 15% depending on the region you are staying). Globally, the idea of taxing vacant and short-term accommodation is also not new. In British Columbia, the Underused Housing Tax – a 1% tax on the ownership of vacant or underused housing introduced from 1 January 2022 – has been credited with increasing the rental stock by up to 20,000 properties. Taking the alternative route to freeing up rental stock, New York introduced new rules in September 2023 that severely restrict Airbnb style accommodation options. Hosts need to register with the city if they offer accommodation for less than 30 consecutive days (unless their building is exempt as a hotel or accommodation establishment). Under the new rules the host must permanently reside in the property – entire properties will no longer be available – and, only two guests are allowed. The platforms are responsible for monitoring and enforcing compliance with the new rules. New York is not alone in curbing the rise of short-term rentals. Amsterdam, Paris and San Francisco limit the number of days in a year an entire residence can be listed – between 30 and 90 days. Closer to home in Byron Bay, the Byron Bay Council will limit “non hosted holiday letting to 60 days per year for most of the Shire” from 23 September 2024. But do restrictions on Airbnb create rental stock? According to Professor Nicole Gurran, from the University of Sydney’s School of Architecture, Design and Planning, if Australia is serious about controlling short-term rentals to solve Australia’s long-term rental crisis, then more needs to be done. “In comparison to much of the international regulation of the short-term rental market, Australia is very “light touch”. The overarching aim is to encourage the tourism economy. While this might have been appropriate five years ago when the rental market was in better shape, and long-term housing demand focused on inner city areas, the current crisis demands a new approach. Regulations must be tailored to the conditions of local housing markets, rather than the one-size-fits-all approach that exists today,” Professor Gurran says. In a 2017 study, Professor Gurran and Professor Peter Phibbs found that, Airbnb absorbed 7% of stock in one Sydney municipality. So, where is all this going? Governments are likely to take advantage of the opportunity to share in what has become a lucrative short-term rental market. What that looks like will really depend on the States and Territories. Beyond revenue, further regulation is likely to ensure that private gain from short-term rentals is not at the expense of supply of long-term accommodation. Note: The material and contents provided in this publication are informative in nature only. It is not intended to be advice and you should not act specifically on the basis of this information alone. If expert assistance is required, professional advice should be obtained.

30% tax on super earnings above $3m

15 Oct 2023 04:33:00 GMT

Treasury has released draft legislation to enact the Government’s plan to increase the tax rate on earnings on superannuation balances above $3m from 15% to 30% from 1 July 2025. This is the final step before the legislation is introduced into Parliament and a step closer to reality. The draft legislation appears largely unchanged from the Government’s original announcement. The proposed calculation aims to capture growth in total super balance (TSB) over the financial year allowing for contributions (including insurance proceeds) and withdrawals. This method captures both realised and unrealised gains, enabling negative earnings to be carried forward and offset against future years. The ATO will perform the calculation for the tax on earnings. TSBs in excess of $3 million will be tested for the first time on 30 June 2026 with the first notice of assessment expected to be issued to those impacted in the 2026-27 financial year. From a planning perspective, for those with superannuation balances close to or above $3m, it will be important to explore the implications to your personal situation – there is no one size fits all strategy here and what is best for you will depend on your circumstances. Superannuation, even with the increased tax, remains a tax efficient vehicle. Note: The material and contents provided in this publication are informative in nature only. It is not intended to be advice and you should not act specifically on the basis of this information alone. If expert assistance is required, professional advice should be obtained.

Which PAYG instalment method best suits your needs?

14 Oct 2023 04:31:00 GMT

Pay as you go (PAYG) instalments are regular prepayments of tax on your business and investment income. PAYG instalments are calculated using either the instalment amount or instalment rate method. If you’re eligible to choose between these options, they’ll both be shown on your business activity statement (BAS) or instalment notice. Case study 1: Kelly the DJ Kelly is a DJ, working at festivals from November to January. She chooses to use the instalment rate method as it suits her seasonal business income. Using the rate method means she needs to work out her business income each period. It helps her manage cash flow because the amounts she pays will vary in line with her income. When Kelly receives her BAS or instalment notice, she calculates the instalment based on her income for that period, multiplied by the rate provided. Case study 2: David the plumber David is a plumber with regular monthly business income, so he chooses the instalment amount method. He won’t need to work out his business income each period to use this method. David pays the instalment shown on his BAS. The amount is calculated from information in his last lodged tax return. You can change instalment methods on your first activity statement of the next financial year. The method you choose will apply for remaining instalments for the financial year. If Kelly or David think the instalments they need to pay will add up to be more or less than their tax liability for the year, they can vary their instalments. The ATO encourage you to review your tax position regularly, so your PAYG instalments reflect your expected tax for the year and to avoid penalties. If you’ve noticed your instalment rate has increased, see How the ATO calculates your PAYG instalment amount or rate. Source: ATO Newsroom

Do you know your FBTs?

11 Oct 2023 04:28:00 GMT

Attracting and retaining good staff is essential for your business. If you’ve given your employees perks and benefits such as car parking or gym memberships, you should consider the FBT implications. These extras can be a great bonus on top of salary and wages – but they can attract an FBT liability. What kinds of perks attract FBT? Everything on this list could be subject to FBT: allowing an employee to use a work car, including a dual cab ute, for private purposes tickets to concerts, shows or sports events reimbursed school fees discounted loans salary sacrifice arrangements. On the other hand, the following aren’t considered fringe benefits: salary and wages employer payment to complying super funds shares and rights given under approved employee share acquisition schemes benefits provided to volunteers and contractors. If you’re giving staff extras that attract FBT, take these 4 steps: Identify the types of fringe benefits you provide. Determine the taxable value using approved valuation methods relevant to each fringe benefit. Lodge an FBT return by the due date – you may have longer if your tax agent lodges electronically for you. Keep records that demonstrate your calculations and support your FBT position. Knowing your FBTs starts with understanding how FBT works. You can visit the ATO website for more: ato.gov.au/FBT, or talk to our team for the best advice on managing your FBT. Source: ATO Newsroom

Salary sacrifice reporting and activity statements

09 Oct 2023 04:26:00 GMT

Salary sacrifice Most employers have now transitioned to Single Touch Payroll (STP) Phase 2. In this transition, there’s been a change in reporting employee year to date amounts. In Single Touch Payroll Phase 1, you reported post-sacrificed amounts to the ATO. Single Touch Payroll Phase 2 requires you to report pre-sacrificed amounts and separately report the salary sacrificed amounts: type S for amount sacrificed to super type O for amounts sacrificed towards other benefits. Activity statements There’s been no change to activity statement requirements – you still need to report post-sacrificed amounts at W1, and you shouldn’t include pre-sacrificed amounts at this label. Note, the ATO will pre-fill your activity statements for labels W1 and W2 in ATO online services using the employer level totals you reported to the ATO through STP. Different payroll solutions have different ways of setting up and displaying salary sacrificing amounts, so refer to your product’s guidance. Need help? For help to fix mistakes visit correcting information reported through STP. Accurate STP reporting is important to ensure: the right information is displayed in employees’ income statements the ATO can pre-fill employees’ individual income tax returns with the right information other government agencies have the right information when interacting with you or your employees. The ATO offer a range of resources to help employers get their STP2 reporting right. These include: Common STP Phase 2 reporting questions and mistakes Salary sacrifice ATO PAYG withholding pre-fill for activity statements PAYG withholding – how to complete your activity statement labels STP – Reporting Help – RESC & Salary Sacrificing video Source: ATO Newsroom

Using business money for private purposes: 2 steps to take

05 Oct 2023 04:23:00 GMT

If you use money or assets from your company or trust for private purposes and don’t account for the transactions correctly, there can be tax consequences. That’s why it’s important to get it right. Business money and assets you take or use for private purposes can include: salary and wages director fees fringe benefits, such as an employee using the company car dividends paid by the company to you as a shareholder (that is, distribution of the company’s profits) trust distributions if your business operates under a trust and pays you as a beneficiary loans from a trust or company ad hoc drawings or takings allowances or reimbursements of expenses you receive from a trust or company. If you’ve used business money or assets from a company or trust for private purposes, follow these 2 simple steps to avoid unintended tax consequences: Keep accurate records of the transactions. Account for the transactions in the company or trust tax return and your individual tax return, if applicable. Remember, there are different reporting and record-keeping requirements for each type of transaction, so make sure you know how to keep accurate records to suit your circumstances. You can also practise good record-keeping habits by regularly cross-checking your records against the original documents so you can fix mistakes earlier and monitor your business’s cashflow. Take a look at these examples to check if you’re reporting business money or assets used for private purposes correctly. Our team are here to help you with your tax, but you’re responsible for keeping business records and what you claim in your tax returns. If you need more information this tax time, download and print this handy fact sheet (PDF, 225KB)This link will download a file. Source: ATO Newsroom

Cereal crime: Are you charging GST correctly on food and breakfast products?

02 Oct 2023 04:17:00 GMT

If your business supplies food and breakfast products that consist mostly of seeds or nuts, you may need to include goods and services tax (GST) in the selling price. GST applies to food products that consist principally of seeds or nuts that have been processed or treated by salting, spicing, smoking or roasting, or a similar process. These are a taxable supply and specifically excluded from being GST-free. While breakfast cereals are GST-free, products that mainly consist of roasted nuts or seeds are not. This means GST applies to breakfast products that consist of more than 50% of roasted nuts, even if the product is called a breakfast cereal. Remember to regularly check that you’re charging GST correctly on these products. If you haven’t charged GST previously, you should make a voluntary disclosure or speak with your accountant. You can also use the GS1 Australia database, the National Product Catalogue (NPC, previously called GS1net), to determine if GST applies to food and beverage products. The ATO won’t apply penalties or unfavourable adjustments where you follow the ATO approved classification guidance on NPC. Find out more at PS LA 2012/2. For more information to help you determine the GST status of food products, refer to the ATO webpage GST and food. Source: ATO Newsroom

Legislating the ‘objective' of super

18 Sep 2023 03:14:00 GMT

The proposed objective of superannuation released in recently released draft legislation is: ‘to preserve savings to deliver income for a dignified retirement, alongside government support, in an equitable and sustainable way.’ The significance of legislating the objective of super is that any future legislated changes to the superannuation system must be in line with this objective. It’s a fairly broad definition. For example, “equitable” seeks to address the distributional impact of superannuation policy. That is, latitude for the Government to target tax concessions to address differences in demographic factors and structural inequities including intergenerational inequity and outcomes for different groups including women, First Nations Australians, vulnerable members and low-income earners. “Sustainable” encapsulates the changing needs of an ageing population including reducing the reliance on the Age Pension. The draft also alludes to the viability of the cost of tax concessions used to incentivise Australians to save for retirement. “Deliver income” appears to reinforce the concept that superannuation savings “should be drawn down to provide individuals with a source of income during their retirement.” More than 15 million Australians now have a superannuation account. Australia’s superannuation pool has grown from around $148 billion in 1992 to $3.5 trillion in 2023, and will continue to grow. Total superannuation balances as a proportion of GDP are projected to almost double from 116% in 2022–23 to around 218% of GDP by 2062-63. The consultation also recognises the value of the superannuation system as a source of capital, “which can support investment in capacity-building areas of the economy where there is alignment between the best financial interests of members and national economic priorities.” Note: The material and contents provided in this publication are informative in nature only. It is not intended to be advice and you should not act specifically on the basis of this information alone. If expert assistance is required, professional advice should be obtained.

The shape of Australia's future

15 Sep 2023 03:17:00 GMT

What will the Australian community look like in 40 years? We look at the key takeaways from the Intergenerational Report. The 2023 Intergenerational Report (IGR) is a crystal ball insight into what we can expect Australian society to look like in 40 years and the needs of the community as we grow and evolve. It doesn’t map out our path to flying cars and Jetsons style robotic domestic help (unfortunately) but it does forecast structural trends that will give many of us a level of anxiety about what we need to be doing now to successfully navigate the future. The report links the continued growth and prosperity of Australia to five significant areas of influence: We’re ageing Thanks for the reminder. The number of people aged 65 and over will more than double and the number aged 85 and over will more than triple. We’re expected to live longer with the life expectancy of men increasing from 81.3 to 87 years and from 85.2 to 89.5 for women by 2062-63. And that’s a problem for the younger generation. Who bears the burden of an ageing population? Australia’s low birth rate, limited migration and increased longevity all have an impact. The old age percentage – the number of people aged 65 and over for every 100 people of traditional working age (15 to 64) in the population – will increase from 26.6% to 38.2%. From a tax perspective, Australia’s reliance on personal tax means workers will bear an increasing proportion of the tax burden under current fiscal policy. In a recent interview, former Treasury boss Ken Henry labelled it an “intergenerational tragedy” with personal tax growing from 11.7% of GDP to 13.5% based on current policy. The report says that “only 12% of Australians aged 70 and over pay income tax and this age group now makes up 12.2% of the total population. This age group is expected to increase to 18.1% of the total population in 2062-63.” Wholesale tax reform will be required to prevent the growing tax burden on individuals dragging on the economy. With economic growth expected to slow to 2.2% from 3.1% over the next 40 years, the solution will not magically arise from corporate Australia. If it was not for our high rate of inflation you would think an increase to the GST was imminent. Services and who pays Demographic ageing alone is estimated to account for around 40% of the increase in Government spending over the next 40 years. The outcome of an ageing population, as you would expect, is increased demand for care and support services that will push the Federal Budget back to a point where deficits are the norm if the current policies remain in place. From a consumer perspective, it also means that the trend towards user-pays will only increase. As individuals, we need to ensure that we have the means to fund our old age because Government resources will be limited by increasing demand and this demand is funded by a deteriorating percentage of workers contributing to tax revenue. It’s also likely that we will need to look at how we generate income. For some that might mean working longer, for others it is value adding – creating, buying and selling assets in some form, whether that is business, innovation, or through more traditional assets such as property or financial products. Superannuation the size of a nation Australia currently has the fourth largest pool of retirement assets in the world, with total superannuation balances projected to grow from 116% of GDP in 2022-23 to around 218% by 2062-63. Our superannuation system will be what underwrites retirement for most Australians. At present, around 70% of people over aged pension age receive some form of Government income support. Over time, and as our superannuation system matures, this percentage is expected to decline sharply as a percentage of GDP with Government support supplementing rather than providing for retirement (the first generation of workers with superannuation guarantee throughout their working life hit retirement age around 2058). However, the IGR points out that, “the cost of superannuation concessions will increase, driven by earnings on the larger superannuation balances held by Australians.” The proposed tax on future earnings on super balances above $3m may not be the last. You can expect the management of superannuation to be a priority for Government to ensure that retirement savings are maximised to reduce the reliance on Government support, and to ensure that this enormous pool is leveraged for the gain of not only members, but the nation. Growth of services Like most advanced economies, global competition has shifted Australia’s industrial base from the production of goods to services. Ninety percent of jobs are now in services. With an ageing population, demand for health and care services is expected to soar. People aged 65 or older currently account for around 40% of total Australian health expenditure, despite being about 16% of the population. The IGR estimates that the workforce required to support this sector will need to be twice the size of what it is now to meet demand by 2049-50. The Government’s biggest spending pressures will be health, aged care, the NDIS, defence and interest payments on government debt. Of these, the NDIS is the fastest growing at 7% per year. The role of technology The speed of technological change is difficult to predict, and the IGR doesn’t attempt to make predictions. But what we do know is that technology has had a transformational impact on labour productivity (the value of output of goods and services produced per hour of work). Over the last 30 years, labour productivity has accounted for around 70% of the growth in Australia’s real gross national income. But, tempering this is a slowing of labour productivity growth since the mid-2000s. We know technological disruption is coming and the debate about the role of artificial intelligence is only just beginning. We also know that unless technology is accessible, our future will be one polarised by those who have and have not benefited from technological change. Climate change transformation There are two key aspects to climate change; the cost of rising temperatures, and the opportunity created by the shift to renewable energy. Temperatures are anticipated to increase by 1.5 degrees before 2100, potentially before 2040. From 1960 to 2018, climate disasters reduced annual labour productivity in the year they occurred by about 0.5% in advanced economies. However, for severe climate disasters labour productivity is estimated to be around 7% lower after three years. With rising temperatures, floods, bushfires and other extreme weather events are expected to increase in frequency and severity. The impact of climate change spelt out in the report is sobering with disruptions and changing patterns impacting agriculture, tourism, recreation and industries that rely on labour intensive outdoor work. On the positive side, Australia could benefit from new “green” industries, such as hydrogen and other clean energy exports, critical minerals and green metals. It is also likely to drive new, innovative ideas as businesses invest in and develop low emissions technologies, providing a source of future productivity growth in a more sustainable economy. Australia’s potential to generate renewable energy more cheaply than many countries could also reduce costs for both new and traditional sectors, relative to the costs faced by other countries. Geopolitical risks Australia relies on open international markets. Trade disputes and military conflicts pose an external threat to Australia’s economy and well being. While the IGR cannot predict the nature of geopolitical events, it notes the importance of investing in national security, presumably this includes cybersecurity, ensuring access to international markets, and deepening regional partnerships to reduce supply chain vulnerabilities. Note: The material and contents provided in this publication are informative in nature only. It is not intended to be advice and you should not act specifically on the basis of this information alone. If expert assistance is required, professional advice should be obtained.

The case of the taxpayer who was paid too late

12 Sep 2023 03:20:00 GMT

What a difference timing makes. A recent case before the Administrative Appeals Tribunal (AAT) is a reminder about the tax impact of the timing of employment income. In this case, the taxpayer was a non-resident working in Kuwait. As part of his work, he was entitled to a ‘milestone bonus’ but, the employer was not in a position to pay the bonus at the time. When the job ended, the taxpayer moved to Australia and became a resident. Once in Australia, the former employer honoured the performance bonus and paid it as a series of instalments. The dispute between the ATO and the taxpayer started when the Commissioner issued amended assessments taxing the bonus payments received. The dispute focused on when the bonus was derived. Had the bonus been derived while the taxpayer was still a non-resident then it would not have been taxed in Australia. This is because non-residents are normally only taxed in Australia on Australian sourced income. Employment income is typically sourced in the place where the work is performed (although there can be exceptions to this). Australian tax case law says that employment income is normally derived on receipt. In the taxpayer’s case, this was when he received the payments from his former employer, not when he became entitled to the bonus. Because the taxpayer received the bonus when he was a tax resident of Australia, the bonus was subject to tax. The difference for the taxpayer was quite dramatic. Had he been paid the bonus when it was due, he would have paid no tax as Kuwait does not impose income tax. Please call us if you are concerned about tax residency or managing overseas income. Note: The material and contents provided in this publication are informative in nature only. It is not intended to be advice and you should not act specifically on the basis of this information alone. If expert assistance is required, professional advice should be obtained.

Did you engage in research and development activities last year?

06 Sep 2023 03:21:00 GMT

If your business conducted research and development (R&D) activities, you may be eligible to claim a tax offset under the R&D tax incentive. If you’re eligible, you can claim the R&D tax incentive by completing the R&D tax incentive schedule and lodging it with your company tax return. See the R&D schedule instructions for information on how to complete the schedule. You can also use the R&D tax incentive calculator which will help you work out the amounts you’re eligible to claim. If you plan to continue conducting R&D activities this income year, you need to register the activities, even if you’ve registered previously. Remember, the team at Paris Financial is here to help. Contact us today! Source: ATO Newsroom

Your guide for claiming business expenses

01 Sep 2023 03:24:00 GMT

You can claim tax deductions for expenses you incur while running your business if they’re directly related to earning business income (also known as assessable income). Take Rubi for example. Rubi is a sole trader who works as an IT consultant. As part of her work, she travels to deliver seminars and workshops. Rubi follows the 3 golden rules for claiming a tax deduction when she travels for business purposes. The expense must be for her business, not for private use. If the expense is for a mix of business and private use, she can only claim the portion that is used for her business. She must have the records to prove it. Rubi uses the myDeductions tool to store receipts of all her airfares, accommodation, public transport costs, ride-sharing fares, car hire fees and other costs such as fuel, tolls and car parking. She also records her meal costs if she’s away overnight. Rubi also keeps a travel diary to note which expenses were for business purposes and which expenses were private, such as sight-seeing. The cost of her recent tour of the Tower of London is not included in her deductions. There are some expenses Rubi can’t claim, such as entertainment, traffic fines, and expenses related to earning non-assessable income. As an employer, Rubi meets her superannuation and employer obligations by reporting her employees’ salaries or wages and paying any tax withheld amounts on time. This allows her to deduct the salaries, wages and super contributions she’s paid during the year. By the time Rubi is ready to lodge her tax return, her tax agent has everything they need to verify her deductions. Be like Rubi and perfect your record keeping to correctly claim your business expenses and make tax time easier. To check your record keeping skills, you can use the ATO record keeping evaluation tool. Remember, the team at Paris Financial is here to help you with your tax. Contact us today! Source: ATO Newsroom

Changes to fuel tax credit rates

30 Aug 2023 04:19:00 GMT

The ATO’s fuel tax credit calculator helps you to apply the correct fuel tax credit rates when preparing your BAS. Rates change regularly, so make sure you’re using the correct rates for the correct dates you acquired fuel. On 1 July, the fuel tax credit rate for heavy vehicles (such as buses, coaches, and trucks) for travelling on public roads decreased because of the increase in the road user charge. On 1 August, fuel tax credit rates increased in line with the fuel excise indexation. All fuel tax credit claimants need to apply the new rates for fuel acquired from 1 August. To make it easier, if your business claims less than $10,000 in the year you can use the rate that applies at the end of your BAS period to work out your claim. To make accurate claims and get fuel tax credits right on your BAS: use the fuel tax credit calculator as it has the latest rates included remember the records you need to keep consider time limits on correcting errors and mistakes. Remember, the team at Paris Financial is here to help you with your tax. Contact us today! Source: ATO Newsroom

Top tips for sole traders

28 Aug 2023 04:23:00 GMT

Tax time for a sole trader can be stressful, however with a little planning you don’t need to dread doing your tax return. Take Benzi for example. Benzi is a self-employed professional tiler whose total gross business income is $82,000 per annum. Benzi knows that he’ll have a tax bill at the end of the financial year, so he decides to set up weekly payments from his business account to the ATO to cover the bill. Benzi also follows tips he received from his tax agent and the ATO website. This ensures he can meet his tax obligations, which makes tax time a smoother experience. Benzi is registered as a business, as he’s carrying on an enterprise and is registered for GST because his business has a GST turnover of $75,000 or more. He reports all assessable income, including non-monetary payments and payments in kind. He claims deductions for expenses, but only claims the business portion of an expense if it’s for both business and private use, including for his motor vehicle. He correctly reports any personal services income (PSI). Benzi uses the ATO app to access and manage his tax and super, and the ATO myDeductions tool to capture expenses as they happen. Be like Benzi and find more information at ato.gov.au/sbsupport or speak with the team at Paris Financial. We’re here to help you with your tax. Contact us today! Source: ATO Newsroom

Thought to register a trade mark for your new business?

24 Aug 2023 04:24:00 GMT

A new business is an exciting and challenging journey. Getting set up correctly from the start will help you on the path to success. You’re ready. You’ve worked out what registrations you need, you have an ABN, sought a trusted adviser, and checked if you need to register for GST or PAYG instalments. You’ve chosen a business name, have your website and social media accounts up and running and it’s time to hit go. But wait – have you thought about trade marking your business name? Or worse, has someone else beaten you to it? Trade marks are intellectual property. Other types of intellectual property include: patents design rights plant breeder’s rights copyright trade secrets. While you don’t need a registered trade mark to apply for an ABN, registering a trade mark for your business name, logo, or other sign means you have exclusive rights to use your trade mark in Australia. Use TM Checker, IP Australia’s free trade mark checking tool, to see if a name already exists. A registered trade mark is a licensable and saleable asset. It also provides a legal avenue to stop others from using it on similar goods and services. A 5-minute check can help save you a lot of disappointment and work. Check out IP Australia for more information and get your trade mark sorted today. Source: ATO Newsroom

Succession: Are you transitioning your business to the next generation?

22 Aug 2023 04:26:00 GMT

What is the end game for your business? Succession is not just a topic for a TV series or billionaire families, it’s about successfully transitioning your business and maximising its capital value for you, the owners. When it comes to generational succession of a family business, there are a few important aspects: • Succession of the business; • Succession of the ownership of the business; • Succession planning/pathway; and • Moving from a business family to an investment family. For generational succession to succeed, even if that succession is the sale of the business and the management of the sale proceeds for the benefit of the family, communication is essential. Where generational succession fails, it is often because succession has not been formalised until a catalyst event or retirement planning requires it. A concept of ‘legacy’ is not enough. Successful succession occurs when the guiding principles of governance, family rules, aligning values, dispute resolution, succession and estate planning are managed well before discontent tears it apart. Generational succession usually involves the transfer of an interest in a business to another generation of a family (usually younger). It is often a family in business rather than simply a family business. “One-third of Australian family businesses expect that the next generation will become the majority shareholders within 5 years time. Yet only 25% of Australian family businesses have a robust, documented and communicated succession plan in place.” PWC Family Business Survey The options for how a movement of an interest may occur are many and varied but usually focus on the transfer of some or all of the equity held in the business over a period or at a defined point in time and the payment of some form of consideration for the equity transferred. Alternatively, a part of the equity transfer may ultimately be dealt with through the estate. Generational succession comes with its own set of issues that need to be dealt with: Capability and willingness of the next generation A realistic assessment of whether the business can continue successfully after the transition. In some cases, the older generation will pursue generational succession either as a means of keeping the business in the family, perpetuating their legacy, or to provide a stable business future for the next generation. While reasonable objectives, they only work where there is capability and willingness. Communication of expectations is essential. Capital transfer Consider the capital requirements of the exiting generation. To what extent do you need to extract capital from the business at the time of the transition? The higher the level of capital needed, the greater the pressure on the business and the equity stakeholders. In many cases, the incoming generation will not have sufficient capital to buy-out the exiting generation. This will require the vendors to maintain a continuing investment in the business or for the business to take on an increased level of debt. Either scenario needs to be assessed for its sustainability at a business and shareholder level. In some scenarios the exiting owners will transition their ownership on an agreed timeframe. Managing remuneration In many small and medium businesses, the owners arrange their remuneration from the business to meet their needs rather than being reasonable compensation for the roles undertaken. This can result in the business either paying too much or too little. Under generational succession, there should be an increased level of formality around compensation. Compensation should be matched to roles, and where performance incentives exist, these should be clearly structured. Who has operational management and control? Transition of control is often a sensitive area. It is essential to establish and agree in advance how operating and management control will be maintained and transitioned. This is important not only for the generational stakeholders but also for the business. Often the exiting business owners have a firm view on how the business should be run. Uncertainty in the management and decision making of the business can lead to confusion or a vacuum – either will have an adverse impact. Tensions often arise because: • The incoming generation want freedom of decision making and the ability to put their imprint on the business. • Without operating control, they feel that they have management in name only. • The exiting generation believe that their experience is necessary to the business and entitles them to a continued say. • A perception that capital investment should equate to ultimate operating control. • An uncertainty by either or both generations about the extent of their ongoing roles. Agreeing transition of control in advance, on an agreed timeframe, can significantly reduce tensions. Transition timeframes and expectations Generational succession is often a process rather than an event. The extended timeframe for the transition requires active management to ensure that there are mutual expectations and to avoid the process being derailed by frustration. The established generation may have identified that they want to scale down their business involvement and bring on other family members to succeed them. This does not necessarily mean that they want to withdraw completely. An extended transition period is not uncommon and can often assist the business in managing the change. This can also work well in managing income and capital withdrawal requirements. The need for greater formality and management structure A danger for many SMEs is the blurring of the boundaries between the role of the Board, shareholders, and management. With generational succession, this can become even more pronounced. Formality in these structures is important, with clear definitions of the roles and clarification of the expectations. For example, who should be a director and what is their role? For some, the role of the family is managed by a family constitution – an agreed set of rules. For others there will be an external advisory group that advises the family to ensure that the required independent expertise is brought to bear. Successfully managing generational change is a process we can help you navigate. Talk to us about how we can help to structure an effective transition path. Source: Knowledge Shop

Understanding your investment options

18 Aug 2023 04:33:00 GMT

Investing is full of jargon and technical terms that can make getting started or managing your investments seem intimidating. Here are some of the key terms to help you better understand the different options available to you. Common investing terms There are a few terms that you’ll see repeated when we’re talking about investing. Bonds – Bonds are a way for corporations or governments to receive a loan from investors for a promised rate of return over a specific period. Bonds can be issued to pay debts, build new facilities or raise funds for future growth. Cash – Cash investments are savings accounts and other easy to access funds like cash management trusts and money market funds. Cash investments are stable and low risk, generally growing slower than inflation or the increase in prices of goods and services over time. Diversification – Having a diverse group of investments means that you spread your investments across different companies or sectors (for example, shares or fixed interest). This way, if one sector underperforms or has a loss, you have other investments that may perform better and help balance out any losses. Another way we diversify our investment options and portfolios is by using different investment managers, with different approaches to investing. In some cases we use multiple investment managers in the same option. These are called multi-manager portfolios. Dividends – Dividends are a portion of profits or earnings paid to shareholders. They are paid on a regular basis and in some cases can be reinvested into the business in the form of more shares. This can provide shareholders with ongoing income. Domestic Markets – Domestic markets, shares or companies refers to the variety of investments that are connected to that country, either through where they operate or the investment exchanges on which they reside. In Australia, we would refer to Australian bonds as domestic bonds. Likewise, a US-based fund would refer to the US stock market as the domestic market. Environmental, Social and Corporate Governance (ESG) – ESG is the consideration of an investment beyond its financial performance. It often includes social and environmental factors, like its impact on the climate, the gender or cultural diversity of staff and leadership or general benefit to society. Investors are increasingly applying these considerations as part of their investing decisions. Equities – Equities are another name for shares. Equities can be bought directly on the share market or through an investment option. Fees – A fee is the amount charged by a fund to manage your investments. Fees may vary based on factors including the cost to manage an option, the size of the investment and the management style. Geared Investments – Geared or ‘leveraged investing’ is a way to borrow money in order to increase the size of an investor’s original investment. Geared investments are often made with higher risk assets like shares and property. International and Emerging Markets – International markets can give investors access to a variety of investments including shares, securities, property or bonds from nations other than their own. International markets can be volatile because of international trade relations or fluctuations in currency value. There is more risk with less stable countries, like those in economic or political turmoil, and less risk in more stable countries. Emerging markets are international markets that focus specifically on growing and developing economies like China, Brazil or India. Investment Manager – An investment manager is a professional person or organisation who has been appointed to manage money in an investment option on behalf of investors. One or multiple investment managers may be appointed to an investment option. They generally have specialised expertise in the area they represent, like property, bonds or shares. Investment managers are selected for their strengths in certain areas as well as organisational stability, solid investment process and a history of strong performance. We also use a specialist investment consulting and research firm when selecting managers. Managed Fund – A managed fund pools your money together with other investors to buy a variety of assets like shares, bonds or property. Managed funds can be invested in single or multiple asset classes and have single or multiple investment managers. Risk – Risk in investing is about understanding, anticipating and accepting the potential for financial loss in an investment. All investing has an inherent level of risk. Risk can be seen as an option underperforming against expectation. Investors can spread their risk by diversifying their investments. Securities – A security is a way to purchase a portion of an asset such as infrastructure, a property, loan or business. For example, shares are type of security that makes it easy to purchase a portion of a business. Securities can be bought, sold or traded. The value can change based on market conditions, the value of the asset, expected income or general market conditions. Share – A share or stock represents the purchase of a portion of a business. The value can increase or decrease based on a variety of factors including general market conditions as well as industry and company performance and challenges. Some shares have lower volatility and provide strong regular dividends without necessarily increasing in value. Short Selling – Short selling, or shorting, takes place when an investor believes the price of an equity (like a share) will go down. They arrange to sell shares on the market with intention of repurchasing them for a lower price later on. A short position is generally very high risk and can result in large losses if the price of the equity increases. Mandate – A mandate is an agreement with an investment manager that sets out how money will be invested. It includes performance benchmarks and expectations, acceptable investments and investment ranges. A mandate’s structure means that the investments are managed in a unique way for our investors, different from the investment manager’s options with other organisations. This gives CFS greater flexibility around the option including administration and reporting to investors. Product Disclosure Statement – A Product Disclosure Statement (PDS) is a review of all relevant product information for an investment option. You should always read the PDS before making any decisions about the relevant products. It offers information including the investment managers, risk measures, objectives and minimum suggested timeframe. Units and Unit Pricing – The unit price tells you the value of the package of investments it contains. Investments are packaged in units that are made up of a variety of assets, like shares, bonds and property. Investing this way gives you the ability to invest in ways that you may not otherwise be able to access as an individual investor. Reading an investment option We use a standard description to quickly review and compare different investment options. Here’s what you should look for: Objective A sentence or two on what the investment option is designed to achieve and the timeframe to achieve it. Minimum suggested timeframe How long an investment professional suggests you hold, or remain invested in, an option in order to achieve the stated investment objective. This is only a suggestion and should not be considered personal financial advice. Because financial markets can be volatile and unpredictable, it’s good to regularly review your investments with a financial adviser to ensure they meet your needs. Risk A snapshot of the expectation that an investment option will deliver a similar number of negative annual returns over a 20-year period. Generally, the higher the level of risk an option has, the higher its return is expected to be. You should review the associated risks to see if the option is suitable for your needs. Strategy A description of the way the investment option is structured with some details about its contents and the reasons why those investments were chosen. Investment category A quick way to organise different options by their typical range. These categories are not standardised across the investment industry, so what is considered ‘growth’ in one organisation might be considered ‘moderate’ by another. You should read the full details of an option before making an investing decision. We’ll break down the different investment categories a bit later. Allocation A quick view of the different assets, or types of investments, contained in an investment option. In some cases, the assets are given a range, (i.e. between 15-25%), which indicates the minimum and maximum ranges that may be held in the option at any time. The investment manager may make changes within that range for different reasons including market volatility. Not all investments offer an allocation benchmark. Underlying investment managers These are the professional investment managers and organisations that have been appointed to manage the money in the investment option. There may be one or more, which is known as a multi-manager fund. Investment categories and asset classes There are a few different ways we organise and categorise investments to make it easy to understand how they are structured. Cash and deposits Cash is invested in reasonably stable domestic currency, like bank bills. Cash is liquid, making it easier to quickly access funds as required. It also includes term deposits (money invested for a set period) and money market securities. Cash and deposits are generally low risk and provide a low, stable return. Less liquid than cash and deposits, enhanced cash is invested in money market securities and some fixed interest securities. Fixed interest Fixed interest investments are investments made with a guaranteed rate of return. These are usually issued by corporations, governments or financial institutions to raise funds. They have a set rate of return, which is usually higher than cash but lower than higher-risk options like shares. The return comes from interest payments from the bond issuer. The amount of that return can change based on interest rate repayments. Alternatives Alternative funds may include a diverse mixture of investments including hedge funds or commodity trading like oil or livestock. Basically, anything that falls outside of the traditional shares, property, infrastructure, cash or fixed interest categories are called alternatives. Property Property investing generally involves buying a property or buying a stake in a building through a property security. These properties can be office spaces, industrial properties or retail. A company or trust (a group acting on behalf of the investors) generally hold, manage and develop these properties. Infrastructure Infrastructure is a broad term that refers to physical assets. It may include public transportation, toll roads or utilities like water desalination. It may also include social infrastructure investments in public housing, hospitals or prisons. Infrastructure investments or securities (a portion of the investment purchased on a public market) are generally expensive and have high upfront capital requirements. They also feature low ongoing operating costs and have a reasonably stable return. Shares The most recognised method of investing, shares are part ownership of a company. They are generally bought and sold on a public stock exchange. Because of the general volatility of the share markets, shares are considered a high risk asset. Over time, however, they tend to outperform other asset classes. The amount of risk can depend on the particular company invested in or the industry or region they come from. Risk measures and categories Risk is broken down into some general categories in order to help organise different investment options. Because there is no industry standard around the naming of the categories, the level of risk may vary between funds. What is a conservative investment with one fund may be considered a moderate investment with another. Risk is generally broken down into the following categories: Risk band Risk Label Estimated number of negative annual returns over any 20-year period 1 Very low Less than 0.5 2 Low 0.5 to less than 1 3 Low to medium 1 to less than 2 4 Medium 2 to less than 3 5 Medium to high 3 to less than 4 6 High 4 to less than 6 7 Very high 6 or greater Source: Colonial First State

TPARs due 28 August – avoid these common errors

18 Aug 2023 04:28:00 GMT

With the due date of 28 August approaching, it’s time to check whether you need to lodge a Taxable payments annual report (TPAR). You need to lodge a TPAR for payments made to contractors who provide the following services: building and construction cleaning courier and road freight information technology (IT) security, investigation or surveillance. To make sure your TPAR is lodged on time and to avoid any penalties and unnecessary follow-up, here are some common errors to avoid: Ensure the business software you use to prepare the TPAR data file generates the data in a format that can be tested and lodged via ATO online services. The ATO can’t process spreadsheets, pdfs, or Word documents. Only use whole dollar amounts when reporting. Amount fields must not contain decimal points, commas, or other non-numeric characters. Make sure you’ve selected the correct lodgment year. It’s possible to lodge multiple TPARs, even if a previous year has been finalised. Selecting the incorrect year will lead to reminder correspondence and possible late lodgment penalties. If you changed your business structure during the financial year, make sure you lodge your TPAR with the correct ABN. For example, a supplier who previously operated as a sole trader and establishes a new company structure should report all TPAR payments this financial year under the company ABN, not the sole trader ABN. If you don’t need to lodge this year, submit a TPAR Non-lodgment advice (NLA) to let the ATO know and avoid unnecessary follow-up. The ATO website has more information to help you understand who needs to report and how to lodge. Source: ATO Newsroom

Some recent questions on Australian inflation

17 Aug 2023 04:30:00 GMT

Key points The Australian inflation rate peaked in the December quarter but has been slower to decline than some global peers. While interest rate rises are helping to reduce inflation (especially as discretionary consumer spending slows), rises in domestic energy prices, a tight rental market and a lagged pick up in wages have contributed to higher than expected inflation outcomes. The main policy available in the RBA’s toolkit to manage inflation is interest rates, which is a blunt tool because of its unequal impact on households with debt. The burden of interest rate increases falls on households with mortgage debt. Businesses and investors are also impacted but the deductibility of interest provides some offset. Some countries in Europe have opted to use price controls for essential items to reduce inflation, with mixed results. Price controls tend to add distortions to the market and rent controls are not helpful while housing supply is limited (like in Australia). But the government still has a role to play in helping the RBA achieve its 2-3% inflation target through keeping fiscal policy neutral/contractionary if inflation is high, ensuring a well functioning energy market, maintaining sustainable wage increases, regulating businesses to discourage price gouging and monopolistic behaviour and calibrating appropriate migration targets to match housing supply. Introduction Australian inflation is very high. Consumer prices were up by 7% over the year to March, around a 33-year high but this was a decline from a cyclical peak of 7.8% in December 2022. The Reserve Bank of Australia (RBA) has been focusing on reducing inflation through the main policy tool available in the central bank’s toolkit – interest rates. The cash rate has risen from 0.1% in April 2022 to 4.1% in June – a 4% lift in just over a year. But, the impact on inflation so far has been lower than expected. As a result, we are often asked whether interest rates are actually having an impact on inflation or whether there are better tools available to policymakers, especially as interest rate hikes are having an unequal impact across household groups. We go through some of these issues in this article. Are interest rate hikes working to reduce inflation? Interest rate hikes have led to a slowing in consumer demand which is helping to reduce inflation. Discretionary spending fell in the March quarter and the volumes of retail spending was negative over the December-March quarter. Without the lift in interest rates, inflation may have increased further and consumer and market-based medium-long term inflation expectations could have kept rising well above the RBA’s 2-3% inflation target. Some might say that rate hikes should have worked faster or better by now to reduce inflation. The problem has been that there have been numerous supply driven elements of the inflation story that have been less sensitive to interest rate changes. COVID driven supply chain disruptions led to big increases in shipping costs, commodity prices like energy, metals and agriculture increased significantly in 2021-22 (mostly from supply disruptions), domestic energy supply issues led to an Australian energy crisis and multiple domestic floods led to higher food prices. While these issues may not be directly influenced by the level of change in interest rates, it is the responsibility of the RBA to ensure that supply driven price changes do not leak into consumer prices. A lot of these supply related issues are now resolved but it takes time for it to be reflected in the final inflation figures. Evidence of excessive price gouging by businesses is not obvious. Profit margins have expanded (increasing from 10% in 2020 to a recent high of ~16%) but have generally moved in proportion to the rise in inflation (see the chart below) and are now declining. The profit share (ex mining) of GDP has also been fairly stable. And slowing consumer discretionary spending means that continued profit margin expansion will be unlikely. Source: Bloomberg, AMP The peak of Australian inflation (in December 2022) also occurred later compared to some global peers which means that the slowing in inflation appears like it’s taking longer. US inflation peaked at 9.1% in June 2022 and in the Eurozone at 10.6% in October 2022 (see the next chart). Source: Macrobond, AMP Australia’s energy crisis occurred later relative to the Northern hemisphere, because of a raft of our own domestic issues like supply challenges with coal, a poor national plan for the energy transition and higher global prices. This meant that both the US and Europe were more impacted by an energy price surge in early 2022 from the war in Ukraine and the winter weather. Australia’s rental market also tightened significantly over the past year as net migration rebounded to record highs after the pandemic, pushing vacancy rates to ultra low levels in the capital cities and lifted rents, although recent vacancy rates across the capital cities have ticked up and newly advertised rental growth is slowing. Australia’s wage setting system also seems to have more “inertia”, with the minimum wage decision occurring once a year and many other wages like awards also based off this annual decision or driven by changes to headline inflation, which only peaked in December 2022. While these factors all suggest that inflation in Australia could remain higher for longer for now, the good news is that our Pipeline Inflation Indicator still suggests significant downside to Australian inflation over the next six months and we expect headline consumer prices to be at the top end of the RBA’s target band by early 2024 (on a 6-month annualised basis). Source: Bloomberg, AMP Are interest rate hikes increasing inequality? The impact of monetary policy works primarily through the lending channel because borrowing rates are priced off the cash rate. Households with a mortgage are the most impacted by interest rate changes. Businesses and individual investors are arguably less impacted because they can deduct the debt interest expenses. There are also other financial market channels that monetary policy works through, mostly through the exchange rate. The high level of household debt now means that mortgage holders will bear the brunt of monetary policy changes. Renters can also be affected from higher interest rates if landlords are able to pass on the higher cost of debt servicing through higher rents. This is only usually an option in a tight rental market (which the current situation is allowing for). In Australia, 37% of households have a mortgage (using data from 2019-20), 29% rent and 30% own their own outright. Detailed ABS data on housing costs shows that households with a mortgage spend close to 16% of their gross household income on “housing costs” (mortgage or rent and rate payments) as at 2019-20, owners without a mortgage spend 3% of their income on housing costs and the average renter spends close to 20% of their income on housing. And there are divergences across income quintiles (see the chart below) with the lowest income quintiles spending a very large share of income on housing costs. Source: Bloomberg, AMP Are there other options to combat high inflation? The high degree of supply related factors that have increased inflation, the slow reduction in prices despite aggressive interest rate hikes and the high burden placed on households with a mortgage has led to questions about whether there are other options available to reduce the level of inflation. The RBA has been tasked with the responsibility for the 2-3% inflation target but the only tool at its disposal is monetary policy. While the range of options within the toolkit has expanded beyond interest rates (including yield targets and quantitative easing) all of these measures ultimately influence the money supply and therefore the cost of borrowing. The government has more tools at its disposal compared to the RBA through its spending and taxation decisions as well as regulation. However, these tools are slow moving and do not have as much of a direct impact on inflation. Some have argued that price controls need to be considered in Australia. Food price caps have recently been tried in Europe for some essential items, including in France, Croatia and Hungary with mixed impacts as measured inflation went down but there were reports of some food shortages. Usually, economists do not advocate for price controls or caps because it’s a distortion in the market and leads to problems like supply shortages. However, the Federal government did impose energy price caps domestically, so it is already being utilised in some capacity. Talk of rent controls would likely add to supply constraints across Australia at a time when housing supply needs to lift. But, the government does have a role to play in many components that impact inflation, such as by ensuring a well regulated electricity market, sustainable outcomes for minimum award and public sector wages which set the tone for the rest of the market, ensuring that fiscal policy (both state and federal) is appropriate for the state of the economy (we think the impact of the May Federal budget is more or less neutral but with the addition of some state cost of living benefits it could be marginally inflationary and the government could consider raising taxes to help get inflation down), regulation of retailers to ensure adequate competition and ensuring adequate housing for the migration targets. Implications for investors For investors, the good news is that inflation is expected to decline through the rest of the year which should mean that central banks are close to the top of their tightening cycles. This is generally positive for sharemarkets however, the further interest rates increase, the higher the risk of recession which is a risk for sharemarkets. The RBA’s recent hawkish stance means that further increases to the cash rate are likely in Australia. We expect another two interest rate increases from here, taking the cash rate to 4.6% which risks a recession in the next 12 months because of the heightened sensitivity of households to interest rate hikes in Australia. Source: AMP

Does your company have an overdue debt?

08 May 2023 09:53:00 GMT

The ATO are continuing to write letters to the directors of companies that have an overdue debt with them. The letters advise that if a company hasn’t paid the amount owing or contacted us to make other arrangements, the tax office may issue a director penalty notice (DPN). DPNs are issued to current directors and anyone who was a director at the time the company failed to pay. They make directors personally liable if a company has failed to meet their pay as you go withholding, goods and services tax and superannuation guarantee charge obligations. If you receive a letter or your company has a debt with them, you need to arrange to pay the overdue amount or enter into a payment plan. The ATO want to work with small businesses to help manage their tax debts. If you’re facing financial hardship or need more time to pay any overdue debts, contact them to discuss your situation. Remember, registered tax agents like Paris Financial can help you with tax advice. Source: ATO Newsroom

$20k Small Business Energy Incentive

05 May 2023 09:47:00 GMT

The Small Business Energy Incentive encourages small and medium businesses with an aggregated turnover of less than $50 million to invest in spending that supports “electrification” and more efficient use of energy. Up to $100,000 of total expenditure will be eligible for the incentive, with the maximum bonus tax deduction of $20,000 per business. Eligible assets or upgrades will need to be first used or installed ready for use between 1 July 2023 and 30 June 2024 to qualify for the bonus deduction. If your business is contemplating upgrading to improve energy efficiency, check out the ATO website to learn more: Small Business Energy Incentive. Note: The material and contents provided in this publication are informative in nature only. It is not intended to be advice and you should not act specifically on the basis of this information alone. If expert assistance is required, professional advice should be obtained.

What You Need to Know About the Latest RBA Cash Rate Rise

02 May 2023 23:11:00 GMT

The Reserve Bank of Australia (RBA) has recently announced a cash rate rise of 25 basis points, bringing the current rate to 3.85%. This marks the first rate rise after a month-long break, and it’s important to understand what it means for your home loan and finances. In this blog post, we’ll discuss what the latest cash rate rise means, its impact on home loans, and provide some tips on how you can manage your finances effectively. What does the cash rate rise mean? The RBA Governor, Philip Lowe, stated that the board paused rate rises last month to assess the impact of previous rate rises on the economy. However, strong jobs and inflation data have indicated that more work needs to be done to control price rises. While inflation in Australia has passed its peak, 7% is still too high, and further rate rises cannot be ruled out. The latest rate increase means an additional $78 per month on repayments for a half a million dollar home loan if passed on in full by banks. Customers owing $500,000 will have seen their repayments rise by around $1,058 per month since the RBA started hiking rates in May last year. This increase can have a significant impact on your finances, especially if you’re already struggling to make ends meet. How can you manage your finances effectively? If you’re feeling the pinch of higher home loan repayments, here are some tips to help you manage your finances effectively: Use your offset account – If you have an offset account, use it! Having your savings in offset will reduce the interest you pay and, in turn, will pay off additional principal. This can help you save money in the long run. Make extra repayments – If you can make extra repayments, consider doing so. An extra $100 per month on a $500,000 loan will knock off approximately 2.5 years off your mortgage and save close to $50,000 in interest over the life of the loan. Use a mortgage repayment calculator to see how much you can save. Review your current interest rate – Talk to your lender or a mortgage broker to review your current interest rate. There may be better rates available to you that can help you save money. Consider refinancing options – Review your refinancing options. Mortgage brokers can help you find better deals on home loans without charging you any fees, and many lenders offer refinance rebates, which can help you save money. Conclusion The latest cash rate rise means that you’ll need to be mindful of your finances, especially if you have a home loan. Use your offset account, make extra repayments, review your current interest rate, and consider refinancing options to manage your finances effectively. If you’re struggling, don’t hesitate to reach out to a mortgage broker for help. Hayley Crow at Paris Financial is our expert Mortgage Broker and is here to discuss the refinancing options for your home loan. With some smart strategies in place, you can navigate the latest cash rate rise and stay on top of your finances. Get in touch with Hayley on: (03) 8393 1009.

ATO PAYGW prefill is coming to activity statements

02 May 2023 09:42:00 GMT

From July, the tax office will prefill the PAYG withholding amounts in your activity statements in ATO online. ATO PAYG withholding prefill will be available for small and medium employers from the: July activity statement for monthly PAYG withholders September activity statement for quarterly PAYG withholders. The ATO use the amounts you report in STP to prefill labels W1 and W2: Label W1: Total salary, wages and other payments Label W2: Amount withheld from payments shown at W1. You’ll only need to change prefilled amounts if they don’t match your records. Most (but not all) PAYG withholding will be reported through STP. Complete any remaining labels on your activity statement before you lodge and pay (where applicable) as you do now. Digital service providers will choose which products they make prefill available in and when. From July, the ATO will pilot reminding employers to lodge their activity statements in the 2023–24 financial year. They’ll randomly select 3,000 employers from those who have: an outstanding activity statement, and reported PAYG withholding in STP for the period. If you have a tax professional acting on your behalf like the tax champions at Paris Financial, the ATO will advise us if our clients have been selected. Find out more about how the ATO use STP data to simplify your activity statement reporting this year. Should you have any queries, please don’t hesitate to contact our team at Paris Financial: (03) 8393 1000. Source: ATO Newsroom

The low down on depreciation

01 May 2023 09:37:00 GMT

So, what’s the difference between temporary full expensing and instant asset write-off? Temporary full expensing allows eligible businesses to claim an immediate tax deduction for the business portion of the cost of an eligible asset, in the year it is first held, first used or installed ready for use. Instant asset write-off also allows eligible businesses to claim an immediate deduction, but the thresholds and date range for when an asset is first used, or installed ready for use, are different. You can only use temporary full expensing if you’re calculating depreciation of assets for the 2021–22 and 2022–23 financial years. You can find out more about temporary full expensing and instant asset write-off at ato.gov.au/depreciation. Remember, registered tax agents like the experienced team at Paris Financial can help you with your tax. Get in touch today: (03) 8393 1000.

Company money: A guide for owners

28 Apr 2023 05:56:00 GMT

There a myriad of ways owners look for payback from a company they have invested their time and money into it from dividends, salary and wages, jobs for sometimes underqualified family members to cash advances and personal expenses like school fees and nights out picked up as a company expense. But, once the cash is in the company, it is company money. We look at the flow of money in and out of a company and the problems that trip business owners up. Repaying money loaned to the company If you have lent money to your company, you can draw this money back out as a loan repayment. The loan repayment is not deductible to the company but any interest payments made to you will be as long as the borrowed money has been used in the company’s business activities (assuming interest has actually been charged on the loan). Conversely, any repayments made by the company on the loan principal are not income for tax purposes but you will need to declare any interest earned in your income tax return. All loans, including the loan term and repayments, should be documented. Dividends: Paying out profits Dividends basically represent company profits being paid out to the shareholders of a company. If the company has franking credits from income tax it has paid, the dividends might be franked and the credits can often be used by the shareholder to reduce their personal tax liability. When a dividend is paid by a private company it must provide a distribution statement to the shareholders within four months after the end of the financial year. This gives private companies up to four months after the end of the financial year to work out the extent to which dividends will be franked. If any of the shares in the company are held by a discretionary trust then there are some additional issues that will need to be considered, including whether the trust has a positive amount of net income for the year, whether the trust has made a family trust election for tax purposes and who will become entitled to distributions made by the trust for that year. Repaying share capital Many private companies are set up with a relatively small amount of share capital. However, if a company has a larger share capital balance then there might be scope for the company to undertake a return of share capital to the shareholders. Whether this is possible will depend on the terms of the company constitution and there are some corporate law issues that need to be addressed. From a tax perspective, a return of share capital will normally reduce the cost base of the shares for CGT purposes, which means that a larger capital gain could arise on future sale of the shares but there won’t necessarily be an immediate tax liability. Having said that, there are some integrity rules in the tax system that need to be considered. The risk of these rules being triggered tends to be higher if the company has retained profits that could be paid out as dividends. Shareholder loans, payments and forgiven debts: Using company money There are some rules in the tax law (known as Division 7A) that determine how money taken out of a company is treated. Division 7A is a particularly tricky piece of tax law designed to prevent business owners accessing funds in a way that circumvents income tax. While amounts taken from a company bank account by the owners are often debited to a shareholder’s loan account in the financial statements, Division 7A ensures that any payments, loans, or forgiven debts are treated as if they were dividends for tax purposes unless there is a loan agreement in place which meets certain strict requirements. These ‘deemed’ dividends cannot normally be franked. If you have taken money out of the company bank account then the main ways of avoiding this deemed dividend from being triggered are to ensure that the loan is fully repaid or placed under a complying loan agreement before the earlier of the due date and actual lodgement date of the company’s tax return for that year. To be a complying loan agreement the agreement requires minimum annual repayments to be made over a set period of time and there is a minimum benchmark interest rate that applies – currently 4.77% for 2022-23. For example, if your company is paying school fees for your kids, or you take money out of the company bank account to pay down your personal home loan, if you don’t pay back this amount or put a complying loan agreement in place then this amount is likely to be treated as a deemed unfranked dividend. That is, you need to declare this amount in your personal income tax return as if it was a dividend and without the benefit of any franking credits. This means that even though the company might have already paid tax on this amount, you will be taxed on it again without the ability to claim a credit for the tax already paid by the company (causing double taxation of the same company profits). The rules are very strict when it comes to loan repayments. If a repayment is made but the same amount or more is loaned to the shareholder shortly afterwards then there are some special rules that can apply to basically ignore the repayment. There are some exceptions to these rules and the position needs to be managed carefully to avoid adverse tax implications. If you have any queries, please feel free to contact our team on: (03) 8393 1000. Note: The material and contents provided in this publication are informative in nature only. It is not intended to be advice and you should not act specifically on the basis of this information alone. If expert assistance is required, professional advice should be obtained. Publication date: 3 April 2023

Temporary Full Expensing (TFE) due to finish soon!

24 Apr 2023 03:15:00 GMT

TFE, is due to finish on 30th June 2023! Find out more about Temporary Full Expensing in this short video where Pat Mannix of Paris Financial explains the in's and out's for eligible businesses. Can you claim an immediate cost deduction for the business portion of your assets for this year? Click the video to learn more! Want to chat further with our team about this topic? Feel free to get in touch with our team on: (03) 8393 1000.

Future earnings for super balances above $3m taxed at 30% from 2025-26

01 Mar 2023 09:37:00 GMT

The Government has announced that from 2025‑26, the 15% concessional tax rate applied to future earnings for superannuation balances above $3 million will increase to 30%. The concessional tax rate on earnings from superannuation in the accumulation phase will remain at 15% up to $3m. From $3m onwards, the rate will increase to 30%. The amendment applies to future earnings; it is not retrospective. 80,000 people are expected to be impacted by the measure. The announcement doesn’t propose any changes to the transfer balance cap or the amount that a member can have in the tax-free retirement phase. Should you have any questions regarding the above, please don’t hesitate to contact our tax champions on: (03) 8393 1000.

What's the Deal with Working from Home?

28 Feb 2023 09:35:00 GMT

The Australian Taxation Office (ATO) has updated its approach to how you claim expenses for working from home. The ATO has ‘refreshed’ the way you can claim deductions for the costs you incur when you work from home. From 1 July 2022 onwards, you can choose either to use a new ‘fixed rate’ method (67 cents per hour), or the ‘actual cost’ method depending on what works out best for your scenario. Either way, you will need to gather and retain certain records to make a claim. The first issue for claiming any deduction is that there must be a link between the costs you incurred and the way you earn your income. If you incur an expense but it doesn’t relate to your work, or only partially relates to your work, you cannot claim the full cost as a deduction. The second key issue is that you need to incur costs associated with working from home. For example, if you are living with your parents and not picking up any of the expenses for running the home then you can’t claim deductions for working from home as you have not incurred the expenses, even if you are paying board (the ATO treats this as a private arrangement). Let’s take a look at the detail: The new ‘fixed rate’ method Previously, there were two fixed rate methods to choose from for the 2021-22 income year: A cover-all 80 cents per hour rate for expenses incurred while working from home (which was available from 1 March 2020). This COVID-19 related rate was intended to cover all additional running expenses incurred while working from home; or If you had a space dedicated to work but were not running a business from home, you could claim 52 cents for every hour you worked from home to cover the running expenses of your home. This rate doesn’t cover certain items such as the depreciation of electronic devices, which can be claimed separately. It’s clear that working from home arrangements are here to stay for many workplaces even though COVID restrictions have eased. So, from the 2022-23 financial year onwards, the ATO has combined these two fixed rate methods to create one revised method accessible by anyone working from home, regardless of whether they have a dedicated space or are just working at the kitchen table. The new rate is 67 cents per hour and covers your energy expenses (electricity and gas), phone usage (mobile and home), internet, stationery, and computer consumables. You can separately claim the cost of the decline in value of assets such as computers, repairs, and maintenance for these assets, and if you have a dedicated home office, the cost of cleaning the office. If there is more than one person working from the same home, each person can make a claim using the fixed rate method if they meet the basic eligibility conditions. What proof do the ATO need that I am working from home? To use the fixed rate method, you will need a record of all of the hours you worked from home. The ATO has warned that it will no longer accept estimates or a sample diary over a four week period. For example, if you normally work from home on Mondays but one day you have an in-person meeting outside of your home, your diary should show that you did not work from home for at least a portion of that day. Having said that, the ATO will allow taxpayers to keep a record which is representative of the total number of hours worked from home during the period from 1 July 2022 to 28 February 2023. There is nothing in the ATO guidance to suggest that claims are limited to standard office hours. That is, if you work from home outside standard office hours or over the weekend, then make sure you keep an accurate record of the hours you are working so that you can maximise your deductions. You also need to keep a copy of at least one document for each running cost you have incurred during the year which is covered by the fixed rate method. This could include invoices, bills or credit card statements. Where bills are in the name of one member of a household but the cost is shared, each member of the household who contributes to the payment of that expense will be taken to have incurred it. For example, a husband and wife, or flatmates where they jointly contribute to costs. You need to keep these records for five years so that if the ATO come calling, you can prove your claim. If this proof is not available at the time, the deduction will be denied. If your work from home diary is electronic, ensure you can access this diary over time (such as producing a PDF summary of your calendar clearly showing the dates and times of your work at the end of each financial year). The ‘actual’ method Some people might find that the actual method produces a better result if their expenses are higher. As the name suggests, you can claim the actual additional expenses you incur when you work from home (and reduce the claim by any personal use and use by other family members). However, you will need to ensure you have kept records of these expenses and the extent to which the expenses relate to your work. Using this method, you can claim the work related portion of: The decline in value of depreciating assets – for example, home office furniture (desk, chair) and furnishings, phones and computers, laptops or similar devices. Electricity and gas (energy expenses) for heating, cooling and lighting. Home and mobile phone, data and internet expenses. Stationery and computer consumables, such as printer ink and paper. Cleaning your dedicated home office. Be careful with this method because the ATO are looking closely to ensure these expenses are directly related to how you earn your income. For example, you can’t claim personal expenses such as coffee, tea and toilet paper even if you do use these items when you are at work. Nor can you claim occupancy expenses such as rent, mortgage interest, property insurance, and land taxes and rates unless your home is a place of business. It is unusual for an employee’s home to be classified as a place of business. I run a business from home, what can I claim? Where your home is also your principal place of business and an area is set aside exclusively for business activities, you can potentially claim a deduction for an appropriate portion of occupancy expenses as well as running costs. An example would be a doctor who runs their surgery from home. The doctor may have one-third of the home set aside as a place of business where they see patients. It is important to keep in mind that Capital Gains Tax (CGT) might be payable on the eventual sale of the home. While your main residence is normally exempt from CGT, the portion of the home set aside as a place of business will not generally qualify for the main residence exemption for the period it is used for this purpose, although if you are eligible, the small business CGT concessions and general CGT discount may reduce any resulting capital gain. Should you have any queries regarding any of the above, please do not hesitate to contact our team on: (03) 8393 1000.

Is ‘downsizing' worth it?

24 Feb 2023 09:34:00 GMT

From 1 January 2023, those 55 and over can make a ‘downsizer’ contribution to superannuation. Downsizer contributions are an excellent way to get money into superannuation quickly. And now that the age limit has reduced to 55 from 60, more people have an opportunity to use this strategy if it suits their needs. What’s a ‘downsizer’ contribution? If you are aged 55 years or older, you can contribute $300,000 from the proceeds of the sale of your home to your superannuation fund. Downsizer contributions are excluded from the existing age test, work test, and the transfer balance threshold (but are limited by your transfer balance cap). For couples, both members of a couple can take advantage of the concession for the same home. That is, if you and your spouse meet the other criteria, both of you can contribute up to $300,000 ($600,000 per couple). This is the case even if one of you did not have an ownership interest in the property that was sold (assuming they meet the other criteria). Sale proceeds contributed to superannuation under this measure count towards the Age Pension assets test. Because a downsizer contribution can only be made once in a lifetime, it is important to ensure that this is the right option for you. Let’s look at the eligibility criteria: · You are 55 years or older (from 1 January 2023) at the time of making the contribution. · The home was owned by you or your spouse for 10 years or more prior to the sale – the ownership period is generally calculated from the date of settlement of purchase to the date of settlement of sale. · The home is in Australia and is not a caravan, houseboat, or other mobile home. · The proceeds (capital gain or loss) from the sale of the home are either exempt or partially exempt from capital gains tax (CGT) under the main residence exemption, or would be entitled to such an exemption if the home was a post-CGT asset rather than a pre-CGT asset (acquired before 20 September 1985). Check with us if you are uncertain. · You provide your super fund with the Downsizer contribution into super form (NAT 75073) either before or at the time of making the downsizer contribution. · The downsizer contribution is made within 90 days of receiving the proceeds of sale, which is usually at the date of settlement. · You have not previously made a downsizer contribution to super from the sale of another home or from the part sale of your home. Do I have to buy another smaller home? The name ‘downsizer’ is a bit of a misnomer. To access this measure you do not have to buy another home once you have sold your existing home, and you are not required to buy a smaller home – you could buy a larger and more expensive one. Have any queries about downsizer contributions? Feel free to contact our team on (03) 8393 1000. Note: The material and contents provided in this publication are informative in nature only. It is not intended to be advice and you should not act specifically on the basis of this information alone. If expert assistance is required, professional advice should be obtained.

U R the Bank Series | Episode #3 – Reduce Business Risk

23 Feb 2023 04:53:00 GMT

Welcome to Paris Financial’s series: ‘ U R the Bank’. In this episode, Pat Mannix will chat about Reducing Business Risk. Follow each episode to find out how you can be your own bank, develop your own property portfolio, and protect everything. Other topics which you’ll learn about in this U R the Bank series are: – Developing family wealth – Protecting family assets – Tax effectiveness Tune in to each episode! Our team at Paris Financial would love to hear from you, feel free to contact us at: champions@parisfinancial.com.au. Video Link: U R the Bank - Episode #3 – Reduce Business Risk

What are asset portfolios?

22 Feb 2023 09:25:00 GMT

Building your wealth for the long term starts with a sound investment strategy; but with so many options outside your superannuation fund, from bonds to managed funds, where should you begin? Understand your risk profile and timeframe Almost every type of investment comes with some level of risk. There’s a risk you could lose money, as well as the possibility your investments won’t achieve your financial goals within the timeframe you need. As a general rule, the higher the risk the greater the potential return and the longer you should consider keeping that investment. So first you need to understand what type of investor you are and recognise that this may change as you get closer to retirement. When time is on your side, you may decide you can afford to take some calculated risks with your investment portfolio. That might place you at the ‘aggressive’ or ‘moderate to high growth’ end of the risk profile spectrum but if you’re planning to scale back on paid work soon, you may feel more ‘defensive’ or ‘conservative’ with your investment approach, to protect the value of the capital you’ve already built up. To work out your risk profile, think about how you feel about short term fluctuations in the value of your investments. Would it keep you awake at night or would you be comfortable riding it out? A market correction when you’re close to retirement could have a disproportionate impact on a larger portfolio so it’s also worth considering two risk profiles, one for your superannuation and one for your other investments. What are asset classes? An asset class is a type of investment – broadly speaking, these are cash, fixed interest, property or shares. Each has a different level of risk and return. Cash (defensive asset) Fixed interest (defensive asset) Investing in cash (such as term deposits) provides stable, low risk income (usually as interest payments). Traditionally, around 30 percent of assets are held in cash and term deposits[1]. It’s a good idea to have some cash available at short notice and these investments usually have a short timeframe. Investing in government or corporate bonds, mortgages or hybrid securities operate like a reverse loan – they pay you a regular interest payment over a fixed term. You usually hold fixed interest investments for one to three years. Property securities (growth asset) Australian and international shares (growth asset) You can invest in property that is listed on share markets, including commercial, retail, hotel and industrial property. The potential returns can be medium to high but you may need to hold these investments for three to five years. Shares (or equities) give you a part ownership of an Australian or international company. Your potential returns include capital growth (or loss) and income through dividends, which may be franked. Depending on the type of share, these are considered medium to high growth assets and you may need to hold them for up to seven years. All about diversification Spreading your investments across a range of assets to reduce your risk is known as diversification – basically it lets you avoid putting all your eggs in one basket. Diversification can reduce the volatility within your portfolio and the risk of a large drop due to any market downturn. Given it can also take time to sell certain investments (such as property), it’s smart to have short term as well as long term investments within your portfolio. There are no guarantees – diversification won’t fully protect you against loss but it can even out your returns. Other ways to invest in shares Investing in a managed fund gives you access to different equities, bonds and other assets, with a focus on a specific investment objective. Pooling your money with a group of investors lets you invest in opportunities that would otherwise be out of reach and diversify your risk. There are many different types of managed funds, with different risk profiles and investment approaches, including single sector or multi sector funds or index funds. Review your investments regularly It’s important to keep an eye on your investments to make sure your portfolio is balanced and you’re on track to meeting your financial goals. If you invest in a managed fund, you may only need to review it once a year. If you are investing directly, you’ll need to monitor market changes much more frequently. It’s also worth getting advice from a financial adviser before you change your investment allocation, as selling assets may result in a tax liability. They can also give you an independent perspective on your investment goals and risk profile. Source: Colonial First State [1] http://www.afr.com/personal-finance/why-its-time-to-rebalance-your-portfolio-20160321-gnnbrt

Can super secure a woman's future?

21 Feb 2023 09:28:00 GMT

Here are some stark numbers on the difference between men and women at the point when they retire: 80% of women are retiring without the super balance they need to fund a comfortable lifestyle. On retirement, women’s average superannuation account balance is around $70,000 less than men. To be balanced, we should remember there are many situations where the shortfall in a woman’s super balance is offset by them sharing their partner’s super but that assumes away a lot of life possibilities – particularly divorce and the early death of a male partner – and also a woman’s sense of financial independence. Women also live longer than men. A woman who was 45 in 2020 could expect to live till 86 – that’s three years longer than her male counterpart. So female retirees are more exposed to the dreaded FORO – fear of running out. Why the shortfall? Why do women have less super than men? There are multiple often intertwined answers. More women work in low paid fields like hospitality and care services. They’re also more likely to work part time. That’s one reason the lockdowns of the past two years did more damage to female balance sheets. Many women take time out of the workforce to have children and act as principal caregiver, especially during the early years of their children’s lives. The ASFA (Association of Superannuation Funds of Australia) estimates women accumulate a ‘super baby debt’ of up to $50,000 – they have $50,000 less in their super because they’ve prioritised children. Compulsory super is based on a percentage of your earnings being saved for retirement. So the less you earn over your lifetime the less you save. Women are also more likely to have time away from work to care for their parents. If Generation X is the ‘squeezed generation,’ looking after the generation before and after, then Generation X women may be the ones squeezed hardest. Expanding knowledge, shrinking the gap Closing the knowledge gap is nearly as important as closing the contribution gap. The first step is understanding where you stand – so checking with your super fund or adviser to understand exactly how much super you have and how much you’ll need to support a comfortable lifestyle. Many super fund managers have easy to use calculators that answer those questions. For a rule of thumb, ASFA suggests single people need $545,000 in retirement savings to fund a comfortable retirement. Couples need around $640,000. Obviously these numbers are only guides and assume that you fully own your own home at retirement. It’s important you consider your own situation and expectations. The calculators we discuss above can give you an individual view of the return difference between different investment strategies. Historically, funds that invest more aggressively (i.e. with more in shares and property and less in cash) have tended to outperform over the long term* and that means more money to retire on. The more you put in… Women seeking to set themselves up for a truly comfortable retirement need to first get a handle on their super and their retirement objectives, then accustom themselves to taking a little more risk in the investment strategy. Given that it’s highly tax effective, many would argue that women should be pouring as much money into super as they can afford. Obviously that decision is a highly personal one that must take account of a whole range of factors. Fortunately, Australian governments, left and right, are committed to making super work, so there are some excellent strategies women of all income levels can use to get more gold into their pot. Here’s a very concise look at some of those opportunities. How you can retire with more 1. Make additional contributions Simply put, women who are likely to take time out of work should weigh up the benefits of putting more money into super when they can to build up a retirement savings buffer. Firstly, make sure your employer is contributing in line with their Superannuation Guarantee responsibilities – currently, they need to contribute 10.5% of your income to super on your behalf. (There’s a cap of $27,500 a year on these so called concessional contributions). You can also make salary sacrifice contributions, where you forgo income and direct it into your super. Those contributions also count towards the $27,500 limit. If you don’t reach the cap in a given year, you can accumulate those unused portions for up to five years. When you have the funds available you can then ‘catch up’ by investing up to your annual $27,500 cap and any unused cap from previous year(s). You can’t use this catch up approach if your super balance is over $500,000 but for many women it’s an excellent way to consider adding to their super even if they’ve had a few years out of the workforce or on part time income. 2. Bring forward contributions You can also make non-concessional contributions of up to $110,000 a year into your super. These are contributions you make after tax, for example from your savings. For younger women in high paying jobs, putting extra money into super, perhaps by investing a bonus, inheritance or proceeds from a property sale – may be an effective way to load up your super. Or if you do it later in your career, it’s another way to catch up. The government also allows you to ‘bring forward’ some contributions investing up to three times the annual non-concessional contribution in one year – that’s $330,00. Again, if you have the funds, it may be a good way to make a focused push at increasing your super balance. As of July 2022, this option is available to any women under 75 (previously it was 67). So even women very close to retirement can use this strategy to improve their super situation. 3. Spouse contributions Couples working together on their super strategies can make up for some of the inherent disadvantages women face when saving for retirement. Spouse contributions can be part of that approach. They allow one member of a couple to contribute up to $3,000 into the super fund of their spouse and receive a tax offset of up to $540 for doing so. The offset works on a sliding scale depending on the income of the ‘receiving’ spouse. To get the maximum offset the receiving spouse must earn less than $37,000 and there’s no offset once they earn over $40,000, but for many women, beefing up their super via extra contributions may be even more valuable than a tax offset. Playing as a team Couples that work together to accumulate the maximum possible super balance can have more flexibility and options in retirement. One way couples can do this is through managing their individual $1.7 million super balance cap. The cap limits the amount of super you can transfer into a tax-free retirement income stream such as a super pension or annuity. A twisty path to a beautiful place As you can see from this list of contribution strategies, there are numerous ways in which women can maximise their super balance and therefore improve their chance of a comfortable retirement lifestyle. But there are also a plethora of limits, caps and complexities to navigate. *Past performance is not indicative of future performance. Source: Perpetual

Why investing for retirement is different

20 Feb 2023 09:31:00 GMT

When you’re still employed and earning a salary, there’s money coming in you can rely on. In retirement, in the absence of a regular salary you’ll need to find a new way to secure enough income to cover your living costs. Investing your money is one way to make the most of your savings and provide an income in retirement but if you’re expecting savings and investment earnings to help cover your expenses, it’s important to get your strategy right. Why timing matters When accumulating super for retirement, you can afford to be patient. With years ahead to top up your super, you can stay invested during falls in the share market and wait for markets and your assets to bounce back. For the few years just before and after retirement, it’s a different story. This period, known as the ‘retirement risk zone’, is the time when you have most to lose from a fall in the value of investments. Your super has likely reached its peak in value and you want to make the most of these savings for your future retirement income. In order to protect your savings and provide you with income throughout your retirement, it’s important to be aware of three key risks: Living longer Australians are living longer than ever before. Life expectancy has grown by more than 30 years in the last century1. Living off retirement savings for 20-30 years or more introduces the very real risk of running out of money. So it’s no wonder more than half of Australians aged 50+ are worried about outliving their savings according to a 2019 National Seniors Australia survey. We’re lucky that we live in a country that if your retirement savings run out; the Age Pension is there as a safety net but these regular payments may not be enough to maintain the lifestyle you’ve been enjoying in retirement. You could also be left with limited funds and options for aged care, if you should need it. That’s why it’s so important to make a financial plan early in your retirement so that you can help to protect your income now and in the future. Inflation Inflation measures the change in the cost of living over time and represents an important and often underestimated risk to your financial security in retirement. Given your retirement could last 20 plus years, there’s a good chance your savings and income will be affected by inflation. At an average annual inflation rate of 2.5%2, a dollar today is worth roughly half what it was 25 years ago. Even this modest year on year rise in the price of goods and services can put you at risk of having an income that no longer covers your living expenses from year to year. Share market performance Share market performance is a risk for investors with exposure to investments such as shares, bonds and commodities. If you’re worried about market collapses similar to the Global Financial Crisis (GFC) in 2008, you’re not alone. A 2018 National Seniors Australia survey found that 7 out of 10 older Australians share your concerns. Falls in the value of investments are impossible to predict and can make a big difference to income and financial security throughout your retirement. When investments earn negative returns, your retirement savings are falling in value. Crucially, if you also need to make regular withdrawals to pay for living expenses, it’s a twofold blow for your overall financial position in retirement. Less savings now means more potential for outliving those savings later in life. Protecting your income and future in retirement Diversifying your investments – balancing growth and defensive assets for example can limit the impact of market risks and inflation on your retirement savings. However, even with a well diversified portfolio, your super and Age Pension may not provide you enough income for your entire retirement. If you’d like the peace of mind that comes with a regular income for life, a lifetime annuity might be right for you. Using a portion of your savings or super, you can invest in a lifetime annuity and receive regular income payments for life. It can act as a safety net ensuring that you will receive income for life, regardless of how long you live. Talk to an adviser about the benefits of a lifetime annuity and whether it might be right for you. [1] Australian Bureau of Statistics, Life Expectancy improvements in Australia over the last 125 years, 18 October 2017. [2] Australian Bureau of Statistics, 70 years of inflation in Australia, Andrew Glasscock, 2017. Fig 2. Source: Challenger

Economic update February 2023

20 Feb 2023 09:30:00 GMT

ntroduced in 2003. Risk assets performed strongly in January, following further indications that inflation may have peaked in key regions. Global economic growth forecasts were lowered by both the World Bank and the IMF, but investors appeared to brush off these concerns. Instead attention was focused on the central bank meetings, to see whether interest rates would continue to be raised. Most global share markets added between 5% and 10% over the month, although strength in the AUD eroded returns from overseas exposures for Australian investors. Locally, the S&P/ASX 200 Index returned 6.2% and closed the month close to its all time highs. Fixed income performed well too, with downward movements in government bond yields aiding returns from Australian and global bond markets. The generally strong risk appetite among investors also enabled credit to generate pleasing returns over the month. Australia Unlike in other regions, inflation still appears to be accelerating in Australia. Headline inflation rose at an annual rate of 7.8% in the December quarter, while the ‘trimmed mean’, the favoured measure among Reserve Bank of Australia officials, quickened to 6.9% year on year. This was the highest level since the series was introduced in 2003. Prices for ‘discretionary’ items surged over the period, with particularly strong demand and prices seen for cars, clothing, and travel. Despite sluggish retail sales in December, the latest inflation data will almost certainly concern policy makers and suggest the Reserve Bank of Australia will continue to raise interest rates in the months ahead. New Zealand The quarterly Survey of Business Opinions suggested firms are expecting profitability to collapse this year. This does not augur well for the investment and growth outlook. Consumer confidence is also subdued, owing to higher mortgage interest costs and general weakness in the residential property market. The volume of home sales was 39% lower in December from the previous year and prices were down 7.2%. US The annual rate of inflation in the US has now slowed for six straight months. In turn, there were suggestions that the Federal Reserve was preparing to slow the pace of its policy tightening cycle. Interest rates were raised by a quarter of a percentage point on 1 February. This compared to the past six rate hikes, all of which saw borrowing costs increased by either 0.5 or 0.75 percentage points. Consensus forecasts suggest US officials might raise borrowing costs once or twice more in the next six months or so but any further moves are expected to be modest. That said, policy makers have emphasised the need for interest rates to be held at elevated levels for an extended period. In other news, US GDP growth slowed less than expected in the December quarter, to an annual rate of 2.9%. So far, the economy has been more resilient than anticipated following significant increases in interest rate hikes in 2022. Some other indicators were less encouraging. A closely watched gauge of activity levels in services sectors deteriorated, for example. Europe The weather in Europe in the Northern hemisphere winter has been milder than anticipated. This has resulted in lower than expected demand for energy for heating and, in turn, seen wholesale energy prices trend lower. The outlook for inflation in the months ahead is therefore not as bleak as some observers had previously feared. Gas storage in Europe has risen quite sharply; from the lower end of the historical range a year ago when Russian gas was flowing freely, to the higher end of the historical range during a period when Russian supplies have almost entirely ceased. Lower energy prices are also feeding through to official inflation data. Consumer prices rose at an annual rate of 9.2% in the Eurozone in December, below the double digit annual inflation rates seen in each of the previous three months. Nonetheless, European Central Bank officials remain steadfast in their fight against inflation and raised official interest rates by half a percentage point on 2 February. The Bank of England raised borrowing costs by a further half percentage point the same day, taking the base rate to 4.0%. UK interest rates are now expected to peak around 4.5%. In other news, the UK will be the only economy in the G7 group of nations to shrink in 2023, according to the IMF. Asia The ‘China reopening’ story dominated attention in Asia. Officials finally appear to be softening their stance on COVID, removing a range of virus related restrictions. The Chinese economy grew ‘only’ 3.0% in 2022; the second slowest annual growth rate since the 1970s and well below Beijing’s 5.5% annual target. Activity levels could accelerate immediately following the Lunar New Year celebrations as restrictions are relaxed. This could be good news for neighbouring countries in the Asia Pacific region, including Australia, which tend to be reasonably reliant on growth in China to drive their own economies. Australian dollar The general ‘risk on’ tone benefited the AUD. The currency strengthened by 3.6% against the US dollar, closing January above 70 US cents for the first time in nearly six months. The AUD has now appreciated by more than 10% against the US dollar in the past three months. The ‘Aussie’ also appreciated against other currencies, including the euro, the UK pound and the Japanese yen. Collectively, the AUD gained 1.6% against a trade-weighted basket of currencies, adding to strength from late 2022. Australian equities Australian shares started 2023 positively, with all but one sector posting gains. As a whole, the S&P/ASX 200 Accumulation Index added 6.2%. A combination of moderating inflation expectations, lower bond yields both locally and offshore and an increasing number of large international firms announcing cost cutting initiatives helped spur a renewed sense of optimism. The Consumer Discretionary sector (+9.9%) was the strongest performer over the month. Market sentiment towards mining stocks improved on expectations that an acceleration in growth in China will benefit demand for bulk commodities. This supported index heavyweights with increases of more than 8.0%. Strong performances from lithium companies also supported an 8.9% return from the Materials sector. Utilities (-3.0%) was the only sector to register a negative return in January. Small caps outperformed their larger peers for the first time since October, with the S&P/ASX Small Ordinaries Index closing the month 6.6% higher. All sectors in the small cap index posted gains. The Consumer Discretionary sector (+11.2%) was a standout. Listed property Global property securities appreciated in January, consistent with the upward move in share markets globally. The FTSE EPRA/NAREIT Developed Index returned 8.0% in Australian dollar terms, comfortably outperforming wider equity markets. In general, sentiment was supported by moderating inflation expectations in key regions. In turn, there were hopes that we might be nearing the end of monetary tightening cycles in the US, Europe and Australia. The best returns from international property markets were found in Germany (+16.8%), France (+10.7%) and Sweden (+10.7%). Laggards included Hong Kong (+5.2%) and Spain (+6.0%). Japan was the only country to register a negative return (-1.6%), following a surprise change to the Bank of Japan’s yield curve control policy in December. Global equities Overseas share markets fared well too. The MSCI World Index added 6.5% in local currency terms, although strength in the AUD reduced the return to 3.1% for Australian based investors. The NASDAQ performed extremely well in the US, adding 10.7%. This was the best January return for the technology heavy index in more than 20 years. The broader S&P 500 Index added 6.3%, essentially reversing December’s weakness and closing around its end November level. All of the major indices in Asia also posted positive returns. There was a fair degree of dispersion among European markets, although all made positive progress. Global and Australian Fixed Income Suggestions that inflation may have peaked or being close to peaking in major regions saw investors reassess their interest rate forecasts. In general, the peak in borrowing costs is now expected to be a little lower than anticipated before Christmas. These evolving expectations saw bond yields trend lower in most major regions, which supported gains from global fixed income. Comments from Federal Reserve policy makers attracted the most scrutiny, especially since developments in the US tend to set the tone for other bond markets worldwide. Ten year Treasury yields closed the month down 37 bps, to 3.51%. There were similar moves over the Atlantic. Ten year yields on UK gilts and German bunds closed the month 34 bps and 28 bps lower, respectively. Japan was an outlier. Yields on 10-year JGBs rose 8 bps over the month, to 0.49%. Australian bond yields fell sharply; by 50 bps in the 10 year part of the curve. This aided returns from the local bond market. The Bloomberg AusBond Composite 0+ Year Index added 2.8%, clawing back some lost ground from 2022. Global credit Credit spreads narrowed quite sharply over the month, which was consistent with gains in major share markets and with a general increase in risk appetite among investors. Spreads on investment grade securities closed the month 14 bps tighter, at 1.33%. Spreads on high yield credit also narrowed sharply. We saw a good level of new corporate bond issuance over the month. Encouragingly, all of this new issuance was comfortably digested by the market. Early indications from the latest corporate earnings announcement season suggest most firms remain in healthy shape financially. Source: Bloomberg. Issued by First Sentier Investors.

Have You Received a Business Support Grant?

08 Feb 2023 01:42:00 GMT

As a small business owner, it is possible that you may have recently received a grant to support your business during difficult times. If this is the case, it’s important to check if you need to include the payment of a business support grant in your assessable income during tax time. Usually, grants are considered assessable income, but some may be non-assessable non-exempt (NANE) income and not required to be included in your tax return if certain eligibility criteria are met. Some natural disaster and COVID-19 related grants may fall under this category. Additionally, deductions can only be claimed for expenses related to NANE grants that directly contribute to earning assessable income, such as wages, rent, and utilities. Expenses associated with obtaining the grant, such as accountant fees, cannot be claimed. Our tax champions are here to assist with any questions you may have on this topic. Feel free to get in touch on (03) 8393 1000.

Classifying a new worker

02 Feb 2023 01:40:00 GMT

It is important to determine whether a new worker is classified as an employee or a contractor, as it affects tax, superannuation, and other obligations such as workers compensation insurance, as well as the worker’s entitlements. Accurately determining the classification of a worker is essential to creating a fair environment for all Australian businesses. To assist small businesses in making this decision, the Australian Taxation Office (ATO) is creating a Practical Compliance Guideline PCG 2022/D5 called Classifying Workers as Employees or Independent Contractors – ATO Compliance Approach and a Draft Taxation Ruling TR 2022/D3 Income Tax: Pay as You Go Withholding – Who is an Employee. You can find out more and provide your feedback via the ATO website. Our tax champions are here to assist with any questions you may have with your tax and super matters. Feel free to get in touch on (03) 8393 1000.

Five New Year's Tax Resolutions

16 Jan 2023 01:39:00 GMT

Here we are in 2023! A brand-new year with a set of a brand-new personal resolutions! But have you considered what your tax resolutions should be? Instead of just focusing on other resolutions, consider these five to stay on top of your tax and super in 2023: Understand if you are in business or not. If you’re earning increasing income from a hobby, you may already be in business for tax purposes. Keep your business details and registrations up to date. This includes applying for a Director ID and updating your ABN details, as well as registering for GST if you will earn over $75,000 this financial year. Maintain accurate and complete records. This will help you manage your business and its cash flow. Determine if Personal Services Income (PSI) rules apply to your income. If so, you will need to classify yourself as a personal services business to determine the tax and deductions you can claim. Take care of yourself. The last few years have been challenging for small business, so it’s important to be prepared. If you’re struggling, the NewAccess program can help with free and confidential support. Our friendly team at Paris Financial wish you all the best and hope you’re on track to succeed in 2023! Feel free to contact our office to discuss any of the above on (03) 8393 1000.

Why is my refund less than expected?

20 Dec 2022 01:37:00 GMT

As part of the ATO’s response to COVID-19 and other natural disasters, they paused the recovery of debts, including offsetting credits and refunds to debts on hold to support economic recovery. As part of recommencing collection action, they’ve started to offset credits. This may include reactivating debts on hold. When a debt is placed on hold it doesn’t appear as an outstanding balance on your account, as they’ve made the debt inactive. The ATO don’t act to collect it, but it is still payable. When the debt is reactivated, it reappears on your account. The ATO will notify you when they reactivate a debt that’s been on hold, either by calling you or sending you something in writing. If you’re due to receive a tax refund or credit, such as from a tax return or activity statement, the amount may be less than you expected. If this is the case, it’s because any refunds or credits were used to reduce the balance of the debt. Use Online services for individuals and sole traders via myGov or Online services for business to search for an offset transaction on your statement of account and for debts that remain on hold. The ATO recognise some small businesses are experiencing difficulties due to recent natural disasters and the continuing impacts of the COVID-19 pandemic. They can offer tailored support and assistance, including deferrals and payment plans. For further advice, speak to tax professionals like the tax champions at Paris Financial. Please don’t hesitate to contact our team on: (03) 8393 1000. Source: ATO Newsroom

Refresh your ABN details

19 Dec 2022 01:35:00 GMT

When did you last check your details on the Australian Business Register? If you’re not sure, it’s time to check your details are up to date. Emergency services and government agencies use ABN information to identify businesses in affected areas during emergencies. This helps them determine who might need help or support during and after a disaster. If your ABN details are out of date, you risk missing out on important assistance, updates or opportunities such as financial grants. Check and update your ABN details including: authorised contacts your business’s physical location postal address email address phone number business activities. If you’re no longer using your ABN, you need to cancel it. The ATO may cancel your ABN if there are no signs of business activity. Remember, registered tax agents like the team at Paris Financial can help, feel free to get in touch with us on: (03) 8393 1000. Source: ATO Newsroom

U R the Bank Series | Episode #2 – Protecting Family Assets

14 Dec 2022 01:33:00 GMT

Welcome to Paris Financial’s series ‘ U R the bank’. In this episode, Pat Mannix will chat about Protecting Family Assets. Follow each episode to find out how you can be your own bank, develop your own property portfolio, and protect everything.

Has your business been impacted by floods?

12 Dec 2022 01:31:00 GMT

If you’re a small business or an individual in an Australian Government Disaster Recovery Payment declared local government area, you don’t need to request a deferral for: individual income tax returns with an original due date of 31 October 2022, if you lodge by 31 January 2023 monthly BAS with an original due date of 21 October, 21 November and 21 December 2022, if you lodge by 18 February 2023 quarterly BAS with an original due date of 28 October and 25 November 2022, if you lodge by 18 February 2023. You won’t be penalised if you lodge by the later date but remember to pay by the original due date. If you can’t pay by the due date, contact the ATO to discuss payment options and request a remission of general interest charge. If you need help, even if you haven’t been directly affected by the floods, contact the ATO or your tax professional to discuss your circumstances. The ATO may be able to: give you extra time to pay tax or lodge tax returns, activity statements or other obligations help you reconstruct lost or damaged tax records prioritise any refunds owed to you. For free financial counselling support, you can phone the Small Business Debt Helpline on 1800 413 828 from 9.00 am to 5:30 pm AEST Monday to Friday. You can find more information on flood support, how the ATO may be able to help and support from other agencies. Source: ATO Newsroom

Banking your business income to a private account?

08 Dec 2022 01:29:00 GMT

Do you keep track of any business income in your private accounts so that you can report it correctly in your business tax return? The ATO have no concerns with business owners banking their business takings or other sales in private accounts, however, this can become a major problem for your bookkeeper! Not to mention, it also creates an issue if you don’t report this income to the ATO. A great way to avoid this problem is to establish a separate business bank account and only deposit your sales and other business income into this account. This will help you and your bookkeeper with record keeping and monitoring your business’s cash flow. Remember, your business income includes all sales, whether they’re cash or electronic (for example, internet sales). These are all assessable income sources and must be reported on your business’s tax return. You also need to report earnings for services your business provides. The ATO uses many tools to identify income earned and to check if it matches income reported. If you are unsure about what income you need to declare, check out the online resources via the ATO website or consult with a tax professional for advice. The team at Paris Financial are here to help! Feel free to contact our office to discuss further: (03) 8393 1000.

Stapled super funds for new employees

07 Dec 2022 01:28:00 GMT

When you employ new staff and offer them a choice of super fund, it’s possible that they won’t choose one. If this happens, you will need to request the employee’s stapled super fund from the ATO in order to meet your choice of fund obligations. A stapled super fund is an employee’s existing super account which is linked, or ‘stapled’, to them and follows them as they change jobs. When you have new employees that have not provided you with their choice of super fund, you should make contributions into: the employee’s stapled super fund, or your employer nominated (also known as a ‘default’) fund – only if the ATO advise you that they do not have a stapled super fund. You can request stapled super fund details in ATO online services for business, online services for individuals (if you’re a sole trader) or your agent can request these details using ATO online services for agents. If you need any assistance, speak to the team at Paris Financial. Feel free to contact our office to discuss further on: (03) 8393 1000.

Business income and expenses

05 Dec 2022 01:26:00 GMT

If you’re running a business, most income you receive is assessable for income tax purposes. The total amount is referred to as ‘assessable income’. You need to report assessable income in your tax return. It includes: cash income and income from online transactions commissions and investment earnings recovered bad debts for which you’ve previously claimed a tax deduction most government payments capital gains and losses increases in the value of your trading stock stock taken for personal use payments from an insurance claim related to your business. Make sure to also check what income you can exclude – for example, some COVID-19 government payments aren’t assessable if you meet the eligibility criteria. Remember you can reduce your business’s taxable income by claiming business tax deductions, as long as: the expense directly relates to earning your business’s assessable income you only claim the business-use portion if the expense is for a mix of business and private use you have records to substantiate your claims. Expenses may include: motor vehicle and travel expenses items related to protecting staff from COVID-19 employee super contributions payments you make to workers (including their wages) as long as you’ve complied with the pay as you go withholding and reporting obligations for each payment. If you haven’t already, check out the ATO’s small business tax time toolkit for more links to information and fact sheets. Remember, registered tax agents like the team at Paris Financial can help you with your tax! Feel free to contact our office to discuss further: (03) 8393 1000. Source: ATO Newsroom

How's your record keeping?

02 Dec 2022 01:25:00 GMT

Good record keeping makes things easier at tax time – consider if a digital business solution (such as digital record keeping) will help you. When it comes to record keeping, there are 5 rules. You need to: keep all records related to starting, running, changing, and selling or closing your business that are relevant to your tax and super affairs store records safely to prevent damage and protect information from being changed (you must not change relevant information in records) keep most records for 5 years (for example, you need to keep records of losses for up to 5 years after you’ve fully claimed the loss) be able to show us your records if we ask for them ensure your records are in English or easily converted to English. These detailed business record-keeping requirements explain what information you need to keep, including examples of types of records and useful record keeping tips. The ATO provide a record keeping evaluation tool only takes 5 to 10 minutes to use and will let you know how well you’re keeping records. If your tax records are damaged, destroyed or lost, the ATO may be able to help you reconstruct them. Remember, registered tax agents like the team at Paris Financial can help you with your tax! Feel free to contact our office to discuss further: (03) 8393 1000. Source: ATO Newsroom

Structural Risks: What's the Best Entity to Operate From?

30 Nov 2022 01:23:00 GMT

Structural Risks: What’s the Best Entity to Operate From? | Special Guest Pat Mannix of Joins Alex & David on: ‘A Lawyer and a Financial Advisor Walk into a Bar’

Taxing fame: The ATO's U-turn

28 Nov 2022 01:21:00 GMT

Sportspeople, media personalities, celebrities and ‘insta’ influencers beware. The ATO has taken a U-turn on how fame and image should be taxed. If you’re famous and make an income from your fame and image, the way the ATO believes you should be taxed on the income you make may change under a new draft determination set to take effect on 1 July 2023. It is not uncommon for celebrities to attempt to transfer the rights to the use of their name, image, likeness, identity, reputation etc., to a related entity such as a company or trust. This related entity then manages these rights, generating income from exploiting their fame and image. For example, where a media personality’s image is used on product packaging. One of the aims of arrangements like this is to enable the income to taxed in the entity at a lower rate of tax or to be distributed to related parties who might be subject to lower tax rates. What will change? The new draft determination (TD 2022/D3) deals specifically with the rights to use a celebrity’s fame and image. The ATO’s argument is that the individual doesn’t have a proprietary right in their fame, which means that attempting to transfer the right relating to their fame to another entity would not be legally effective. That is, you cannot separate the fame from the individual, it vests with the individual regardless of any agreements put in place. As a result, any income relating to an individual’s fame or image that is received by a related entity is treated as if it was simply being collected on behalf of the individual and should be taxed in the hands of that individual. If the related entity isn’t deriving income in its own right then it would be much more difficult for the entity to claim a deduction for expenses that it incurs. The ATO’s updated approach doesn’t apply to situations where the individual is engaged by a related party to provide services. For example, if a celebrity is booked by a related entity to attend a product launch or promotional event the fees paid by the third party can potentially be treated as income of the related entity for tax purposes. However, in situations like this it is important to consider the potential application of the personal services income rules and the general anti-avoidance rules in Part IVA. The ATO’s general position is that income relating to the personal services of an individual should ultimately be taxed in the hands of that individual. While the ATO’s new position will apply retrospectively and to income derived in future, the ATO indicates that a transitional approach will apply if the taxpayer entered into arrangements before 5 October 2022 that were consistent with the safe harbour approach that was set out in PCG 2017/D11. In these cases the ATO’s new approach will apply to income derived from 1 July 2023. Note: The material and contents provided in this publication are informative in nature only. It is not intended to be advice and you should not act specifically on the basis of this information alone. If expert assistance is required, professional advice should be obtained.

Entertaining your employees?

28 Nov 2022 01:18:00 GMT

With summer just around the corner, you may be planning a party or a day on the green with your employees. Before you fire up the BBQ, make sure you consider the fringe benefits tax (FBT) implications of your celebration. These will depend on: the amount you spend on each employee when and where your party is held who attends – is it just employees, or are partners, clients or suppliers also invited? the value and type of gifts you provide. Don’t forget to keep all records relating to the entertainment-related fringe benefits you provide, including how you worked out the taxable value of benefits. Remember, registered tax agents like the team at Paris Financial can help you with your tax! Feel free to contact our office to discuss further: (03) 8393 1000. Source: ATO Newsroom

U R the Bank | Episode #1 – Developing Family Wealth

26 Nov 2022 01:13:00 GMT

Welcome to Paris Financials’ series ‘ U R the bank’. In this episode, Pat Mannix will chat about Developing Family Wealth. Follow each episode to find out how you can be your own bank, develop your own property portfolio, and protect everything.

Made a business or non-commercial loss?

25 Nov 2022 01:10:00 GMT

Any business can make a loss. You generally make a tax loss when the total deductions you can claim for an income year exceed the total of your income for the year. Your income includes both assessable and net exempt income. There are a few options when claiming a tax loss. You may be able to claim the loss in the current year, carry it forward and claim it in a future year, or carry it back. If you’re a sole trader or in a partnership, you may also make a non-commercial business loss, which is a loss you incur from a business activity that’s not related to your primary source of income (such as a hobby or lifestyle benefit). It’s unlikely to make a profit and doesn’t have a significant commercial purpose. Similar to tax loss, a non-commercial business loss is made when your business activity deductions exceed the total of your income from that business activity. Generally, you can’t offset a non-commercial business loss against your other income – you usually need to defer the loss until the activity that generated the loss makes a profit. A loss from using temporary full expensing means you need to defer a non-commercial loss. Using temporary full expensing is not a special circumstance to request the Commissioner’s discretion that would let you offset the loss against other income in the same income year. If you’ve been affected by flood, bushfire, or COVID-19 and made a non-commercial loss in the past few years, you may be able to offset it without applying for a private ruling to seek the Commissioner’s discretion. You can find out more in our recently finalised practical compliance guideline. Remember, registered tax agents like the team at Paris Financial can help you with your tax! Feel free to contact our office to discuss further: (03) 8393 1000. Source: ATO Newsroom

3 things to consider if your Super balance falls

24 Nov 2022 01:02:00 GMT

From time to time, market movements may cause your super balance to fall. While this can be alarming, you’ll find that it usually recovers in due course. However, if you feel like you need to make some adjustments to your super, here are three things to think about first. Consider how comfortable you are with risk Almost every type of investment carries some level of risk. Generally speaking, the greater the risk, the higher the potential returns. Your super is usually made up of different kinds of investments (called asset classes) and they all have different levels of risk. The most common asset classes are: Shares (also known as equities) Shares give you part ownership of an Australian or international company and earn dividends through capital growth. Shares are generally considered a higher-risk asset because they’re susceptible to market fluctuations, but they can also provide higher returns over the long term. Property securities Property securities are common in super portfolios. Rather than investing in direct property, property securities invest in commercial, retail and industrial property holdings via the share market. They’re considered a higher-risk asset with high potential returns over the long term. Fixed interest The most common types of fixed interest investments are bonds. They’re issued by governments and large corporations when they want to raise money – for example, to fund a government or business initiative. They typically pay regular interest over a fixed term – anywhere between one and thirty years. Bonds are considered low risk, low return investments. Cash This can include money held in short and medium-term investments that earn interest, such as term deposits, bank bills and treasury notes. Their value is impacted by changes to the interest rate. These types of investments are considered very low risk because their returns are generally low but stable. The higher your allocation to riskier investments, such as shares and property securities, the more likely it is that you’ll experience market volatility – and this will be reflected in your super balance. You’ll also have the potential to receive higher returns over the long term. On the other hand, if your super portfolio has a higher allocation to low-risk investments, like cash and fixed interest, you’ll probably experience less market volatility and therefore less fluctuations in your super balance. However, you’ll most likely receive lower returns over the long term. Everyone is different and you need to decide how much risk you’re willing to accept in your super. This might change through-out your lifetime. For example, you might find that you’re less comfortable with risk as you approach retirement, because you have less time for your super to recover from short-term fluctuations. Diversify your super One of the ways to lower the overall risk in your super is to invest your super across several asset classes (an investment strategy known as diversification). This is because every market moves in its own cycles, and no matter what type of investments you have in your super it’s likely that they’ll experience a downturn at some point. Each type of investment can perform differently under the same market conditions – so when the value of one falls, another may go up. While there are no guarantees that diversification will fully protect you against loss, spreading your investments across a range of asset classes can help balance out the overall levels of risk and return in your portfolio. Check that your investment strategy is appropriate Your investment strategy and risk profile (how comfortable you are with risk) go hand in hand. Your financial goals and investing timeframe should also be considered as part of your strategy. Here are some different investment strategies that you may come across in super: Growth Around 80% allocation to growth assets like shares and property securities, with an investment timeframe of 5 years or more. Balanced Around 70% allocation to growth assets like shares and property securities, with an investment timeframe of 5 years or more. Moderate Around 60% allocation to growth assets like shares and property securities, with an investment timeframe of 5 years or more. Diversified Around 50% allocation to growth assets like shares and property securities, and 50% allocation to defensive assets like fixed interest and cash, with an investment timeframe of 5 years or more. Conservative Around 70% allocation to defensive assets like fixed interest and cash, with an investment timeframe of 3 years or more. Another common investment strategy is ethical or responsible investing. This involves choosing investments that align with your personal moral or ethical views relating to factors such as people, society and the environment. Whatever type of investment strategy you chose, it shouldn’t be something you set and forget. It’s worth revisiting your investment strategy from time to time – and not just when markets move significantly – to make sure it’s appropriate for where you are right now. That way, you’ll be better prepared if markets do become volatile. Source:

Impacts from Falling Home Prices: The Wealth Effect

24 Nov 2022 01:01:00 GMT

The impacts of interest rate hikes on consumers are well known; higher interest means that mortgage debt servicing costs will go up which is negative for consumer spending. Rate hikes are also bad news for home prices, which will create another negative for households via the destruction of wealth and the associated “wealth effect”. Housing as a Source of Wealth Household wealth is a measure of the value of physical assets owned like homes and the land they sit on and business premises as well as financial assets like shares. Housing is both a source of wealth but also a form of consumption. Households can be a homeowner while non-homeowners “consume” housing through paying rent. As a result, changes in home prices do not have an equal impact across households, which can make measuring a direct wealth effect difficult. For example, higher home prices are positive for investors and homeowners with no plans to upgrade but are negative for households looking to get into the market or upgrade. Renters may also be worse off as higher home prices could lead to higher rents. However, the composition of home ownership in Australia means that the majority of the population benefits from higher home prices, with two thirds of households (or around 7 million households) either owning a home outright or paying a mortgage. Housing is the largest single source of wealth for households, at 65% of total household wealth. National home prices peaked in April 2022 and have fallen by nearly 5% to mid-September. We expect a peak-to-trough decline in prices of 15-20% with prices declining into 2023 before stabilising late next year. Our expectations for a further fall in home prices means we also expect household wealth to decline. The Wealth Effect The “wealth effect” is an economic concept referring to a change in consumer spending following an adjustment to household wealth. The historical relationship between wealth and consumer spending shows that rising wealth coincides with rising consumer spending and vice versa. Intuitively this makes sense – when you feel like your assets are worth more, you feel more confident to spend. Our expectations for declining home prices in 2022/23 and, as a result, household wealth, means that consumer spending growth will also slow. We expect a weakening in consumer spending to just under 1% (year on year) by December 2023 which will weigh on GDP taking it well below normal levels of around 3% growth in consumer spending. Other Impacts of Falling Home Prices There are also other impacts of falling home prices including: Higher risk of negative equity loans (which means that the market value of the home is less than the debt taken against the home) which increases the risk that the household will default if they can’t repay the debt by selling the property. Lower bank profitability and increased risk of bank stress. Declines in home prices mean lower lending which is negative for banks as housing makes up 60% of bank lending. Falling home prices also increases the risk of defaults, which means that banks could take a hit to their capital. The loans which are most at risk are those with high loan-to-value ratios but the share of new lending to these areas is low (at around 5% of new lending). Conclusion So far, consumer spending has held up well in Australia despite high inflation (especially on essential items), rising interest rates, a collapse in consumer confidence and the negative wealth effect. Spending is holding up thanks to high household savings, housing prepayments, a shift in spending from goods to services and lags of changes in RBA interest rates to minimum housing repayments. In our view, consumer spending is set to slow down significantly in 2023 as consumers start to feel the impacts of rate rises, household wealth deteriorates and accumulated savings decline. On our forecasts, annual growth in consumer spending will be under 1% by late 2023, well below its usual levels of around 3% per annum. This will weigh on GDP growth (household consumption is over 50% of GDP) and we see GDP growth slowing to under 2% per annum by late 2023. Source: AMP Capital

Why staying invested matters when markets fall

24 Nov 2022 00:59:00 GMT

It’s natural to feel nervous when markets fall. News about inflation and rising interest rates may prompt you to make an emotional investment decision. But history tells us that markets trend upwards in the long run – and switching investment options at the wrong time can have a negative impact on your overall long-term investment return. If you feel anxious when you see your balance drop and worry about your retirement savings, know that it’s a common reaction. And it’s natural to consider switching your super into a more defensive portfolio mix to avoid market turmoil. But doing so could mean locking in losses and missing out on the recovery which follows. A year with a negative return can be stressful, although the general long-term trend is for markets to grow, not contract. The Australian share market has only recorded five negative years in the three decades since compulsory superannuation was introduced in 1992. Here are three examples of market falls, and their following recoveries. The COVID Crash 2020 Why did this happen? In March 2020, the world started to realise how serious the rapid spread of COVID-19 really was. Governments enforced lockdowns, air travel was all but outlawed and investors desperately sold off their shares fearing these restrictions would hurt companies’ growth plans and profit margins. What did it mean for investors at the time? It all came to a head on 16 March 2020, when the ASX 200 recorded its worst day ever (down 9.7%) while in the US, the S&P500, Dow Jones Industrial Average and NASDAQ indices all lost 12% or more. What was the best thing investors could do at the time? Investors who switched to cash at the end of March, hoping to protect themselves, were 22% to 27% worse-off on average than those who held on through the drop. Share markets didn’t just recover – they grew to new highs. And people who stayed invested benefited from that growth. Source: S&P Index Data Services. S&P/ASX All Ordinaries Accumulation Index. Date from 31 August 2017 to 30 June 2022. Global Financial Crisis 2007 – 2009 Why did this happen? The mid 2000s was a prosperous period for developed countries and mortgage lending became a lucrative business for banks. With house prices rising and regulators unworried about the potential risks, banks in the US began lending increasingly large sums to borrowers. included lending to borrowers with a high risk of default. US banks packaged up and on-sold those risky loans to investors. Then in 2007 interest rates rose and house prices fell. Homeowners found themselves unable to make the repayments on their mortgage and owed more than their homes were now worth. As people walked away from their obligations, banks quickly racked up massive losses. The investors who’d bought the risky loans also lost money. The interconnectedness of global finance meant banks around the world experienced significant losses with some collapsing. The resulting fallout remains one of the worst economic downturns since the Great Depression of the 1930s. What did it mean for investors at the time? The Australian share market fell 54% – a painful, drawn-out decline over 16 months from November 2007 to March 2009. But by 2013, US markets had returned to their pre-crisis highs. Australia took a little longer to regain its losses, finally breaking back above its pre-crisis levels in 2019. This may be because Australian companies pay a greater share of their earnings as dividends to investors compared with US companies. What was the best thing investors could do at the time? Staying invested during the Global Financial Crisis proved the best strategy, despite testing investor nerves. Yet anyone who switched their investments to cash locked in those original losses and missed out on the multi-year gains that followed. Source: S&P Index Data Services. S&P/ASX All Ordinaries Accumulation Index. Date from 31 January 2007 to 31 December 2012. September 11 attacks 2001 Why did this happen? Almost 3000 lives were lost when four planes were deliberately crashed into strategic locations around the US on 11 September 2001. Almost all of these deaths were in New York, where al-Qaeda destroyed the World Trade Centre towers which sat at the heart of the financial district. What did it mean for investors at the time? In the days after the attack, markets dropped. The S&P500 fell 11% (extending the losses from the tech wreck earlier that year) while in Australia, the ASX200 lost 4.11% in a single session, before reaching a bottom on 24 September, 9.79% below its pre-attack level. What was the best thing investors could do at the time? Both the US and Australian share markets recouped all these losses only a month later. By taking a long-term view of investing, you can ride out any short-term dips in the market and take advantage of growth opportunities over the long term. Source: S&P Index Data Services. S&P/ASX All Ordinaries Accumulation Index. Date from 30 June 1997 to 31 May 2002. So, what’s the key thing to take away from these three examples? When markets fall sharply, it’s only natural to be concerned and think about moving money to less risky investment options – with a plan to switch back later. Yet as history has shown, it is important to consider staying invested at times of market volatility to enable your investments to benefit when the market rebounds. Source: Colonial First State https://www.cfs.com.au/personal/news-and-updates/intelligent-investing-hub/learn-about-market-volatility/reasons-to-stay-invested.html

Economic and market overview

24 Nov 2022 00:51:00 GMT

Pleasingly, global share markets fared well in October and recovered most of their lost ground from September. Locally, the S&P/ASX 200 Index re- turned 6.0%. The sharp reversal in sentiment was typical of this year; market volatility has picked up meaningfully over the past few months, resulting in substantial swings in equity prices. Fixed income performance was mixed. Yields drifted lower in Australia, resulting in modest positive returns from the domestic bond market. Yields continued to rise in the US, however, which resulted in negative returns from Treasuries and from global bond indices. Investors remained focused on the persistence of inflation and, in turn, the outlook for interest rate policy in key regions. Australia Headline inflation quickened to an annual pace of 7.3% in the September quarter; the highest level for more than 30 years. The trimmed mean – central bank officials’ preferred measure – also increased, to 6.1% year-on-year. The Reserve Bank of Australia continued to tighten policy settings against this background, raising official interest rates again on 1 November, by 0.25 percentage points. This could be an indication that official borrowing costs will not be raised as meaningfully as previously thought. Official interest rates are now 2.85% and may be raised again in December. Consensus forecasts currently suggest interest rates could peak at around 3.75% in mid- 2023. New Zealand As expected, interest rates were increased by a further half percentage point, to 3.50%, as policymakers remained focused on bringing down inflation. Headline inflation quickened to an annual pace of 7.2% in the September quarter. Substantial rate hikes in the year to date appear not to have had their desired effect, suggesting further policy tightening may be required. Forecasts currently indicate that interest rates could be 5%, or higher, by mid-2023. US The latest data showed the US economy expanded at an annual pace of 2.6% in the September quarter. This represented a sharp rebound from the June quarter, when the economy contracted slightly. Headline inflation remained above 8% year-on-year, although the Federal Re- serve did not meet in October and interest rates were therefore unchanged over the month. That said, further policy tightening is anticipated. The labour market remains buoyant. More than 250,000 new jobs were created in September, taking the total in the year to date to nearly four mil- lion. A low unemployment rate – currently just 3.5% – means firms are typically required to pay up to attract new employees. Wages are rising at an annual pace of 5.0%. Europe The European Central Bank raised interest rates by a further 0.75 percentage points, as officials continued to battle persistently high inflation. Borrowing costs have been raised to their highest level since 2009. CPI in the Eurozone remained around 10% year-on-year, partly reflecting the impact of elevated energy prices. Political developments continued to dominate attention in the UK. The new chancellor swiftly reversed the mini-budget that had been proposed by his predecessor. This saw the UK currency and bond market claw back their lost ground from September. The new leaders must address a slowing economy and spiralling inflation. CPI is currently running above 10% year-on-year, resulting in sharp falls in real wages for most workers and clouding the outlook for spending. Asia It seems Chinese officials are likely to persevere with their ‘zero Covid’ policy, which is dampening growth prospects. President Xi tightened his grip on power during the month, by appointing various loyalists into key government positions. The Chinese yuan remained un- der pressure, owing to the deteriorating economic outlook. The currency depreciated to a 15-year low against the US dol- lar during October. In Brazil, left wing candidate Lula da Silva was elected as the new President; a remarkable turnaround in fortunes given the former leader was in prison for corruption three years ago. His victory was welcomed by environmentalists given his pledge to address soaring de- forestation rates in the Amazon rainforest. Australian dollar The Australian dollar briefly fell below 62 US cents in mid-month, but clawed back loss- es and closed October little changed from its end-September levels (around 64 US cents). The AUD was similarly flat against other major currencies. The dollar trade-weighted index declined just 0.3% over the month. Australian equities Australian shares added 6.0% in October, recouping most of September’s losses. A fall in domestic bond yields supported a ‘risk-on’ attitude among investors and enabled nine out of the 11 industry sectors to generate positive returns. The Financials (+12.2%) sector was the strongest performer, led by strong gains among the major banks. Shares in all of the ‘big four’ banks enjoyed gains of between 12% and 17%. Oil prices rose following OPEC+’s decision to lower production quotas and after the European Union announced further sanctions against Russia. This added 9.3% over the month in the Energy sector. Stocks in the Materials sector (-0.1%) struggled as Chinese officials reiterated their commitment to a ‘zero-Covid’ policy. Stocks in the Consumer Staples sector also struggled, resulting in the sector returning -0.2%. Small caps outperformed their larger peers and all sectors in the S&P/ASX Small Ordinaries Index posted positive returns. Listed property Global property securities benefited from the general improvement in sentiment to- wards equity markets, with the FTSE EPRA/ NAREIT Developed Index adding 3.6% in Australian dollar terms. There were particularly strong inflows into western markets. France (10.1%), Australia (9.9%) and Spain (7.3%) all enjoyed strong gains, for example. More defensive Asian property markets such as Hong Kong and Singapore fared less well, declining by 11.4% and 6.0%, respectively. Global equities According to a recent report, inflows into global share markets picked up sharply following September’s weakness. The influential S&P 500 Index in the US rose 8.1%, while the MSCI World Index closed the month 7.8% higher. In the US, releases of quarterly financial results from tech gi- ants disappointed investors and meant returns from the NAS- DAQ failed to keep pace with the broader S&P 500 Index. Asian indices performed poorly, partly due to significant weak- ness among Chinese shares. The CSI 300 fell 7.8%, while Hong Kong’s Hang Seng slumped 14.7%. Japanese stocks fared quite well in contrast, with the Nikkei adding 6.4%. European shares also registered solid gains. The Euro Stoxx 50 closed the month 9.0% higher. Finally, the world’s richest per- son – Tesla founder Elon Musk – bought Twitter for US$44 billion. Global and Australian fixed income The federal funds rate was unchanged in October, remaining in a range between 3.0% and 3.25%. Money markets have priced in the likelihood of a 0.75 percent- age point increase in the federal funds rate when policymakers meet in November, and an additional rate hike in December. In October as a whole, 10-year Treasury yields rose 22 bps, closing above 4% for the first time since before the Global Financial Crisis in 2008. In fact the whole yield curve rose. These moves resulted in negative performance from the Treasury market, as well as from global fixed income indices. Government bond yields were little changed in either Germany or Japan over the month. In the UK, gilt yields fell back sharply from their September highs after the previous chancellor’s proposed tax cuts were abandoned by the incoming government. This resulted in favourable returns from UK bonds and helped ease pressure on pension funds in the country. Australian Commonwealth Government Bond yields also trend- ed lower, closing the month down 13 bps. Reserve Bank officials slowed the pace of their policy tightening, raising official interest rates by 0.25 percentage points. Global credit Investment grade credit spreads were little changed in the month as a whole. With spread movements providing a neutral performance contribution, returns from corporate bonds were dominated by the receipt of regular coupon income. This steady flow of income supported positive returns from the asset class. Returns for mixed-grade credit portfolios were also boosted by much-improved performance from high yield securities. Spreads in this part of the market had widened meaningfully over the past few months; seemingly sufficiently to help attract value-oriented investors. Source: This was prepared and issued by First Sentier Investors (Australia) IM Ltd (ABN 89 114 194 311, AFSL 289017) (FSI AIM), which forms part of First Sentier Investors, a global asset management business. First Sentier Investors is ultimately owned by Mitsubishi UFJ Financial Group, Inc (MUFG), a global financial group.

30 November director ID deadline

15 Nov 2022 00:49:00 GMT

The deadline for existing directors of Australian companies to obtain a Director Identification Number is 30 November 2022. All directors of a company, registered Australian body, registered foreign company or Aboriginal and Torres Strait Islander corporation (ATSI) will need a director ID. This includes directors of a corporate trustee of a self-managed super fund (SMSF). A director ID is a 15 digit identification number that, once issued, will remain with that director for life regardless of whether they stop being a director, change companies, change their name, or move overseas. For those who have been a director since 31 October 2021, the deadline for obtaining a director ID is 30 November 2022 unless you are a director of an Aboriginal and Torres Strait Islander corporation, then the deadline is 30 November 2023. For overseas directors, the process to obtain a director ID can be onerous as applications cannot be made online. In addition to the paper application form, you will need copies of one primary and one secondary identity document (or primary identity documents) certified by notaries public or at an Australian embassy. For those who have been invited to become a director but are not a director as yet, if you do not have a director ID, you will need to obtain one prior to being appointed. You do not need a director ID if you are running a business as a sole trader or partnership, or you are a director in your job title but have not been appointed as a director under the Corporations Act or Corporations (Aboriginal and Torres Strait Islander) Act (CATSI). Need an extension? If you need an extension, as soon as possible contact the Australian Business Registry service on 13 62 50 (+61 2 6216 3440 outside of Australia). Your identity will need to be established so have your documentation ready. You can also apply for an extension using the paper form (https://www.abrs.gov.au/sites/default/files/2021-10/Application_for_an_extension_of_time_to_apply_for_a_director_ID.pdf) What happens if I don’t obtain an ID? If you are required to obtain a director ID but don’t, a criminal penalty of up to $13,200 might apply or a civil penalty of up to $1,100,000. Where an individual has deliberately applied for multiple IDs or misrepresented the director ID, the criminal penalty escalates to $26,640 and up to one year in prison. Should you have any queries regarding any of the above information, please feel free to contact our team at: (03) 8393 1000. Note: The material and contents provided in this publication are informative in nature only. It is not intended to be advice and you should not act specifically on the basis of this information alone. If expert assistance is required, professional advice should be obtained.

How high will interest rates go?

14 Nov 2022 00:47:00 GMT

Low interest rates have been a mainstay since the global financial crisis of 2008. When the pandemic hit, Governments pushed stimulus measures through the economy and central banks reduced interest rates even further. Coming out of COVID, housing market demand was strong and prices boomed but at the same time, supply chains remained restricted and the problems amplified by geo-political tensions increasing input costs. Supply could not keep up with demand to support the recovery, pushing inflation higher and broader than expected for a longer period of time. To control inflation, central banks have responded by tightening monetary policy and lifting interest rates. But the good news is that inflation is likely to ease. Inflation in the US has started to decrease from a high of over 9% in June 2022 to 7.7% in October, suggesting that interest rates may not rise as high and as aggressively as expected. Similarly in Australia, the Reserve Bank of Australia (RBA) Board raised the cash rate by 0.25% to 2.60% at its October 2022 meeting, a lower increase than many expected. The lower than expected rise suggests that inflation pressures, particularly wages growth, will be more subdued in Australia than overseas. Comparatively, Australian households are more sensitive to interest rates with more than 60% of mortgages variable rate loans. This is unlike the US where most borrowers are on 30-year fixed loans. The increase in interest rates is starting to take effect helping to restore price stability. However, in its statement, the RBA said that it will be a challenge to return inflation to 2-3% while at the same time “keeping the economy on an even keel”. It concluded the path to achieving this balance is “a narrow one and it is clouded in uncertainty”. In housing, the correction in house prices deepened and broadened across Australia, with capital city prices falling by 1.4% in September 2022, rounding out a 4.3% decline over the third quarter. Housing finance approvals also continued to mirror the broader correction to date, with further declines across investor and owner-occupier loans. So, where does all of this leave us? Inflation will stay higher for longer than originally anticipated. As a result, interest rates are expected to continue to increase, albeit at a slower rate, with the RBA resetting their view along the journey. Economists are predicting that the cash rate will increase to somewhere between 3.10% and 3.85% in the first half of 2023 and then remain stable until early 2024 before RBA policy pivots and interest rates lower in early 2024. Canstar analysis suggests that a 3.85% cash rate translates to an average variable rate of 6.73%. The difference between a 5.73% variable rate mortgage and 6.73% is $650 per month on a $1 million, 30 year mortgage. Note: The material and contents provided in this publication are informative in nature only. It is not intended to be advice and you should not act specifically on the basis of this information alone. If expert assistance is required, professional advice should be obtained.

2022-23 October Federal Budget | Winners & Losers

26 Oct 2022 00:45:00 GMT

The October Federal Budget appeals to families, patients accessing medicines, renters and home buyers, and those in vocational training. An estimated $28.5 billion in revenue will be clawed back in this budget through a variety of means, including discontinuing some of the previous government’s measures and tax compliance activity. Here are the winners and losers from the Albanese Government’s first budget. Winners Young families Young parents were winners from the Federal Budget, with eligibility for Paid Parental Leave expanded to families earning up to $350,000 per year. The government will also expand paid parental leave from 20 to 26 weeks in stages over the years until 2026, with parents deciding on how to split the leave between them. Alongside the expansion of paid parental leave, the budget subsidises more childcare places, claiming that the higher subsidies will make early childhood education and care more affordable for more than 1.2 million Australian families. The measure is expected to increase the number of working women, and the number of hours they can work. Apprentices and trainees The budget outlined almost half a million fee-free TAFE courses in priority areas such as aged care. The budget commits $1 billion in a deal with the states and territories to fund fee-free TAFE and vocational educational places, equivalent to 180,000 places next year. The Treasurer said this was the first part of the government’s plan for almost half a million fee-free TAFE courses in priority areas such as aged care and the digital economy. The budget also commits $485 million to create 20,000 new university places over the next two years for students from disadvantaged backgrounds. It helps to tackle the skills shortage by investing $42.2 million to speed up visa processing and raise awareness of opportunities in Australia among potential skilled migrants. Home buyers and renters People struggling to pay rent and first home buyers were also targeted in the budget. The government announced new measures around affordable and social housing and committed to the “Help to Buy Scheme” it announced during the election campaign. Housing measures include the Housing Australia Future Fund to build 30,000 new social and affordable homes over the next five years. A National Housing Infrastructure Facility will support an additional 5500 new homes. The Help to Buy Scheme aims to give 40,000 eligible Australians the opportunity to own their own homes with a lower deposit and smaller mortgage. Meanwhile, a Regional First Home Buyer Scheme aims to support another 10,000 new homeowners each year. The housing measures also open up new opportunities to institutional investors. In particular, superannuation funds will be given incentives to invest in new social and affordable housing through a new National Housing Accord, which aspires to build one million new homes by 2024. Patients The maximum general co-payment for medicines on the Pharmaceutical Benefits Scheme (PBS) will be cut from $42.50 to $30, increasing the subsidies on around 17 million scripts for around 3 million people each year. There is also $47.7 million over four years reinstate Medicare for bulk billed telehealth psychiatry in regional Australia, with the government contributing a 50 per cent loading for consultations. Renewable energy The budget spends on energy transmission through the “Rewiring the Nation” program, aimed at improving the connection of renewable energy to the grid, with a $20 billion fund to connect development such as the Marinus Link in Tasmania and planned offshore wind farms in Victoria. There is also $800 million earmarked for a Powering Australia plan that cuts taxes on electric vehicles, invests in a national EV charging network, and provides solar battery storage for up to 100,000 homes. This is in addition to a renewed focus on the environment, with a $275 million spend to support the Department of Climate Change, Energy and Water improve its capacity. Losers Small business While the budget talks up manufacturing and TAFE places there is very little for small business, with only a $15 million commitment to mental health and a debt counselling hotline. So not much done in this budget to help small business. Support for mental health is welcome but more is needed to assist businesses before they reach breaking point.” Consultants The money spent on outsourcing work to private consulting firms has been slashed with the budget targeting savings of $3.6 billion over four years. The government plans to bring much of this work in house and build up the capability of public service teams. Multinationals The budget promises a clampdown on profit shifting to lower-taxing jurisdictions by multinational corporations, who will pay an estimated $1 billion more in tax as part of a push to raise another $3.7 billion from targeting tax dodgers. Fraudsters targeting the NDIS The budget sets aside $126 million over four years for a “fraud fusion taskforce” to claw back an estimated $300 million from NDIS providers. The budget estimates that the task force, to replace the existing NDIS fraud taskforce, can reclaim $291.5 million, putting the measure $165 million in the black. Check out the full guide to the budget here: 2022-23 Budget Guide Should you have any queries about any of the above, please don’t hesitate to contact our office: (03) 8393 1000.

Planning to Retire Comfortably

24 Oct 2022 00:43:00 GMT

Retirement means different things to different people For some, it means the ability to spend more time with loved ones while for others it may mean pursuing a neglected hobby or travelling the world. Regardless of whatever retirement means to you, one thing is for sure – no one wants to spend their later years worrying about money. Some careful planning can help to set you up financially for your retirement years ahead. Even if you think you may have left it a little too late, some careful planning today can still make a difference to the quality of life you experience when you eventually decide to retire. We are living longer than ever before According to the Australian Bureau of Statistics, life expectancy in Australia is amongst the highest in the world, and on record. For example, on average, a male born between 2013 to 2015 can expect to live to 80.4 years of age, while a female can expect to live 84.5 years. So, depending on the age you retire, you may need enough money to last more than 20 years. Getting started We often find that many people who are approaching retirement feel that they should have started their retirement plans sooner, especially if their retirement savings have declined somewhat due to volatile market conditions. However it’s never too late to start planning. In fact, we often advise clients that some structured planning in the last five to ten years before you leave the workforce can make a big difference to the quality of life you enjoy when you eventually decide to leave the workforce permanently. Of course, starting early can make a significant difference to your retirement lifestyle, but even well-planned decisions close to retirement can have a positive impact. Don’t let procrastination or fear of the unknown deprive you of a financially secure, comfortable retirement. There are a number issues and considerations we need to examine when it comes to effective retirement planning. This generally involves: Your current financial circumstances and obligations This includes an analysis of the current household income, your assets, any savings or investments held inside and outside the superannuation environment, and so on. We’ll also need to consider your near and longer term financial commitments and obligations such as mortgage repayments on your primary home or any investment properties. Other foreseeable expenses such as funding a dependent’s education or planned overseas holidays also need to be taken into account. Your financial and lifestyle aspirations Naturally ensuring that you have enough money to do what you want when you retire is an essential part of the planning process, however we believe that life is about more than just money; it’s also about ensuring that you are fulfilled emotionally and psychologically when you retire and have more time on your hands. We’ll explore these “lifestyle aspirations” you may have for the future as part of our retirement planning process. Your retirement timeframe horizon Where you are now, and where you want to be in the future are key ingredients in determining how, and particularly when, you may be able to afford to retire to the lifestyle you desire. What makes a successful retirement? A fulfilling life is about more than just money. Many of us enjoy the social aspects of coming to work, the sense of belonging and camaraderie and working towards achieving shared goals. For others, voluntary work at a favourite charity, community group or other organisation they’re passionate about brings a sense of fulfilment that simply can’t be achieved by working for financial reward alone. It’s important to consider how you will continue to enjoy these less tangible aspects of life in retirement when you have more time on your hands. Put simply, ensuring that you have enough money to do what you want in retirement is an important part of your retirement plans but how your life will continue to be truly rewarding and personally fulfilling is equally important and often overlooked. The impact of retirement on household dynamics The ability to spend more time with family is a common aim for many approaching retirement. However spending too much time with family members can lead to tension. If you and your partner are usually both at work, you may find that spending more time together can be a bit of a shock, which could lead to some strain in your relationship. Establishing some boundaries and participating in hobbies or other activities outside the home can help. Keeping healthy A healthy mind and body will guarantee your retirement is enjoyed to the fullest. Now that you have more time, it’s a good opportunity to spend some time maintaining or improving your health. Physical activity and eating well are important, as well as receiving regular medical check-ups. Participating in group activities can be a great way to meet new people especially if you join some exercise classes for seniors such as stretching, yoga or walking groups. Keep your mind active Your body may be starting to show signs of ageing, but you’re never too old to keep your mind active. You may be surprised to know that women 65 years of age and over are one of the fastest growing users of Facebook. It’s a great way to keep in touch with extended family and others you care about from the comfort of your own home. You may also wish to consider taking up a new hobby, signing up for an adult education course or joining your local library. The options are literally endless and once you start exploring you are sure to find something that will interest you. Learning in group environments is a great way to meet new people and to feel a sense of belonging with people who share similar interests. Personal development When we no longer have the distraction of a busy work life or professional commitments to occupy our thoughts, you may find yourself thinking more deeply about your life’s experiences, your purpose in the universe and the world around you. With more time on your hands, you may find that you have the ability to focus more on your spiritual health. Maintaining social networks Retirement can bring about a sense of loneliness for those that have grown accustomed to having regular social contact at work. Without regular social contact retirees can fall prone to loneliness and isolation which may ultimately lead to anxiety and depression. For your own psychological and emotional wellbeing it’s important to consider how you will remain socially active once you are in retirement. For example, you may wish to give some consideration to joining a book club, local charity or community group. How much is enough? It’s different for everyone Everyone’s needs and expectations in retirement will be different, however as a general guide, the Association of Superannuation Funds of Australia (ASFA) suggests that for a modest lifestyle, a single retiree needs about $30,063 a year while a couple will need about $43,250 a year. To live comfortably, a single retiree needs about $47,383 a year, while a couple will need $66,725 a year. This amount takes into consideration a car, clothes, private health insurance and leisure activities such as entertainment and holidays. These figures assume retirees own their own home and are relatively healthy. Note: These figures were correct at the end of June 2022, but inflation means retirement costs will rise over time. Superannuation explained For most of us, our superannuation savings will form a substantial part of our retirement plans. Your superannuation balance is largely influenced by a number of factors such as how long you’ve been saving in the superannuation environment, what your investment returns have been like over time, and the contributions made by you and/or your employer. Generally speaking, your retirement will be more comfortable and financially secure if you are in a position to make extra contributions into your super fund over and above the contributions made by your employer. Ideally, you should start making additional contributions as soon as you can afford, but it’s particularly important to do so in the years leading up to retirement. It’s often useful to have some savings outside of the superannuation environment, as there are access restrictions on the amount of money you can put into superannuation (which are determined by your age). Want to find out more? Check out our ‘Retirement Planning E-Book’ via the ‘Private Wealth – Retirement Planning’ section on our website. Feel free to contact our Paris Financial Financial Wealth team to discuss your retirement needs further (03) 8393 1000. This document provides some insight into the issues and considerations you need to think about when planning for retirement. It’s designed to be of a general nature only, and doesn’t contain any recommendations, offers or invitations to buy any financial products. Before making any investment decisions about your retirement, you should evaluate the extent to which this information is appropriate to your individual investment objectives, risk profile, financial situation and other requirements. A financial adviser can help you with this process.

As Interest Rates Climb, is it Time to Re-Finance?

19 Oct 2022 00:42:00 GMT

With interest rates continuing to rise, we just wanted to check in to see how you’re doing! Australia’s Reserve Bank have recently maintained an upward trend in lifting its key interest rates in the past couple of months as the central bank seeks to curb inflation before it rises to levels following economies elsewhere. If you’re feeling a bit concerned about your home loan repayments, especially given all the recent media noise around cash rate hikes and cost of living pressures, you’re not alone. The good news is that our team of mortgage brokers are here to help if you’d like to chat about your concerns or learn more about the options available to you. They can: assess your refinancing options by checking the suitability of your current home loan against others on the market submit a loan re-pricing request to your lender on your behalf or even look at your household spending and identify areas where you might be able to save. All of these services could potentially save you money, so if you’d like to learn more about your options, give our experienced team of mortgage brokers a call on 03 8393 1000.

10 Benefits of Financial Advice

12 Oct 2022 00:36:00 GMT

Recent research discovered that Australians that had an existing connection with a financial adviser had higher quality of life, mental health, family life and more confidence in a comfortable retirement. Advised Australians were significantly more likely to feel financially secure than those who are unadvised (85% vs 62%), and more likely to feel very or completely satisfied with their current level of wealth (35% vs 18%). Advised pre-retirees were twice as confident that they would have enough money for retirement (52% vs 26%) while advised early retirees were confident they would have enough to last their retirement (63% vs 40%). Two-in-three advised early retirees said they were living a comfortable or lavish lifestyle compared to only 1 in 3 of those unadvised (67% vs 33%). FPA chief executive, Sarah Abood, said: “Australians with an active relationship with a financial planner are better off in multiple ways. They suffer less financial stress, enjoy a higher quality of life, have more financial confidence, and are more satisfied with their wealth”. The top 10 key benefits advised Australians received from a financial planner were: Greater confidence in having a comfortable retirement (47%) Improved financial wellbeing (40%) Improved financial decision making (37%) Improved money management (33%) Improved general wellbeing (e.g. peace of mind, health and social aspects) (32%) Improved ability to achieve desired standard of living (32%) Helped you achieve your financial goals (30%) Greater financial control (28%) Greater wealth growth (28%) Improved financial freedom (27%). Source: https://www.moneymanagement.com.au/

U R the Bank Series

11 Oct 2022 04:56:00 GMT

Watch here: U R the Bank Video Pat Mannix is launching a new series called U R the bank! Follow each episode to find out how you can be your own bank, develop your own property portfolio, and protect your assets. These are the key points he'll be covering for a growing small business in this U R the Bank series: - Developing family wealth - Protecting private assets - Reduce business risk - Tax effectiveness Tune in to each episode! Our team at Paris Financial would love to hear from you, feel free to contact our office to discuss: (03) 8393 1000.

Will Your Business Survive, Thrive and be Ever Alive?

05 Sep 2022 05:29:00 GMT

If there’s one thing that Pat Mannix of Paris Financial has realised in his 30 years of dealing with small business, in particular growing small businesses is that it takes a long time to survive and thrive in business.

FBT-free Electric Cars

22 Aug 2022 04:37:00 GMT

New legislation before Parliament, if enacted, will make zero or low emission vehicles FBT-free. We explore who can access the concession and how. Electric vehicles (EV) represent just under 2% of the new car market in Australia but it is a rapidly growing sector with a 62.3% jump in new EV registrations between 2020 and 2021. Making EVs FBT-free is just the first step in the Government’s plan to make zero and low emission vehicles the car of choice for Australians, focussing on affordability and overcoming “range anxiety” by: Cutting import tariffs Placing EV fast chargers once every 150 kilometres on the nation’s highways Creating a national Hydrogen Highways refuelling network, to deliver stations on Australia’s busiest freight routes Converting the Commonwealth fleet to 75% no-emissions vehicles It is on this last point, fleet cars, that the FBT exemption on EVs is targeted. In Australia, business account for around 40% of light vehicle sales according to a research report by Griffith and Monash Universities. However, EV sales to business fleets comprised a mere 0.08% of the market in 2020. The Government can control what it purchases and has committed to converting its fleet to no-emission vehicles, but for the private sector, there is a wide gap between the total cost of ownership of EVs and traditional combustion engine vehicles. It’s more expensive overall and the Government is looking to reduce that impediment through the FBT system. How the EV FBT exemption will work The proposed FBT exemption is intended to apply to cars provided by an employer to an employee under the following conditions: Low and zero emission cars Battery electric vehicles; Hydrogen fuel cell electric vehicles; and Plug-in hybrid electric vehicles. Be careful here because this doesn’t include all hybrid vehicles. To qualify the car needs to be ‘plug-in’. A car that has an internal combustion engine will not meet requirements unless it is able to be fuelled by a battery that can be recharged by an off-vehicle power source. The car was first held and used on or after 1 July 2022 Where the car is first held and used on or after 1 July 2022. Provided the conditions of the exemption are met, an electric car that was ordered prior to 1 July 2022, but was not delivered until after 1 July 2022 would be eligible for the exemption (even if an employer acquired legal title to the car before 1 July 2022). However, a car delivered to you prior to 1 July 2022 would not qualify. A second-hand electric car may qualify for the exemption, provided that the car was first purchased new on or after 1 July 2022. Value below luxury car tax threshold for fuel efficient vehicles The value of the car at the first retail sale must be below the luxury car tax threshold ($84,916 in 2022-23) for fuel efficient vehicles. The luxury car tax threshold generally includes GST and customs duty but excludes other items such as service plans, extended warranties, stamp duty and registration. If an electric car qualifies for the FBT exemption, then associated benefits relating to running the car for the period the car fringe benefit is provided, can also be exempt from FBT. Government modelling states that if an EV valued at about $50,000 is provided by an employer through this arrangement, the FBT exemption would save the employer up to $9,000 a year. While the measure provides an exemption from FBT, the value of that fringe benefit is still taken into account in determining the reportable fringe benefits amount of the employee. That is, the value of the benefit is reported on the employee’s income statement. While income tax is not paid on this amount, it is used to determine the employee’s adjusted taxable income for a range of areas such as the Medicare levy surcharge, private health insurance rebate, employee share scheme reduction, and social security payments. Can I salary sacrifice an electric car? Assuming your employer agrees, and the car meets the criteria, salary packaging is an option. While some FBT concessions are not available if the benefit is provided under a salary sacrifice arrangement, the exemption for electric cars will be available. In order for a salary sacrifice arrangement to be effective for tax purposes, it needs to be agreed, documented, and in place prior to the employee earning the income that they are sacrificing. Government modelling suggests that for individuals using a salary sacrifice arrangement to pay for a $50,000 electric vehicle, the saving would be up to $4,700 a year. Who cannot access the FBT exemption Your business structure makes a difference By its nature, the FBT exemption only applies where an employer provides a car to an employee. Partners of a partnership and sole traders will not be able to access the benefits of the exemption as they are not employees of the business. When it comes to beneficiaries of a trust and shareholders of a company it will be important to determine whether the benefit will be provided to them in their capacity as an employee or director of the entity. Exemption is limited to cars As the FBT exemption only relates to cars, other vehicles like vans are excluded. Cars are defined as motor vehicles (including four-wheel drives) designed to carry a load less than one tonne and fewer than nine passengers. EV State and Territory tax concessions The Federal Government is not alone in using concessions to encourage electric vehicle ownership. ACT The ACT Government offers a stamp duty exemption on new zero emission vehicles, and up to two years free registration for new or second hand zero emission vehicles (registered between 24 May 2021 and before 30 June 2024). New South Wales Reimbursement of stamp duty paid on purchases of new or used full battery electric vehicles (BEVs) and hydrogen fuel cell electric vehicles (FCEVs), with a dutiable value up to and including $78,000. Northern Territory For plug-in electric vehicles (battery and hybrid plug-in), from 1 July 2022 until 30 June 2027, access free registration for new and existing vehicles and a stamp duty concession of up to $1,500 on the first $50,000 of the car’s market/sale value – 3% thereafter. Queensland Discounted registration duty for hybrid and electric vehicles. And, a limited $3,000 rebate for new eligible zero emission vehicles with a purchase price (dutiable value) of up to $58,000 (including GST) on or after 16 March 2022. South Australia A limited $3,000 subsidy and a 3-year registration exemption on eligible new battery electric and hydrogen fuel cell vehicles first registered from 28 October 2021. Tasmania From 1 July 2022 until 30 June 2022, no stamp duty applies to light electric or hydrogen fuel-cell motor vehicle (including motorcycles). Vehicles with an internal combustion engine do not qualify. Victoria A limited $3,000 subsidy is available for new eligible zero emission vehicles purchased on or after 2 May 2021. More than 20,000 subsidies are available under the program. Plus, stamp duty for ‘green passenger cars’ is set at the one rate regardless of value ($8.40 per $200 or part thereof). Zero emission vehicles receive a $100 annual registration concession but are also subject to a per kilometre road user charge. Western Australia A $3,500 rebate on the purchase of a new zero emission, hydrogen fuel cell or battery light vehicle with a value of up to $70,000 purchased on or after 10 May 2022. Note: The material and contents provided in this publication are informative in nature only. It is not intended to be advice and you should not act specifically on the basis of this information alone. If expert assistance is required, professional advice should be obtained.

How high will interest rates go?

16 Aug 2022 04:34:00 GMT

The RBA lifted the cash rate to 1.85% in early August 2022. The increase comes a few weeks after Reserve Bank Governor Philip Lowe told the Australian Strategic Business Forum that “…we’re going through a process now of steadily increasing interest rates, and there’s more of that to come. We’ve got to move away from these very low levels of interest rates we had during the emergency.” He went on to say that we should expect interest rates of 2.5% – how quickly we get there really depends on inflation. The RBA Governor has come under increasing pressure over comments made in October 2021 suggesting that interest rates would not rise until 2024. At the time however, Australia was coming out of the Delta outbreak, wage and pricing pressure was subdued, and inflation was low. That all changed and changed dramatically. Inflation is now forecast to reach 7.75% over 2022 before trending down. We’re not expected to reach the RBA’s target inflation rate range of 2% to 3% until the 2023-24 financial year. In the UK, the situation is worse with the Bank of England predicting that inflation will reach around 13% over the next few months. The UK has been heavily impacted by the war in Ukraine with the price of gas doubling, compounding pressure from post pandemic supply chain issues and price increases. With interest rates rising, what can we expect? Deputy RBA Governor Michele Bullock recently said that Australia’s household credit-to-income ratio is a relatively high 150%, increasing in an environment that enabled households to service higher levels of debt. But it is not all doom and gloom. “Strong growth in housing prices over 2021 and early 2022 has boosted asset values for many homeowners, with housing assets now comprising around half of household assets,” she said. The recent downturn in house prices has only marginally eroded the large increases over recent years. Plus, households have saved around $260m since the pandemic creating a buffer for rising interest rates. This, however, is a macro view of the economy at large and individual households and businesses will face different pressures depending on their individual circumstances. For businesses, the rate increase has a twofold effect. It is not just the rate rise and the higher cost of funds in their borrowings. That by itself is significant but at this stage, if anything, it is the lesser issue. The more significant impact comes from negative consumer sentiment and the flow through effect on sales and cash flow. In general, your debts should not exceed around 35-40% of your assets. There will be some exceptions to this with new business start-ups and first home buyers. Review the cost of cash in your business, reviewing rates, and the configuration and mix of loans to ensure you are not paying more than you need to. If possible, avoid having private debt as well as business and investment debts. You can’t get tax relief on your private debt. Keep an eye on debtors and don’t become your customer’s bank. Note: The material and contents provided in this publication are informative in nature only. It is not intended to be advice and you should not act specifically on the basis of this information alone. If expert assistance is required, professional advice should be obtained.

Can I claim my crypto losses?

12 Aug 2022 04:32:00 GMT

The ATO has released updated information on claiming cryptocurrency losses and gains in your tax return. The first point to understand is that gains and losses from crypto are only reported in your tax return when you dispose of it – you sell it, convert it to fiat currency, exchange it for another type of asset, buy something with it, etc. You cannot recognise market fluctuations or claim a loss because the value of your crypto assets changed until the loss is realised or crystallised. Gains and losses from the disposal of cryptocurrency should be reported in your tax return in the year that the disposal occurred. If you made a capital gain on crypto that was held as an investment and you held the crypto for more than 12 months then you may be able to access the 50% Capital Gains Tax (CGT) discount and halve the tax you pay. If you made a loss on the cryptocurrency (capital loss) when you disposed of it, you can generally offset the loss against capital gains you might have (unless the crypto is a personal use asset). But, you can only offset capital losses against capital gains. You cannot offset these losses against other forms of income like salary and wages, unfortunately. If you don’t have any capital gains to offset, you can hold the losses and carry them forward for another future year when you can use them. If you earned income from crypto such as airdrops or staking rewards, then these also need to be reported in your tax return. And remember, keep records of your crypto transactions. The ATO has sophisticated data matching programs in place and cryptocurrency reporting is a major area of focus. Note: The material and contents provided in this publication are informative in nature only. It is not intended to be advice and you should not act specifically on the basis of this information alone. If expert assistance is required, professional advice should be obtained.

2022 Tax Checklists

10 Aug 2022 04:30:00 GMT

We have taken the time to prepare comprehensive Tax Checklists, designed to guide you in providing all the correct and relevant information to maximise your tax return. These checklists are very detailed and you may find some sections that are not relevant to you, these can just be left blank. We have the checklists available in excel format, to enable you to key your information straight in, or PDF if you prefer to print, fill out, scan and email back. You can find the checklists located via the ‘Client Area’ on our website. Please feel free to contact our tax champions on: (03) 8393 1000 if you have any queries

Tax & the family home

22 Jul 2022 03:58:00 GMT

Everyone knows you don’t pay tax on your family home when you sell it…right? We take a closer look at the main residence exemption that excludes your home from capital gains tax and the triggers that reduce or exclude that exemption. Capital gains tax (CGT) applies to gains you have made on the sale of capital assets (assets you make money from). Unless an exemption or reduction applies, or you can offset the tax against a capital loss, any gain you made on an asset is taxed at your marginal tax rate. What is the main residence exemption? Your main residence is the home you live in. In general, CGT applies to the sale of your home unless you have an exemption, partial exemption, or you are able to offset the tax against a capital loss. If you are an Australian resident for tax purposes, you can access the full main residence exemption when you sell your home if your home was your main residence for the whole time you owned it, the land your home is on is or is under 2 hectares, and you did not use your home to produce an income – for example running a business from your home or renting it out. If the home is on more than 2 hectares, if eligible, you can treat the home and up to 2 hectares of the land it is on as one asset and claim the main residence exemption on this asset. However, if you use your home to produce an income by running a business from home or renting it out, CGT can apply to the portion of the home used to produce income from that time onwards. What’s a main residence? For CGT purposes, your home normally qualifies as your main residence from the point you move in and start living there. However, if you move in as soon as practicable after the settlement date of the contract, that home is considered your main residence from the time you acquired it. If you cannot move in straight away because you are in the process of selling your old home, you can treat both homes as your main residence for up to six months without impacting your eligibility to the main residence exemption. For example, where you have moved into your new home while finalising the sale of your old home. This applies if you were living in your old home for a continuous period of 3 months in the 12 months before you disposed of it, you did not use your old home to produce an income (rented it out or used it as a place of business) in any part of that 12 months when it was not your main residence, and your new property becomes your main residence. If the sale takes more than six months and if eligible, the main residence exemption could apply to both homes only for the last six months prior to selling the old home. For any period before this it might be possible to choose which home is treated as your main residence (the other becomes subject to CGT). If your new home is being rented to someone else when you purchase it and you cannot move in, the home is not your main residence until you move in. If you cannot move in for some unforeseen reason, for example you end up in hospital or are posted overseas for a few months for work, then you still might be able to access the main residence exemption from the time you acquired the home if you move in as soon as practicable once the issue has been resolved. Inconvenience is not a valid reason and you will need to ensure that you have documentation to support your position. Proof that your property is first established or continues to be your main residence is subjective and if the issue is ever queried, some of the factors the ATO will look at include: The length of time you have lived in the dwelling Where your family live Whether you moved your personal belongings into the dwelling The address you have your mail delivered Your address on the Electoral Roll Your connection to services such as telephone, gas and electricity, and Your intention. Foreign resident or resident? The main residence rules changed in 2017 to exclude non-residents from accessing the main residence exemption.[1] The rules focus on your tax residency status at the time of the CGT event (normally the time the contract of sale is entered into). That is, in most cases if you are a non-resident at the time you enter into the contract of sale, you will be unable to access the main residence exemption. This is the case even if you were a resident for part of the ownership period. Conversely, if you are a resident at the time of the sale, and you meet the other eligibility criteria, the rules should apply as normal even if you were a non-resident for some of the ownership period. For example, an expat who maintains their main residence in Australia could return to Australia, become a resident for tax purposes again, then sell the property and if eligible, access the main residence exemption. It’s important to recognise that the residency test is your tax residency not your visa status. Australia’s tax residency rules can be complex. If you are uncertain, please contact us and we will work through the rules with you. The tax rules also contain integrity provisions that can deny the main residence exemption where someone circumvents the rules by deliberately structuring their affairs to access the exemption – for example, transferring the property to a related party prior to becoming a foreign resident to access the main residence exemption. Can I treat my home as my main residence even if I don’t live there? Once you have established your home as your main residence, in certain circumstances, you can treat it as your main residence even if you have stopped living there. The absence rule allows you to treat your home as your main residence for tax purposes: For up to 6 years if it’s used to produce income, for example you rent it out while you are away; or Indefinitely if it is not used to produce income. By applying the absence rule to your home, this normally prevents you from applying the main residence exemption to any other property you own over the same period. Apart from limited exceptions, the other property is exposed to CGT. Let’s say you moved overseas in 2019 and rented out your home while you were away. Then, you came back to Australia in 2021 and moved back into your house. Then in early 2022, you decided it is not your forever home and sold it. You elected to apply the absence rule to your home and didn’t treat any other property as your main residence during that same period. In this case, you should be able to access the full main residence exemption assuming you are a resident for tax purposes at the time of sale. The 6 year period also resets if you re-establish the property as your main residence and subsequently stop living there but rent it out in between. So, if the time the home was income producing is limited to six years for each absence, it is likely the full main residence exemption will be available if the other eligibility criteria are met. What happens if I have been running my business from home? If your home is also set aside as a dedicated place of business (i.e., you do not have another office or workshop), then you might only be able to claim a partial main residence exemption. This is because income producing assets are excluded from the main residence exemption. If you are running a business from home, you can usually claim a tax deduction for occupancy expenses such as interest on the mortgage, council rates, and insurance. If you claimed or were eligible to claim these expenses, then you will only be able to access a partial main residence exemption. These rules apply even if you have not claimed these expenses as a deduction; the fact that you are eligible to make a claim is enough to impact your access to the main residence exemption. In many cases, if your home would have qualified for a full main residence exemption before it is used as a dedicated place of business, the cost base of your home for CGT purposes should also be reset to its market value at that time. Also, if only a partial main residence exemption is available, you will need to check whether you can access the small business CGT concessions on any remaining capital gain. As these rules are complex, please contact us and we will work through the rules with you. However, if you have only been working from home out of convenience and there is another office that you normally work from, then your eligibility to access the main residence exemption should be unaffected. The ATO has confirmed that all that time working from home temporarily during the pandemic should not impact your ability to access the main residence exemption. If I rent out a room on AirBnB, can I still claim the exemption? If your home has been used to produce income while you are living in it, the portion used to produce income will be excluded from the main residence exemption. The rules might apply differently if you move out of the home completely – see Can I treat my home as my main residence even if I don’t live there? Before you start renting out a portion of your home, it is a good idea to have it valued. If you would have qualified for the main residence exemption just before it was rented out, there are some rules that can apply in most cases and for CGT purposes, you are taken to have re-acquired your home for its market value at that time. So, if your home has increased in value over and above its cost base, this should reduce any gain when you eventually sell. Can I have a different main residence to my spouse? Let’s say you and your spouse each own homes that you have separately established as your main residences for the same period. The rules do not allow you to claim the full CGT exemption on both homes. Instead, you can: Choose one of the dwellings as the main residence for both of you during the period; or Nominate different dwellings as your main residence for the period. If you and your spouse nominate different dwellings, the exemption is split between you: If you own 50% or less of the residence chosen as your main residence, the dwelling is taken to be your main residence for that period and you will qualify for the main residence exemption for your ownership interest; If you own greater than 50% of the residence chosen as your main residence, the dwelling is taken to be your main residence for half of the period that you and your spouse had different homes. The same rule applies to the spouse. The rule applies to each home that the spouses own regardless of how the homes are held legally, i.e., sole ownership, tenants in common or joint tenants. Divorce and the main residence rules The last two years have seen the highest divorce rate in Australia for a decade. When a property settlement occurs between spouses and if the conditions are met, the marriage breakdown rollover rules apply to ignore any CGT gain on the property settlement. Assuming the home is transferred to one of the spouses (and not to or from a trust or company), both individuals used the home solely as their main residence over their ownership period, and the other eligibility conditions are met, then a full main residence exemption should be available when the property is eventually sold. If the home qualified for the main residence exemption for only part of the ownership period for either individual, then a partial exemption might be available. That is, the spouse receiving the property may need to pay CGT on the gain on their share of the property received as part of the property settlement when they eventually sell the property. I have inherited a property, if I sell it, do I have to pay CGT? Special rules exist that enable some beneficiaries or estates to access a full or partial main residence exemption on the inherited property. Assuming the house was the main residence of the deceased just before they died, they did not then use the home to produce an income, and the other eligibility criteria are met, a full exemption might be available to the executor or beneficiary if either (or both) of the following conditions are met: The dwelling is disposed of within two years of the deceased’s death; or The dwelling was the main residence of one or more of the following people from the date of death until the dwelling has been disposed of: The spouse of the deceased (unless they were separated); An individual who had a right to occupy the dwelling under the deceased’s will; or The beneficiary who is disposing of the dwelling. An extension to the two year period can apply in limited certain circumstances, for example when the will is contested or complex. If the deceased did not actually live in the property prior to their death and other eligibility criteria are satisfied, it still might be possible to apply the full exemption where the home was treated as their main residence under the absence rule. If the full exemption is not available, a partial exemption might apply. If you have any questions about how the main residence rules might apply to you, please drop us a line and we will be happy to work though it with you. [1] Transitional rules ended on 30 June 2020.

What changed on 1 July?

21 Jul 2022 04:19:00 GMT

A reminder of what changed on 1 July 2022 Business Superannuation guarantee increased to 10.5% $450 super guarantee threshold removed for employees aged 18 and over Small business GST and PAYG tax instalments lowered (the total tax liability remains the same, just the amount the business needs to pay through the year is lowered) ATO guidance on how profits of professional firms are structured comes into effect introducing new risk criteria New guidance on unpaid trust distributions to corporate beneficiaries comes into effect that may treat some unpaid distributions as loans and trigger tax consequences Individuals Superannuation guarantee increased to 10.5% Work-test repealed for those under 75 to make or receive non-concessional or salary sacrifice super contributions (the work test still applies to personal deductible contributions) Age for downsizer super contributions reduced to 60 years and older Value of voluntary super contributions that can be withdrawn under the First Home Saver Scheme increased to a total of $50,000 New ATO guidelines on trust distributions come into effect primarily impacting distributions to adult children Home loan guarantee scheme extended to 35,000 per year for first home buyers and 5,000 per year for single parents Australia’s minimum wage increased

Tax Time Targets

20 Jul 2022 03:56:00 GMT

The ATO has flagged four priority areas this tax season where people are making mistakes. Record-keeping Work-related expenses Rental property income and deductions, and Capital gains from crypto assets, property, and shares. In general, there are three ‘golden rules’ when claiming tax deductions: You must have spent the money and not been reimbursed. If the expense is for a mix of work related (income producing) and private use, you can only claim the portion that relates to how you earn your income. You need to have a record to prove it. 1.0 Record keeping 101 of working with the ATO is that you can’t claim it if you can’t prove it. If you are audited, the ATO will disallow deductions for unsubstantiated or unreasonable expenses. Even if the expense is below the substantiation threshold of $300 ($150 for laundry), the ATO might ask how you came up with that number. For example, if you claim $300 in work related expenses (that is, make a claim right up to the substantiation threshold), how did you come up with that number and not something else? In addition to the obvious records of salary, wages, allowances, government payments or pensions and annuities, you need to keep records of: Interest or managed funds. Records of expenses for any deductions claimed including a record of how that expense relates to the way you earn your income. That is, the expense must be related to how you earn your income. For example, if you claim the cost of RAT tests, you need to be able to prove that the RAT test was necessary to enable you to work. If you were working from home and not required to leave home, it will be harder to claim the cost of the test. Assets such as shares or units in a trust, rental properties or holiday homes, if you purchased a home or inherited a property, or disposed of an asset (including cryptocurrency). You need to keep your records for five years. These can be digital copies of the records as long as they are clear and legible copies of the original. If your records are digital, keep a backup. Records can be tax invoices, receipts, diary entries or something else that proves you incurred the expense and how it related to how you earn your income. 2.0 Work-related expenses To claim a deduction, you need to have incurred the expense yourself and not been reimbursed by your employer or business, and the expense needs to be directly related to your work. What expenses are related to work? You can claim a deduction for all losses and outgoings “to the extent to which they are incurred in gaining or producing assessable income except where the outgoings are of a capital, private or domestic nature, or relate to the earning of exempt income.” That is, there must be a nexus between the expenses you are claiming and how you earn your income. It all sounds simple enough until you start applying this rule. Take the example of an actor. To land the acting job she needs to attend auditions. She wants to claim the cost of having her hair and make-up done for the audition. But, because she is not generating income at the stage of the audition, she cannot claim her expenses. The expense must be related to how you are currently earning your income, not future potential income. The same issue applies to upskilling. If you attend investment seminars with the intention of building your investment portfolio the seminar is not deductible as a self-education expense unless it relates to managing your existing investment portfolio – not a future one. Or, a nurse’s aide who attendees university to qualify as a nurse. The university degree and the expenses associated with this are not deductible as the nursing degree is not required to fulfil the role of a nurse’s aide. The second area of confusion is over what can be claimed for work. If the item is “conventional” it’s unlikely to be deductible. For example, you can’t claim conventional clothing (including footwear) as a work-related expense, even if your employer requires you to wear it and you only wear the items of clothing at work. To be deductible clothing must be protective, occupation specific such as a chef’s chequered pants, a compulsory uniform, or a registered non-compulsory uniform. Work related or private? Another area of confusion is where expenses are incurred for work purposes but used privately. Internet access or mobile phone services are typical. A lot of people take the view that the expense had to be incurred for work so what does it matter if it’s used for private purposes? But, if you use the service on more than an ad-hoc basis for any purpose other than work, then the expense needs to be apportioned and only the work-related percentage claimed as a deduction. And yes, the ATO does check usage in an audit. Claims for COVID-19 tests will be a test of this rule. COVID-19 tests are deductible from 1 July 2021 if the purpose was to determine whether you may attend or remain at work. The tax deduction does not apply if you worked from home and didn’t intend to attend your workplace, or the test was used for private purposes (for example, to tests the kids before school). Claiming work from home expenses Last financial year, one in three Australians claimed working from home expenses. Now we’re out of the pandemic, the ATO will be focussing specifically on what is being claimed. If you claimed work from home expenses last year and returned to the office this year, then there should be a reduction in your work from home claim. The ATO will be looking for discrepancies. If you are claiming your expenses, there are three methods you can use: The ATO’s simplified 80 cents per hour short-cut method – you can claim 80 cents for every hour you worked from home from 1 March 2020 to 30 June 2022. You will need to have evidence of hours worked like a timesheet or diary. The rate covers all of your expenses and you cannot claim individual items separately, such as office furniture or a computer. Fixed rate 52 cents per hour method – applies if you have set up a home office but are not running a business from home. You can claim 52 cents for every hour and this covers the running expenses of your home. You can claim your phone, internet, or the decline in value of equipment separately. Actual expenses method – you can claim the actual expenses you incur (and reduce the claim by any personal use and use by other family members). You will need to ensure you have kept records such as receipts to use this method. It’s this last method, the actual method, the ATO is scrutinising because people using this method tend to lodge much higher claims in their tax return. Ineligible expenses include: Personal expenses such as coffee, tea and toilet paper Expenses related to a child’s education, such as online learning courses or laptops Claiming large expenses up-front (instead of claiming depreciation for assets), and Occupancy expenses such as rent, mortgage interest, property insurance, and land taxes and rates, that cannot generally be claimed by employees working from home (especially by those who are working from home solely due to a lockdown). 3.0 Rental property income and deductions For landlords, the focus is on ensuring that all income received, whether long-term, short-term, rental bonds, back payments, or insurance pay-outs, are recognised in your tax return. If your rental property is outside of Australia, and you are an Australian resident for tax purposes, you must recognise the rental income you received in your tax return (excluding any tax you have paid overseas), unless you are classified as a temporary resident for tax purposes. You can claim expenses related to the property, although there are some special rules that need to be considered when it comes to interest deductions. For example, if you have borrowed money from an overseas lender you might be subject to withholding tax obligations. Co-owned properties For tax purposes, rental income and expenses need to be recognised in line with the legal ownership of the property, except in very limited circumstances where it can be shown that the equitable interest in the property is different from the legal title. The ATO will assume that where the taxpayers are related, the equitable right is the same as the legal title (unless there is evidence to suggest otherwise such as a deed of trust etc.,). This means that if you hold a 25% legal interest in a property then you should recognise 25% of the rental income and rental expenses in your tax returns even if you pay most or all of the rental property expenses (the ATO would treat this as a private arrangement between the owners). The main exception is where the parties have separately borrowed money to acquire their interest in the property, then they would claim their own interest deductions. 4.0 Capital gains from crypto, property or other assets If you dispose of an asset – property, shares, crypto or NFTs, collectables (costing $500 or more) – you will need to calculate the capital gain or loss and record this in your tax return. Capital gains tax (CGT) does not apply to personal use assets such as a boat if you bought it for less than $10,000. Crypto and capital gains tax A question that often comes up is when do I pay tax on cryptocurrency? If you acquire the cryptocurrency to make a private purchase and you don’t hold onto it, the crypto might qualify as a personal use asset. But in most cases, that is not the case and people acquire crypto as an investment, even if they do sometimes use it to buy things. Generally, a CGT event occurs when disposing of cryptocurrency. This can include selling cryptocurrency for a fiat currency (e.g., $AUD), exchanging one cryptocurrency for another, gifting it, trading it, or using it to pay for goods or services. Each cryptocurrency is a separate asset for CGT purposes. When you dispose of one cryptocurrency to acquire another, you are disposing of one CGT asset and acquiring another CGT asset. This triggers a taxing event. Transferring cryptocurrency from one wallet to another is not a CGT disposal if you maintain ownership of the coin. Record keeping is extremely important – you need receipts and details of the type of coin, purchase price, date and time of transactions in Australian dollars, records for any exchanges, digital wallet and keys, and what has been paid in commissions or brokerage fees, and records of tax agent, accountant and legal costs. The ATO regularly runs data matching projects, and has access to the data from many crypto platforms and banks. If you make a loss on cryptocurrency, you can generally only claim the loss as a deduction if you are in the business of trading. Gifting an asset might still incur tax Donating or gifting an asset does not avoid capital gains tax. If you receive nothing or less than the market value of the asset, the market value substitution rules might come into play. The market value substitution rule can treat you as having received the market value of the asset you donated or gifted for the purpose of your CGT calculations. For example, if Mum & Dad buy a block of land then eventually gift the block of land to their daughter, the ATO will look at the value of the land at the point they gifted it. If the market value of the land is higher than the amount that Mum & Dad paid for it, then this would normally trigger a capital gains tax liability. It does not matter that Mum & Dad did not receive any money for the land. Donations of cryptocurrency might also trigger capital gains tax. If you donate cryptocurrency to a charity, you are likely to be assessed on the market value of the crypto at the point you donated it. You can only claim a tax deduction for the donation if the charity is a deductible gift recipient and the charity is set up to accept cryptocurrency. Note: The material and contents provided in this publication are informative in nature only. It is not intended to be advice and you should not act specifically on the basis of this information alone. If expert assistance is required, professional advice should be obtained.

ATO refocus on debt collection

23 Jun 2022 01:36:00 GMT

The ATO has not pursued many business tax debts during the pandemic and allowed tax refunds to flow through even if the business had a tax debt. That position has now changed and the ATO has resumed debt collection and offsetting tax debts against refunds. If you have a tax debt that has been on-hold, expect the ATO to offset any refunds against this debt, and take steps to actively pursue the payment of the debt. Small business account for around two thirds of the total debt owed to the ATO. If you have a tax debt, it is important that you engage with the ATO to work out how this debt will be paid. Please contact our office on: (03) 8393 1000 if you have any queries.

14 Tips for Tax Planning 2022

21 Jun 2022 02:05:00 GMT

The end of financial year is fast approaching, which means it’s time to start thinking about your tax! We have 14 tax saving tips to help you prepare and manage your Business’ financial accounts throughout the year. 1. What tax claims are the ATO targeting? As tax time approaches, the ATO like to let Aussies know what is going to be on their watchlist for the year, so make sure you do your homework and see what’s on their hit list. You are likely to see things such as motor vehicle costs, home office and education write offs being examined. 2. Strategic tax planning with your accountant Short and long term tax planning are two essential items that should be on your accountants agenda! Short term planning should look at anything you can do before financial year ends to minimise tax. Long term tax planning will go further and look at things like using your business structure to minimise tax and protect your family’s wealth as well as reviewing the types of structures to suit your investments over the long term. 3. Do you have the best tax structures? It’s a good idea to examine your personal assets, business structure, and where your investments are held. Certain structures can benefit from reduced or capped tax rates. For instance, the company tax rate is a flat 25% for small businesses in 2022, which can make a huge difference if your business is generating significant revenue. 4. Keep detailed records If you keep better tax records, your accountant will be able to substantiate more deductions, which will help you pay less tax! Keeping your records in check means you will be able to have all the answers should the ATO start enquiring about your returns 5. Carry out a stocktake Performing a stocktake enables you to be able to get an accurate stock valuation, whilst also writing off any damaged, out of date or discontinued stock. Stock holdings can be valued at either cost or net realisable value, whichever is lower. 6. Update your vehicle logbook/s To make sure you claim the most on your motor vehicle expenses, ensure that your log books are up to date. 7. Look at your debtors Have a look at your debtors with a view to writing off any debts you won’t recover. Written off debts will reduce your income in the year that you write them off, even if it’s not the year you invoiced them in. 8. Check your invoicing It can be beneficial to postpone invoicing for the current financial year, to the following financial year, where possible. 9. Document any trust resolutions Trustees of discretionary trusts are obligated to document their resolutions on how the income from the trust is distributed to its beneficiaries before the 30th June each year. If a valid resolution has not been completed by the 30th June, any default beneficiaries are eligible to the trust’s income, and are subject to tax. For any income which is obtained, but not distributed by the trust, the trust will be assessed at the highest marginal tax rate on this income. 10. Take advantage of Temporary Full Expensing Using the temporary full expensing rules will allow you to instantly deduct the cost of new and used business assets you buy from your assessable tax. 11. Contribute to your super Make sure you add to your voluntary superannuation contributions! The concessional contribution caps were increased to $27,500 per person in the 2022 year meaning you can contribute extra before 30 June. Also, if your super balance is below $500,000 you may be able to contribute even more this year by taking advantage of your unused contribution caps of prior years. 12. Pre-pay your expenses You may be able to pre-pay some expenses that you will incur in the next financial year in the current financial year. For example, professional subscriptions, rent and insurance etc. 13. Take advantage of negative gearing on any investment properties When the expenses outweigh the income you receive on an investment property, you can claim the difference as a tax deduction. Now is a good time to review if there are any repairs to take care of or other expenses that can be paid before 30 June. 14. Look into income protection Should something ever happen to you, having income protection insurance can help to ensure your family is taken care of if you are out of action for any length of time. Income protection insurance is also tax deductable! Should you need to discuss any of the above, please do not hesitate to contact our office on: (03) 8393 1000.

Trust Planning This Year Needs To Be Done Carefully

20 Jun 2022 02:03:00 GMT

In order to prepare your trust for the end of the financial year, there are multiple obligations that you need to fulfil as a trustee. Planning for your trust’s future is just as important as tax planning or business planning, so it’s encouraged that you take an active role. Trust Deed Make sure that there is a complete original copy of the trust deed, including any amendments. You will need to be sure that any resolution that is made to distribute the income from the trust or the capital is consistent with the terms of the deed. A lost trust deed can cost well over $10,000 to rectify. Trust Distributions The simplest way to look at trust distributions is to understand that this process is about working out who is getting what and when from the trust. Generally, discretionary trusts (and some fixed trusts) are required to prepare and execute distribution minutes prior to 30 June for each financial year. This is to explain in detail how the income of the trust will be distributed to beneficiaries for the relevant financial year and must detail any use of income streaming. These minutes must be prepared in accordance with the trust deeds. Failure to do these resolutions by 30th June will result in the trust paying 47% tax on ALL of its earnings. When preparing the trust distribution minutes, it may be an idea to retain a nominal amount in the trust for the 30 June 2022 income year. This will assist with generating a notice of assessment for the trust and effectively limiting the amendment period to 4 years (or 2 years for trusts that are considered a small business entity) from the date of that notice. Broadly, the amendment period is a period of time that the ATO and taxpayer are able to review and amend tax forms to where their taxable income needs to be changed. The period is determined from the date of the relevant notice of assessment. Where there is no retention of income, trusts are generally not taxable and therefore do not receive notices of assessment. As such, without completing the distribution minutes and retaining a nominal amount in the trust by 30 June 2022, the amendment period will be greater than 4 or 2 years. Compliance Concerns A commonly recommended structure for investment and business, family trusts income distributions are a concern for the Australian Taxation Office (ATO) when it comes to compliance. Recent rulings around trust distributions could complicate the way your trusts are operated and structured and will come into effect on 1 July 2022. Work together with us to ensure that your trust is compliant with their requirements and that you have met your obligations as a trustee. This is the easiest way to approach your trust planning at the end of the year. The information contained in this publication is for general information purposes only, professional advice should be obtained before acting on any information contained herein. The receiver of this document accepts that this publication may only be distributed for the purposes previously stipulated and agreed upon at subscription. Neither the publishers nor the distributors can accept any responsibility for loss occasioned to any person as a result of action taken or refrained from in consequence of the contents of this publication.

Digital Solutions to Bridge the Gaps in Your Business

16 Jun 2022 02:04:00 GMT

As a small business owner, it’s important to keep your finger on the pulse with what’s new to ensure you’re keeping up with the competition and even getting ahead with the latest in all things business! The Australian Government are providing Digital Solutions programs which work with you to adopt digital tools to save you time and money, and to assist in developing your business! Small businesses based in Victoria that are registered with an ABN and have less than 20 employees, as well as sole traders, are eligible to join the $44 program and access up to 3 hours of professional business mentoring, as well as workshops, webinars and online courses — all of which covers websites and selling online, social media and digital marketing, small business software and online security, and data privacy. So, are you ready to grow your business? Are you needing tailored advice for your small business? Register with Digital Solutions – Australian Small Business Advisory Services program to help you start, sustain, and grow your business online. To join, you need to fill out a registration form, where you’ll be asked to provide your contact details, business information and indicate what digital tools you are currently using. Once complete, you’ll be redirected to book your free onboarding call to discuss your business needs and learn how the program can best help you. Register at: https://courses.melbourneinnovation.com.au/ Payment After the onboarding call, you’ll be asked to pay a once-off $44 program fee (or receive approval for a financial hardship exemption). The fee is for 7 hours of support and your first interaction with the service is free. Once payment is made, you will receive an email with access details to the program where you can book in mentoring and workshops, watch webinars, and undertake online courses. What’s included? The Digital Solutions program, previously known as ASBAS works with small businesses to make the most of digital tools and offers broader advice specific to your business needs Whether you would like to reach more customers online, create a website, increase your social media following or improve your business’s online security, the Digital Solutions program can help you! By joining the program, you’ll gain access to the following services: MENTORING Program participants are eligible for three hours of one-on-one business mentoring. Choose from 30+ mentors who can help you determine the unique needs of your business and develop a digital strategy. WORKSHOPS Attend the online workshops run by leading industry experts on a range of topics such as digital marketing, social media, SEO, website building, accounting software and more. Also access the suite of recorded webinars. ONLINE COURSES Learn step-by-step how to bridge the gaps in your business with the comprehensive online learning portal. Easy-to-follow and accessible courses provide all the information you need to digitise your business. Learn all about: how digital tools can help your small business websites and selling online social media and digital marketing using small business software online security and data privacy. Digital Solutions is a 7 hour packaged service that offers 3 hours of one-on-one tailored support as well as group workshops or webinars. Support for businesses affected by COVID-19 Digital Solutions providers are also offering general business advice to support you through this difficult time, including: business crisis management and business continuity planning finance management and boosting cashflow staff management and creating a safe work environment retaining and staying connected to customers resilience and wellbeing COVID-19 stimulus packages for small business. Find more coronavirus information and support for businesses.

Can I claim a tax deduction for my gym membership?

13 Jun 2022 11:35:00 GMT

There are lots of reasons to keep fit but very few of them have to do with how we earn our income. As a result, a tax deduction for a gym membership isn’t available to most people. And yes, the Tax Office has heard all the arguments before about how keeping fit reduces sickness and therefore is important to earning an income, and ‘…the way I look is important to my job’. In general, a tax deduction for fitness expenses is only available if your job requires you to have an extremely high level of fitness. The nexus between how you earn your income and the deduction is about the physical demands and requirements of your specific role. Firefighters are a case in point. A person with what the ATO describes as a “general duties firefighter” role cannot claim a deduction for the money they have spent keeping fit, but a firefighter in a specialist search and rescue operations team for example, trained in a range of specialist skills including structural collapses and tunnel emergencies, and who is tested on fitness and ongoing strenuous physical activity as an essential part of their job, would be able to claim fitness expenses. Similarly, a professional ballet dancer is likely to be able to claim their fitness expenses. A model however, might not be able to claim their expenses as, while they need to look a particular way, their modelling role does not require physical training and exertion (clearly the ATO has not seen some the poses that models have to hold!). So, access to a deduction is about the specialist physical demands and requirements of your role. A recent case before the administrative appeals tribunal (AAT) explored the boundary of who can claim fitness expenses, confirming that a prison dog handler could claim a deduction for the cost of his gym membership. In this case, the dog handler was responsible for training and maintaining two dogs. He was required to be available to assist in emergencies that might arise. While these emergencies didn’t arise often, the handler had to be prepared for the possibility of an emergency arising at any time. Reaching this decision, the AAT noted the handler: Was required to maintain a high degree of anaerobic fitness (including muscle strength sufficient to control a large German shepherd on a lead in a volatile situation); Was required to maintain a high degree of aerobic fitness (that is, a degree of speed and agility sufficient to enable him to move effectively with, and control and direct, his dog in an emergency); and Must also be prepared to restrain prisoners himself. While the employer in this case did not specify any particular level of fitness for the dog handler role, the AAT held that a superior level of fitness was implicitly demanded. However, it did not all go the way of the dog handler. His claim for supplement expenses, travel to and from the gym, and gym clothing was denied. While some commentators have suggested that the floodgates are now open for gym membership claims, as always, the devil is in the detail. To claim a tax deduction for fitness expenses it is generally necessary to be part of a specialist workforce. Police Officers for example cannot generally claim fitness expenses despite the fact that, like the dog handler in the AAT case, they need to respond quickly to emergencies and may need to subdue people. Unless they are part of a specialist response unit that is required to have a specific, high level of fitness, they are unlikely to be able to claim their gym membership expenses. So, for the rest of us, gym memberships will continue to be a labour of self-love and care and not an essential part of how we earn our income.

ATO ramps up heat on directors

08 Jun 2022 11:33:00 GMT

Recently, the ATO sent letters to directors who are potentially in breach of their obligations to ensure that the company they represent has met its PAYG withholding, superannuation guarantee charge, or GST obligations. These letters are a warning shot and should not be ignored. The director penalty regime ensures that directors are personally liable for certain debts of the company if the debts are not actively managed. The liability applies to both current and former directors. To recover this debt, the ATO will issue a director penalty notice to the individual directors. The ATO can then take action to recover the unpaid amount, including: By issuing garnishee notices, By offsetting tax credits owed to the director against the penalty, or By initiating legal recovery proceedings against the director. In some cases, it is possible for the penalty to be remitted but this depends on when the PAYGW, GST or SGC amounts are reported to the ATO. For example, in some cases the penalty can be remitted if an administrator or small business restructuring practitioner is appointed to the company, or the company begins to be wound up. However, this is normally only possible for PAYGW and GST amounts if they are reported to the ATO within 3 months of the due date. For SGC amounts this is only possible if the unpaid amount is reported by the due date of the SGC statement. If the unpaid amounts are not reported to the ATO by the relevant deadline, then the only way for the penalty to be remitted is for the debt to be paid in full. Winding up the company at this stage will not make the liability of the directors go away. If you have received a warning letter from the ATO or a director penalty notice, then please contact us immediately.

Is It The End For Trusts? | Corporate Trust Structure

02 Jun 2022 11:28:00 GMT

Is it the end for Trusts? It been said that the death of trusts happened in February 2022 with the law on company beneficiaries, but is it really true or is that an exaggeration?

Fuel tax credit changes

31 May 2022 11:25:00 GMT

The Government temporarily halved the excise and excise equivalent customs duty rates for petrol, diesel and all other petroleum-based products (except aviation fuels) for 6 months from 30 March 2022 until 28 September 2022. This has caused a reduction in fuel tax credit rates. During this 6 month period, businesses using fuel in heavy vehicles for travelling on public roads won’t be able to claim fuel tax credits for fuel used for this purpose. This is because the road user charge exceeds the excise duty payable, and this reduces the fuel tax credit rate to nil. You can find the ATO’s updated fuel tax credit rates that apply for the period from 30 March 2022 to 30 June 2022 here. The ATO’s fuel tax credit calculator has been updated to apply the current rates. If you have any queries, please feel free to contact our team on: (03) 8393 1000. The information contained in this publication is for general information purposes only, professional advice should be obtained before acting on any information contained herein. The receiver of this document accepts that this publication may only be distributed for the purposes previously stipulated and agreed upon at subscription. Neither the publishers nor the distributors can accept any responsibility for loss occasioned to any person as a result of action taken or refrained from in consequence of the contents of this publication.

How much do I need in retirement?

27 May 2022 11:20:00 GMT

How much you need to save for a comfortable retirement is a question many of us ask. While we all hope for a simple answer, how much money you need in retirement differs for everyone. Additionally, a comfortable retirement is based on a whole range of factors including: When you retire How long you’ll spend in retirement Whether you’ll sell assets to fund your lifestyle How your assets are invested. There are a number of guides that are useful to consider when working out how much you need to save for your retirement. A modest or comfortable retirement The ASFA Retirement Standard is published each quarter by the Association of Superannuation Funds of Australia (ASFA). It provides approximate figures for the level of income required for a modest or comfortable lifestyle, assuming you own your own home. The current ASFA comfortable lifestyle standard is $45,962 per annum for a single person and $64,771 per annum for a couple, while the modest lifestyle standard is $29,139 for a single and $41,929 for a couple respectively. A modest retirement lifestyle assumes you are able to afford basic activities. A comfortable retirement lifestyle enables an older, healthy retiree to be involved in a broader range of leisure and recreational activities and to have a good standard of living. You should be able to afford to buy household goods, private health insurance, a reasonable car, good clothes, electronic equipment and to travel overseas and in Australia. Determining what you need as a lump sum It’s also useful to understand how much money you need to live a modest or comfortable retirement as a lump sum. ASFA estimates that the lump sum needed at retirement to support a comfortable lifestyle is $640,000 for a couple and $545,000 for a single person. This assumes a partial Age Pension. A different approach is to look at your pre-retirement income and consider how much of it you will need in retirement. Assume, for example, you will need 65 per cent of your pre-retirement income, so if you earn $50,000 now, you might need $32,500 in retirement. Another method to calculate a lump sum Another method is to take your current annual expenses and multiply this amount by the number of years that represent the difference between the age you retire and average life expectancy to calculate the lump sum you may require in retirement. In Australia, average life expectancy is 83.5 years. If you take the $32,500 figure and assume you retire at age 65, this would equate to a lump sum target of $601,250. This is a guide only. Keep in mind the investment returns you generate and your actual expenses in retirement will impact the amount you need to fund your retirement. No matter how much you assume you need, the more time you have to plan, the greater your chances of achieving your retirement income goal. There are many steps you can take to help you achieve your retirement savings goal. First, understand your current financial position including your income and expenses, what you own and what you owe. You may consider strengthening your financial position by repaying debt, building up your savings and investments or making additional contributions to super. Start considering how best to use your financial resources to support your income needs in retirement. Make sure you monitor your plan on an ongoing basis. The idea is to make the most of the retirement planning opportunities available to you. And remember you don’t have to go it alone. Seeking financial advice can help you achieve the retirement you hope to achieve. Source: BT

New Opportunities to Grow Your Super from 1 July 2022

27 May 2022 11:17:00 GMT

Both older and younger Australians, as well as low-income earners, are set to benefit from some upcoming super opportunities. From 1 July 2022, there will be some changes made to super to make it easier for people to grow their retirement savings. These changes will create opportunities for both older and younger Australians, as well as low-income earners, by removing some of the barriers that currently exist in the super system. Here’s what’s changing: The $450 Super Guarantee (SG) threshold will be removed, meaning that employers will start paying super for low-income earners. The SG contribution rate will rise to 10.5% p.a. for all employees. People aged 65-74 will no longer have to meet the work test to make voluntary contributions to super. The ‘bring-forward’ rule age limit will increase to 75, so more people can make lump sum contributions to super. The minimum age for downsizer contributions will reduce from 65 to 60, giving more flexibility to people who are selling their home. First home buyers can now save up to $50,000, and any deemed earnings, to use as a home deposit through the First Home Buyer Saver Scheme. Here are some more details about how each of these changes will work, and how you can take advantage of these opportunities to boost your retirement savings. Employers will start paying super for low-income earners SG contributions are the mandated contributions that your employer puts into your super on your behalf. For a lot of people, these are the only super contributions that go into their account. Until now, employers haven’t had to make these contributions if an employee earns less than $450 in a calendar month. Because of this, if you work casually, or you work part-time across multiple jobs, you may not have received any contributions at all from your employment. From 1 July 2022, the $450 threshold will be removed. Employers will have to make SG contributions regardless of how much the employee earns (unless they are under 18 and working less than 30 hours per week). Of all the upcoming super changes, this one has the potential to make the most difference, because it means low-income earners will finally have super contributions going into their account without having to make voluntary contributions themselves. These regular contributions can go a long way towards building up retirement savings. For example, someone who currently works three jobs, earning $400 per month for each job, will now have $1,512 contributed to their super in 2022-23, which will then accumulate further earnings. Over a 40-year period, this could add up to over $84,000 or even substantially more, depending on how their super is invested. SG contribution rate will rise to 10.5% for all employees The SG contribution rate is currently 10% p.a. of your wages or salary. This rate will increase to 10.5% from 1 July 2022, and it’s scheduled to increase progressively to 12% by July 2025. Each of these incremental changes is great news for people who are paid SG contributions by their employers, because it means your super balance will grow faster without you having to make any extra contributions. People aged 65-74 will no longer have to meet the work test to make voluntary contributions to super People aged 65-74 currently have to satisfy the work test (or qualify for an exemption) to be able to make voluntary contributions to super. This means proving you worked for a minimum of 40 hours, during a period of 30 consecutive days, in the financial year for which you want to make a contribution. Contribution acceptance: From 1 July 2022, you won’t have to meet the work test for the super fund to accept any type of contributions you make to your super, or any contributions your employer makes to your super, while you are under age 75. From age 75 the only type of contribution that can be accepted into your super account are downsizer contributions or compulsory employer superannuation contributions. Personal deductible contributions: From 1 July 2022, if you are aged 67 – 74 at the time you make a personal super contribution, you only have to meet the work test, or work test exemption, if you wish to claim a tax deduction for those contributions. A work test is not required to claim a tax deduction for personal contributions made while you are under age 67. This change gives older Australians more flexibility to be able to contribute to super and boost your retirement savings, regardless of your employment status, in the years leading up to your 75th birthday. ‘Bring-forward’ rule age limit will increase to 75 The ‘bring-forward’ rule allows you to use up to three years’ worth of your future non-concessional (after-tax) super contribution caps over a shorter period – either all at once or as several larger contributions – without having to pay extra tax. The non-concessional contributions cap is currently $110,000 per year. So, if you use the bring-forward rule, you may be able to contribute up to $330,000 in a single year as long as you don’t exceed the total cap over the three-year period. This strategy is mostly used by people nearing retirement, who want to contribute as much as possible to super before they stop working, or people who receive an inheritance or other type of windfall. Currently, you need to be under age 67 at any time in a financial year to use the bring-forward rule. From 1 July 2022, the age limit will increase to 75. This is great news for people who want to put as much money as possible into their super before they retire, without being penalised for it. Eligibility for the bring-forward rule will depend on your total super balance at the most recent 30 June, and the amount of your personal contributions over the past two financial years. Minimum age for downsizer contributions will reduce from 65 to 60 The downsizer contribution is a strategy aimed at helping older Australians put all or part of the proceeds of the sale of one qualifying home into super to boost your retirement savings. You can only make this type of contribution, and the maximum amount you can contribute is $300,000. However, by combining it with the bring-forward rule, you could potentially contribute $630,000 to super (or $1.26 million as a couple) in a single year. Currently, you can only make a downsizer contribution if you’re 65 or older at the time of the contribution. From 1 July 2022, the minimum age reduces to age 60. This will provide more flexibility to people in their early sixties who are planning to sell their family home and want to move some or all of the proceeds into super. Although the work test has never applied to downsizer contributions, other eligibility rules apply and it’s important to submit a downsizer contribution form to your fund at the time you make this type of contribution. First home buyers can now save up to $50,000 using the First Home Super Saver Scheme People saving up for their first home can use the First Home Super Scheme (FHSS) to grow their deposit amount. It takes advantage of the favourable tax treatment of super contributions and earnings to help you save a deposit faster than if you save outside of super. You can currently use this strategy to release up to $30,000 in eligible voluntary super contributions, along with any deemed earnings, for the purchase of your first home. From 1 July 2022, the maximum amount of eligible contributions that may be released will increase to $50,000. However, the annual limit of voluntary contributions eligible for the scheme remains at $15,000 per financial year. This means it would take at least four years of maximum contributions to have the maximum $50,000 available for release. Given the substantial rise in property prices we’ve seen all around Australia over the past year, this change will help first home buyers save a larger deposit using this strategy – albeit over a longer time period. Source: Colonial First State

Can Infrastructure protect from Inflation?

27 May 2022 11:14:00 GMT

It’s an important question as prices rise around the world fuelled by soaring energy and commodity costs, supply chain constraints and a geopolitical retreat from globalisation. In Australia, headline inflation is expected to reach 5 per cent by the end of the year. And while that’s still low from an historical perspective, it is above the Reserve Bank of Australia’s (RBA) target range and could likely trigger a lift in the cash rate to 0.75 per cent. Both of these factors are in our view negative for investors. Inflation eats away at the value of money and higher interest rates directly lift financing costs, so in our view it is critical that investors find a way to protect the value of their investments. Is infrastructure the asset class that can provide the hedge that investors are looking for? The broad answer is yes — but the devil is in the detail. Infrastructure is not a homogenous asset class. Assets that look similar on the surface can have very different drivers of risk and return and it is important that investors consider each individual asset’s specific characteristics. At a high level, infrastructure assets can be grouped into three categories. Each has a slightly different and nuanced relationship with inflation, and each provides investors with a different level of protection from price rises. Let’s look at each in turn. Growth-linked assets Growth linked assets are infrastructure assets where revenue is linked in some way to the health of the economy — like airports, ports and toll roads. In some way, each of these businesses enjoys revenue linked to economic growth and this is the core of how in our view growth-linked assets can provide inflation protection: rising prices tend to be a result of strong economic growth which brings rising employment. Australia’s real GDP is forecast to grow 4.5 per cent this year, while nominal GDP growth will come in around 9.5 per cent. This kind of economic growth lifts the usage of many infrastructure assets. Typically in a stronger economy, more people fly, more goods are imported, and more cars and trucks are on the move. This can result in rising revenues for these growth-linked infrastructure assets. In addition, these types of businesses can often lift their prices to keep pace with inflation. Airports may have escalation factors built into their agreements with airlines that provide for annual price increases, while their retail tenants are under individual tenancy agreements that often come with regular rental reviews. Similarly, toll road concessions usually provide for annual price rises. And while agreements to lift prices are not always directly linked to inflation, they are usually in our experience set at a point that reflects inflation expectations, meaning they offer protection in rising price environments and can even help drive earnings when actual inflation undershoots. Still, there are downsides for these businesses. Operating costs often rise as input prices escalate which can impact earnings. And higher interest rates as central banks respond to inflation can make debt servicing costs rise, although this can be mitigated through hedging. Regulated assets Regulated assets are the infrastructure associated with essential services like water and electricity. Demand for essential services also rises as an economy expands and more people are employed, but generally in our view it does so to a lesser extent than for a growth-linked asset like an airport. Importantly, these assets operate under regulated pricing models where their revenue is determined under a regulatory framework. In many jurisdictions these revenues are in most cases explicitly linked to inflation. Again, there are downsides. Operating costs often rise in an inflationary environment for an essential utility just like they do for other businesses, which can put pressure on earnings. And they also face the challenge of higher interest rates which may need to be mitigated through hedging. Public Private Partnerships (PPPs) The third group are PPPs, a category that includes assets like schools and hospitals built and owned by the private sector and provided for use by the public sector. These types of assets usually have fixed, availability-based revenues. This means that as long as the asset is available for use, the owner gets paid — regardless of how many people actually use the asset. This provides a high level of certainty and consistency around the cash flows the asset generates but comes with less scope to increase revenues. From an inflation perspective, these types of assets often benefit from the ability to pass through costs as incurred to the end user, insulating the asset owner from input price rises. Another positive is that the revenues are often explicitly linked to inflation, but with little scope to lift prices, the inflation protection is generally limited to the extent of this inflation-linkage. As the world is seemingly heading into a new bout of inflation, in our view investors need to seek out assets that can protect their savings from rising prices. In many cases, infrastructure assets can provide this hedge through a combination of mechanisms. But with a wide variety of different types of infrastructure assets available for investors, each with its own unique characteristics, we believe that taking an asset-by-asset approach is important to understanding how effectively the sector may provide a hedge against inflation. Source: AMP Capital

Is this the end of the Housing Boom?

27 May 2022 11:13:00 GMT

Clearly the growth rates in the Australian housing market, particularly in Sydney and Melbourne, peaked some time ago – March last year. But prices have mostly been still rising, albeit at a slower pace. National average property prices now look likely to peak around mid-year and then enter a cyclical downswing. There’s a number of reasons for that. Poor affordability is pricing more home buyers out of the market. Fixed rate mortgages are rising, up 75 per cent from their lows of last year, and they’re still increasing. The Reserve Bank of Australia (RBA) is likely to push variable rate mortgages higher, and we expect them to rise around one per cent by the end of the year. Also, higher inflation makes it harder to save for a deposit. Sydney and Melbourne sellers are trying to take advantage of higher prices and solid construction after two years of zero immigration meaning there’s more supply on the market, dragging on prices. And finally, the reopening of the economy means people can once again start to spend more on services, which could reduce housing demand. Homeowners have done well over the past 12 months, with Brisbane and Adelaide leading the way. Houses have outperformed units and the regions have done better than capital cities and continue to do so as home buyers focus more on quality-of-life considerations. March % change 12 months to March % change Sydney -0.2 17.7 Melbourne -0.1 9.8 Brisbane 2.0 29.3 Adelaide 1.9 26.3 Perth 1.0 7.0 Hobart 0.3 22.3 Darwin 0.8 10.6 Canberra 1.0 21.6 Capital city average 0.3 16.3 Capital city houses average 0.5 18.6 Capital city units average 0.0 9.4 Regional average 1.7 24.5 National average 0.7 18.2 Average capital city prices are now more than 20 per cent above the previous record high in September 2017 and are up 25 per cent from their lows in September 2020. But there has been a wide divergence between capitals. Sydney dwelling prices fell for the second month in a row in March this year, and Melbourne prices were also down. But Brisbane and Adelaide price gains remain strong. Both are playing catch up, having lagged the larger capitals – particularly Sydney – in the early part of the rebound. Property demand in Brisbane is benefitting from strong interstate migration, and both cities are seeing less of an affordability constraint. Perth, the worst performing capital over the past 12 months in a large part due to lockdowns, is also picking up as the state border reopens. Overall, the slowing in monthly price growth is seeing annual price growth roll over too. After a period of well above 10-year average growth, simple mean reversion suggests a further slowdown ahead. It isn’t surprising that the housing market is cooling, though this cycle is happening earlier relative to the timing of RBA rate hikes. That’s because of the bigger role ultra-low fixed rate mortgage lending played this time around in driving the boom. Normally fixed rate lending is around 15 per cent of new home lending but over the last 18 months it was around 40 to 50 per cent as borrowers took advantage of sub 2 per cent fixed mortgage rates. However, fixed rates have been rising since the June quarter last year which has taken the edge off new home buyer demand well ahead of any move by the RBA. After 22 per cent growth in national average home prices last year, average home price growth this year is expected to be around 1 per cent and we expect a 5-10 per cent decline in average prices in 2023. Top to bottom the fall in prices into 2024 is likely to be around 10-15 per cent, which would take average prices back to the levels of around April last year. This is likely to mask a continuing wide divergence though. Sydney and Melbourne already look to have peaked but laggard cities like Brisbane and Adelaide, and possibly Perth and Darwin which are less constrained by poor affordability, are likely to be relatively stronger in 2022 with gains likely to persist into the second half of the year. The main downside risks to our forecasts could come from another big coronavirus setback to the economy, a serious deterioration in the Russian invasion of Ukraine affecting confidence, or alternatively faster mortgage rate hikes. This is a significant risk given the jobs market has tightened more than expected, and inflation looks to be rising much faster than forecast with the consumer price index likely to be up by at least 5 per cent over the year to the June quarter. The main risk on the upside is a rapid surge in immigration, although this is likely to show up initially in higher rents and then higher prices with a lag. While the national average property downswing unfolding looks like just another cyclical downswing, it’s worth noting that the 25-year bull market in capital city property prices is likely to come under pressure in the years ahead. The 30-year declining trend in mortgage rates which has enabled new buyers to progressively borrow more and more, and hence pay more and more for property, is now likely over. Also, the work from home phenomenon and associated shift to regions may continue to take some pressure off capital city prices. Source: AMP

Volatility Bites: How Retirees can Manage Jumpy Markets

27 May 2022 11:08:00 GMT

The 2020 COVID-19 share sell off and recent equity market volatility shows just how quickly share prices can move. Volatility can have different meanings for different investors, those with a long-term horizon can be less concerned, knowing they have time on their side. But what about retirees? How can they manage the mental challenge of watching their hard-earned capital shrink before their eyes? And do it without becoming so conservative they have to downgrade their lifestyle? It’s a pertinent question right now because higher inflation, rising interest rates and the Russian invasion of Ukraine are making markets nervous. Perpetual Private’s Associate Partner, Daniel Elias says volatility is more tangible for retirees. “The numbers on your portfolio spreadsheet aren’t theoretical – they pay your bills. Because that capital is so important, the challenge for retirees is reining in the fear and anxiety that can lead them to irrational decisions.” In the years around retirement, the risk that a market downturn occurs right before you retire, or soon after, is called sequencing risk. To manage sequencing risk, having a diversified portfolio of assets can help dampen the effect on your portfolio when markets fall. That’s when things go V-shaped When COVID-19 lockdowns first hit in March 2020, markets fell, quickly and sharply. As people stayed at home and started upgrading their Netflix accounts, economists and analysts were arguing about the shape of a potential recovery. Would markets fall even further, then bump along the bottom before gradually rising again (U-shaped)? Or stay down for years (the dreaded L-shape)? Ultimately, we surfed a dramatic V-shaped recovery. Writing in January 2022, Mano Mohankumar from superannuation researcher Chant West said, “Since the market low-point at March 2020, growth funds have surged an astonishing 31%, which now sees them sitting 16% higher than the pre-COVID-19 crisis peak.” Investors who looked through the dramatic market falls associated with COVID-19 were rewarded for sticking to their strategy. But many who reacted emotionally paid a price. In May 2021, the McKell Institute estimate that those who redeemed via the Early Release of Super scheme at the nadir of the COVID-19 crisis gave up nearly five billion dollars in lost returns during the markets’ rebound. Remaining rational in times of crisis is a difficult challenge for all investors, but ensuring you listen to the financial advice and don’t react with emotions is the key to not making the wrong decision during times of market stress. Ask yourself – how much risk is right for you? The key to investment selection and portfolio management is optimising ‘risk efficiency’ by choosing the right mix of assets to give you the maximum return for the level of risk you’re able to absorb. Before making any changes to your investment strategy, ask yourself, “Am I still comfortable with the level of risk I originally implemented in my portfolio.” Understanding your risk tolerance will help you find the right mix of assets that will have enough risk to grow your portfolio, but not so much that you can’t sleep at night or you are led to sell at the wrong time. As you approach retirement, you have fewer years of earnings to save and invest and may need to draw down on your savings. This shorter time horizon limits the ability to overcome a market downturn. As a result, the amount of investment risk in your portfolio matters. Diversification – your best defence The other great weapon retirees can wield against market volatility is diversification. Whilst the volatility in January and February 2022 was felt in the majority of retiree portfolios, losses would have been lower than the broader equity market because many retiree portfolios are diversified across other asset classes including bonds, credit assets, property and increasingly, alternative assets. Diversification helps to smooth returns across different economic conditions. This is because of the low or negative correlation between certain asset classes, so if one asset class falls in value in response to an economic or geopolitical event, another might rise. Bonds can also play an excellent role in protection against equity market risk in times of market volatility and help to minimise sequencing risk. There are alternatives In times of ultra-low interest rates and share market volatility, alternative assets can add another source of income and an additional layer of diversification to an investor’s portfolio. Alternatives include things like private equity, venture capital, opportunistic property and private debt. They can add returns to clients’ portfolios but must be considered in context of each retiree’s overall investment goals, portfolio size, time horizon and their appetite and tolerance for risk. Investors must clearly understand the risks associated with investing in alternative assets as they can have long lock up periods, and are less liquid than more traditional assets, meaning they can’t be sold as quickly and converted into cash. Building a resilient portfolio Volatility will persist while the world adjusts to a changing economic and geopolitical order. That could mean a wider range of returns – but not necessarily a poorer real-life outcome if you stick to a robust, diversified strategy that’s attuned to your needs. Remaining diversified across asset classes can help ensure you have the optimal blend of assets in your portfolio to weather a variety of market conditions. When it comes to ensuring you don’t let your emotions influence your investment decisions, your financial adviser can really help. Source: Perpetual

Investment Market Outlook: Volatility Rises, Value Emerges

27 May 2022 11:06:00 GMT

With war in Eastern Europe, inflation surging and Covid lockdowns inhibiting industrial production in parts of China, investment markets faced a rising tide of volatility over the past quarter. Yet while this may feel like the worst of times, it may really be that the 14 or so years since the GFC are the outlier and the new market environment is more normal than it looks. What’s influencing the outlook? Ukraine and China The cruelty of Russia’s ‘special military operation’ has shaken the world but history tells us war does not always derail investment markets. Strikingly, global shares fell over 30% when the world locked down for Covid (February 2020 to March 2020). But they’ve risen slightly since the fighting started in Ukraine. There are more specific forces at play that will influence markets. There are widespread attempts to shun Russian energy sources, which constrains supply and means oil and gas prices are rising. Higher energy prices are a major economic blow because they suck cash from consumers’ pockets. Meanwhile, the loss of Ukraine’s harvests will add to food costs. Somewhat lost in the fog of war is another Chinese Covid crisis – as we write there are over 20 million people locked down in Shanghai as Chinese policymakers stick to a futile zero-Covid policy. That has implications for Chinese industrial production, keeps the pressure on global supply chains and curtails Chinese consumer confidence and spending. Inflation and interest rates For investors today, inflation and interest rates are the terrible twins: inseparable and inexorably influencing investment assets. Hopes that supply chain pressures would ease as the world recovered from Covid have been dashed by the Ukraine crisis and China’s decision to slam the doors on large chunks of its population. That means inflation is now at rates unthinkable a year ago – 7.9% in the US, 6.2% in the UK, 7.5% in the Euro area. And around the world rates have started to rise in response. There are more rises to come, with the US response stretching to a potential seven rates hikes. Who’s going to drop the ball? This confluence of events throws up another risk – major policy error by governments or central banks. A recent IMF bulletin sums it up: “There are already clear signs that the war and resulting jump in costs for essential commodities will make it harder for policymakers in some countries to strike the delicate balance between containing inflation and supporting the economic recovery from the pandemic.” What’s normal anyway? According to Andrew Garrett, Investment Director at Perpetual Private, markets are now dealing with geopolitical risks and inflation pressures they haven’t experienced for over a decade. Yet while Perpetual Private does expect higher volatility and lower overall returns, that doesn’t mean well-diversified portfolios can’t deliver solid results for investors. Instead, a more nuanced market environment places a premium on specific investment skills. “The long-running, low-rate environment that’s just ended inflated investment markets and made growth assets, especially ‘promising young tech stocks,’ more attractive,” says Andrew. “To use a Buffetism, it lifted all boats.” By contrast, a rising-rate environment is one where active investors with a nose for quality can do well. We’re likely to see better results from value stocks (ie profitable companies with predictable earning whose full potential is not built into their ticker price). And from value managers – like Perpetual – who specialise in the deep research needed to unearth those opportunities. Recent results in Australia may be a sign of things to come in this growth/value shift. Value shares were up 11.7%. Growth shares lost 4%. (As measured by the MSCI Australia Value and MSCI Australia Growth indices for the March quarter). Source: Perpetual

Economic update and market overview

27 May 2022 11:03:00 GMT

Introduction Inflationary forces continued to intensify in key regions, which suggested interest rates could be raised more quickly and more aggressively than previously anticipated. Government bond yields continued to rise sharply, resulting in negative returns from fixed income markets. The likelihood of rising borrowing costs also appeared to spook equity markets, which performed poorly over the month. Central banks are essentially being forced to tighten policy settings to combat rampant inflation, but risk an economic slowdown or recession if borrowing costs are raised too substantially. Corporate earnings growth could slow in this environment. Further Covid lockdowns in China also hampered sentiment towards risk assets, and could add to inflationary pressures. Various shutdowns and the likelihood of supply-chain interruptions seem likely to push prices higher. The threat of energy and food shortages owing to the ongoing conflict in Ukraine caused further unease among investors. Australia: Trimmed mean inflation – the Reserve Bank of Australia’s preferred underlying measure of price increases – rose 1.4% in the March quarter; almost double the official forecast from as recently as February. On an annual basis, inflation has quickened to 3.7%; up from 2.5% in the December quarter and well above the Reserve Bank of Australia’s 2% to 3% target range. New Zealand: The Reserve Bank of New Zealand raised official cash rates by a further 0.50 percentage points, to 1.50%. The move seemed understandable given the extent of inflationary pressures, but does risk dampening house prices and, in turn, consumer sentiment. That said, the overall economic outlook brightened somewhat due to the imminent reopening of the country for tourists. From May, overseas visitors will be able to visit New Zealand for the first time in more than two years – good news for the country’s tourism-related businesses. This development should be a welcome boost for the economy, which appears to have lost momentum recently. US: Following the increase in interest rates in March, all eyes were on the next Federal Reserve Board meeting in early May to see whether borrowing costs will be raised again and, if so, by how much. Consensus forecasts suggest US interest rates will be raised by 0.50 percentage points as policymakers continue to grapple with spiralling inflation. CPI has soared to an annual rate of 8.5%. There was a surprise drop in GDP in Q1. Growth was -1.4% in the period, compared to expectations for a 1.0% increase. More encouragingly, unemployment in the US fell to 3.6% in March, only a whisker above the pre-pandemic level of 3.5%. Wage growth has picked up too, partly due to labour shortages in some sectors. Nationally, average hourly earnings are up 5.6% over the past year; double the average rate over the past 15 years. Europe: Until recently the European Central Bank was not expected to amend monetary policy settings this year. Persistently high inflation, however, and the prospect of intensifying pricing pressures owing to the war in Ukraine has prompted investors to revise these forecasts. With Eurozone inflation running at an annual rate of 7.5%, observers are now anticipating as many as four interest rate hikes in the remainder of 2022. The first could occur in May, following the European Central Bank’s next meeting. The conflict in Ukraine is affecting economic prospects for the broader region. Rising fuel costs and risks of energy shortages have dampened consumer confidence in both France and Germany, for example. The inflation situation in the UK is being exacerbated by rising taxes. In real terms, wages could fall by as much as 4% this year; one of the worst outcomes since World War II. This prospect is dampening consumer confidence and clouding the outlook for discretionary spending. Asia With virus cases increasing sharply, tough new Covid restrictions were implemented in several cities. This could have implications for global growth, given the associated impact on supply chains. Economic activity levels in China in the March quarter were quite resilient and supported a better-than-expected growth outcome. The latest wave of infections has clouded the outlook for GDP growth, however, and prompted authorities to suggest stimulus will be ramped up to help support activity levels and investor sentiment. Separately, data confirmed that energy demand has fallen sharply in China. Oil consumption is down the most since the initial Covid shock two years ago, owing to the latest shutdowns. In Japan, the yen deteriorated to its lowest level against the US dollar for around 20 years. Australian dollar The Australian dollar struggled in April, declining in value by 5.4% against the US dollar. By month end, the ‘Aussie’ bought just over 70 US cents. Commodity prices edged higher, providing some support, but concerns over the global growth outlook hampered the currency. As well as weakening against the US dollar, the Australian dollar lost ground against a trade-weighted basket of other international currencies. Australian equities Australian equities were quite volatile during April and lost ground in the month as a whole. The S&P/ASX 200 Accumulation Index closed 0.9% lower. Investors contemplated the potential implications of a longer conflict in Ukraine, China’s zero Covid policy and associated lockdowns, as well as the release of higher-than-expected local inflation data. March’s recovery in the IT sector unwound in April, with the sector falling 10.4%. Stocks in the Materials sector (-4.3%) struggled as the impact of Shanghai’s city-wide lockdown and new restrictions in Beijing cast doubt on Chinese demand for metals including iron ore – a key input in the manufacture of steel. Utilities (+9.3%) continued to benefit from elevated energy prices. Similar to their large cap counterparts, the Information Technology sector was the biggest detractor from the S&P/ASX Small Ordinaries Index. Listed property Like broader equity markets, global property securities struggled in April. The FTSE EPRA/NAREIT Developed Index declined by 0.1% in Australian dollar terms, although this outcome was assisted by currency moves. In local currency terms, the Index declined by more than 5%. The best performing regions included Switzerland (+2.0%), Hong Kong (+1.0%), Singapore (+0.9%) and Australia (+0.6%). Laggards included Sweden (-15.8%), Germany (-9.5%) and Canada (-5.0%). Global equities Share markets performed poorly in April, as investor sentiment soured. The MSCI World Index declined 6.9%, extending falls in the calendar year to date to more than 11%. Weakness in the US set the tone. The bellwether S&P 500 Index closed the month down 8.7%, with weakness extending across most areas of the market. This was the worst monthly performance since March 2020, following the initial Covid shock. The tech-heavy NASDAQ performed even worse, falling 13.3%; its worst monthly return since 2008 in the midst of the Global Financial Crisis. All major markets in Asia lost ground. The Japanese Nikkei, Hong Kong’s Hang Seng and China’s CSI 300 all declined between 3% and 5%, for example. European stocks were the best performers, despite ongoing economic concerns in the region owing to the Ukraine conflict. Selected markets – including the UK and Spain – actually closed the month in the black, although collectively the region’s equity markets declined by around 2.5%. Global and Australian Fixed Income Government bond yields continued to rise in major regions, resulting in another month of negative returns from global fixed income markets. US Treasury yields rose particularly strongly, after Federal Reserve policymakers reaffirmed that taming inflation is “absolutely essential”. Yields on 10-year securities rose by 60 bps over the month, to 2.94%. Government bond yields rose in Germany and the UK too – by 39 bps and 30 bps, respectively – as investors priced in the likelihood of higher official interest rates in the region. 10-year Australian Commonwealth Government Bond yields closed the month 29 bps higher, at 3.13%; the first time they have traded above the 3% threshold since the middle of 2015. Global credit The same themes that affected share markets hampered credit too. Central bank policy was front and centre of attention, particularly as higher interest rates will increase the cost of debt for companies when they refinance existing bonds or look to raise fresh capital. The Covid-related lockdowns in China also dampened enthusiasm for credit, given anticipation of supply chain disruptions and the potential for earnings impairment in some industry sectors. Source: Colonial First State

Essential Record-Keeping At Year-End For Your Business

27 May 2022 11:00:00 GMT

It may seem like the importance of record-keeping is overly stressed by us, but it’s a critical part of the wrap-up of the year-end. Good record-keeping makes it easier to meet your tax obligations, manage your cash flow and make sound business decisions going forward. Put the hard work in at the end of the financial year to get your business organised and allow you to work smarter in the year ahead. Essential business records that must be kept include: Expense Or Purchase Records You must keep records of all business expenses, such as receipts, tax invoices, cheque book receipts, credit card vouchers and diaries to record small cash expenses. Year-end Records These records include lists of creditors or debtors and worksheets to calculate depreciating assets, stocktake sheets and capital gains tax records. Income & Sales Records You must keep records of all income and sale transactions such as tax invoices, receipt books, cash register tapes and records of cash sales. Bank Records Documents such as bank statements, loan documents and bank deposit books need to be kept in preparation for your tax return. Fuel Tax Credits To claim fuel tax credits for your business, records must show that you acquired the fuel, used it in your business, and applied the correct rate when calculating how much you are eligible to claim. Payments To Employees & Contractors Records of your workers need to be kept, including tax file numbers, withholding declaration forms, contributions to their superannuation, wages and any other payments made to them. By law, business records must be kept for a minimum period of five years for sole traders and individuals and seven years for companies’ and payroll transactions after the record is created, updated, the transaction is completed or the return in which they were included was lodged, whichever is the latter. Records can be kept electronically or on paper, must be in English or in a form that can be easily converted, and thoroughly explain all transactions. Failure to keep the correct tax records can incur penalties from the ATO. By maintaining consistent records throughout the year of your major and minor expenses, you will be in a better position to face the end of the financial year. Take the stress and hassle out of this tedious process by coming to us (your registered tax agent) with all of the information that is needed for your tax returns to be completed. The information contained in this publication is for general information purposes only, professional advice should be obtained before acting on any information contained herein. The receiver of this document accepts that this publication may only be distributed for the purposes previously stipulated and agreed upon at subscription. Neither the publishers nor the distributors can accept any responsibility for loss occasioned to any person as a result of action taken or refrained from in consequence of the contents of this publication.

The In's and Out's of PAYG

23 May 2022 10:58:00 GMT

We have many clients asking us, what is PAYG, why do I need to pay the ATO upfront and how does it affect a business? There’s no need to struggle to understand this system anymore, let’s break it down! So simply put, ‘PAYG’ is short for ‘Pay As You Go’. The PAYG payment instalment system allows you and your business to meet your income tax obligations by making smaller quarterly payments to the ATO during the financial year which go towards an expected tax bill on business and investment income… no one wants to be hit with a massive tax bill at the end of the year, right! How it’s calculated Your total tax liability is calculated at the end of the financial year when the annual income tax return is assessed. The PAYG instalments which you pay throughout the year are credited against the assessment total to determine whether you are required to pay additional tax, or if you have a refund owed to you. Those who have to pay PAYG instalments will be contacted by the ATO, who advise what your instalment rate will be. This is determined according to data in the last assessed income tax return. The ATO will ask a taxpayer to enter the PAYG payment system when their business or investment income exceeds a certain threshold – see below. The PAYG instalments may be included as part of your activity statement, or the ATO may issue a separate instalment notice. The general method used to calculate the instalment is the instalment rate multiplied by business and investment revenue for the instalment period. The key benefit of using this method is that instalments are based on income as you receive it, rather than an estimate based on the previous tax situation. Certain entities, as well as all individuals, can choose to pay the instalment amount calculated by ATO which has been based on the latest income tax assessment including an uplift estimate. You need to make your decision on the method you choose to go with prior to the due date for the first instalment for each financial year, and then it will apply for the rest of that year. You may vary your instalment if you believe the instalment rate, or the instalment which was calculated by the ATO, could potentially result in you paying more or less than the expected tax liability for the year. Individuals If you are an individual (including a sole trader) or trust, you will automatically enter the PAYG instalments system if you have all of the following: business or investment income from your latest tax return of $4,000 or more, and tax payable on your latest notice of assessment of $1,000 or more. PAYG instalments for individuals are typically paid each quarter. If business and investment income has less than $8,000 owing on an individual’s most recent annual tax liability and certain other conditions are met, an annual instalment can be set up for payment. If an individual is a primary producer or has a specialised profession, such as sportsperson, artist, inventor or author, a special two instalment option may be available. Partnerships and Trusts Usually, partnerships and trusts don’t need to pay PAYG instalments. However, special rules apply to partners and beneficiaries when calculating their own PAYG instalments. Companies Corporate tax entities with annual turnover above $2m or with an estimated tax liability of over $500 are required to pay PAYG instalments. This is most commonly quarterly together with the BAS however; it could be monthly if certain criteria are met. Companies may choose to pay an annual instalment if they meet the criteria that apply to individuals noted above, plus some additional conditions. Superannuation Funds Superannuation funds generally pay their PAYG instalments quarterly. Superannuation funds can choose to pay an annual instalment if they meet the same conditions that apply to individuals noted above. If you would like to discuss any of the above information with our team, please don’t hesitate to contact our office on: (03) 8393 1000.

What's changing on 1 July 2022?

20 May 2022 10:55:00 GMT

A series of reforms and changes will commence on 1 July 2022. Here’s what is coming up: For business Superannuation guarantee increase to 10.5% The Superannuation Guarantee (SG) rate will rise from 10% to 10.5% on 1 July 2022 and will continue to increase by 0.5% each year until it reaches 12% on 1 July 2025. If you have employees, what this will mean depends on your employment agreements. If the employment agreement states the employee is paid on a ‘total remuneration’ basis (base plus SG and any other allowances), then their take home pay might be reduced by 0.5%. That is, a greater percentage of their total remuneration will be directed to their superannuation fund. For employees paid a rate plus superannuation, then their take home pay will remain the same and the 0.5% increase will be added to their SG payments. $450 super guarantee threshold removed From 1 July 2022, the $450 threshold test will be removed and all employees aged 18 or over will need to be paid superannuation guarantee regardless of how much they earn. It is important to ensure that your payroll system accommodates this change so you do not inadvertently underpay superannuation. For employees under the age of 18, super guarantee is only paid if the employee works more than 30 hours per week. Profits of professional services firms The ATO has been concerned for some time about how many professional services firms are structured – specifically, professional practices such as lawyers, accountants, architects, medical practices, engineers, architects etc., operating through trusts, companies and partnerships of discretionary trusts and how the profits from these practices are being taxed. New ATO guidance that comes into effect from 1 July 2022, takes a strong stance on structures designed to divert income in a way that results in principal practitioners receiving relatively small amounts of income personally for their work and reducing their taxable income. Where these structures appear to be in place to divert income to create a tax benefit for the professional, Part IVA may apply. Part IVA is an integrity rule which allows the Tax Commissioner to remove any tax benefit received by a taxpayer where they entered into an arrangement in a contrived manner in order to obtain a tax benefit. Significant penalties can also apply when Part IVA is triggered. A new method of assessing the level of risk associated with profits generated by a professional services firm and how they flow through to individual practitioners and their related parties, will come into effect from 1 July 2022. Professional firms will need to assess their structures to understand their risk rating, and if necessary, either make changes to reduce their risks level or ensure appropriate documentation is in place to justify their position. Lowering tax instalments for small business – PAYG PAYG instalments are regular prepayments made during the year of the tax on business and investment income. The actual amount owing is then reconciled at the end of the income year when the tax return is lodged. Normally, GST and PAYG instalment amounts are adjusted using a GDP adjustment or uplift. For the 2022-23 income year, the Government has set this uplift factor at 2% instead of the 10% that would have applied. The 2% uplift rate will apply to small to medium enterprises eligible to use the relevant instalment methods for instalments for the 2022-23 income year: Up to $10 million annual aggregated turnover for GST instalments, and $50 million annual aggregated turnover for PAYG instalments The effect of the change is that small businesses using this PAYG instalment method will have more cash during the year to utilise. However, the actual amount of tax owing on the tax return will not change, just the amount you need to contribute during the year. Trust distributions to companies The ATO recently released a draft tax determination dealing specifically with unpaid distributions owed by trusts to corporate beneficiaries. If the amount owed by the trust is deemed to be a loan then it can potentially fall within the scope of the integrity provisions in Division 7A. If certain steps are not taken, such as placing the unpaid amount under a complying loan agreement, these amounts can be treated as deemed unfranked dividends for tax purposes and taxable at the taxpayer’s marginal tax rate. The ATO guidance deals specifically with, and potentially changes, when an unpaid entitlement to trust income will start being treated as a loan depending on the wording of the resolution to pay a distribution. The new guidance applies to trust entitlements arising on or after 1 July 2022. For you Home loan guarantee scheme extended The Home Guarantee Scheme guarantees part of an eligible buyer’s home loan, enabling people to buy a home with a smaller deposit and without the need for lenders mortgage insurance. An additional 25,000 guarantees will be available for eligible first home owners (35,000 per year), and 2,500 additional single parent family home guarantees (5,000 per year). Your superannuation Work-test repeal – enabling those under 75 to contribute to super Currently, a work test applies to superannuation contributions made by people aged 67 or over. In general, the work test requires that you are gainfully employed for at least 40 hours over a 30 day period in the financial year. From 1 July 2022, the work-test has been scrapped and individuals aged younger than 75 years will be able to make or receive non-concessional (including under the bring-forward rule) or salary sacrifice superannuation contributions without meeting the work test, subject to existing contribution caps. The work test will still apply to personal deductible contributions. This change will also see those aged under 75 be able to access the ‘bring forward rule’ if your total superannuation balance allows. The bring forward rule enables you to contribute up to three years’ worth of non-concessional contributions to your super in one year. Downsizer contributions from age 60 From 1 July 2022, eligible individuals aged 60 years or older can choose to make a ‘downsizer contribution’ into their superannuation of up to $300,000 per person ($600,000 per couple) from the proceeds of selling their home. Currently, you need to be 65 years or older to utilise downsizer contributions. Downsizer contributions can be made from the sale of your principal residence that you have owned for the past ten or more years. These contributions are excluded from the age test, work test and your total superannuation balance (but not exempt from your transfer balance cap). First home saver scheme – using super to save for a first home The First Home Super Saver Scheme enables first home buyers to withdraw voluntary contributions they have made to superannuation and any associated earnings, to put toward the cost of a first home. At present, the maximum amount of voluntary contributions you can make and withdraw is $30,000. From 1 July 2022, the maximum amount will increase to $50,000. The benefit of this scheme is the concessional tax treatment of superannuation. If you’d like to discuss any of the above with our team, please don’t hesitate to contact our office on: (03) 8393 1000.

The 120% deduction for skills training and technology costs

18 May 2022 10:53:00 GMT

It’s a great headline isn’t it? Spend $100 and get a $120 tax deduction. Days after the Federal Budget announcement that businesses will be able to claim a 120% deduction for expenditure on training and technology costs, we started receiving marketing emails encouraging us to spend now to access the deduction. But, there are a few problems. Firstly, the announcement is just that, it is not yet law. And, given the Government is in caretaker mode for the Federal election, we do not know the position of the incoming Government on this measure. And, even if the incoming Government is supportive, we are yet to see draft legislation or detail to determine the practical application of the measure. What was announced? The 2022-23 Federal Budget announced two ‘Investment Boosts’ available to small businesses with an aggregated annual turnover of less than $50 million. The Skills and Training Boost is intended to apply to expenditure from Budget night, 29 March 2022 until 30 June 2024. The business, however, will not be able to claim the deduction until the 2023 tax return. That is, for expenditure between 29 March 2022 and 30 June 2022, the boost, the additional 20%, will not be claimable until the 2022-23 tax return, assuming the announced start dates are maintained if and when the legislation passes Parliament. The Technology Investment Boost is intended to apply to expenditure from Budget night, 29 March 2022 until 30 June 2023. As with the Skills and Training Boost, the additional 20% deduction for eligible expenditure incurred by 30 June 2022 will be claimed in the 2023 tax return. The boost for eligible expenditure incurred on or after 1 July 2022 will be included in the income year in which the expenditure is incurred. Technology Investment Boost A 120% tax deduction for expenditure incurred by small businesses on business expenses and depreciating assets that support their digital adoption, such as portable payment devices, cyber security systems, or subscriptions to cloud-based services, capped at $100,000 per annum. We have received a lot of questions about the specific expenditure the boost might apply to, for example does it cover website development or SEO services? But until we see the legislation, nothing is certain. Skills and Training Boost A 120% tax deduction for expenditure incurred by small businesses on external training courses provided to employees. External training courses will need to be provided to employees in Australia or online, and delivered by entities registered in Australia. Some exclusions will apply, such as for in-house or on-the-job training and expenditure on external training courses for persons other than employees. We are waiting on further details of this initiative to be released to confirm whether there will need to be a nexus between the training program and the current employment activities of the employees undertaking the course. So once again, until we have something more than the announcement, we cannot confirm how the measure will apply in practice or how broad (or otherwise) the definition of skills training is. What happens if I have already spent money on training and technology in anticipation of the bolstered deduction? If the measure becomes law, and the start date of the measure remains the same, we expect that any qualifying expenditure incurred in the 2021-22 financial year will be claimed in your tax return. But, the ‘boost’, the extra 20% will not be claimable until the 2022-23 financial year. If the measure does not come to fruition, you should be able to claim a deduction under normal rules for the actual business expense.

Superannuation Strategies To Employ Before The EOFY

16 May 2022 10:52:00 GMT

With the end of the financial year growing closer, now is the time to be thinking about the ways that you could be growing your superannuation. With superannuation being the key to a comfortable retirement, here are some of the strategies to consider that could help with streamlining your finances (while also taking into account some considerable tax breaks). Concessional Contributions Also known as the before-tax contributions, these are the funds that go into your super account from your income before tax. These can include Employer contributions Salary sacrifice payments Personal contributions (which can be claimed as a tax deduction). The concessional contributions cap is $27,500 for all ages for the 2021-22 financial year. Your cap may be higher if you did not use the full amount of your cap in previous years. This is called the carry-forward of unused concessional contributions. Bear in mind that if your combined income and concessional contributions are more than $250,000 in total, you may have to pay extra tax. This is something to consider if you are looking to make personal contributions for the sake of the tax deduction. Non-Concessional Contributions Before-tax contributions are not the only way to top up your super account. Non-concessional contributions are made into your super fund from after-tax income. They include contributions made by you or your employer on your behalf from after-tax income, contributions made by your spouse to your super fund, or personal contributions not claimed as an income tax deduction. For the 2021-22 financial year, the non-concessional contributions cap is being increased to $110,000. If you contribute more than this, you may have to pay extra tax on this. Your own cap may be different from others though, as it could be: Higher, if you are able to use the bring-forward arrangements Nil, if your total super balance is greater than or equal to the general transfer balance cap ($1.7 million from 2021-22) Changes Coming Into Effect 1 July 2022 Though the recent Budget announcements for superannuation only covered the reduction to the minimum annual drawdown amounts for superannuation pensions and annuities, that doesn’t mean that there aren’t other changes still to come into effect from last year’s announcements. Be mindful of the following when planning your superannuation strategies for next year: Bring-forward non-concessional cap extended to anybody under 75 (subject to Total Superannuation Balance) Work test requirements were abolished for 67-74-year-olds in respect of making or receiving personal and salary sacrificed contributions. The SG rate is set to increase to 10.5% (up from the current 10%), as applicable to an employee’s (and some contractors’) ordinary time earnings. $450 per month income threshold abolished for SG contributions – those earning below this amount may now be eligible for the superannuation guarantee. Reduction to age 60 (down from 65) for the home downsizer contribution scheme Increase to voluntary contribution release amounts under the first home super saver scheme from $30,000 to $50,000 If you have any questions regarding any of the above information, please don’t hesitate to contact our office: (03) 8393 1000. The information contained in this publication is for general information purposes only, professional advice should be obtained before acting on any information contained herein. The receiver of this document accepts that this publication may only be distributed for the purposes previously stipulated and agreed upon at subscription. Neither the publishers nor the distributors can accept any responsibility for loss occasioned to any person as a result of action taken or refrained from in consequence of the contents of this publication.

Why Is End Of Year Planning So Important?

10 May 2022 10:47:00 GMT

Benjamin Franklin once famously said, “if you fail to plan, you are planning to fail”. He may not have been referring specifically to businesses but it is an apt statement for individuals and businesses alike. We all need to plan where we are going. It could be as simple as planning a holiday or it could be to do with the next ten years of our business. Business planning is a key element to success. Businesses with a formal business plan perform far better than those that don’t, and with good reason. If you know where you want to get to, there is far more chance of getting there with a plan. For the most simple of plans for a business, why not prepare a budget for 2023? Each month thereafter you can compare your actual performance to that of the budget. You will probably find that by preparing the budget you will find areas where you can save expenses. You will also know on a monthly basis how you are travelling, and be able to adapt as needed. You could also consider a full planning session with your team leading up to the end of the financial year. Bring the team together, find a facilitator and brainstorm all of the ideas that you could use to grow your business. Your team will be more engaged when they have input into what your growth activities will be. Don’t forget the business formula – that your total revenue is your number of customers times the number of sales per customer by the average value per sale. A 10% increase in each could drive your growth by more than 30%. If you would like to explore your options for planning next year, give us a call. There is plenty that we can tackle together for your business. The information contained in this publication is for general information purposes only, professional advice should be obtained before acting on any information contained herein. The receiver of this document accepts that this publication may only be distributed for the purposes previously stipulated and agreed upon at subscription. Neither the publishers nor the distributors can accept any responsibility for loss occasioned to any person as a result of action taken or refrained from in consequence of the contents of this publication.

Preparing For Your Rental Property's Tax Deductions

09 May 2022 10:44:00 GMT

Property is a solid investment opportunity for those looking to increase their financial security. If you are a landlord, you may be looking for ways to reduce your tax liability this year. This may assist you in turning your property’s cash flow from a negative into a positive. However, there are limitations to many of the tax deductions that may be available to you, which you need to be aware of. It is important to note that you can only claim deductions on your property during the periods in which it was tenanted or genuinely available for rent. You will also only be able to claim the portion of an expense that was used for income-generating purposes and must keep records to prove these expenses. With that in mind, here is a list of the main tax deductions that landlords should consider when tackling their income tax returns: Maintenance & Repairs One of the key deductions that landlords often come into strife with the ATO is to do with maintenance and repairs conducted to the property. Repairs can be claimed as an immediate deduction if they relate directly to wear and tear (e.g replacing broken tiles after a storm with professional help). You will need to also understand the difference between renovations and repairs. This is because there are different tax treatments to renovations and repairs, and getting the two confused can be costly. If you were to replace an appliance, you would need to claim the cost as a depreciation deduction over the course of an asset’s lifespan. Or, if you were to make an upgrade (such as replacing an old fence) to increase the value of the property, you will need to claim these costs as a capital works deduction at 2.5% a year for 40 years. If your rental property was affected by recent flooding events across NSW and Queensland, you may be able to claim the repairs required to make the property habitable again as a tax deduction. This should be discussed with your accountant, however, as it may be difficult to determine the extent of these deductions. Rental Advertising Costs It’s a common saying: you have to spend money to make money. So if you have spent money on marketing your property using online or print media, brochures and signs, you can claim these advertising expenses against your income in the same year that you paid for them. Loan Interest You can claim the interest charged on a loan for an investment property and any bank fees for servicing the loan. You cannot however claim your repayments on the principal sum of the loan, nor claim interest on the entire size of the loan if you refinanced a portion of the loan for private purposes (regardless of whether equity in an investment property was used as security in that loan). Remember that it is the interest on a loan used to buy your investment property, it doesn’t matter what security you have used. Conversely, borrowing against your investment property to pay for a holiday does not generate tax-deductible interest. Council Rates & Strata Fees Council rates can be deducted in the year that they are paid, but, as with all other expenses, can only be claimed for the periods in which the house was being rented out. If your property is on a strata title (such as an apartment block or eligible townhouses), you can claim the cost of body corporate fees. Building Depreciation Depending on when your investment property was built, you may be able to claim a deduction on the depreciation of the building’s structure and any renovations you make to the property. Pest Control As the landlord you can claim an immediate deduction for the hire of a pest control professional. Insurance You can claim the cost of insuring a rental property. This may be especially important to note for those who have flood-affected properties, or whose has increased in cost as a result of the property location. The information contained in this publication is for general information purposes only, professional advice should be obtained before acting on any information contained herein. The receiver of this document accepts that this publication may only be distributed for the purposes previously stipulated and agreed upon at subscription. Neither the publishers nor the distributors can accept any responsibility for loss occasioned to any person as a result of action taken or refrained from in consequence of the contents of this publication.

2022 End Of Financial Year Checklist

06 May 2022 10:43:00 GMT

Maximise your tax deductions for the 2021-22 financial year by conducting a thorough review of your records. But to do that, you need to know where to start. Here are some of our top tips for businesses and individuals when it comes to year-end tax planning. For Businesses Temporary Full-Expensing Any asset purchased between 7.30pm AEDT 6 October 2020 to 30 June 2022 may be written off by a small business under the instant asset write-off. This even applies second-hand assets (where your turnover is under $50 million). Purchasing later in the tax year (June) as opposed to early in the new year (July) can give you a benefit far sooner in the tax savings that are made on that purchase. Bad Debts Bad debts incur a significant cost to all businesses that sell on credit. There is no sense in paying tax and GST on sales where payment will not be received, which is why reviewing if your business has any bad debts attached to it before the end of the year is important. Claiming a tax deduction for bad debts is surrounded by complicated rules, so it may be best to speak with a professional (like us) for further information and assistance. Small Business CGT Concessions Individuals operating a small business may be eligible for capital gains tax (CGT) concessions on the sale of business assets. The small business CGT concessions are available to business taxpayers with an aggregated turnover of less than $2 million or on business assets less than $6 million. Review your potential concessions for this financial year to receive the benefits of tax relief or contribute to your retirement savings through the sale of a business. Careful planning around the Small Business Concessions could potentially save hundreds of thousands of dollars in tax on the eventual sale of your business. Stocktake The year-end stocktake should involve a review of all trading stock and a decision made about its value from both a tax and commercial perspective. Obsolete, slow-moving or damaged stock should be identified by 30 June and disposed of for income purposes in order to receive a deduction. Pay Quarterly Super In order to qualify for a tax deduction for the 2021-22 financial year, Super Guarantee contributions must be paid by 30 June 2022. Some clearing houses can take more than a week to submit the payment to the super fund, but the fund must receive the contribution before the deadline. To keep on top, the best practice may be to pay before 20 June (to allow the extra time for the clearing houses to process the payment. For Individuals Work From Home Deductions If you’ve been working from home during lockdowns or as a result of the pandemic’s effects, the ‘shortcut method’ is available to claim running expenses at the rate of 80c per hour worked. You will not be able to claim using other methods though, and will not be able to claim on asset depreciation. LMITO Offset If you’re within the Low & Middle-Income Tax Brackets for the offsets, you may be eligible for additional tax relief on your income tax return. We can assist you in checking if you will be able to claim this or not. Depositing Contributions Any contributions that have been recorded for your SMSF need to be deposited into the fund’s bank account by no later than 30 June. This is especially important where members have reported concessional or non-concessional contributions on their tax returns. But remember that you can;t claim the tax deduction until you have lodged your notice of intent to claim a tax deduction and have received an acknowledgement back from the fund. No early lodgements if you have made a contribution to super. We Are Here To Help This guide is merely meant to provide you with a starting point for identifying the areas that might have a significant impact on your personal and business planning. We’re always glad to consult with you on such matters and advise in any way that we can. The information contained in this publication is for general information purposes only, professional advice should be obtained before acting on any information contained herein. The receiver of this document accepts that this publication may only be distributed for the purposes previously stipulated and agreed upon at subscription. Neither the publishers nor the distributors can accept any responsibility for loss occasioned to any person as a result of action taken or refrained from in consequence of the contents of this publication.

Last Chance To Apply As COVID-19 Tax Deduction Deadlines Approach

05 May 2022 10:36:00 GMT

Tax deductions introduced by the Australian Taxation Office to lessen the impact of COVID-19 are approaching the end of their eligible timeframe. To ensure that you or your business do not miss out, here are some of the deductions you could claim at the end of this financial year (if eligible). Loss-Carry Back Rules Eligible businesses with an aggregated turnover of less than $5 billion or corporate tax entities that meet an alternative $5 billion total income test are able to use the temporary full-expensing measure again this year. This will allow them to deduct the full cost of eligible depreciating assets acquired from 6 October 2020 and first used or installed ready for use by 30 June 2023. The original deadline of 30 June 2022 was extended for an additional year, so make sure to make use of this in your business! Shortcut Method If you have had to work from home over the last year between 1 July 2021 to 30 June 2022, you can claim a deduction for working from home. This is to address expenses that you may have had to make in order to work from home, such as paying for electricity or equipment to work from home. These expenses cannot have been paid by your employer, you need to have paid for them yourself. You can claim $0.80 for every hour that you worked from home, but you are not able to claim for anything else if using this method. To claim this, you need to: keep a record of how many hours you worked from home work out your deduction amount write the deduction amount in your tax return in the ‘Other work-related expenses’ section write ‘COVID-19 hourly tax rate’ in your tax return. If you are consulting with a registered tax agent for your return, they may recommend this as your best course of action. The information contained in this publication is for general information purposes only, professional advice should be obtained before acting on any information contained herein. The receiver of this document accepts that this publication may only be distributed for the purposes previously stipulated and agreed upon at subscription. Neither the publishers nor the distributors can accept any responsibility for loss occasioned to any person as a result of action taken or refrained from in consequence of the contents of this publication.

It's 2022 fringe benefits tax time

27 Apr 2022 03:58:00 GMT

It’s 2022 fringe benefits tax (FBT) time! Below are some things that you need to be aware of to help you lodge: If you had provided your employees with additional benefits at any stage during the FBT year in response to COVID-19, for example paying for items that allowed them to work from home, you need to be aware that FBT may apply. Did you give your employees access to a work car for private use? If so, you may be providing a car fringe benefit. If you are unsure, there are resources available on the ATO website to help you determine if this is the case – including a car fringe benefit video series and webinar. Perhaps you reimbursed your employees’ for their expenses during the FBT year. Well the ATO also have a webinar available to help you figure out if you are providing an expense payment fringe benefit. You should consider the exemptions and concessions that you may be eligible for as these may help to reduce the amount of FBT you pay. If you have any queries on FBT, please do not hesitate to contact our office on: (03) 8393 1000.

Are your donation claims tax-deductible?

26 Apr 2022 00:33:00 GMT

The ATO have advised to check your paperwork before claiming deductible contributions. Accountants and taxpayers have been advised by the ATO that they must ensure that charitable donations meet the correct criteria if they need to claim a tax deduction. After the recent floods and other natural disasters, they are aware that Australian’s are very charitable, so they are expecting to see a lot of donations and deductions in tax returns this year. Guidance from the ATO is that, before you rush to claim a donation in this year’s tax return, it is vital to recognise what makes a donation tax deductible. Your donation must be made to a deductible gift recipient (DGR). Not all charities and not-for-profits are DGRs, only organisations or funds recognised as DGRs are permitted to receive tax-deductible gifts or donations. The ATO decides which organisations are accepted as DGRs, or in some cases recorded by name in the tax law. Most crowdfunding campaigns which raise money for charitable causes are not run by DGRs. Crowdfunding campaigns have become popular recently, but they are not always run by a DGR, therefore it’s important to verify if your charitable donation or gift will be deductible at tax time. If you would like to check if an organisation is recognised as a DGR, you can find this information via the ABN Lookup on business.gov.au. In return for your donation, you may only accept items which would be deemed as promotional advertising for the DGR such as badges, pens, or wristbands. If you receive an item in return for your donation, such as making a gold coin donation for a sausage sizzle or buying second-hand goods from an Op Shop, this is not deemed a tax-deductible gift. It is important to keep a record of your donation because while most DGRs would issue receipts, they are not required to. The ATO allows third-party receipts as evidence only if the receipt identifies the DGR and clearly states that the amount is a donation, and small amounts were eligible without a receipt up to a total of $10. If you have donated $2 or more to bucket collections organised by a DGR for natural disasters, you may only claim a tax deduction up to $10 for the total sum of those donations without a receipt. The ATO want to make it simpler for you to support the charity of your choice. You can use the myDeductions tool in the ATO app to store photos of donation receipts throughout the year. Then you simply send them through to your registered tax agent. The ATO may ask a taxpayer to present evidence to support their claim or revise their tax return to remove the claim. A large number of tax returns submitted by individuals in the previous financial year needed to be adjusted by the ATO for charitable claims because the taxpayer incorrectly claimed the donation. So, if you are claiming a donation this tax time, make sure it’s tax deductible, you didn’t receive anything of personal use in return, and you have a record of the donation. If you are unsure, it is best to seek the advice of an accountant. For the individuals who have had their tax records damaged or lost in the recent floods, the ATO are able to assist you to recreate them so you can be prepared this tax time. Detailed information about donations to assist disaster victims is located on the ATO website: https://www.ato.gov.au/general/support-in-difficult-times/natural-disaster-support/recovery-following-natural-disasters/donations-and-fundraising-to-help-disaster-victims/ General information about claiming tax deductions for donations is also available on the ATO website: https://www.ato.gov.au/Individuals/Income-and-deductions/Deductions-you-can-claim/Other-deductions/Gifts-and-donations/ Should you have any queries about contributions which you have made to charitable organisations this financial year, please do not hesitate to contact that tax champions on: (03) 8393 1000.

Top 10 Tips for Property Investors

25 Apr 2022 00:36:00 GMT

Are you looking at buying an investment property? There’s no one-size-fits-all method to property investing, it requires an individualistic approach. You need to recognise and focus on your own specific goals, needs and situations to succeed. Below is a list of basic guidelines which when applied, can make your journey more successful and assist in reaching your investment objectives. 1. Consider your long term investment goals before you buy your first property. It is important to make sure you have a plan in place as to what you want to do with the property. Do you want to redevelop it, how many properties do you want, can you afford it…what is your ultimate goal? 2. Use an experienced mortgage broker to ensure you have the right loan structure. Factor in interest rate rises when determining affordability. A good mortgage broker will ensure that your loans are set up to ensure maximum tax benefits as well as planning for your future. 3. Consider a Quantity Surveyors Report. If the property is new this will definitely be worthwhile (and the cost is tax deductible), if the property is second-hand this will depend on the age of the building. 4. Do your research! Find out about the history of the suburb and it’s prices. Research the suburb and surrounding areas, including the house prices and rental prices. Are there any schools, shops or public transport? Check with the local council to find out such things as future planned infrastructure, re-zoning, flood prone areas…etc. Remember that this is not for you to live in…it is an investment for your future, so try and keep emotion out of the purchase if you can. 5. Make sure your tax returns are up to date, before you sign a contract. The banks will need your tax return lodgement to be up to date. This includes any entities that you are associated with. Be organised and don’t leave it to the last minute. 6. Be wary of any high-pressure selling techniques or seminars. If investments sound too good to be true, then they typically are. If someone offers to take care of all the purchase, finance, and property management…be very careful and do some independent investigations, such as an independent valuation. 7. Make sure you shop around for a property manager to ensure they are working for you. Fees charged by property managers can vary greatly. Always ask about hidden extras, such as inspection fees and lease preparation fees as not all agents charge these. And don’t be afraid to negotiate the fees and rates. 8. Ensure your insurance is up to date. Do you have a will? If you are going into debt then you should consider whether your life insurance is an appropriate amount, and you have enough income protection so that you and/or your family do not have to have a “fire sale” should anything go wrong in the future. 9. Speak to your accountant before you purchase. Just to make sure there is nothing that you haven’t considered and discuss ownership structures for your personal situation. This is a huge step and one which is intended to create wealth for your future, ensuring you have the correct structure in place for your own personal situation is essential for long term wealth creation and protection. 10. KEEP YOUR RECEIPTS! The more information your accountant has, the better the deductions they will be able to claim for you. It is better they have receipts for items that cannot be claimed rather than if you bought items that could have claimed but didn’t keep the receipts. If you have any queries about any of the above information, please don’t hesitate to contact our team on: (03) 8393 1000.

The ATO Focus On Working From Home Expense Claims | Income Tax Returns

07 Apr 2022 02:35:00 GMT

Pat Mannix talks about Working From Home Expense Claims. What are the ATO rules on this? What home office expenses can I claim on my tax return? What are my options? Pat answers all of these questions in this informative short video.

Are Your Contractors Really Employees?

28 Mar 2022 00:18:00 GMT

Many business owners assume that if they hire independent contractors they will not be responsible for PAYG withholding, superannuation guarantee, payroll tax and workers compensation obligations. However, each set of rules operates a bit differently and in some cases genuine contractors can be treated as if they were employees. Also, correctly classifying the employment relationship can be difficult and there are significant penalties faced by businesses that get it wrong. Two cases handed down by the High Court late last month clarify the way the courts determine whether a worker is an employee or an independent contractor. The High Court confirmed that it is necessary to look at the totality of the relationship and use a ‘multifactorial approach’ in determining whether a worker is an employee. That is, if it walks like a duck and quacks like a duck, it’s probably a duck, even if on paper, you call it a chicken. In CFMMEU v Personnel Contracting and ZG Operations Australia v Jamse, the court placed a significant amount of weight on the terms of the written contract that the parties had entered into. The court took the approach that if the written agreement was not a sham and not in dispute, then the terms of the agreement could be relied on to determine the relationship. However, this does not mean that simply calling a worker an independent contractor in an agreement classifies them as a contractor. In this case, a labour hire contractor was determined to be an employee despite the contract stating he was an independent contractor. In this case, Personnel Contracting offered the labourer a role with the labour hire company. The labourer, a backpacker with some but limited experience on construction sites, signed an Administrative Services Agreement (ASA) which described him as a “self-employed contractor.” The labourer was offered work the next day on a construction site run by a client of Personnel Contracting, performing labouring tasks at the direction of a supervisor employed by the client. The labourer worked on the site for several months before leaving the state. Some months later, he returned and started work at another site of the Personnel Contracting’s same client. The question before the court was whether the labourer was an employee. Overturning a previous decision by the Full Federal Court, the High Court held that despite the contract stating the labourer was an independent contractor, under the terms of the contract, the labourer was required to work as directed by the company and its client. In return, he was entitled to be paid for the work he performed. In effect, the contract with the client was a “contract of service rather than a contract for services”, as such the labourer was an employee. The second case, ZG Operations Australia v Jamse produced a different result. In this case, two truck drivers were employed by ZG Operations for nearly 40 years. In the mid-1980’s, the company insisted that it would no longer employ the drivers, and would continue to use their services only if they purchased their trucks and entered into contracts to carry goods for the company. The respondents agreed to the new arrangement and Mr Jamsek and Mr Whitby each set up a partnership with their wife. Each partnership executed a written contract with the company for the provision of delivery services, purchased trucks from the company, paid the maintenance and operational costs of those trucks, invoiced the company for its delivery services, and was paid by the company for those services. The income from the work was declared as partnership income for tax purposes and split between each individual and their wife. Overturning a previous decision in the Full Federal Court, the High Court held that the drivers were not employees of the company. Consistent with the decision in the Personnel Contracting case, a majority of the court held that where parties have comprehensively committed the terms of their relationship to a written contract (and this is not challenged on the basis that it is a sham or is otherwise ineffective under general law or statute), the characterisation of the relationship must be determined with reference to the rights and obligations of the parties under that contract. After 1985 or 1986, the contracting parties were the partnerships and the company. The contracts between the partnerships and the company involved the provision by the partnerships of both the use of the trucks owned by the partnerships and the services of a driver to drive those trucks. This relationship was not an employment relationship. In this case the fact that the workers owned and maintained significant assets that were used in carrying out the work carried a significant amount of weight. For employers struggling to work out if they have correctly classified their contractors as employees, it will be important to review the agreements to ensure that the “rights and obligations of the parties under that contract” are consistent with an independent contracting arrangement. Merely labelling a worker as an independent contractor is not enough if the rights and obligations under the agreement are not consistent with the label. The High Court stated, “To say that the legal character of a relationship between persons is to be determined by the rights and obligations which are established by the parties' written contract is distinctly not to say that the “label” which the parties may have chosen to describe their relationship is determinative of, or even relevant to, that characterisation.” A genuine independent contractor who is providing personal services will typically be: Autonomous rather than subservient in their decision-making; Financially self-reliant rather than economically dependent upon the business of another; and, Chasing profit (that is a return on risk) rather than simply a payment for the time, skill and effort provided. Every business that employs contractors should have a process in place to ensure the correct classification of employment arrangements and review those arrangements over time. Even when a worker is a genuine independent contractor this doesn’t necessarily mean that the business won’t have at least some employment-like obligations to meet. For example, some contractors are deemed to be employees for superannuation guarantee and payroll tax purposes. Note: The material and contents provided in this publication are informative in nature only. It is not intended to be advice and you should not act specifically on the basis of this information alone. If expert assistance is required, professional advice should be obtained.

Temporary Full Expensing | Small Business Asset Write-Offs

24 Mar 2022 01:18:00 GMT

Let’s talk about Temporary Full Expensing (TFE). What is TFE? What assets can I write-off? What date do you need to apply by? Pat answers all of these questions in this informative short video. https://youtu.be/qor55vVeNIg

Immediate Deductions Extended

21 Mar 2022 01:16:00 GMT

Legislation passed by Parliament last month extends the Temporary Full Expensing rules to cover assets that are first used or installed ready for use by 30 June 2023. Temporary full expensing enables your business to fully expense the cost of: new depreciable assets improvements to existing eligible assets, and second hand assets in the first year of use. Introduced in the 2020-21 Budget and now extended until 30 June 2023, this measure enables an asset’s cost to be fully deductible upfront rather than being claimed over the asset’s life, regardless of the cost of the asset. Legislation passed by Parliament last month extends the rules to cover assets that are first used or installed ready for use by 30 June 2023. Some expenses are excluded including improvements to land or buildings that are not treated as plant or as separate depreciating assets in their own right. Expenditure on these improvements would still normally be claimed at 2.5% or 4% per year. For companies it is important to note that the loss carry back rules have not as yet been extended to 30 June 2023 – we’re still waiting for the relevant legislation to be passed. If a company claims large deductions for depreciating assets in a particular income year and this puts the company into a loss position then the tax loss can generally only be carried forward to future years. However, the loss carry back rules allow some companies to apply current year losses against taxable profits in prior years and claim a refund of the tax that has been paid. At this stage the loss carry back rules are due to expire at the end of the 2022 income year, but we are hopeful that the rules will be extended to cover the 2023 income year as well. Note: The material and contents provided in this publication are informative in nature only. It is not intended to be advice and you should not act specifically on the basis of this information alone. If expert assistance is required, professional advice should be obtained.

What is a Director Identification Number? | Why do I Need a DIN?

15 Mar 2022 01:38:00 GMT

Pat Mannix talks about Director Identification Numbers (DIN). What is a DIN? Why do the directors of Australian companies need one? What date do you need to apply by? Pat answers all of these questions in this informative short video. https://youtu.be/iaYY0WjEOK8

Kids Over 18 in a Family Trust | Distributions

11 Mar 2022 01:28:00 GMT

Pat Mannix talks about the distribution and tax changes that occur within a Family Trust once a child is over 18 years old. Check out this informative short video. https://youtu.be/fYB4Zy2MvQI

The ATO's Attack on Trusts and Trust Distributions

11 Mar 2022 00:35:00 GMT

Late last month, the Australian Taxation Office (ATO) released a package of new guidance material that directly targets how trusts distribute income. Many family groups will pay higher taxes (now and potentially retrospectively) as a result of the ATO’s more aggressive approach. Family trust beneficiaries at risk The tax legislation contains an integrity rule, section 100A, which is aimed at situations where income of a trust is appointed in favour of a beneficiary but the economic benefit of the distribution is provided to another individual or entity. If trust distributions are caught by section 100A, then this generally results in the trustee being taxed at penalty rates rather than the beneficiary being taxed at their own marginal tax rates. The latest guidance suggests that the ATO will be looking to apply section 100A to some arrangements that are commonly used for tax planning purposes by family groups. The result is a much smaller boundary on what is acceptable to the ATO which means that some family trusts are at risk of higher tax liabilities and penalties. ATO redrawing the boundaries of what is acceptable Section 100A has been around since 1979 but to date, has rarely been invoked by the ATO except where there is obvious and deliberate trust stripping at play. However, the ATO’s latest guidance suggests that the ATO is now willing to use section 100A to attack a wider range of scenarios. There are some important exceptions to section 100A, including where income is appointed to minor beneficiaries and where the arrangement is part of an ordinary family or commercial dealing. Much of the ATO’s recent guidance focuses on whether arrangements form part of an ordinary family or commercial dealing. The ATO notes that this exclusion won’t necessarily apply simply because arrangements are commonplace or they involve members of a family group. For example, the ATO suggests that section 100A could apply to some situations where a child gifts money that is attributable to a family trust distribution to their parents. The ATO’s guidance sets out four ‘risk zones’ – referred to as the white, green, blue and red zones. The risk zone for a particular arrangement will determine the ATO’s response: White zone This is aimed at pre-1 July 2014 arrangements. The ATO will not look into these arrangements unless it is part of an ongoing investigation, for arrangements that continue after this date, or where the trust and beneficiaries failed to lodge tax returns by 1 July 2017. Green zone Green zone arrangements are low risk arrangements and are unlikely to be reviewed by the ATO, assuming the arrangement is properly documented. For example, the ATO suggests that when a trust appoints income to an individual but the funds are paid into a joint bank account that the individual holds with their spouse then this would ordinarily be a low-risk scenario. Or, where parents pay for the deposit on an adult child’s mortgage using their trust distribution and this is a one-off arrangement. Blue zone Arrangements in the blue zone might be reviewed by the ATO. The blue zone is basically the default zone and covers arrangements that don’t fall within one of the other risk zones. The blue zone is likely to include scenarios where funds are retained by the trustee, but the arrangement doesn’t fall within the scope of the specific scenarios covered in the green zone. Section 100A does not automatically apply to blue zone arrangements, it just means that the ATO will need to be satisfied that the arrangement is not subject to section 100A. Red zone Red zone arrangements will be reviewed in detail. These are arrangements the ATO suspects are designed to deliberately reduce tax, or where an individual or entity other than the beneficiary is benefiting. High on the ATO’s list for the red zone are arrangements where an adult child’s entitlement to trust income is paid to a parent or other caregiver to reimburse them for expenses incurred before the adult child turned 18. For example, school fees at a private school. Or, where a loan (debit balance account) is provided by the trust to the adult child for expenses they incurred before they were 18 and the entitlement is used to pay off the loan. These arrangements will be looked at closely and if the ATO determines that section 100A applies, tax will be applied at the top marginal rate to the relevant amount and this could apply across a number of income years. The ATO indicated that circular arrangements could also fall within the scope of section 100A. For example, this can occur when a trust owns shares in a company, the company is a beneficiary of that trust and where income is circulated between the entities on a repeating basis. For example, section 100A could be triggered if: The trustee resolves to appoint income to the company at the end of year 1. The company includes its share of the trust's net income in its assessable income for year 1 and pays tax at the corporate rate. The company pays a fully franked dividend to the trustee in year 2, sourced from the trust income, and the dividend forms part of the trust income and net income in year 2. The trustee makes the company presently entitled to some or all of the trust income at the end of year 2 (which might include the franked distribution). These steps are repeated in subsequent years. Distributions from a trust to an entity with losses could also fall within the red zone unless it is clear that the economic benefit associated with the income is provided to the beneficiary with the losses. If the economic benefit associated with the income that has been appointed to the entity with losses is utilised by the trust or another entity then section 100A could apply. Who is likely to be impacted? The ATO’s updated guidance focuses primarily on distributions made to adult children, corporate beneficiaries, and entities with losses. Depending on how arrangements are structured, there is potentially a significant level of risk. However, it is important to remember that section 100A is not confined to these situations. Distributions to beneficiaries who are under a legal disability (e.g., children under 18) are excluded from these rules. For those with discretionary trusts it is important to ensure that all trust distribution arrangements are reviewed in light of the ATO’s latest guidance to determine the level of risk associated with the arrangements. It is also vital to ensure that appropriate documentation is in place to demonstrate how funds relating to trust distributions are being used or applied for the benefit of beneficiaries. Companies entitled to trust income As part of the broader package of updated guidance targeting trusts and trust distributions, the ATO has also released a draft determination dealing specifically with unpaid distributions owed by trusts to corporate beneficiaries. If the amount owed by the trust is deemed to be a loan then it can potentially fall within the scope of another integrity provision in the tax law, Division 7A. Division 7A captures situations where shareholders or their related parties access company profits in the form of loans, payments or forgiven debts. If certain steps are not taken, such as placing the loan under a complying loan agreement, these amounts can be treated as deemed unfranked dividends for tax purposes and taxable at the taxpayer’s marginal tax rate. The latest ATO guidance looks at when an unpaid entitlement to trust income will start being treated as a loan. The treatment of unpaid entitlements to trust income as loans for Division 7A purposes is not new. What is new is the ATO’s approach in determining the timing of when these amounts start being treated as loans. Under the new guidance, if a trustee resolves to appoint income to a corporate beneficiary, then the time the unpaid entitlement starts being treated as a loan will depend on how the entitlement is expressed by the trustee (e.g., in trust distribution resolutions etc): If the company is entitled to a fixed dollar amount of trust income the unpaid entitlement will generally be treated as a loan for Division 7A purposes in the year the present entitlement arises; or If the company is entitled to a percentage of trust income, or some other part of trust income identified in a calculable manner, the unpaid entitlement will generally be treated as a loan from the time the trust income (or the amount the company is entitled to) is calculated, which will often be after the end of the year in which the entitlement arose. This is relevant in determining when a complying loan agreement needs to be put in place to prevent the full unpaid amount being treated as a deemed dividend for tax purposes when the trust needs to start making principal and interest repayments to the company. The ATO’s views on “sub-trust arrangements” has also been updated. Basically, the ATO is suggesting that sub-trust arrangements will no longer be effective in preventing an unpaid trust distribution from being treated as a loan for Division 7A purposes if the funds are used by the trust, shareholder of the company or any of their related parties. The new guidance represents a significant departure from the ATO’s previous position in some ways. The upshot is that in some circumstances, the management of unpaid entitlements will need to change. But, unlike the guidance on section 100A, these changes will only apply to trust entitlements arising on or after 1 July 2022. Note: The material and contents provided in this publication are informative in nature only. It is not intended to be advice and you should not act specifically on the basis of this information alone. If expert assistance is required, professional advice should be obtained.

Federal Budget 2022-23

09 Mar 2022 01:13:00 GMT

The Federal Budget has been brought forward to 29 March 2022. With the pandemic and the war in Ukraine we have seen a lot less commentary this year about what to expect in the Budget. The Federal Budget has been brought forward to 29 March 2022. With the pandemic and the war in Ukraine we have seen a lot less commentary this year about what to expect in the Budget. But, as an election budget, we typically expect to see a series of measures designed to boost productivity, many of which are likely to benefit businesses willing to invest in the future. Bolstering the workforce, and measures to increase the participation of women, is also a potential feature as Australia struggles with post pandemic worker shortages. Fiscally, the Budget is likely to be in a better position than expected in previous Budgets so there is more in the Government coffers to spend on initiatives. Look out for our update on the important issues the day after the Budget is released. Should you have any queries, please contact our team on (03) 8393 1000. Note: The material and contents provided in this publication are informative in nature only. It is not intended to be advice and you should not act specifically on the basis of this information alone. If expert assistance is required, professional advice should be obtained.

Professional Services Firm Profits Guidance Finalised

28 Feb 2022 00:25:00 GMT

The Australian Taxation Office’s finalised position on the allocation of profits from professional firms starts on 1 July 2022. The ATO’s guidance uses a series of factors to determine the level of risk associated with profits generated by a professional services firm and how they flow through to individual practitioners and their related parties. The ATO may look to apply the general anti-avoidance rules in Part IVA to practitioners who don’t fall within the low-risk category. With the new guidelines taking effect on 1 July 2022, professional firms will need to assess their structures now to understand their risk rating, and if necessary, either make changes to reduce their risks level or ensure appropriate documentation is in place to justify their position. The problem The finalised guidance has had a long gestation period. The ATO has been concerned for some time about how many professional services firms are structured – specifically, professional practices such as lawyers, accountants, architects, medical practices, engineers, architects etc., operating through trusts, companies and partnerships of discretionary trusts and how the profits from these practices are being taxed. The ATO guidance takes a strong stance on structures designed to divert income in a way that results in principal practitioners receiving relatively small amounts of income personally for their work and reducing their taxable income. Where these structures appear to be in place to divert income to create a tax benefit for the professional, Part IVA may apply. Part IVA is an integrity rule which allows the Commissioner to remove any tax benefit received by a taxpayer where they entered into an arrangement in a contrived manner in order to obtain a tax benefit. Significant penalties can also apply when Part IVA is triggered. Determining the risk rating The guidance sets out a series of tests which are used to calculate a risk score. This risk score is then used to classify the practitioner as falling within a Green, Amber or Red risk zone, which determines if the ATO should take a closer look at you and your firm. Those in the green zone are at low risk of the ATO directing its compliance efforts to you. Those in the red zone, however, can expect the ATO to conduct further analysis as a matter of priority which could lead to an ATO audit. Before calculating the risk score it is necessary to consider two gateway tests: Gateway 1 - considers whether there is commercial rationale for the business structure and the way in which profits are distributed, especially in the form of remuneration paid. Red flags would include arrangements that are more complex than necessary to achieve the relevant commercial objective, and where the tax result is at odds with the commercial venture, for example, where a tax loss is claimed for a profitable commercial venture. Gateway 2 - requires an assessment of whether there are any high-risk features. The ATO sets out some examples of arrangements that would be considered high-risk, including the use of financing arrangements relating to transactions between related parties. If the gateway tests are passed, then you can self-assess your risk level against the ATO’s risk assessment factors. There are three factors to be considered: The professional’s share of profit from the firm (and service entities etc) compared with the share of firm profit derived by the professional and their related parties; The total effective tax rate for income received from the firm by the professional and their related parties; and The professional’s remuneration as a percentage of the commercial benchmark for the services provided to the firm. The resulting ‘score’ from these factors determines your risk zone. Some arrangements that were considered low risk in prior years under the ATO’s previous guidance may now fall into a higher risk zone. In these cases, the ATO is allowing a transitional period for those practitioners to continue to apply the previous guidelines until 30 June 2024. For professional services firms, it will be important to assess the risk level and this needs to be done for each principal practitioner separately. Those in the amber or red zone who want to be classified as low risk need to start thinking about what needs to change to move into the lower risk zone. Where other compliance issues are present - such as failure to recognise capital gains, misuse of the superannuation systems, failure to lodge returns or late lodgement, etc., - a green zone risk assessment will not apply. If you are concerned about your position, please contact us (03) 8393 1000. Note: The material and contents provided in this publication are informative in nature only. It is not intended to be advice and you should not act specifically on the basis of this information alone. If expert assistance is required, professional advice should be obtained.

Pandemic Leave Disaster Payments rules change

20 Feb 2022 23:53:00 GMT

The rules for the Pandemic Leave Disaster Payment, the payment accessible to those who have lost work because they have had to self-isolate with COVID-19, or are caring for someone who contracted it, changed on 18 January 2022. The new rules change the definition of a close contact in line with the harmonised national definition. The payment is now accessible if you are a close contact because you either usually live with the person who has tested positive with COVID-19, or have stayed in the same household for more than 4 hours with the person who has tested positive with COVID-19 during their infectious period. The payment provides: $450 if you lost at least 8 hours or a full day’s work, and less than 20 hours of work $750 if you lost 20 hours or more of work. To claim the payment, you will need to be an Australian citizen, permanent visa holder (or temporary visa holder with a right to work) or a New Zealand passport holder. The payment is also subject to means testing with a $10,000 illiquid assets test. Note: The material and contents provided in this publication are informative in nature only. It is not intended to be advice and you should not act specifically on the basis of this information alone. If expert assistance is required, professional advice should be obtained.

Year of the Tiger: Roaring or Bellowing?

14 Feb 2022 23:47:00 GMT

The 2022 Luna New Year, Year of the Tiger, is courage and bravery. It is a year to drive out evil and one of momentum and change. The message; walk boldly with courage. And it seems the Reserve Bank Governor is aligned with this sentiment. The Tiger economy At a recent speech to the National Press Club, Reserve Bank Governor Philip Lowe was optimistic about Australia's prospects in 2022. This optimism is driven by strong GDP growth that saw growth outstrip the RBA’s forecast to reach 5%, and strong jobs growth with the unemployment rate at 4.2% - the lowest rate since the resources boom. Unemployment is expected to reduce further to 3.75% by the end of 2022, and if it does, it will be the lowest unemployment level since the early 1970s. Underemployment is also at its lowest rate in 13 years. In addition, “household and business balance sheets are generally in good shape and wages growth is picking up.” The surprise inflation figures While wages growth is “picking up”, the forecast remains sluggish at 2.25%. Australia’s wages growth has remained lethargic for a decade now, which will come as a surprise to many business operators competing for skilled workers as, on the ground, the opposite feels true. Combined with a surprise spike in inflation (CPI) well above expectations at 3.5% (+2% on RBA forecasts), pushed predominantly by a sharp increase in petrol prices (32% over the past year) and the cost of constructing new homes, the purchasing power of Australians has declined. There has also been a large increase in the price of consumer durables (cars, fridges etc.,) and less discounting in the face of strong demand as supply chain problems take hold. Australia is not alone in this. The UK inflation rate jumped to 5.4%, 5.7% in the United States and 5.9% in New Zealand in the same period. Supply woes The sharp increase in interest rates comes on the back of, “very significant disruptions in supply chains and distribution networks,” with labour shortages in particular dominating news coverage as businesses struggle to maintain momentum with staff impacted by either COVID-19 or isolation requirements. National Cabinet harmonised the definition of a ‘close contact’ at the end of December 2021 for most Australian States and Territories and reduced the isolation period to seven days (from 14). The recent NAB quarterly business survey reported that, “ongoing supply chain issues and border closures saw 85% of firms report availability of labour as a constraint on output, while 47% reported availability of materials as a constraint – both records in the history of the survey. As a result, both cost growth and retail price growth remained elevated.” With global staff shortages, come bottlenecks in the supply chain. For many businesses, estimating what stock they need has become a crystal ball exercise rather than a predictable science and in some cases they are ordering ahead to reduce the supply risks, which has a knock-on effect of increasing demand for raw materials. And, this is without factoring in the problem of panic buying (toilet paper anyone) as customers anxiously watch dwindling supplies on supermarket shelves. Supply chain problems, both in Australia and globally, are not anticipated to normalise for another 12 to 24 months. The RBA Governor’s three takeaways are: The economy has been remarkably resilient; The link between the strength of the real economy and prices and wages remains alive; and The supply side matters for both economic activity and prices. You could almost add, no one really knows, as a fourth point as an unexpected change, like a new virulent COVID variant, or further lockdowns, could rewrite the forecasts. But, there is plenty of room for optimism. What we have seen to date is that when there is an opportunity to rebound, to return to normal, the economy bounces back quickly and often much faster than anticipated. Afterall, health, not the economy, has been the catalyst for the crisis. When will interest rates rise? During his National Press Club address, Mr Lowe was asked the question, “those people are now looking very carefully at your words, trying to read the tea leaves and work out what they do with their mortgages? You obviously can’t go to the RBA Governor looking for individual financial advice. But, if it was your mortgage, would you be scrambling for a fixed rate or sticking with a variable?” His response, “… the advice that I would give to people is, make sure that you have buffers. Interest rates will go up. And the stronger the economy, the better progress on unemployment, the faster and the sooner the increase in interest rates will be. So, interest rates will go up.” A rate increase by the RBA would be the first since November 2020. Westpac and AMP Capital are both forecasting the first increase to occur in August this year, then a second towards the end of 2022. While the RBA might be taking a ‘steady as she goes’ approach, many lenders have already factored in increases as the international cost of funding increases. RateCity data shows that, “a total of 17 lenders have hiked fixed rates so far this year, but that number will rise and quickly” - Westpac increased its fixed rates at the end of January and the CBA and ING (for new customers only) at the start of February. But with households having accumulated more than $200 billion in additional savings over the past 2 years, the RBA is hopeful that any increase will dampen inflation pressures but not impinge on growth. Want to chat with one of our tax champions about any of the above? Contact us today! (03) 8393 1000. Note: The material and contents provided in this publication are informative in nature only. It is not intended to be advice and you should not act specifically on the basis of this information alone. If expert assistance is required, professional advice should be obtained.

PCR and RAT tests to be tax deductible, FBT free

13 Feb 2022 23:51:00 GMT

The Treasurer has announced that PCR and rapid antigen tests (RAT) will be tax deductible for individuals and exempt from fringe benefits tax (FBT) for employers if purchased for work purposes. There has been confusion over the tax treatment of RAT tests with the Prime Minister stating for some time that they are tax deductible, but in reality, the tests were probably only deductible in limited circumstances. If you have had to purchase RAT tests to be able to work, you will be able to receive a tax deduction for the cost you have incurred from 1 July 2021 (you will need evidence of the expense). If the RAT test cost $20, someone on a marginal tax rate of 32.5% would receive a tax benefit of $6.50. For business, it is expected that RAT, PCR and other coronavirus tests will be exempt from FBT from the 2021-22 FBT year. Legislation enabling the change is expected before Parliament mid February. Note: The material and contents provided in this publication are informative in nature only. It is not intended to be advice and you should not act specifically on the basis of this information alone. If expert assistance is required, professional advice should be obtained.

ATO assistance for those with overdue payments and lodgments

08 Feb 2022 06:28:00 GMT

A reminder has been released from the Australian Taxation Office to advise that there is help available for those who are currently not up to date with their payment and lodgment obligations. As we’ve now entered 2022, it is a good time to check with your accountant if you are up to date with your payment and lodgement requirements. If you are unsure or are concerned, please know that there is help available. The following information may help to assess your current position. The ATO stated that it is important that you get all lodgments up to date and pay what you can. If you are unable to pay in full, there are payment options available to you. If you owe $100,000 or less, your accountant can assist you with setting up or adjusting payment plans on your behalf. You can also set up or adjust an existing payment plan yourself by using the ATO’s online services; or by phoning the automated service; 13 28 65 (for individuals) or 13 72 26 (for businesses) if you are unable to get online to set up a payment plan. For those who owe over $100,000, the ATO advised that they will need to discuss the options directly with you. If you are in this situation, please contact them on 13 11 42 during operating hours. Please be aware that it is important for you understand that there are consequences for not lodging or paying on time. Penalties may be applied if you fail to do so, so it’s vital to have a chat with the ATO. With the ATO’s lodge and pay engagement and enforcement actions starting back up, you need to know about the potential penalties that you may find on your tax bill if choose not to engage with them. If you need to discuss this issue further, please feel free to contact our friendly team on: (03) 8393 1000.

Understanding Your Profit & Loss and Balance Sheet Statements

06 Feb 2022 23:33:00 GMT

As a business owner it’s crucial that you keep track of your finances. You don’t need to be an expert on all the reporting if you have a bookkeeper who assists you, but you do need to keep an eye on two key reports to know that you have control of your company’s financial health. These two very important reports are the profit and loss statement and the balance sheet, both involve a company’s finances, but their differences are significant What is a profit and loss statement? A profit and loss statement is generally called the P&L, but is also known as the income statement or statement of earnings for a business. It is a detailed breakdown of your company’s sales (money coming into the company as income) and your expenses (direct costs, overheads, expenditure and other costs). It tells you how much profit you’re making, or how much you’re losing and helps to work out the net profit, which is the money left over after expenses are paid. The net profit is calculated by subtracting expenses from sales. Businesses usually complete a profit and loss statement every month, quarter or year. Monthly being the preferred option to enable you to monitor the money in and out more often. Monitoring your P&L carefully allows you to track your income and expenses over a certain period of time. Having this regular reporting enables you to look back over a period and discover exactly where you’re making money, and where you’re losing money. The more income you bring in, and the less money you lose, then the higher your profits will be at the end of the financial year. Your P&L is your indicator for measuring these figures. The P&L statement is good for: Seeing a detailed breakdown of all income and relevant expenses Viewing the profit and loss amounts over a set period of time Summarizing your profit and loss for the period to determine if you’re profitable. What is a balance sheet statement? A balance sheet keeps you up-to-date on your business Assets (what the company owns, including cash) and Liabilities (what the company owes other people) at a given point in time, based on the following accounting equation: ‘Equity = Assets – Liabilities’. The Equity is retained earnings plus the funds you originally invested as shareholders. A balance sheet can also help you to work out your: working capital – money needed to fund day-to-day operations business liquidity – how quickly you could pay your current debts In contrast to the P&L – which details the revenues and expenditure over a given period, the balance sheet is seen as a ‘snapshot’ of your present finances. In short, it details what the company is worth on paper currently, based on the recent numbers in your accounts. The balance sheet is helpful for: Assessing the company’s current financial position Offering proof of your financial position to lenders, investors and banks Providing potential buyers an idea of the company’s actual net asset value, if you were to sell up. If you don’t know your equity from your assets, don’t stress! Accounting can be complex, and it takes a while to fully understand all of the different processes and terms. So if you’d like to learn more about the basics of your business’ finances, we can assist. Our friendly team are more than happy to run you through your latest accounts and explain exactly what each report represents – and how it details the current performance as a business. Feel free to contact our tax champions to find out more (03) 8393 1000.

Update on Temporary Full Expensing – Will It Affect Your Business?

04 Feb 2022 03:17:00 GMT

Temporary full expensing (‘TFE’) provides support for businesses, and it encourages investments. An eligible business may claim an immediate tax deduction for the business portion of the cost of an asset in the year that it is first used or installed and ready to be used for a taxable purpose. Let’s look at the impacts of the Temporary Full Expensing rules for small to medium enterprises. The Australian Taxation Office has issued advice on Temporary Full Expensing for eligible small to medium businesses by releasing the Law Companion Ruling LCR 2021/3 on 22 December 2021. We inch closer towards the end of the financial year, eligible businesses, especially SMEs, ought to look at these TFE rules and the impacts it will have on their cash flow and tax planning. How does the TFE work? Businesses that are eligible for the TFE may deduct the total cost of eligible depreciating assets on the condition that they have been used or installed and set for taxable use between the period of 6 October 2020 and 30 June 2022 (with a proposal to increase this to 30 June 2023). Expenses on qualifying assets, such as costs to upgrading equipment are also eligible. Entities with an aggregated turnover of less than $50 million may also claim TFE on second-hand assets. It is great for buyer’s having no threshold to the cost of an asset, although some assets remain excluded from TFE. Below are some examples of assets which are not eligible for TFE: Assets which had a balancing adjustment event happen in the year of acquisition; Capital Works; Primary producers’ assets which may be deducted under Subdivision 40-F if the ITAA 1997 such as fodder storage assets, horticultural plants, fencing assets, or a water facility; Assets which cost under $1,000 if the entity has chosen to use a low-value pool; Assets which are not connected with Australia and that it is reasonable to conclude will never be located in Australia. Extra exclusions apply to entities which have an aggregated turnover of $50 million or more with the primary exclusion being in relation to the acquisition of second-hand assets. Other key points to consider Eligible businesses must be aware that cars are still restricted to the car limit. The maximum deduction for a car must not exceed $59,136 for 2020-21 and $60,733 for 2021-22. Small Business Entities (SBEs) are not able to opt-out of temporary full expensing on an asset-by-asset basis, as a result pool balances need to be fully expensed. This can be useful for those companies who claim the loss carry back and receive a refund for prior year taxes paid back to the 2019 financial year. Although, if a business is not eligible for loss carry back, the full expensing of the SBE pool can be an issue as it may result in losses being trapped in an entity and would be subject to loss recoupment tests in the future (for example; Continuity of Ownership Test). If a Trust makes a loss but still is eligible for franking credits from a dividend, the loss can also result in losing the franking benefit. SBEs may opt out of the SBE pooling rules if they choose, although, and until 30 June 2022, they will not be stopped from re-applying those rules in the future. For the 2022 financial year, this offers SBEs with a little flexibility in deciding which assets to claim the TFE against. Associated parties need to keep in mind that arrangements made between them which allow a deduction but do not increase the groups’ business asset base, may invoke the Anti-avoidance Provisions in Part IVA ITAA 1936. However, if an asset is to be claimed under TFE, there will not be any further depreciation of that particular asset going forward and a sale of that asset will lead to an increase to a balancing adjustment so the impact on future years’ tax need to also be considered. It’s only the start of the year. Why do I need to know about this now? We know that lodging your business tax return may be the last thing on your mind right now, but there can be great cash flow reasons to consider for your claims. Does claiming TFE result in carried forward tax losses that are subject to loss recoupment tests? So, for trusts, it may be better to opt-out and pay a reduced average tax rate at the beneficiary level, rather than claiming a loss in the current financial year and being subject to larger profits and possibly a higher beneficiary tax rate in the future; Loss carry back needs adequate franking credits in the company’s franking account, so if you are expecting a loss from TFE, then you will have to keep an eye on your franking account and the number of dividends you pay, to maximise the refund opportunities; If you make PAYG Instalments based on a prior year tax return with a smaller TFE claim, you might be eligible to vary those instalments down to pay a lower instalment now, or may even receive a refund if you have overpaid your September 2021 instalment. Should you have any queries about Temporary Full Expensing, please do not hesitate to contact our team on: (03) 8393 1000.

Checklist for Starting a Business

10 Jan 2022 01:46:00 GMT

All businesses start with a skill, idea or opportunity. But you’ll need more than this to make your business successful. Planning, skills, people, time – and luck – are all important. The below startup checklist is a fantastic starting point for your business. Tick them off one at a time and make sure you are fully ready before launching into your new business. 1. What is your niche? You need a niche in business in the 21st century. That is a particular skill or market within your industry that you can compete and indeed beat the opposition within the industry you are in. You must define this niche, sum it up in a short paragraph and then it should become your mantra, especially to your customers. What is your niche? 2. Set up your business structure Choose a legal structure that works best for you. An accountant can help. From sole trader through to trusts and companies, it’s very important that you trade in the correct structure for asset protection and tax purposes. 3. Find a business mentor, where you have a skills gap Whether it’s marketing, financial, innovation, people skills or a combination, find a mentor to give you advice and guide you. Starting a business is lonely and the input of experienced people is vital. Hunt them down in all areas you frequent. 4. Establish a business plan When you establish a business plan, you’ll need to summarise your business setup and where you want to be in the next 12 months, financially, and in the next 5 years strategically. Map your vision and it will give you clarity on where you are heading and why you started the business. Pin the plan up and follow/adjust it over time. 5. Register any Trademarks and Websites You’ll need a website. It’s where people immediately go to find you and what your business does and how it will help customers. It’s a good idea to cover as many domains as possible to safeguard your business now and in the future. Perhaps you need a trademark as well to protect what you are building. 6. Arrange personal and business insurance Even the smallest companies need insurance. Talk to a broker to find the best package for you. You may have left employment to start a business so you won’t have workcover anymore so make sure you have income protection insurance. It’s vital. 7. Are you long term viable? Can you make a long term income and profit from your business? Quality accounting software and reports on a monthly basis will help enormously in tracking your Profit and Loss statement which will gauge your long term viability. As a great sage once said “you’ll never go broke making a profit”. Ask a bookkeeper/accountant to provide this. 8. Set up a business bank account Don’t use your personal account, even if you’re just starting out. It’s always wise to keep your business finances separate. A credit card/debit card and even a PayPal account just for the business could be useful too. Separate your business and personal lives NOW! 9. Think about how you’ll use technology Nearly all companies use technology. Think about whether you need laptops, tablets, smartphones – or all of these. Talk to local IT firms if you’re not sure. And make sure you do your research online. Most technology is cloud based these days and reasonably priced so try to setup without paper. Good for you and the environment!! 10. Register for TFN/ABN Organise a Tax File Number and an Australian Business Number. Best done straight away and if you are struggling a Tax Agent will whip it up in no time. 11. List the items that can be tax deductible expenses Office rent, equipment costs, internet costs – all of these may be offset against tax so make sure you talk to your tax accountant. 12. Create your website Use the website domain name you’ve already registered. Services like WordPress and Squarespace, are useful but you’re likely to need expert help here. The cost of a website is a fraction of the value that it will give you and your business so do not skimp on the setup. 13. Create social network accounts Different businesses have different social media needs. You might need a Facebook page. Insta page and a LinkedIn profile. You may even need a Twitter account. Do some research on competitors or ask your mentor to see what will work for your business. Social media is powerful, doesn’t cost a lot but it must stay up to date so always keep an eye on it once it’s established. For businesses starting out it may be just one main social media platform for your industry is key. 14. Ask people to promote you online Contact members of your social networks. Tell them about your new business and ask them to share the link to your website with the people in their networks. Non-one knows you’re there if you don’t tell them. 15. Find the right employees Hiring the right employees is absolutely vital. If you build a business the right employees will be the most important asset so hone your EI skills to track down the best candidates in the industry. 16. Choose your business applications Software is getting more powerful and intuitive. If possible, choose online applications for your work. These include Google Docs and Microsoft Office 365. That way you can access your valuable data online from anywhere at any time. 17. Keep your data safe Companies that lose data also lose business. Use cloud-based software for peace of mind. Ask your insurance agent about Cyber security insurance. There are so many hackers in the world today that you need to be very cautious. Keep challenging yourself…….BUT Successful entrepreneurs keep going when other people would give up. That inner drive is what defines a successful business owner. Your attitude will help determine whether your business succeeds or fails. So give 100%. BUT, there is always a but, if you feel that you won’t make it based on finances running thin then contact your Accountant for a health check. A business in financial trouble that is not looked at can result in both financial and personal hardship. If you have any questions or need assistance with the startup of your new business contact the friendly team at Paris Financial today at champions@parisfinancial.com.au.

How Much Can I Claim on My Motor Vehicle?

03 Jan 2022 01:37:00 GMT

If you're using your personal car for work purposes, you are eligible to claim the expenses associated to this. If the car is part of your salary package or is owned by your employer, then you are not entitled to claim anything. If you do own the car personally, there are two options that you can use to claim your car-related expenses: CENTS PER KILOMETRE METHOD Using this option to claim is based on a set rate per each business kilometre travelled. By choosing this method you are entitled to claim up to a maximum of 5,000 kilometres each financial year, for each vehicle. If you are driving more than 5,000 kilometres this method of claiming may not be right for you. You might be better off using the logbook method. The value of the claim is determined by multiplying the overall business kilometres that are travelled (this is limited to 5,000km per vehicle) by the standard rate of 72 cents per kilometre. This amount includes all the vehicle running expenses (as well as depreciation) You may be required to provide written evidence to prove how you worked out your business kilometres (for example, by supplying diary records of work-related travel). If you and another joint owner use the vehicle for separate income-producing purposes, you can both claim up to a maximum of 5,000 business kilometres. LOGBOOK METHOD Under the logbook method, your claim is based on the business use percentage of actual vehicle expenses. The expenses include the running costs and decline in value but not capital costs. This is determined by a keeping a log book and odometer readings of the travel for at least a 12 week period. You must keep your logbook and odometer records until the end of the latest income year in which you rely on them to support your claim and then for another five years thereafter. You can claim all expenses that relate to the operation of the car in your logbook at your percentage of business use. The logbook will be required to have recordings all business trips made in the vehicle over the 12 week period, detailing: When the log book period starts and ends The car's odometer readings at the beginning and end of the period The total kilometres travelled The business percentage relating to the logbook period For each trip in the logbook, you must record: The date of the trip Odometer readings at the beginning and end of the trip The amount of kilometres travelled Reasons for the travel If you make two or more trips in a row on the same day (you may record them as a single trip) You will be required to keep all receipts for the year to support your claim, such as servicing, repairs and insurance. Fuel may be estimated using the beginning and ending of the odometer readings for the year, indicating the total kilometres travelled. The depreciation is worked out as 25% of the current value of the car using the diminishing value method. If your vehicle is supplied by your employer, or is part of your salary package, you are unable to claim any of the expenses. It is important that you keep a record of all business-related expenses, including those related to your vehicle. If you use someone else's vehicle (that is not defined as a car) for business purposes, you may be able to claim the direct expenses (such as fuel) as a travel expense. Other vehicles included in the above expenses are: Motorcycles Vehicles with a carrying capacity of: One tonne or more (for example, a utility truck or panel van) Nine passengers or more (for example, a minivan). EXPENSES WHICH YOU CAN’T CLAIM You are unable to claim the cost of general trips between home and work because that travel is private, even if: You do small tasks on the way to work, such as picking up the business mail You travel back to work for a security call out or personal appointments Working overtime and no public transport is accessible to use to get you home The above information is intended as a guide. All actual details and individual circumstances differ, so please discuss your situation with one of our friendly tax champions. If you are unsure if you can claim an expense, keep the receipt and we will make sure that we claim all permissible deductions and rebates for you when preparing your tax return. If you would like to know more about motor vehicle expense claims, please contact our office on: (03) 8393 1000.

2022: The year ahead

01 Jan 2022 01:41:00 GMT

2021 was to be the year we returned to a post-COVID normal however the pandemic has fundamentally changed the way many of us operate in our personal and work lives. Here is some of what we can expect in 2022: Federal Election The Federal election will be held between March and May 2022. Annoying text messages, robo messages and advertising are on their way! Federal Budget in March The timing of the election will bring the Federal Budget forward to March 2022. It’s an election year; expect many of the productivity based tax concessions to be extended. Expect my orange shirted Budget Video to be out earlier packed with the goodies and baddies. Lock-in digital gains McKinsey & Company reports that consumer digital adoption rates accelerated dramatically during the pandemic. Many sectors will lock in the digital gains they made. Some, however, will see a decline in digital sales as consumers are no longer forced to shop online – groceries for example. To lock in the gains of digitalisation, consumers expect trust, end-to-end digital service (from start to after sales service), and an improved online experience. Forced online adoption has changed the consumption habits of an older and wealthier portion of the market. The average age of online users in the McKinsey Global Sentiment Survey increased by around 3 years and spend around 4% more. Coming off a lower base, developing nations have experienced a much higher growth in digital adoption than developed nations; evening out global access. Going green Business and consumers will be expected to be mindful of their carbon footprint. A wasteful process is likely to diminish consumer appeal. Should you wish to discuss any of the above information, please feel free to contact our tax champions on: (03) 8393 1000. Note: The material and contents provided in this article is informative in nature only. It is not intended to be advice and you should not act specifically on the basis of this information alone. If expert assistance is required, professional advice should be obtained.

The ‘Backpacker Tax' and the High Court

27 Dec 2021 01:33:00 GMT

The High Court has ruled that the ‘backpacker tax’ is discriminatory. We look at the impact. Since 2017, the ‘backpacker tax’ has taxed the first dollar of income a backpacker earns in Australia - regardless of their residency status - at the working holiday maker tax rate of 15% up to: $37,000 in an income year for 2019-20 and earlier income years $45,000 for 2020–21 and later income years. When the tax was introduced in 2017, a backpacker would pay a maximum of $5,500 in tax on the first $37,000 of income. However, an Australian national performing the same work would have a maximum tax liability of $3,572. In this case, Catherine Addy, a UK national working in Australia since 2015, contested her 2017 amended income tax assessment which imposed the backpacker tax on the grounds that it contravened the Double Tax Agreement (DTA) with the United Kingdom. Article 25(1) of the DTA seeks to ensure that nationals of the UK are not subject to "other or more burdensome" taxation than is imposed on Australian nationals "in the same circumstances, in particular with respect to residence". Ms Addy was a tax resident of Australia. The ATO did not accept Ms Addy’s argument and she launched action in the Federal Court. The Federal Court initially upheld the Tax Commissioner’s position. However, Ms Addy appealed the decision and the High Court overturned the Federal Court’s decision. The question for the Court was whether a more burdensome tax was imposed on Ms Addy owing to her nationality. The short answer was “yes”. The High Court decision found that the backpacker tax is inconsistent with the non-discrimination clause in the UK DTA. That is, the flat working holiday maker tax rate is not valid in some situations. Non-discrimination clauses that are similar to the one in the UK DTA can also be found in the DTAs with Chile, Finland, Japan, Norway, Turkey, Germany and Israel. So, what does this mean? Some individuals who have been taxed under the backpacker tax rules may be able to obtain a tax refund from the ATO. However, there are a couple of key points to bear in mind: The decision only impacts those classified as an Australian tax resident. Many individuals who are living or working in Australia on a working holiday visa will be classified as non-residents, in which case this decision will be less relevant. The decision is only likely to be relevant to individuals who are a citizen/national of a country that has a DTA with Australia containing a non-discrimination clause similar to the clause found in the UK DTA. Should you wish to discuss any of the above information, please feel free to contact our tax champions on: (03) 8393 1000. Note: The material and contents provided in this article is informative in nature only. It is not intended to be advice and you should not act specifically on the basis of this information alone. If expert assistance is required, professional advice should be obtained.

The Basics of Business Activity Statements (BAS)

23 Dec 2021 01:43:00 GMT

What is a BAS A Business Activity Statement (BAS) is an Australian government form which all GST registered business entities must lodge with the ATO to report their tax obligations. It’s a summary of all the business taxes you have paid or will pay to the government during a specific period. Depending on the size of your business, you will need to complete and lodge a BAS form between one and twelve times a year. The tax office uses the data on your BAS to calculate your GST refund or payable. Taxes that are reported on a BAS include: Goods & Services Tax Pay as you go income tax instalments Pay as you go tax withheld Fringe benefits tax instalment Luxury Car Tax Wine Equalisation tax Fuel tax credits Instalment notices for GST and PAYG instalments What do I need to do? You are required to keep a record of all GST you have collected on sales, and how much you paid on business related purchases. You don’t need to submit the tax invoices upon lodgement of your BAS, but you will be required to keep them on hand as the ATO may request to see them at a later date. How do I lodge my BAS? Business Activity Statements can be lodged online via: A registered Tax Agent or BAS Agent (usually an accountant or bookkeeper) The ATO’s online business portal Your online accounting software Your myGov account if you are a sole trader You will be required to lodge your BAS either monthly, quarterly, or annually, depending on the GST turnover of your business entity. When are the due dates? Make sure you keep on top of your BAS lodgments to avoid any issues with the tax office. If your GST turnover is $20 million or more, you will need to lodge If your GST turnover is less than $20 million, you will need to lodge If you are voluntarily registered for GST and your GST turnover is less than $75,000 (or $150,000 for non-profits), you need to lodge If your GST turnover is under $10 million, you may be able to report annually but you will still be required to pay a quarterly GST instalment. Quarterly BAS Standard Due Dates: Quarter Due Date July, August and September 28th October October, November and December 28th February January, February and March 28th April April, May and June 28th July Note: The above due dates are extended by 4 weeks if the lodgment is made by a tax practitioner using ELS. Monthly BAS Due Dates: The due date for lodgement and payment of your monthly BAS is the 21st day of the month following the end of the taxable period. For example, a September monthly BAS is due on 21st Annual Due Date: The date for lodgement and payment of your annual GST return is 31st October. If you are not required to lodge a tax return, then the due date is 28th February following the annual tax period. If you are using a registered tax or BAS agent, different dates may apply. What if I need to change my reporting and payment cycle? Depending on your circumstances, you may be able to alter how often you lodge and pay your BAS. If you need to change your reporting and payment cycle early in the lodgement period (e.g., in the first month of the quarter or at the beginning of the financial year) you can usually begin the new cycle straight away. Otherwise, the new cycle will take effect from the start of the next quarter or year. Do you have any further questions about Business Activity Statements? If so, please contact our friendly team at champions@parisfinancial.com.au or via phone on: (03) 5970 8100.

If Santa was an Australian tax resident

19 Dec 2021 23:31:00 GMT

A lighter look at the complexity of Australian taxation laws and the year that has been. Dear Mr Claus, Thank you for the opportunity to provide strategic business, tax and compliance advice for your operation. We’re pleased you have initiated this advice as the Australian Taxation Office (ATO) has instigated a number or reviews that may impact on your operations and your team, and its relationship to contractors. Some of these issues have been exacerbated by the pandemic. We have identified a number of areas of concern as a starting point for further discussions. These include: Western Australia border closures and ‘elf’ contractors We understand that the hard border closure in Western Australia has created a series of logistical challenges for your delivery schedule. The very specific timing and nature of the gift delivery mean that, while existing vaccinated team members can enter Western Australia on a G2G pass, it is not possible to fulfil the 14 day quarantine requirements. To manage the Christmas Eve requirements, you have instigated a relationship with a local contractor. We have several concerns about this relationship. Leaving aside our capacity to verify the existence of the elf in question, the elf appears to be an individual and not operating as a logistics specialist – no ABN is on record. Based on the information you have provided to us it appears that the elf is likely to be considered an employee of yours regardless of what your performance contract specifies. As such, you will be liable for superannuation guarantee and tax will need to be withheld from any payment to them. We refer you to the ATO’s contractor checklist. The nature of the payment to the elf is also of concern. “Goodwill to all men” is an intangible asset and as such, we may need to bring in a specialist valuer. This asset has been a globally scare commodity over the last few years and while supply has improved dramatically since January 2021 and spikes in December each year, the normalised value is likely to be significant. Business structure viability The fact that you run a global enterprise that generates no income or profit but ‘gifts’ millions of toys each year produced by your offshore factory, has significant brand value, is represented extensively in merchandise, your spokespeople are employed by shopping centres all around the world, but you have never lodged a tax return or paid tax in Australia, is likely to trigger an ATO investigation. There is also a risk that the Serious Financial Crime Taskforce might become involved. As discussed, we do not believe that the “it’s magic” argument will suffice in the event of an investigation. The argument has been tested previously with the ATO to no avail. Your enterprise’s lack of structure also means that you are missing out on significant benefits. For example, tax deductions might be available for expenses you incur. A number of significant changes were made in recent years enabling businesses to immediately deduct the cost of assets used to produce income. Expenses incurred Your flying reindeers are likely to be considered beasts of burden and as such can be depreciated as plant. However, a deduction is only available to the extent that the reindeer are used to produce income that is taxable in Australia. At present, you do not make any claim for expenses incurred during your Christmas Eve deliveries. While we understand food – cookies, reindeer food, glasses of milk and the occasional tipple of scotch – is provided free by the world’s children, there are likely to be other expenses that you incur. The cost of your uniform, dry-cleaning (removing chimney soot), and postage, to name a few. Research & Development We understand that the ‘flying sleigh’ was developed in your workshop and the technology has developed markedly over the years. In addition, your purpose built ‘naughty or nice’ technology system is unique (we note our concerns about potential privacy breaches and a lack of an opt in/opt out system; I know you have been watching the detrimental brand impact on several social media outlets). If incorporated, there is a potential to access the R&D tax incentive that provides entities with a turnover of less than $20m a refundable tax credit of your corporate tax rate plus 18.5%. The value of the tax offset is lower for companies with a turnover of $20m or more. The technology developed in your workshop, if patented and commercialised, could revolutionise logistics and put a whole new meaning to same day delivery. We are certain that Australia Post in particular, would be very interested in entering into discussions with you. Global taxation There have been significant shifts over recent years to ensure that multinational enterprises pay tax in the country where they generate their income. The increase of digitalisation has only exacerbated the issue. While not earning an income, your enterprise operates globally with a workshop located in the North Pole and delivers to clients across the globe. Representation in a particular country may also be enough to make your operation subject to local tax laws. You appear to have local agents – several thousand Santa representatives – with authority to operate on your behalf in shopping centres across Australia. These agents commit the operation with the promise of toys to millions of children. A local agent acting with authority may expose you to local tax laws. This is an issue that may extend well beyond Australia and requires urgent assessment. As discussed, there are currently no provisions within Australian tax law to allow the Commissioner the discretion to ignore your tax liabilities as a goodwill gesture. Please contact us urgently regarding these issues. Thank you. Should you wish to chat to our team about any of the above information, please contact us on: (03) 8393 1000.

ATO reminder regarding inactive ABNs

17 Dec 2021 01:39:00 GMT

The ATO has advised that inactive Australian Business Number’s may soon be automatically cancelled in a current review. Those who are unsure if their ABN is still active or not should get in touch with their accountant or bookkeeper. The Australian Business Register (ABR) frequently checks ABN records and automatically cancels them if they are deemed to be inactive. A representative from the ATO advised that ABN’s may be selected for cancellation if they have not reported business activity in their tax return, or if there are no signs of business activity in other lodgements or third-party information. If an ABN is identified for cancellation, the business owner may be contacted and advised what steps they need to take to prevent their ABN from being cancelled. To avoid cancellation, ABN holders need to ensure their lodgements are up to date. Regardless of income, the following still needs to be lodged. Individual tax return including the supplementary section Business and professional items schedule for individuals If circumstances have changed for the ABN holder, then they should consider if their ABN needs to be cancelled. If an ABN is cancelled, the holder is still required to lodge any outstanding tax returns and activity statements as soon as possible. Business owners are reminded that any income earned under their ABN needs to be reported in their tax return, regardless of the amount. By keeping up to date with their tax obligations, then the ATO can see they are actively undertaking a business, therefore their ABN should not be cancelled. If the business is no longer trading, no action is required to be taken. If the ABN has been cancelled and a business owner is still entitled to one, they will need to reapply to reactivate it. In some instances, ABN holders sometimes simply forget to update their ABN details in the Australian Business Register (ABR) when their circumstances or details change. By keeping ABN details up to date, they can reduce unnecessary contact from the ATO. If you need to reapply for an ABN, you can go to the ABR Website or contact the tax champions at Paris Financial to assist.

The top Christmas tax questions

15 Dec 2021 01:27:00 GMT

Every year, we are asked about the tax impact of various Christmas or holiday related gestures. Here are our top issues: Staff gifts The key to Christmas presents for your team is to keep the gift spontaneous, ad hoc, and from a tax perspective, below $300 per person. $300 is the minor benefit threshold for Fringe Benefits Tax (FBT) so anything at or above this level will mean that your Christmas generosity will result in a gift to the Tax Office as well. To qualify as a minor benefit, the gifts also have to be ad hoc (no ongoing gym membership payments or giving the same person regular gift vouchers amounting to $300 or more). A question we often get is what is the tax impact if you give your team say a hamper and a gift card? The good news is that the tax rules treat each item (the hamper and the gift card) separately. FBT won’t necessarily apply as long as the value of each item is less than $300. However, the minor benefits exemption is a bit more complex than this. For example, you need to look at the total value of similar benefits provided to the employee across the FBT year etc. If you are planning to provide your team with a cash bonus rather than a gift voucher or other item of property, then this will be taxed in much the same way as salary and wages. A cash bonus at Christmas is not a gift; it’s still income for the employee regardless of the intent. A PAYG withholding obligation will be triggered and the ATO’s view is that the bonus will also be treated as ordinary time earnings which means that it will be subject to the superannuation guarantee provisions unless it relates solely to overtime that was worked by the employee. The staff Christmas Party If you really want to avoid tax on your work Christmas party then host it in your office on a work day (COVID rules allowing!). This way, Fringe Benefits Tax is unlikely to apply regardless of how much you spend per person. Also, taxi travel that starts or finishes at an employee’s place of work is also exempt from FBT. So, if you have a few team members that need to be loaded into a taxi after overindulging in Christmas cheer, the ride home is exempt from FBT. If your work Christmas party is out of the office, keep the cost of your celebrations below $300 per person. This way, you won’t generally pay FBT because anything below $300 per person is a minor benefit and exempt. If the party is not held on your business premises, then the taxi travel is taken to be a separate benefit from the party itself and any Christmas gifts you have provided. In theory, this means that if the cost of each item per person is below $300 then the gift, party and taxi travel can all be FBT free. However, the total cost of all benefits provided to the employees needs to be considered in determining whether the benefits are minor. The trade-off to this is that if the costs associated with hosting the party are not subject to FBT then it would be difficult to claim a tax deduction or GST credits for the expenses. If your business hosts slightly more extravagant parties and goes above the $300 per person minor benefit limit, you will generally pay FBT but you can also claim a tax deduction and GST credits for the cost of the event. Client gifts Few of us have that much time in the diary for pre-Christmas entertainment so why not give a gift instead? In addition to a few extra hours saved and a lot less calories to work-off (most of us are still struggling post lock down), there is also a tax benefit. As long as the gift you give to the client is given for relationship building with the expectation that the client will keep giving you work (that is, there is a link between the gift and revenue generation), then the gift is generally tax deductible as long as it doesn’t involve entertainment. Entertaining your clients at Christmas is not tax deductible. If you take them out to a nice restaurant, to a show, or any other form of entertainment, then you can’t claim it as a deductible business expense and you can’t claim the GST credits either. It’s goodwill to all men but not much more. Charitable gift giving The safest way to ensure that you or your business can claim a deduction for the full amount of the donation is to give cash to an organisation that is classified as a deductible gift recipient (DGR). And, the charities love it as they don’t have to spend any of their precious resources to receive it. There are a few rules that make the difference between whether you will or won’t receive a tax deduction. The charity must be a DGR. You can find the list of DGRs on the Australian Business Register. If you buy any form of merchandise for the ‘donation’ – biscuits, teddies, balls or you buy something at an auction – then it’s generally not deductible (the rules become more complex in this area). Your donation needs to be a gift, not an exchange for something material. Buying a goat or funding a child’s education in the third world is generally ok because you are generally donating an amount equivalent to the cause rather than directly funding that thing. The tax deduction for charitable giving over $2 goes to the person or entity whose name is on the receipt. If your business is making a donation on behalf of someone else, such as a client or that friend ‘who has everything’, it will depend on how the donation is structured. The tax rules generally ensure that the deduction is available to the individual or entity who actually makes the gift or contribution. Having receipts issued in someone else’s name can make this more complex. Should you wish to discuss any of the above information, please feel free to contact our tax champions on: (03) 8393 1000. Note: The material and contents provided in this article is informative in nature only. It is not intended to be advice and you should not act specifically on the basis of this information alone. If expert assistance is required, professional advice should be obtained.

Business and personal expenses should not be mixed

13 Dec 2021 01:25:00 GMT

There are certain things in life that blend well and others that absolutely don’t. Personal and business finances are the type of thing that shouldn’t be mixed. We understand that it may appear to be difficult to keep separate, but your life will be much more streamlined once you distinguish your business and your personal finances, especially your expenses. Your bookkeeping, paperwork and taxes will become much easier to handle and you’ll have a better picture of how much money you spend on your business. Below are some tips which may help you to keep your business and personal expenses separate. The difference between business and personal expenses Generally, the difference between business and personal expenses is obvious. Any expense that is directly related to your business gaining an income is a business expense. If you purchase an item to be used for your business, it’s a deductible business expense. If you purchase an item to use privately, that’s a personal expense. If something is used for both business and personal, such as a mobile phone which is being used partially for business and partially for personal use, you will only be able to claim a deduction for the amount that you use for business. Therefore, if you use the mobile phone for business 70 percent of the time and for personal use 30 percent of the time, you can only deduct 70 percent of the mobile phone. Whether you’re using something wholly or partly for business, you’ll need to have a record of the purchase. Use separate bank accounts and cards Having a business bank account and/or credit card will give you a simple way to not just keep your personal and business expenses separate, but also provides you with an easy way to monitor your expenses. If you are using the same accounts for business and private use, everything is combined on the same bank statement, and it can be tricky to identify or recall which transactions were related to business and which were for your private life. If you use business accounts, you will know for sure that all transactions are connected to your business and so should be deductible. Then at tax time you don’t need to examine every bank statement and highlight the deductible expenses because every transaction is business related. You may also choose to review your statements to see how much cash your business is spending. This is very tricky to do if your personal and business transactions are all joined in one account. Purchase separate business items You may not be able to keep all items separate if you are just starting out in business but purchasing items for example like a computer which will be used for both business and personal use can become problematic. Ideally, you would have a separate business computer and personal computer, a separate work and personal mobile phone and even separate vehicles. Having duplicate items for work and personal use makes it much easier to track expenses. If this kind of arrangement is out of reach and you need to share a device across both your private and business life, then you need to determine what percentage can be deducted for business. In conclusion, it may be tempting to want to write everything off as a business expense but make sure you don’t fall into that trap. Open separate accounts, buy double items where you can, one for business and one for personal and always keep receipts of your business expenses. If you are unsure, contact our tax champions to find out which activities will be a tax deduction, and which will not. We can assist with your queries and can even advise you on how you can work out a system to track your expenses. Email us at champions@parisfinancial.com.au.

An overview of the main residence CGT exemption

06 Dec 2021 01:16:00 GMT

Generally, a property, including a taxpayer’s main residence, ie their family home, is considered to be a Capital Gains Tax (CGT) asset. When CGT assets are sold, taxpayers may be liable to pay tax on all, or part, of the capital gain. However, tax law provides an exemption for a dwelling that is the taxpayer’s main residence, where certain criteria are satisfied. This exemption means there will generally be no tax liability for the taxpayer upon the sale of the main residence. To be eligible for the main residence exemption, the following conditions must be satisfied: the taxpayer is an individual the taxpayer is an Australian tax resident the dwelling was the taxpayer’s main residence throughout the ‘ownership period’, and the dwelling was not transferred to the taxpayer as a beneficiary in, or as the trustee of, a deceased estate. Is a dwelling a main residence? A number of factors are taken into consideration when determining whether or not a dwelling is the taxpayer’s main residence, including: the length of time the taxpayer has lived in the dwelling the place of residence of the taxpayer’s family whether the taxpayer’s personal belongings are located at the residence the taxpayer’s address on the electoral roll the address to which the taxpayer’s mail is delivered the connection of gas, telephone or electricity services the taxpayer’s intention in occupying the dwelling It is important to note that a mere intention to live in a dwelling as your main residence, without actually doing so, is insufficient to be eligible for the exemption – the taxpayer must actually occupy the dwelling. What happens if there is a delay in the taxpayer moving into the main residence? In some cases, there may be a gap between when a taxpayer purchases a dwelling that is intended to be their main residence and when they actually occupy the property. In this instance, the main residence exemption will apply from the date of ownership provided that the dwelling was occupied by the time it was first practicable to do so. Generally, this would be the settlement date of the purchase contract. A taxpayer may not be able to move into the dwelling upon settlement due to illness or some other unforeseen reason. So long as the taxpayer occupies the dwelling as soon as the cause of the delay no longer exists (eg recovery from illness) then the exemption will most likely still be available from the date the taxpayer acquired ownership. Note that delaying occupancy due to an existing tenant is not sufficient grounds, and as such, the exemption would not apply from the date of ownership. Can a taxpayer have more than one main residence? Where a taxpayer acquires a dwelling that is to become the main residence whilst at the same time still owning an existing main residence, the taxpayer is allowed to treat both dwellings as their main residence for the shorter of: six months, or the period between the acquisition of the new residence and disposal of the existing residence. This exemption on both dwellings will only apply if: the old dwelling was the taxpayer’s main residence for a continuous period of at least three months in the 12 months before it was disposed of the taxpayer did not use the old dwelling for income-producing purposes in any part of that 12 months when it was not the main residence, and the new dwelling becomes the taxpayer’s main residence. If it takes longer than six months to dispose of the old dwelling, the taxpayer may choose to treat it as the main residence in order to obtain a full exemption on this dwelling. This however may impact on the taxpayer’s ability to receive the full exemption on the new main residence when that dwelling is disposed of at some point in the future. What happens when a taxpayer is absent from their main residence? Where a main residence is vacated and not rented out (and no other main residence election is made in respect of another property), the property will maintain its exemption status indefinitely. Where the dwelling is used to produce assessable income when the taxpayer is absent (for example, is rented out), the exemption will apply for a period of up to six years. If the dwelling is re-established as the taxpayer’s main residence, another maximum period of six years applies if the dwelling is again vacated. The taxpayer can only continue to apply the main residence exemption to the vacated property where no other dwelling is treated as a main residence during the period of absence. Example Emily has lived in her own house for two years. She is posted overseas for four years, during which period she rents the house. On her return, she lives in the house for two years and is then posted overseas for a further five years. Again, she rents out her house. On her return she sells the house. Emily can choose to treat her house as her main residence during both periods of absence because each absence is less than six years. She can do this by not including any capital gain or loss in her income tax return for the year in which the house is sold. If any part of the dwelling was used to produce assessable income (such as a home office) before the taxpayer vacated it, the taxpayer cannot apply the six year rule to that part of the dwelling. What if a taxpayer and their spouse have different residences? Only one full main residence is permitted per family. In instances where a couple has more than one dwelling they must choose one of the properties as their main residence. Where separate dwellings are maintained and both are elected as main residences (one by the taxpayer and the other by the taxpayer’s spouse), special rules will apply and the exemption will be split. This is typically based on the ownership percentages, to determine the extent of the exemption for each dwelling. Source: Macquarie Group Limited

Market volatility during COVID-19

03 Dec 2021 00:41:00 GMT

Market volatility refers to extreme price movements over a given period. These movements may occur in a particular area, such as real estate or shares, and may be upward or downward. Ever since COVID-19 started spreading across the world in late 2019, affecting every aspect of our lives, the term ‘market volatility’ has been hitting headlines. But, what does market volatility mean? And what might it mean for your finances? Market volatility can feel like a one-off crisis. However, it’s important to remember that volatility is in the very nature of markets. Fluctuations are bound to occur and, sometimes, they’re rather extreme. For instance, in February and March 2020, markets dropped 37%, but fast-forward to the June quarter, and they picked up 16%. That’s quite a wild swing. Anyone who panicked and withdrew from the market at the end of March would have missed out on the subsequent gains. In the scheme of things, three months isn’t long at all. In the 141 years since the ASX was established, there have been 28 negative years, and the rest have been positive. In other words, each year, the average investor has a 1 in 5 chance of a setback, but a 1 in 4 chance of making gains. Further, in the 20 years leading up to 2018, the ten best days in the market were responsible for 50% of returns. During downturns, it’s easy to be swayed by the news. Headlines often focus on the negatives. When the COVID-19 pandemic began, the emotional impact of worrying financial news was intensified by the fact that the virus itself was new and unknown. Plus, so many people were unable to go to their workplaces, or catch up with friends and relatives. If you were reading the headlines and not speaking to anyone about them, you may have been susceptible to making big financial decisions based on your emotional reactions. That’s why it’s important to speak to your financial adviser, who will remind you of your long term plan—and that a downturn is just a short term blip, when you think of the next 20 years. Source: TAL

Economic and market commentary

03 Dec 2021 00:39:00 GMT

Investors remained focused on rising inflation and the possibility of policy settings being tightened worldwide. Bond yields continued to rise – particularly in Australia – as investors brought forward their expectations for interest rate hikes. This hampered returns from fixed income markets. Equity markets performed much more strongly, aided by the release of pleasing corporate results for the September quarter. Australia: The latest surveys indicate conditions have improved modestly for both manufacturers and services companies, although backward-looking economic data were largely ignored given recent restrictions in NSW and Victoria. Instead, like elsewhere, the main focus was on potential changes to central bank policy. In early October the Reserve Bank of Australia reiterated its yield target of 0.1% on 3-year government bonds. Later in the month, market movements had pushed the yield on these securities above 1.0%, seemingly with limited effort from the Reserve Bank to defend the target. This prompted investors to question whether officials were changing their stance on policy settings. At an annual rate of 3.0%, headline inflation for the September quarter printed in line with consensus forecasts. The Reserve Bank’s preferred measure of inflation – the trimmed mean – rose at a more modest 2.1% over the year. Official interest rates are unlikely to be changed for the foreseeable future. New Zealand: As had been widely anticipated, official interest rates were raised by 0.25%, to 0.50% in October. Reserve Bank of New Zealand officials appear to be concerned about quickening inflation – consumer prices rose by more than 2% in the September quarter alone, and are nearly 5% higher on a rolling 12-month measure. As a result, some commentators are suggesting interest rates could be raised by a further 0.75% at the Bank’s next meeting in late November. US: At an annual pace of 2.0%, growth in the world’s largest economy fell short of expectations for the September quarter. Pandemic-related supply shortages and bottlenecks continued to hamper manufacturers. Car production fell around 7% in September, for example, due to a shortage of semiconductors. Services sectors are enjoying better operating conditions, as consumers continue to increase spending following months of lockdowns and disruptions. There were mixed signals of the jobs front – new payrolls were lower than expected, but the unemployment rate dropped 0.4%, to 4.8%. All of these data releases were overwhelmed by comments from Federal Reserve officials on the outlook for inflation and, in turn, potential changes to interest rate policy. The Federal Reserve is still expected to start tapering its quantitative easing program during November, likely reducing its monthly purchases of Treasuries and mortgage-backed securities. Afterwards, attention is expected to increasingly shift to the likely timing of interest rate hikes. Inflation remains very high and whilst officials continue to suggest this will prove temporary, pricing pressures owing to supply disruptions seem likely to persist into 2022 and longer-term inflation expectations are rising due to elevated energy prices. Consequently, some investors are now anticipating two interest rate hikes in the US before the end of next year. Europe: The latest GDP data in the Eurozone beat expectations. The region’s economy grew by 2.2% in the September quarter, meaning overall activity levels have rebounded to 99.5% of pre-Covid levels. The upturn has been attributed to an encouraging recovery in services sectors. The increase in discretionary spending is being reflected in higher inflation; consumer prices rose 0.8% in October alone. Like elsewhere, this prompted suggestions that the European Central Bank might have to raise official interest rates. Less encouragingly, the latest data highlighted a slowdown in industrial production in Germany; Europe’s largest economy. Moreover, ongoing reports of supply shortages suggest weakness in the manufacturing sector could persist through the December quarter and, potentially, into next year. Asia: In China, large property developer Evergrande Group avoided a bond default following a last-minute coupon payment. This failed to calm investors’ nerves, however; high yield credit spreads in Asia widened sharply over the month, resulting in disappointing returns from the region’s credit markets. In Japan, there was an unexpected upward revision to economic growth forecasts for 2022. Officials expect growth to rebound back towards pre-pandemic levels in the next 12 months or so. Australian dollar The dollar reversed its recent weakness and strengthened by 4.0% against the US dollar. The ‘Aussie’ appreciated similarly against a trade-weighted basket of international currencies. Performance relative to the Japanese yen was particularly impressive. At the end of October the Australian dollar bought nearly ¥86, an increase of 6.6% over the month. The dollar was buoyed by rising commodity prices – coal and oil increased, which offset slightly lower iron ore prices. Australian equities The local share market started October on the back foot, as concerns about rising inflation drove the S&P/ASX 200 Index more than 2% lower on the first day of the month. Equities quickly recovered and had moved nearly 2% higher towards the end of the month thanks to positive trading updates from the start of the AGM season. A sudden jump in bond yields on the last day of the month saw these gains reverse, however, and caused the Index to finish the month close to where it started, with a total return of -0.1%. The Energy sector fell 2.7%, despite higher oil prices (Brent oil rose 7.5%). Energy companies struggled late in the month as news releases indicated oil supplies could soon increase, given a surprising jump in US inventories and the possibility of a resumption in Iranian oil exports. Weakness among iron ore miners drove Materials stocks -0.5% lower. Iron ore prices fell around 5% due to Chinese steel production restrictions and weakening demand expectations. In contrast, Materials stocks helped drive the S&P/ASX Small Ordinaries Index 0.9% higher thanks to strong performances from several gold and rare earth mining companies. Listed property Global property stocks fared well, with the FTSE EPRA/NAREIT Developed Index increasing by 1.9% in Australian dollar terms. The best performing regions included Sweden (+14.0%), USA (+7.8%) and Hong Kong (+6.1%), while laggards included Germany (-0.3%), Japan (-0.3%) and Australia (+0.4%). Global equities Several major share markets enjoyed their strongest month of performance of the year. The S&P 500 Index in the US closed October 7.0% higher, for example. Technology stocks continued their good form, enabling the NASDAQ to perform even better; up 7.3%. In Europe the Stoxx 50 added 5.0%, while in Asia Hong Kong’s Hang Seng and Singapore’s Straits Times rose 3.3% and 3.6%, respectively. Japan was the only major market not to participate in the rally, with the Nikkei closing the month 1.9% lower. Returns from all major markets were diluted for Australian investors due to the strength of the dollar. Nonetheless, global shares made a positive contribution to diversified portfolios over the month. Global and Australian Fixed Income Bond yields rose in most major regions, as investors continued to focus on high inflation and the possibility that interest rates could be raised earlier than previously thought. The yield on 10-year Treasuries rose 6 bps over the month, to 1.55%. Similar moves were seen on 10-year yields in other countries (Germany +9 bps, Japan +3 bps and the UK +1 bp). The most significant yield movements were seen in Australia, where 10-year yields skyrocketed by 60 bps and closed the month above 2% for the first time in more than two years; well before the Covid pandemic began. Global credit Spreads on investment grade and high yield credit were little changed in October, at least in the US and Europe. Asian markets were a little weaker, partly reflecting ongoing concern about high leverage in the Chinese property sector. Consequently, returns from global credit markets were broadly neutral over the month. Source: Colonial First State

Overseas gifts and loans in the spotlight

03 Dec 2021 00:35:00 GMT

The ATO has recently issued an alert on gifts or loans from overseas. The ATO is particularly concerned about schemes and arrangements designed specifically to circumvent Australian tax laws. In general, Australian-resident taxpayers need to declare their worldwide income in their Australian tax return. Some schemes however disguise offshore capital gains or income as a gift or loan. So, how do the ATO know if money from overseas is a genuine gift or loan? Generally, the ATO will expect to see some form of evidence that the gift is genuine such as a deed of gift prepared by the donor, formal identification of the donor, a copy of the donor’s bank account, or in the case of an inheritance, the will or distribution statement from the estate. If you have received a loan from overseas, the ATO will expect to see properly executed loan documentation, and other documentation supporting why the loan was made and its purpose. Third party documentation is best as documentation from a family member may not be accepted as conclusive evidence of a loan. The ATO will form its view based on the evidence available. Loans received from companies or trusts can still trigger tax issues in Australia. Should you have any queries regarding any of the above, please contact our office (03) 8393 1000.

Tax and the Normalisation of Cryptocurrency

21 Nov 2021 23:04:00 GMT

The Australian Taxation Office recently updated its guidance on tax and cryptocurrency. In early November, the Commonwealth Bank announced that it is now Australia’s first bank to offer customers the ability to buy, sell and hold crypto assets, directly through the CommBank app. You know when the banks come on board, cryptocurrency has become normal. But cryptocurrency is only one part of the blockchain universe. Non-fungible tokens or NFTs (fungible means interchangeable) are one-of-a-kind digital assets which are part of the Ethereum blockchain. An example is the CryptoKitties game that allows players to purchase, collect, breed and sell unique virtual cats – and, before you laugh, the game transacted over $1 million in virtual cats in its first few days of launching. NFTs are also rapidly rising in popularity in the artworld because ownership of the asset is on the blockchain and in some cases, the artist can take a percentage of every transaction of that artwork – so, no more starving artists because they can generate an income from the asset over time not just on the first sale. A stellar example is the sale of a NFT artwork by the digital artist Beeple, which was sold at auction by Christies in March 2021 for $69 million (USD). Let’s look at what the Australian Taxation Office has to say about some of the commonly asked questions about the implications of investing in blockchain. Is mining cryptocurrency income or an asset? If you receive crypto from providing services to others, this can represent income. If you create crypto, you acquire a capital gains tax (CGT) asset. A taxing event will arise when you exchange crypto for Australian Dollars or another crypto asset. Does the ATO really know about my crypto transactions? The ATO is using various sources for data collection including digital service providers (DSPs) and analysis software to track taxpayer compliance. There are several data-mining projects (no pun intended) underway looking specifically at cryptocurrency and cryptocurrency platforms. What happens if my cryptocurrency is stolen? You may be able to claim a capital loss if you lose your cryptocurrency private key or your cryptocurrency is stolen. Generally, where an item can be replaced it is not lost. A lost private key can’t be replaced. Therefore, to claim a capital loss you must be able to provide the following kinds of evidence: When you acquired and lost the private key The wallet address that the private key relates to The cost you incurred to acquire the lost or stolen cryptocurrency The amount of cryptocurrency in the wallet at the time of loss of private key That the wallet was controlled by you (for example, transactions linked to your identity) That you are in possession of the hardware that stores the wallet Transactions to the wallet from a digital currency exchange for which you hold a verified account or is linked to your identity. I mine cryptocurrency as a hobby so I should not have to pay tax on it? Unfortunately, it’s unlikely mining for fun will allow you to avoid tax. The circumstances where you can generate cryptocurrency or transact it without paying tax are very limited. Can I get a tax deduction for computer equipment purchased for mining? If you are in the business of mining, then you can claim a deduction for the equipment you purchase to generate income. If you are not carrying on a business, then the crypto is held as an investment and the equipment is not deductible. How is my NFT artwork taxed? As with any other cryptocurrency, an NFT can be held for personal use. Personal use assets are CGT assets that you keep mainly for your personal use or enjoyment. NFT is not a personal use asset if it is kept or used mainly: As an investment In a profit-making scheme, or In the course of carrying on a business. The relevant time for working out if an asset is a personal use asset is at the time of its disposal. During a period of ownership, the way that an NFT is kept or used may change (for example, NFTs may originally be acquired for personal use and enjoyment, but ultimately kept or used as an investment, to make a profit on ultimate disposal or as part of carrying on a business). The longer an NFT is held, the less likely it is that it will be a personal use asset – even if you ultimately use it for personal use or consumption. Capital gains you make from personal use assets acquired for less than $10,000 are disregarded for CGT purposes. However, all capital losses you make on personal use assets are disregarded. Collectables are not classed as personal use assets and may be subject to CGT. Can my Self Managed Superannuation Fund invest in cryptocurrency? The issue is not so much can you acquire cryptocurrency within an SMSF but should you? The June 2021 ATO statistical report shows that Australians held approximately $212m in cryptocurrency assets as at 30 June 2021- only 0.03% of total assets. The simple reason is that the volatility of cryptocurrency makes it harder to rationalise under Section 62 of the Superannuation Industry Supervision (SIS) Act, particularly if the asset allocation ratio of cryptocurrency assets in the SMSF is high. But, it’s not impossible if managed correctly at an investment and administrative level. With Bitcoin as low as $14k on 13 September 2020, and $61k on 12 September 2021, it’s easy to see the appeal for investors with the appetite for risk (335% return across 12 months). In this same period, Ethereum grew 767%. But the world was in a different place in September 2020, not just in cryptocurrency. Before investing in cryptocurrency there are a few things SMSF trustees need to be aware of: Trust Deed – the trust deed of the fund must allow for cryptocurrency assets. Most SMSF trust deeds are drafted broadly to enable trustees to invest in assets permitted by the superannuation laws and leave the investment strategy to manage the choice of assets and their appropriateness. However, it is important to check. Investment strategy – Your Investment Strategy is a major consideration with any investment within an SMSF but with cryptocurrency’s high volatility and risks, there must be clearly articulated information in the Investment Strategy. That is, it must articulate the trustees’ plan for making, holding and realising assets in a way that is consistent with the retirement goals of members being mindful of the member’s individual circumstances. Separation of assets – it’s important that the cryptocurrency assets are held in a wallet in the name of the SMSF and the IP address is provided to the SMSF auditors to verify the transactions (against the fund bank account). Problems can often arise when a wallet (in the name of the SMSF) is connected to a personal credit card to acquire cryptocurrency. In these cases, the payment is seen as either a contribution or a loan to the SMSF. The ATO also suggests you look at the diversity of the SMSF’s investments. How tax applies to blockchain and the generation of income or assets is still a work in progress. Please contact us if we can assist.

How to set up your Director ID

14 Nov 2021 23:02:00 GMT

Directors are now required to register for a unique identification number that they will keep for life. What is a director ID? A director ID is a 15 digit identification number that, once issued, will remain with that director for life regardless of whether they stop being a director, change companies, change their name, or move overseas. The introduction of the Director Identification Number (DIN) is part of the Government’s Modernisation of Business Registers (MBR) Program creating greater transparency, and preventing the potential for fraud and phoenix company activity. The MBR will unify the Australian Business Register and 31 ASIC business registers, including the register of companies. In effect, the system will create one source of truth across Government agencies for individuals and entities and will be managed by the Australian Taxation Office (ATO). For those concerned about their privacy, the director ID will not be searchable by the public and will not be disclosed without the consent of the Director. Who needs a director ID? All directors of a company, registered Australian body, registered foreign company or Aboriginal and Torres Strait Islander corporation will need a director ID. This includes directors of a corporate trustee of self-managed super funds (SMSF). You do not need a director ID if you are running a business as a sole trader or partnership, or you are a director in your job title but have not been appointed as a director under the Corporations Act or Corporations (Aboriginal and Torres Strait Islander) Act (CATSI). The company secretary or officeholder should keep a register of the IDs of their directors in a secure place – director IDs are governed by the same privacy rules that apply to Tax File Numbers (TFNs) and should not be disclosed unless required. Timeframes for registration For Corporation Act directors: Date you become a director Date you must apply On or before 31 October 2021 By 30 November 2022 Between 1 November 2021 and 4 April 2022 Within 28 days of appointment From 5 April 2022 Before appointment For CATSI directors: Date you become a director Date you must apply On or before 31 October 2022 By 30 November 2023 From 1 November 2022 Before appointment If the company intends to appoint new directors, it will be important to ensure that they are aware of the requirements and timeframes to establish their director ID if they do not already have one. How to set up a director ID If you are an Australian resident director, you will need to complete a number of steps and have a number of identification documents available and ready (for non-resident directors see Foreign directors and the director ID system below). 1. Verify your identify If you establish your director ID online, and you have not already set up myGovID, you will need to download the app onto your phone or device and create an account. The myGovID does not create your director ID – the app’s only purpose is to validate your identity, and once validated, issue a code that can be used to identify you on government online services without going through the same verification process. myGovID uses your phone/device’s camera to scan your forms of ID such as your passport, driver’s license and/ or VISA (check the documentation requirements here), to validate who you say you are. Be careful when you are scanning your documentation as the system does not always read the scan correctly. 2. Apply for your director ID through Australian Business Registry Services Once you have set up your myGovID, you need to apply to the Australian Business Registry Services (ABRS) for your director ID. Use the email you used to create your myGovID to start the process. In addition to your myGovID, you will need to have on hand documentation that matches the information held by the ATO. If you have a myGov account linked to the ATO, you can find the details on your profile. You will need: Your tax file number The residential address held on file by the ATO; and Two documents that verify your identify such as: Your bank account details held by the ATO (on your myGov ATO account, see ‘my profile/financial institution details’). Dividend statement investment reference number Notice of assessment (NOA) – date of issue and the reference number (on your myGov ATO account, see Tax/lodgements/income tax/history). The gross amount from your PAYG payment summary Superannuation details including your super fund’s ABN and your member account number The final stage requests your personal contact details (not the company’s). Once complete, your director ID will be issued immediately on screen. This information should be provided to your company secretary or office holder. If any of your details change, for example a change of residential address or phone number, you will need to update your details through the ABR. You will also need to notify your company within seven days (14 days for CATSI Act directors) and the company will then need to notify the Australian Securities and Investments Commission (ASIC) within 28 days. Applying by phone or using paper forms You can choose to verify your identify and apply for your director ID by phone (13 62 50) or on paper. You will need to have your identification documents available. If you are applying using the paper form, your identify documentation will need to be certified by an authorised certifier such as a Barrister, Justice of the Peace etc. Foreign directors and the director ID system Foreign directors of Australian companies have the same requirements and deadlines as Australian resident directors, however, the verification process is only accessible in paper form. One primary and two secondary forms of identification are required to accompany the application that have been certified by a notary publics or by staff at the nearest Australian embassy, high commission or consulate, including consulates headed by Austrade honorary consuls. Primary forms of identification include a birth certificate or passport, and secondary include driver’s licence, foreign government identifier, or national photo identification card. In the presence of the applicant, the authorised certifier must certify that each copy is a true and correct copy of the original document by sighting the original document, stamping, signing and annotating the copy of the identity document to state, ‘I have sighted the original document and certify this to be a true and correct copy of the original document sighted’. initialling each page listing their name, date of certification, phone number and position. The form and the accompanying documents will need to be sent by mail to Australian Business Registry Services using the details provided. Directors in name only It’s important that anyone agreeing to be a director understands the implications. Being a director is not just a title; it is a responsibility. At a financial level, directors are responsible for ensuring that the company does not trade while insolvent. The by-product of this is that the directors may be held personally liable for the debt incurred. The director penalty regime has also tightened up in recent years to ensure that directors are personally liable for PAYG withholding, net GST, and superannuation guarantee charge liabilities if the company fails to meet its obligations by the due date. For many small businesses, the directors are also often personally responsible for company loans secured against property such as the family home. Failing to perform your duties as a director is a criminal offence with fines of up to $200,000 and five years in prison. Ignorance is not a legal defence. Don’t sign anything unless you understand the consequences. Should you have any queries, please don’t hesitate to contact our office (03) 8393 1000.

What happens to your superannuation when you die?

07 Nov 2021 22:54:00 GMT

Superannuation is not like other assets as it is held in trust by the trustee of the superannuation fund. When you die, it does not automatically form part of your estate but instead, is paid to your eligible beneficiaries by the fund trustee according to the rules of fund, superannuation law, and the death nomination you made. Death nominations Most people have a death nomination in place to direct their superannuation to their nominated beneficiaries on their death. There are four types of death benefit nominations: Binding death benefit nomination – Putting in place a binding death nomination will direct your superannuation to whoever you nominate. As long as that person is an eligible beneficiary, the trustee is bound by law to pay your superannuation to that person as soon as practicable after your death. Generally, death benefit nominations lapse after 3 years unless it is a non-lapsing binding death nomination. Non-lapsing binding death benefit nomination – Non-lapsing binding death nominations, if permitted by your trust deed, remain in place unless the member cancels or replaces them. When you die, your super is directed to the person you nominate. Non-binding death nomination – A non-binding death nomination is a guide for trustees as to who should receive your superannuation when you die but the trustee retains control over who the benefits are paid to. This might be the person you nominate but the trustees can use their discretion to pay the superannuation to someone else or to your estate. Reversionary beneficiary – if you are taking an income stream from your superannuation at the time of your death (pension), the payments can revert to your nominated beneficiary at the time of your death and the pension will be automatically paid to that person. Only certain dependants can receive reversionary pensions, generally a spouse or child under 18 years. If no death benefit nomination is in place – If you have not made a death benefit nomination, the trustees will decide who to pay your superannuation to according to state or territory laws. This will often be a financial dependant to the legal representative of your estate to then be distributed according to your Will. Is your death benefit valid? There have been a number of court cases over the years that have successfully contested the validity of death nominations, particularly within self managed superannuation funds. For a death nomination to be valid it must be in writing, signed and dated by you, and witnessed. The wording of your nomination also needs to be clear and legally binding. If you nominate a person, ensure you use their legal name and if the superannuation is to be directed to your estate, ensure the wording uses the correct legal terminology. Who can receive your superannuation? Your superannuation can be paid to a SIS dependant, your legal representative (for example, the executor of your will), or someone who has an interdependency relationship with you. A dependant is defined in superannuation law as ‘the spouse of the person, any child of the person and any person with whom the person has an interdependency relationship’. An interdependency relationship is where someone depends on you for financial support or care. Do beneficiaries pay tax on you superannuation? Whether or not the beneficiaries of your superannuation pay tax depends on who the superannuation was paid to and how. If your superannuation is paid as a lump sum to a tax dependant, the superannuation is tax-free. The tax laws have a different definition of who is a dependant to the superannuation laws. A tax dependant for tax purposes is your spouse or former spouse, your child under the age of 18, or someone you have an interdependency relationship with. Special rules exist if you are a police officer, member of the defence force or protective service officer who died in the line of duty. If your superannuation is paid to your estate, the tax laws use a ‘look through’ approach when superannuation death benefits are distributed to the deceased’s legal representative. This involves determining whether the final recipient of the superannuation is a dependant or a non-dependant of the deceased. If the person is not a dependant for tax purposes, for example an adult child, then there might be tax to pay. If you want more information on any of the above, please give us a call on 03 8393 1000 and we will be happy to arrange a meeting. This information does not consider your personal circumstances and is general advice only. You should not act on any recommendation without considering your personal needs, circumstances, and objectives. We recommend you obtain professional financial advice specific to your circumstances.

Divorce, Superannuation and the Gender Divide

31 Oct 2021 22:31:00 GMT

New legislation will help prevent superannuation assets from being hidden during divorce proceedings. From 1 April 2022, the Australian Taxation Office (ATO) will be able to release details of an individual’s superannuation information to a family law court. The recently enacted laws are designed to ensure that there is procedural and economic fairness in divorce proceedings to prevent the under-reporting of superannuation assets. While a spouse’s superannuation information can be obtained now through legal action, if it is not provided willingly, it is often expensive and time consuming to obtain factual information through subpoenas or court orders. From April 2022, when a couple have entered into divorce proceedings, if one of the parties believes the other is not being forthcoming about the value of assets held in superannuation, they can apply to a family law court registry to request their former partner’s superannuation information held by the ATO. They will then be able to seek up-to-date superannuation information from their former partner’s superannuation fund. What happens to superannuation in a divorce? In a divorce, superannuation is treated like any other asset and included in the division of assets in a property settlement or financial agreement. Depending on how the total assets of the couple are split, the superannuation balances of each individual may remain intact with each party taking their respective entitlement from the asset pool, or split between the couple. For superannuation to be split, there must be: An order from the Family Court or Federal Magistrate Court; or A superannuation agreement (a financial agreement that deals with superannuation interests) If a superannuation account is split, it does not convert into cash unless the receiving spouse is aged 65 or over, or has reached preservation age and has retired. In most cases, the superannuation is immediately rolled over into the receiving spouse’s superannuation account and remains there until they are legally able to access it. The tax-free and taxable components of the super payment to a receiving spouse will be calculated immediately before the payment is made with the relevant payment retaining the tax components of the account the funds are being transferred from. For self managed superannuation funds (SMSFs), generally an SMSF cannot acquire assets such as residential property from a related party but there is an exemption when the acquisition is a result of marriage breakdown. Where a property like a residential rental property is involved, the superannuation rules allow an in-specie rollover under a court order or financial agreement rather than forcing the former couple to sell the property. For example, where a couple have an SMSF together, it’s common for one member to step down when they divorce (until that point it’s important to remember that the trustees are legally obliged to act in the best interests of all members). This same member might then set up their own SMSF and utilise the exemption to receive the residential rental property as an in-species rollover. Capital gains tax relief is also available where property is transferred to a spouse’s superannuation fund as a result of divorce proceedings so that any potential capital gains tax does not apply on transfer. Instead, the spouse or former spouse who receives the asset will effectively ‘inherit’ the transferor’s cost base of the asset for CGT purposes. That is, when the property is transferred, the tax implications are generally the same as if the receiving spouse or their superannuation fund owned the property from the time it was acquired. If you and your spouse have an SMSF together and a divorce is imminent, it’s important to get advice on the decisions that need to be made about your SMSF and their implications. The superannuation divide On average, women earn 14.2% less than men based on full time earnings. If you take overtime into account, the gap is 16.8%. When part-time work is taken into account, this figure blows out to 31.3%. And, the COVID-19 pandemic has only worsened the pay gap. Given that 93% of all primary carer leave is taken by women, it’s not surprising that there is a divide between the superannuation balances of men and women on retirement. While the gap is diminishing over time reflecting the positive shifts in work participation and the earning potential of women, it is currently estimated to be around 42%. That is, when a woman retires, she retires with around 42% less superannuation than a man. While the situation is much better in SMSFs, a gap remains. Over the five years to June 2019, the average member balances of women increased by 28% to $654,000, however the average balance of a male was $784,000. The Federal Budget proposal to remove the $450 threshold on superannuation guarantee payments (the minimum amount someone needs to earn in a month before an employer is required to pay superannuation guarantee) will help reduce the superannuation divide, but this is not intended to commence until 1 July 2022. Superannuation equalisation Where couples have significantly different superannuation account values but are of a similar age, there are practical reasons why they might look at evening out any gap. Where one spouse is close to or likely to reach their transfer balance cap (between $1.6m and $1.7m), redirecting superannuation contributions to the spouse with the lower balance means that together, they maximise their tax-free income in retirement. Together, the couple can accumulate between $3.2 and $3.4 million tax-free. You can make a contribution to your spouse’s superannuation fund up to their non-concessional cap (currently up to $110,000 depending on their superannuation balance). If they are under 67 years of age, you might also be able to use the bring-forward rule and contribute up to 3 years’ worth of non-concessional contributions in one year (up to $330,000 depending on their superannuation balance). If your spouse is not working or a low income earner (assessable income less than $40,000), there is also a tax offset of up to $540 available on contributions you make on their behalf. If your spouse is under 65 and not retired, you can split your superannuation with them. Up to 85% of your concessional superannuation contributions from your employer or salary sacrifice each year, can be directed to your spouse’s fund. Actively addressing the value of each spouse’s superannuation account might also help to manage some of the issues that can occur when a spouse dies. While superannuation will pass to the beneficiary nominated in the death benefit nomination or estate, this does not always occur in the most practical or tax effective way. The superannuation rules in this area are complex, particularly when there have been family breakdowns in the past. It’s important to seek advice to ensure your superannuation is managed in a way that delivers the best possible outcome for your beneficiaries. If you have any questions, please feel free to contact our tax champions on (03) 8393 1000. This information does not consider your personal circumstances and is general advice only. You should not act on any recommendation without considering your personal needs, circumstances and objectives. We recommend you obtain professional financial advice specific to your circumstances.

Recruiting new employees? The 1 November superannuation rule changes

24 Oct 2021 22:24:00 GMT

When your business hires a new employee, the Choice of Fund form is used to identify where they want their superannuation to be directed. If the employee does not identify a fund, generally the employer directs their superannuation into a default fund. From 1 November 2021, where an employee does not identify a fund, the employer is required to contact the ATO and request details of the employee’s existing superannuation fund or ‘stapled’ fund (the fund stapled to them). The request is made through the ATO’s online services through the ‘Employee Commencement Form’. If the ATO confirms no other fund exists for the employee, contributions can be directed to the employer’s default fund or a fund specified under a workplace determination or an enterprise agreement (if the determination was made before 1 January 2021). If you have any questions about the new rule changes, please contact our office on: (03) 8393 1000.

Construction Industry Support – Round Four

21 Oct 2021 10:40:00 GMT

The Victorian Government are offering support for entitled construction businesses, including employing and non-employing businesses, who were affected by the construction sector shutdown from 21 September – 4 October 2021. The Business Costs Assistance Program Round Four – Construction offers one-off support payments to eligible businesses in the construction industry that were operating in the below local government regions at the time of the restrictions: Metropolitan Melbourne Mitchell Shire Surf Coast Shire The City of Greater Geelong Businesses affected need to have incurred direct expenses due to the COVID-19 construction shutdown restrictions between 21 September to 4 October 2021, which have not been and will not be partially or fully recovered or reimbursed. The payments of up to $8,400 will be available to entitled businesses based upon the payroll size. The program will stay open until 11:59pm on 9 November 2021 or when funds are exhausted, whichever is sooner. You can find out more on the Business Victoria website regarding the support program guidelines and to see if you meet the eligibility criteria conditions. Businesses, individuals and Sole Traders who do not meet the eligibility measures but have lost hours or income, may be entitled to financial support via the Commonwealth Government’s COVID 19 Disaster Payment. Please know that the payment may not be available when the 80% vaccination target is reached, based on Commonwealth Government policy. Click here for to see the list of eligible sectors. For those who have multiple businesses can only apply for one grant per ABN. If you have other businesses with a different ABN that meet the eligibility criteria for this program, you must submit a separate application for each ABN. Each business or ABN must meet all the eligibility criteria. Not-for-profit organisations that are not registered for GST and have an annual turnover between $75,000 and $150,000 can apply for a grant. Your organisation must meet all other eligibility criteria to be eligible. For those businesses that had already received funding under one of the below programs will not be eligible for a grant under this new program: Small Business COVID Hardship Fund. Business Costs Assistance Program Round Two Business Costs Assistance Program Round Two July Extension Businesses that do meet the eligibility measures and have received assistance through the previous three rounds of the Business Support Fund, payroll tax rebate/waiver, or other COVID-19 business support programs are eligible to apply for a grant under this program. The support grant amount payable to an entitled business is calculated by its payroll size: $2000 for non-employing businesses $2800 for employing businesses with annual payroll below $650,000 $5600 for employing businesses with an annual payroll between $650,000 and less than $3 million $8400 for employing businesses with an annual payroll between $3 million and $10 million. Businesses that receive funding under the Business Costs Assistance Program Round Four – Construction will not be eligible for automatic top-up payments under the Business Costs Assistance Program Round Two and the Business Costs Assistance Program Round Two July Extension. When applying for this grant you will need a number of documents available to submit, find out what information you will need to provide here. If you’d like to discuss any of the above information, please do not hesitate to contact our office.

Unwinding COVID-19 Relief

13 Oct 2021 00:47:00 GMT

COVID-19 support will roll back as states and territories reach vaccination targets. The National Plan, the road map out of COVID-19, does more than provide greater freedoms at 70% and 80% full vaccination rates, it withdraws the steady stream of Commonwealth financial support to individuals and business impacted by COVID-19 lockdowns and border closures. We look at the impact and the support that remains in place. For individuals The COVID-19 Disaster payment offered a lifeline to those who lost work because of lockdowns, particularly in the ACT, New South Wales, and Victoria where the Delta strain of the virus and long-term lockdowns had the greatest impact. In late September, the Treasurer announced that the Disaster Payment will roll back as states and territories reach vaccination hurdles on the National Plan. Over $9 billion has been paid out to date on Disaster Payments and at 70% and 80% full adult vaccination, the disaster, apparently, is over. At 70% full vaccination in your state or territory In the first week a state or territory reaches 70% full adult vaccination, the automatic renewal that has been in place will end and individuals will need to reapply each week that a Commonwealth Hotspot remains in place to confirm their eligibility. The COVID-19 Disaster payment will not necessarily end, but anyone currently receiving the payment will need to reconfirm that they meet the eligibility criteria, including living or working in a Commonwealth declared hotspot. Given that the time gap between 70% and 80% full vaccination might be as little as two weeks in some regions, the impact of the 70% restrictions might be a moot point. At 80% full vaccination in your state or territory In the first week a state or territory reaches 80% full adult vaccination, the COVID-19 Disaster Payment will phase out over a two week period before ending completely. Trigger Disaster payment per week <70% vaccination* $750 - lost 20 hours or more for that week $450 - lost at least 8 hours of work $200 - on income support and have lost at least 8 hours of work 70% vaccination* Automatic renewal ends 80% vaccination Payment reduced from first week Week 1 $450 - lost at least 8 hours of work $100 - for those on income support who have lost at least 8 hours of work Week 2 $320 - lost at least 8 hours of work *First week population +16 years of age reaches vaccination target Those needing financial support will no longer be eligible for the disaster payment, regardless of whether a Commonwealth hotspot is in place, and instead will need to apply for another form of income support such as JobSeeker. Unlike the disaster payments, JobSeeker and most other income support payments are subject to income and assets tests. The Pandemic Leave Disaster Payment, for those who cannot work because they need to self-isolate or care or quarantine, or care for someone with COVID-19, will remain in place until 30 June 2022. Support for business Each state and territory manages lockdown and financial support to businesses impacted by COVID-19 lockdowns and border closures differently. The way in which support is withdrawn will depend on how support has been provided and the extent of Commonwealth support. Australian Capital Territory The ACT Government has distributed grants to business jointly funded with the Commonwealth. The ACT COVID-19 Business Grant was recently extended with top-up grants of $10,000 for employing businesses and $3,750 for non-employing businesses distributed to previous grant recipients in industries impacted by continued lockdowns. Large businesses $2m to $5m received an additional top-up amount of between $10,000 and $30,000. The Tourism, Accommodation Provider, Arts, Events, Hospitality & Fitness Grants have also been topped up with grants between $5,000 and $25,000 to existing recipients and the grant has been expanded to the fitness/sports sector (more information will be available mid-October). Lockdowns eased on 1 October and are scheduled to be lifted from 15 October, with a return to normal in early to mid December 2021 (see the pathway forward). While not specified, it is expected that grants will cease at this point and instead, directed into targeted industry specific initiatives (see the recovery plan). New South Wales The NSW JobSaver, which provides payments of up to 40% of weekly payroll, is jointly funded by the state and Commonwealth governments. From 13 September, businesses receiving JobSaver have been required to reconfirm their eligibility for the payment each fortnight including a 30% decline in turnover test and headcount test. JobSaver* Weekly payroll Min Max Non-employing business Current 40% $1,500 $100,000 $1,000 10 October 30% $1,125 $75,000 $750 80% full vaccination 15% $562.50 $37,500 $375 30 November 0% $0 *excludes extension program At 70% full adult vaccination (10 October 2021), JobSaver will reduce from 40% of weekly payroll to 30%. Then, at 80% full vaccination, the Commonwealth will withdraw funding. The NSW Government announced that it will continue to fund their portion of JobSaver up until 30 November 2021 (15% of payroll). It is unclear at this stage of what the impact of the withdrawal of Commonwealth funding at 80% vaccination rates will mean to large tourism, hospitality, and recreation businesses. The $1,500 fortnightly micro-business grant, will reduce to $750 per fortnight from 80% full vaccination and cease on 30 November 2021. If you are uncertain how the easing of restrictions will impact on you and your workplace, see the roadmap. Queensland While not significantly impacted by local lockdowns, Queensland tourism is impacted by national and international border closures. A second round of Tourism and Hospitality Sector Hardship grants have been announced although no further details are currently available. For businesses on the border with New South Wales, a hardship grant will become available if the closure remains in place until 14 October or longer with grants of $5,000 for employing entities and $1,000 for non-employing entities (see Business Queensland for details). To receive the grant, you must operate in a ‘border business zone’ and have received the COVID-19 Business Support Grant. Pointedly, Federal Treasurer Josh Frydenberg has stated, “Governments must also hold up their end of the bargain and stick to the plan agreed at National Cabinet that will see restrictions ease and our borders open up as we reach our vaccination targets of 70 to 80 per cent.” The Queensland Government will be under significant pressure to open borders once vaccination rates reach 80% in December and prior to the school holiday period. Victoria The Victorian Government has distributed grants to business jointly funded with the Commonwealth. For many of these grants, funding has been topped up in line with lockdown extensions. The small business hardship fund providing one-off grants of $20,000 for businesses that have suffered a 70% or more decline in turnover and were not eligible for other grants or funding, will reopen (see the BusinessVictoria website for details). The Business Costs Assistance Program will provide automatic top-ups to existing recipients across October and into the first half of November (two fortnightly payments between 1-29 October on a rising scale). Businesses that remain closed or severely restricted between 70% and 80% double dose will receive an automatic payment for the period from 29 October to 13 November. Licensed hospitality venue fund recipients will also receive weekly top-ups in October of between $5,000 and $20,000, stepped according to venue capacity. Between 70% and 80% double dose, payments for licensed premises in metropolitan Melbourne will be reduced by 25%, and in regional Victoria by 50%. Victoria is not expected to reach the 70% vaccination target until the end of October, and 80% in early to mid-November. You can find Victoria’s broad road map here. National The National Plan stipulates that state and territory borders are to reopen at 80% double vaccination in that state or territory but this will depend on health advice at the time. Generally, international borders will reopen in states and territories at 80% double vaccination with Australian and permanent residents able to quarantine at home for 7 days. Unvaccinated travellers will need to stay in hotel quarantine for 14 days. Commercial flights will also resume for vaccinated Australians with Australia expected to implement a ‘red light, green light’ system similar to the UK to designate safe countries. For other regions such as South Australia and the Northern Territory, borders are expected to reopen at 80% double vaccination but with some nuances flagged. The Western Australian Government however has stated that it will announce an easing of border restrictions once an 80% double vaccination has been achieved for those over 12 years of age. SME lending options While there is likely to be an economic rebound when restrictions ease across the country, for many, a funding gap will remain between the assistance provided by Government grants and viable trading conditions. The expanded SME recovery loan scheme took effect on 1 October 2021. Under the scheme, the Government will guarantee 80% of loan amounts to businesses that have been adversely impacted by COVID-19. The lending terms, repayment, and interest rates are set by the lenders but cannot be backed by residential property, that is, if the Government is underwriting the loan, lenders cannot ask business owners to use their home as security. However, Directors guarantees are likely to be required. Under the scheme, lenders can provide: A repayment holiday of up to 24 months Loans of up to $5m Loan terms of up to 10 years, and Secured and unsecured loans The recovery loans can be used to refinance existing loans, purchase commercial property, purchase another business, or working capital. But, cannot be used to purchase residential property, financial products, lend to associated entities, or lease, rent, hire or hire purchase existing assets that are more than half way into their effective life. The loan scheme is generally available to solvent businesses with a turnover of up to $250m, have an ABN, and a tax resident of Australia. Loans remain subject to lending conditions and generally the lenders will look to lend to viable businesses where it is clear that they can trade their way out of the impact of COVID-19 or the assets of the business make the break-up value attractive. If you default on your loan, you cannot simply walk away from it. The Government is guaranteeing 80% of the lender’s risk not your debt. Director guarantees are still likely to be required and for many loans, it will be secured against a business asset. On the plus side, interest rates are very attractive right now and many of the lenders are providing a repayment holiday of up to 24 months and in some cases, existing debt can be bundled into the loan arrangements. If you would like to discuss any of the above, please contact our tax champions on: (03) 8393 1000.

Did your super fund receive a compensation payment?

07 Oct 2021 00:31:00 GMT

Of late, there have been several compensation payments made by financial services providers to customers that were inappropriately charged or overcharged for insurance premiums or services they did not receive, etc. New guidance from the ATO helps decipher whether these compensation payments are treated as contributions to your fund. The problem for some people is that where these compensation payments are treated as a contribution to their superannuation fund, they may exceed their contribution cap or attract Division 293 tax (a 15% tax on super contributions imposed on those with combined income and super contributions of $250,000 or more). In general, the treatment of the compensation depends on who engaged the financial services provider. In general: Super fund engaged the financial services provider and compensation paid to the fund – compensation not treated as a contribution. Individual engaged the financial services provider and compensation paid to the fund but not at member’s discretion – compensation is a concessional contribution in the financial year it is received. Individual engaged the financial services provider and compensation paid to the fund at member’s discretion – compensation is a non-concessional contribution in the financial year it is received Where neither the member of the fund or the financial services provider had a right to seek compensation, the amount will be a concessional contribution in the financial year it is received by the fund. If you have received a compensation payment from a financial services provider and the payment means you have exceeded your contribution cap, or are liable for Division 293 tax, there is a potential solution to avoid an adverse impact where you did not have control over the payment. In these cases, you can apply to the Tax Commissioner to exercise his discretion to disregard excess contributions or reallocate them to another year. Should you have any questions in relation to the above, please contact our office. This information does not consider your personal circumstances and is general advice only. You should not act on any recommendation without considering your personal needs, circumstances and objectives. We recommend you obtain professional financial advice specific to your circumstances.

What now? Unwinding the Pandemic

27 Sep 2021 00:12:00 GMT

Australia’s two largest states and the ACT are in lockdown as the Delta strain of COVID-19 takes its toll while others are standing firm on a policy of eradication. The result is a country at a policy impasse and divided by border restrictions. And, it is not just businesses in lockdown that are in crisis. Tourism and hospitality businesses that rely on interstate trade are equally impacted but financial assistance is often limited or non-existent if they are not in a hotspot. At the time of writing, Australia is on track to fully vaccinate the eligible population of 20.62 million adults in December 2021. Based on National Cabinet’s four stage roadmap to normal, Australia should move to phase B of the plan when 70% of the eligible population have received their second dose of the vaccine. At Phase B, it is expected that lockdowns will be “less likely” and special rules will apply to the fully vaccinated. At Phase C, when 80% of the eligible population is vaccinated, the plan is for Australia to return to “baseline restrictions” with no caps on returning visitors, and a gradual opening of inward and outward international travel with safe countries (quarantine requirements will still apply but will be reduced). The problem for “Team Australia” is that not all players are the same. While some regions remain in an eradication phase, the strategy for opening and returning to normal is necessarily different (assuming these regions remain Delta free). In NSW and Victoria, hope of defeating Delta has been abandoned with the focus now on bringing the population up to the maximum vaccination level to prevent hospitalisations and death. In QLD and WA however, the strategy for opening is more complex with the bar being raised well beyond the national plan (Queensland Premier Annastacia Palaszczuk has demand that children under 12 be included in vaccination targets). Freedoms for the fully vaccinated and what it means to business A major concern for many business operators is the expectation of policing vaccination status for both staff and customers. Identifying vaccinated customers Both the New South Wales and Victorian Premiers have stated that there will be greater freedoms for those who are double jabbed with new QR code check-in technology expected at the end of September. Instead of having to show a vaccination certificate or medical record, Victorian Premier Dan Andrews said that the QR codes, “don’t store that information, but you either get a tick or a cross, and on that basis you are allowed in or not.” This system might also assist those who are medically exempt from vaccination as they would not need to explain their medical history behind their exemption. But is it discriminatory? The Australian Human Rights Commission (ARC) says, “Vaccine passports are more likely to be consistent with human rights when they are used as a tool to ease existing restrictions and improve public health outcomes. Rather than becoming a further requirement on top of existing restrictions, vaccine passports should generally operate in place of them.” “…the guiding human rights principles for considering measures taken to advance public health are: They must be reasonable, necessary, and proportionate. They must take into account the potential for discrimination.” While public health orders are likely to protect business operators from discrimination claims, not all are waiting. Qantas was the first major airline to state that it would require passengers to be vaccinated on international flights when borders open. Several sporting venues have also stated that the price of the return to live events is double vaccination for both staff and patrons. A business operator has the ability now to refuse entry or service to a customer as long as anti-discrimination rules are not breached. Excluding an individual by vaccination status without a public health order however will be a question of whether the rule is reasonable, necessary, and proportionate. Staff members and vaccinations In general, vaccination will remain voluntary and free in Australia but there are some sectors where vaccinations are mandatory (see Legislation and public health orders requiring vaccination against coronavirus). Common sectors include aged care and hotel quarantine. In these sectors, the employer is generally responsible for enforcing the Health Orders. Outside of a public health order an employer can mandate that employees are vaccinated but only if the direction to be vaccinated is “lawful and reasonable”. In addition to being able to mandate vaccinations under the relevant Award or agreement, employers need to ensure that mandating vaccinations is reasonable for example, because the staff member’s duties put them at increased risk of being infected or they have close contact with vulnerable people (see Can an employer require an employee to be vaccinated? on the FairWork website). Qantas for example will require all frontline employees to be fully vaccinated by 15 November 2021 and all other employees to be vaccinated by 31 March 2022. The announcement followed a company wide survey of staff that revealed 89% planned to be fully vaccinated and only 4% were unwilling or unable to be vaccinated. Qantas is yet to release details of how medical exemptions will be applied. In workplaces where vaccinations are not mandated, an employer can only collect information on an employee’s vaccination status where it is reasonably necessary for the organisation’s functions or activities or where it is required by law. In these cases, it may be possible for the employer to ask to see evidence of an employee’s vaccination status without breaching privacy laws (see the FairWork website and the Office of the Australian Information Commissioner for further information). Another question is whether an employee can refuse to come to work because their co-workers are not vaccinated. On this, FairWork says “If an employee refuses to attend the workplace because a co-worker isn’t vaccinated, their employer can direct them to attend the workplace if the direction is lawful and reasonable.” But, the Australian Human Rights Commission states that where someone is particularly vulnerable to COVID-19, a “blanket rule requiring all employees to attend a particular workplace may constitute indirect discrimination.” Whether it’s reasonable for an employee to attend their workplace is highly dependent on the facts and you should seek legal advice. Should you wish to discuss any of the above information, please contact our office on (03) 8393 1000.

Mental Health Support for Business Owners

20 Sep 2021 03:56:00 GMT

Running a business can be an isolating experience. And, with COVID-19 lockdowns and disruptions to trade, the pressure can be intense. NewAccess for Small Business Owners is a free and confidential mental health program developed by Beyond Blue to give small business owners the support they need. Whether you’re just feeling stressed, or completely overwhelmed about everyday life issues, they can help. Understandably, a lot of small business owners are reporting that COVID-19 has negatively affected their mental health. NewAccess is designed to appeal to people who might not otherwise seek support for their mental health and to provide support early, preventing symptoms from potentially getting worse. Coaches of the NewAccess for Small Business Owners program all have a small business background and are trained in Low-intensity Cognitive Behavioural Therapy – a structured, evidence based psychological treatment. Put simply, it allows us to recognise the way we think, act and feel. The program is open to small business owners (under 20 employees) who are not currently seeing a psychologist or psychiatrist. The program starts with an initial assessment, then works with you over five sessions to tackle unhelpful thoughts and behaviours, using an individual plan that you develop with your coach. Together you will develop an understanding of what is causing distress and then work on practical tools and strategies that can be used in day-to-day life. https://www.beyondblue.org.au/get-support/newaccess/newaccess-for-small-business-owners

Victorian Government business boost announced for the extended lockdown

13 Sep 2021 01:59:00 GMT

While Victoria is expected to remain in lockdown until the start of October, the Victorian Government will be rolling out additional financial support for the state’s small and medium businesses as they continue to grapple with the sustained impacts of lockdown restrictions. On Saturday 4th September the Victorian Premier announced the state’s largest business support boost package, which will be jointly funded by the Commonwealth and Victorian Government. The boost will run primarily to businesses that are entitled to the Business Costs Assistance program. Over 175,000 Victorian businesses are expected to benefit from this four-week booster support package, which will run until the 30th September. The program previously capped payments to businesses at $2,800 per week, however these September payments will be made at three tiers: Businesses with payrolls of no more than $650,000 will receive payments each week of $2,800; Businesses with payrolls of between $650,000 and $3 million will receive $5,600 per week; and Businesses with payrolls of between $3 million and $10 million will receive a weekly payment of $8,400. Most payments will be instantly deposited automatically into businesses’ bank accounts. The three-tiered system will offer a more targeted approach to business support across the state. Therefore, businesses with more employees will have greater support to maintain those numbers in the coming weeks. In the meantime, the Government will continue to stand by Victorian businesses and their workers. Businesses such as bars, cafes and restaurants who are eligible will continue to receive the Licensed Hospitality Venue Fund payments of between $5,000 and $20,000 each week depending on venue capacity. Venues that have a capacity of up to 99 patrons will receive $5,000, while those with a threshold of between 100 and 499 patrons will receive $10,000, and those with capacities of 500 or greater will receive payments of $20,000. An Alpine Support Package will assist in sustaining resorts through the remainder of the season and September school holidays with an automatic top-up payment of between $10,000 and $40,000, dependant on the business location and whether they hire staff. In the announcement the Victorian government also reminded eligible workers that they will continue to receive support under the COVID-19 Disaster Payment scheme, and so, too, will sole traders who are ineligible for any other payments. The payment will offer individuals who have lost between 8 and 20 hours per week $450 each week, and $750 each week for those who have lost 20 hours and above. These payments are being processed through Services Australia. Due to the changing circumstances, the Government came up with this package which is bigger than anything announced before. This is for all the dedicated business owners across the state and its workers to support the hardest-hit sectors and businesses to ensure they can keep up with their expenses. Federal Treasurer Josh Frydenberg stated, “We will continue to support Victorians, with our ongoing economic assistance to meet the challenges of the Delta strain.” Details about Victorian business support payments are available at business.vic.gov.au. Should you have any queries in relation to these support payments please call our office on (03) 8393 1000.

The ATO examines property investors as deduction issues increase

16 Aug 2021 01:55:00 GMT

The ATO has issued a warning to property investors this tax time following rental income and deduction errors found in over 70 per cent of tax returns audited last financial year. The ATO stated that Australia’s 1.8 million rental property investors claimed a total of $38 billion in deductions for the 2019–20 financial year. It was found that more than 70 per cent of the tax returns selected for an audit in the 2019-20 year required adjustments. The ATO advised that it’s vital for investors to remember that there is no such thing as free real estate when it comes to their tax returns. The tax office data analytics team examine and will ask questions regarding returns for rental deductions that seem unusually high this can lead to a delay in the processing a return. Frequent mistakes people seem to make include failing to declare all rental income or any capital gains from selling an investment property. The ATO have a better handle on this via data matching. The tax office is improving the rental income data they receive directly from third-party sources such as sharing economy platforms, rental bond authorities and property managers. In the past they have often allowed taxpayers who have made genuine errors to amend their returns without penalty. Going forward any deliberate attempts investors make to avoid tax on rental income will see the ATO take action. The ATO also commonly see other errors including investors incorrectly claiming capital works, for instance immediately claiming the full amount for a kitchen renovation, instead of spreading it over several years. Some investors have also made the mistake of claiming deductions on redrawn mortgage loans used for personal expenses, such as buying a boat or going on a holiday. The majority of investors that the ATO contact about their rental deductions are able to justify their claims. However, there have been cases where claims have been rejected due to taxpayers claiming for personal use, claiming ineligible deductions, or not keeping receipts. The ATO have advised that owners who have arranged a reduced or deferred rent don’t need to declare payments until they are received. Back payments for deferred rent, or insurance payments received to cover lost rent, should only be declared in the financial year within which they were obtained. If rent is reduced, normal expenses can still be claimed, so long as the reduced rent is established taking current market conditions into consideration. This also applies to those whose income was affected by the Covid-19 travel restrictions. As specified by the Tax Office, if a home owner intended to rent a property in 2020–21, but those plans were blocked by restrictions, they can still claim the same proportion of expenses if the property was not used privately. Should you have any queries about any of the above information, please contact our Tax Champions on: (03) 8393 1000.

Employers exempt from FBT for retraining employees

08 Jul 2021 01:39:00 GMT

Employers who deliver training to employees who are to be made redundant will now be exempt from fringe benefits tax after the legislation passed through Parliament. The 2021 Treasury Laws Amendment Bill has now passed the two houses, allowing employers an exemption from FBT if they deliver training or education to an employee who has become redundant, or will soon be redundant, for the aim of assisting the individual to obtain new employment elsewhere. The tax exemption will not be granted to retraining supplied under a salary packaging agreement or to costs for which an income tax deduction is specifically rejected, this includes Commonwealth-supported spots at universities or repayments on Commonwealth student loans. The rule will cover various redundancy situations, including where an employee is made redundant in one part of the employer’s business but is able to be reassigned to a different area of its business. It also includes the conditions in which where the employer realistically expects the employee to be redundant but has not yet been made redundant. The declaration was made in last year’s federal budget, the government is hoping that this measure will offer a stimulus for employers to help their staff move on to their next career. While the move is encouraging, further changes to extend tax deductions to education and training not related to an employee’s current job was required in order to bring equity to the tax system. Some have suggested that this new FBT exemption may discriminate against individuals who work for employers who do not have the financial capacity to undertake such activities. Existing income tax regulations deter individuals from participating in reskilling and retraining by not permitting a deduction. It takes away the possible benefits of our human capital and hence our productive ability. With the limited ability to find skilled labour from overseas, retraining our labour force is essential, as skill shortages are increasingly becoming common as our economy starts getting back to the pre-COVID levels. Now that the FBT obstacle has been addressed, the income tax restriction continues. Focus on CGT exemption for granny flats The amended bill also guarantees a CGT event does not occur on when you are entering, varying or terminating an official written granny flat arrangement providing accommodation for older Australians or individuals with disabilities. In order to gain access to the exemption, the individual having the granny flat interest must have reached pension age or have a disability. The arrangement must be made in writing and should not be of a commercial nature. The measure comes after the Board of Taxation finalised its analysis of the tax treatment of granny flat arrangements in 2019, proposing that the government offers an exemption for all CGT events that are theoretically capable of applying to granny flat arrangements. Low & middle income tax offset The passing of the bill also includes the function of the low and middle income tax offset to cover the 2021–22 financial year. The Low & Middle Income Tax Offset (LMITO) delivers those with taxable incomes between $48,000 and $90,000 a maximum offset of $1,080. Individuals earning less than $37,000 will see a benefit of up to $255. The announcement was made as a temporary measure in the 2018–19 federal budget and was intended to be removed when stage two tax cuts kicked in on 1 July 2020 but was maintained in the wake of COVID-19. The LMITO remained for one more year in May’s federal budget as Treasurer Josh Frydenberg emphasised the need to further stimulate the economy. The most recent extension will come at a cost of $7.8 billion. If you need to discuss any of the above with your accountant here at Paris Financial, please contact our office.

Work from home expenses under scrutiny & the perils of browsing Facebook

18 Jun 2021 01:36:00 GMT

If you worked from home during lockdown and spent money on work related items that were not reimbursed by your employer, you might be able to claim some of these expenses as a deduction – but not everything you purchase can be claimed. The ATO has stated that it is looking very closely at work related deductions that are being claimed. If you are claiming your expenses, there are three methods you can use: An 80 cents per hour short-cut method (you will need to have evidence of hours worked like a timesheet or diary) The 52 cents per hour method (which excludes phone, internet, or the decline in value of equipment which are all claimed separately), or The actual expenses method. The ATO has highlighted four ineligible expenses that are being claimed: Personal expenses such as coffee, tea and toilet paper Expenses related to a child’s education, such as online learning courses or laptops Claiming large expenses up-front (instead of claiming depreciation for assets), and Occupancy expenses such as rent, mortgage interest, property insurance, and land taxes and rates, that cannot generally be claimed by employees working from home. Work from home expenses under scrutiny & the perils of browsing Facebook A recent case before the AAT shows how determined the ATO is to crackdown on work related deductions being claimed where there is not a satisfactory nexus between the expense being claimed and the taxpayer’s work. In this case, the taxpayer had claimed car and clothing expenses, and home internet and mobile phone costs. The ATO conceded the car costs but on a reduced deduction. When it came to clothing expenses the ATO conceded that a deduction could be claimed for gloves and a beanie on the basis that the taxpayer worked in cold conditions and that these were protective clothing needed for the job. However, the AAT refused to allow a deduction for the cost of a pair of socks on the basis that they were not protective in nature in their own right – yes, it really does get this detailed. The taxpayer had also claimed 100% of his home internet expenses but the ATO reviewed this claim and reduced the deductible amount to $50 – a record of the family’s home internet usage demonstrated the internet was used to browse Facebook amongst other non-work related sites. One of the other issues to come out of this case was the importance of record keeping. If you are going to claim work related expenses, then ensure you have the records to prove your claim.

Tax exemption for ‘granny flat' arrangements

11 May 2021 01:32:00 GMT

To protect older Australians, the Government has moved to formalise ‘granny flat arrangements’ by providing an incentive to protect all parties in the arrangement. Typically, granny flat arrangements occur when an older person transfers some sort of consideration (often title to property or proceeds from the sale of property) to their adult child in exchange for the promise of ongoing care, support and housing. In some circumstances, it’s a way for a parent to give their children access to their inheritance when it’s needed not at a later point when the person dies. However, a 2017 Australian Law Reform Commission report highlighted the potential for elder abuse where granny flat arrangements fall apart. If the relationship breaks down, or other unforeseen circumstances arise, the older person can be left homeless. A central problem is a lack of formality in these arrangements. The tax system, in particular, the capital gains tax (CGT) system, acts as a disincentive to formalising a granny flat arrangement. Under the current rules if a granny flat arrangement is formalised, this can lead to an upfront tax liability for the home owners. Also, the children can potentially lose part of their main residence exemption when the parent pays for the right to live in the home depending on how the arrangement is structured. If the arrangement is left informal, and the money paid by the parent is merely a gift, the main residence exemption is generally unaffected. Recently released exposure draft legislation seeks to overcome the disincentive to formalising a granny flat arrangement by providing a CGT exemption. This does not mean that every separate dwelling built out the back of a house will have a CGT exemption. The legal meaning of granny flat is derived from social security law; it describes an arrangement rather than a type of accommodation and can arise whenever money or other consideration is given in exchange for a right to use accommodation for life. The draft legislation provides that no CGT event will arise from a granny flat arrangement where certain conditions are met including where the individual with the granny flat arrangement has: Reached pension age or has a disability, and That the arrangement is in writing and is not of a commercial nature. If you need more information on this, you can contact our tax champions on 1300 4 PARIS.

The 1 July 2021 superannuation changes

22 Apr 2021 01:29:00 GMT

Changes from 1 July 2021 will impact on how much money you can contribute to superannuation and how much you can have in your retirement phase superannuation account. In general, your superannuation is either in an accumulation account (when you are building your super), a retirement account (when you meet preservation age and certain conditions of release and can withdraw your super), or in between when you are transitioning to retirement (when you reach perseveration age, are working reduced hours and take some of your superannuation as a pension). The amount of money you can transfer from your accumulation account into your tax-free retirement account is limited by a transfer balance cap (TBC). From 1 July 2021, the current $1.6m general TBC will be indexed to $1.7m and once indexed, no single cap will apply to all individuals (each person will have an individual TBC between $1.6m and $1.7m). Indexation will also change other superannuation caps and limits including: Non-concessional contributions (contributions from after tax income) Concessional contributions (contributions from before tax income such as super guarantee, salary sacrificed super amounts, or contributions you make and claim a tax deduction for etc.) Co-contributions (personal contributions made by low and middle income earners matched by the Government up to $500), and Contributions you make on behalf of your spouse that are eligible for a tax-offset. How will the transfer balance cap impact me? You are accumulating super If you are building your superannuation (accumulation phase) and not withdrawing it*, indexation of the TBC is a good thing because from 1 July 2021 you will be able to access more of your superannuation tax-free. If you start taking your superannuation after 1 July 2021, for example if you meet a condition of release and retire, your transfer balance cap will be $1.7m. Essentially, if you have never had a transfer balance account credit, then the full indexation is available to you. For low and middle income earners claiming the government co-contribution, the limit will increase in line with indexation to $1.7m. Similarly, if you are contributing superannuation to your spouse and claiming the tax offset, the limit will increase in line with indexation to $1.7m. That is, you can contribute to your spouse’s superannuation and claim the tax offset as long as their TBC is not more than $1.7m. You have started taking your super If you started taking your superannuation before 1 July 2021 and have already had a credit added to your transfer balance account, then your TBC will be between $1.6m and $1.7m depending on the balance of your transfer balance account between 1 July 2017 and 30 June 2021. If your account reached $1.6m or more at any point during this time, your TBC after 1 July 2017 will remain at $1.6m. If the highest credit ever in your account was between $1 and $1.6m, then your TBC will be proportionally indexed based on the highest ever credit balance your transfer balance account reached. That is, the ATO will look at the highest amount your transfer balance account has ever been, then apply indexation to the unused cap amount. For example, if you started a retirement phase income stream valued at $1.2m on 1 October 2018 and this was the highest point of your account before 1 July 2021, then your unused cap is $400,000. This unused cap amount is used to work out your unused cap percentage (400k/1.6m=25%). The unused cap percentage is then applied to $100,000 ($100k*25%=$25k) to create your new TBC of $1,625,000. Note that indexation only applies to the difference between the $1.6m TBC and the highest point of your account at any point between 1 July 2017 and 30 June 2021, not the value of your account at 30 June 2021. That is, if you made additional contributions after 1 October 2018 that increased your account to say $1,440,000, then indexation would apply to your unused cap of $160,000 (instead of $400,000), creating a TBC on 1 July 2021 of $1,610,000. Indexation does not impact existing child death benefit beneficiaries. Child death benefit income streams commencing after 1 July 2021 will be entitled to the increment if the parent never had a transfer balance account or a proportion if the parent had a transfer balance account. If you receive income from a capped defined benefit income stream and you are 60 years of age or more, or the income stream is from a death benefit where the member was over 60 at the time of death, then the defined benefit income cap will increase to $106,250 for most individuals. This will mean that the money your fund withholds from your income stream may change. The amount you can contribute to super will increase Indexation will increase the concessional and non-concessional contribution caps from 1 July 2021. These caps are indexed by average weekly ordinary time earnings (AWOTE). Cap Current cap Cap from 1 July 2021 Concessional contributions cap $25,000 $27,500 Non-concessional contributions cap $100,000 $110,000 The bring forward rule The bring forward rule enables you to contribute up to three years’ worth of non-concessional contributions in the one year. That is, from 1 July 2021, you could contribute up to $330,000 to your superannuation in one year. You can use the bring forward rule if you are 64 or younger on 1 July of the relevant financial year of the contribution and the contribution will not increase your total super balance by more than your transfer balance account cap. If you utilised the bring forward rule in previous years, your non-concessional cap will not change. You will need to wait until your three years has expired before utilising the new cap limit. 1 July 2017 – 30 June 2021 After 1 July 2021 Total Super Balance (TSB) Contribution and bring forward available Total Super Balance (TSB) Contribution and bring forward available < $1.4m $300,000 <$1.48m $330,000 $1.4m -$1.5m $200,000 $1.48m – $1.59m $220,000 $1.5m – $1.6m $100,000 $1.59m – $1.7m $110,000 $1.6m+ Nil $1.7m+ Nil * excludes withdrawals made under the COVID 19 relief measures. If you would like to discuss any of the above aspects related to your superannuation account please contact us at Paris Financial.

ATO's good-faith approach to crypto won't last much longer

23 Mar 2021 01:25:00 GMT

The ATO has upheld its good-faith approach to the accounting of cryptocurrencies, however it isn’t likely to last much longer. For those involved in cryptocurrencies, now is the time to really pay attention to the current taxation rules before the ATO tightens enforcement of undeclared crypto assets. The ATO has, within the last year or so, begun to compile data from cryptocurrency exchanges, the actual providers. As a result of that, the ATO now has a much better understanding of who’s involved in this space. While the ATO has been expected to tighten auditing around cryptocurrencies for the past three years, and hasn’t, its leniency isn’t expected to last much longer. The ATO began to show signs of ramping up on compliance in March 2020, when an undisclosed number of notices were sent to taxpayers, alerting them to declare their accurate capital gains or losses. Many individuals have received these notices from the ATO, indicating that there is a mismatch in their data. This has in-turn prompted a lot of people to visit their tax agent, or even to see a tax agent for the first time if they’ve been doing it themselves. It’s unclear whether the ATO’s light-touch approach will necessarily last forever. As the data comes in and as the ATO has an improved awareness of how many people are in this market, it is likely that they will start to take a firmer approach. Getting a grip on the crypto scene As cryptocurrencies become increasingly fixed in the mainstream, one of the main challenges in accounting for them has been that some stakeholders may not know that they need to declare crypto assets to their accountants. Many advisors need to research the guidelines themselves in relation to this as well. Advisors need to ensure that when they are communicating with their clients, they’re asking the question, ‘Have you purchased, sold, or invested in cryptocurrencies over the course of the past year?’ Although, after advising their clients to declare their crypto assets, practitioners should see this time as a warning and familiarise themselves with how cryptocurrencies really operate, before the ATO commence with compliance action. Advisors just need to understand where cryptocurrencies fit in with the complete picture of their client’s investments. The basic tax rules are essentially the same as they are for other forms of investments. They also need to understand how to deal with cryptocurrency transactions, and compare that to the way other types of transactions are treated, to really get a handle on the kind of records that individuals have in relation to cryptocurrencies. Our team are highly skilled and up to date with all current tax regulations. Should you require assistance or are concerned about the enforcement of undeclared crypto assets, please contact us as soon as possible and we will be happy to review the situation for you and assist with the management of your cryptocurrency taxation matters.

Winding-up: Simplifying small business insolvency

23 Feb 2021 01:21:00 GMT

On 1 January 2021, new laws came into effect that introduce a new, simplified debt restructuring and liquidation framework for small business. Drawing on key features of the Chapter 11 bankruptcy model in the United States, the new system aims to speed up the insolvency process, reduce costs and where possible, restructure to help the business survive. Where survival is not possible, it’s hoped that the quicker insolvency process will deliver greater returns for creditors and employees. Under previous insolvency laws, the insolvency process treated all businesses the same regardless of size. The new laws step away from the ‘one size fits all’ model. The simplified debt restructuring and liquidation framework is available to incorporated entities with liabilities of less than $1 million (around 76% of insolvencies are businesses with less than 20 employees) with non-complex debt. The liquidation framework also requires that a company is up to date with its entitlements and tax obligations. The new laws are intended to help manage the tide of insolvencies expected now that the temporary insolvency related relief for financially distressed businesses has ended (the COVID-19 relief measures which protected directors from insolvent trading and raised the threshold for action by creditors, ended on 31 December 2020.) There is no question that the temporary measures in tandem with the stimulus measures such as JobKeeper have kept some ‘zombie’ businesses afloat. In November 2020, 306 businesses entered external administration compared to 748 in November 2019. In general, the number of insolvencies has dropped by around 200 to 300 each month since March 2020 compared to 2019 figures. Debt restructuring For financially distressed but viable companies, simplified debt restructuring is available. Under this process, the directors resolve that the company is insolvent, or is likely to become insolvent at some future time, and that a small business restructuring practitioner should be appointed. Once a practitioner has been appointed, the directors generally have 20 days to develop a plan that sets out an approach to repay the company’s existing debts. Only the company directors can propose a debt restructuring plan to the company’s creditors and the creditors have the opportunity to vote on the plan electronically or virtually (previously creditors had to be physically present or appoint a proxy). During this time, the company directors retain control of the business – which is very different to the previous laws where the administrator took control of the company during voluntary administration. To prevent the new laws being abused by phoenixing, a company is not eligible to use the debt restructuring process if a director of the company or the company itself has previously been through this process or the simplified liquidation process. The new laws are also not available where the company has already entered into an external administration process. Streamlined insolvency If a company is not viable (the company will not be able to pay its debts in full within 12 months), the directors can resolve to voluntarily wind up the company and access the streamlined insolvency process. Once the resolution has been passed, the directors have five business days to provide the appointed liquidator with a report on the company’s business affairs and a declaration that the company meets the eligibility criteria to access the simplified liquidation process. If the liquidator agrees that the company qualifies for the simplified liquidation process, the creditors are advised of the process that will be adopted. The creditors can reject the approach if 25% or more by value, oppose the process. Streamlined insolvency is designed for companies with relatively simple affairs and is limited to those that have liabilities under $1 million and are up to date with their taxation obligations. It uses the existing insolvency framework but simplifies the interaction with creditors and ASIC. For example, outside of the simplified system, the liquidator may convene a creditor’s meeting at any time to keep creditors up to date, find out the creditor’s wishes, or to approve the liquidator’s fees. The simplified system removes the obligation for a liquidator to convene these meetings with communication managed electronically. And, under the simplified systems the oversight of creditors is limited, creditors for example cannot appoint a committee of inspection to monitor the conduct of the liquidation. There are strict timings that apply to the insolvency process. If you are concerned that your business will not be able to meet its obligations, please contact us as soon as possible and we will review the situation for you. Where assistance is required, we can refer you to a qualified insolvency or small business restructuring practitioner.

The JobMaker Hiring Credit

29 Jan 2021 01:15:00 GMT

Here at Paris Financial we strive to pass useful and timely advice onto all our small business clients – that’s why we believe we are the small business tax champions! The following is our comprehensive summary of the recently introduced JobMaker scheme. If you need any further assistance or have any queries, please contact us. What is JobMaker? JobMaker is a credit available to eligible businesses and non-profit entities that create new jobs (not if you are merely replacing someone who left). The hiring credit is available for jobs created from 7 October 2020 until 6 October 2021 and provides: $200 per week for new employees between 16 to 29 years of age; and $100 per week for new employees between 30 to 35 years of age. Administered by the ATO, JobMaker is a credit that is paid quarterly in arrears from the start date of the employee for 12 months, assuming the business and employee remains eligible (see JobMaker Eligibility). The credit is an incentive for the employer to support wage costs and is not passed onto the employee. Unlike JobKeeper, JobMaker can apply to new businesses and the business does not need to satisfy a decline in turnover test to receive payments. A series of people are excluded from the JobMaker scheme including employers receiving JobKeeper, employees receiving an apprentice wage subsidy, and close associates of the business including some relatives of the business owners (see Who is not eligible for JobMaker?). To access JobMaker payments, you will need to: Determine if the business is eligible to receive JobMaker payments (see JobMaker Eligibility) Determine which, if any, employees are eligible (see JobMaker Eligibility) and whether the higher or lower rate applies to them Ensure the business passes the ‘additionality test’. That is, total headcount and payroll have increased, not just that you have employed new employees. You will need to pass this test in every quarter you make a claim (see JobMaker Eligibility and Calculating baseline headcount and payroll) Ensure eligible employees complete the JobMaker employee notice (see The JobMaker employee notification) Enrol for JobMaker with the ATO (see How to register for JobMaker) Establish the baseline payroll and headcount for your business (see Calculating baseline headcount and payroll) Calculate the increase in headcount and payroll for your JobMaker claim (see Calculating your JobMaker claim) Ensure the claim is lodged by the end of the claim period (see Key JobMaker dates) Am I eligible for JobMaker? There are three eligibility tests for JobMaker: Employer eligibility At the time of enrolment, the business must: Have an ABN Carry on a business in Australia, or is a non-profit that pursues its objectives mainly in Australia, or a DGR that meets certain conditions Be registered for PAYG withholding At the time a JobMaker claim is submitted for a period, the business must: Be an eligible employer Be up to date with certain tax lodgements (tax returns, GST returns) Have at least one additional employee* Have increased headcount* Have increased payroll* Not be receiving other forms of assistance from the Commonwealth Government for the employee, for example JobKeeper or an apprenticeship subsidy*** And: Elect to participate in the JobMaker scheme** Report through single touch payroll (there are some limited exceptions) Submit a claim to the ATO for the JobMaker period Keep adequate records (hours worked by the employee the employer is claiming for) Another employer is not claiming JobMaker for the same employee Employee eligibility The employee must: Have received the JobSeeker Payment, Youth Allowance (Other) or Parenting Payment for at least 28 consecutive days (or 2 fortnights) in the 84 days (or 6 fortnights) prior to starting employment Be at least 16 years old and less than 36 years of age at the time their employment started Started work between 7 October 2020 and 6 October 2021 (inclusive) Worked or been paid for at least 20 hours per week on average+ for the full weeks employed for the period being claimed Not be an excluded employee*** ‘Additionality’ test To access the JobMaker payment, an employer must demonstrate: Total employee headcount on the last day of the reporting period increased by at least one additional employee compared to baseline headcount+. Total payroll for the reporting period increased compared to baseline payroll+. * See the ‘additionality’ tests. ** See How to register for JobMaker *** See Who is not eligible for JobMaker? + See Calculating headcount and payroll Who is not eligible for JobMaker? Government entities or agencies, banks and other institutions subject to the bank levy, businesses in liquidation, and foreign Government entities (unless a resident entity), are unable to access JobMaker. If the employer is claiming JobMaker, it cannot also receive any of the following payments for the employee: Supporting Apprentices and Trainees Wage subsidy; Australian Apprentice Wage subsidy; Boosting the Apprenticeship Commencements Wage subsidy; or Restart, Youth Bonus, Youth, Parents or Long-term Unemployed Wage subsidies. Certain employees are also excluded. These include: Employees who commenced employment 12 months or more before the first day of the JobMaker period (even if the employer has claimed JobMaker for less than 12 months, for example where the employee was eligible for JobKeeper). The entitlement to JobMaker is for 12 months from the date the eligible employee commenced employment. Contractors, subcontractors or labour hire employees. Employees who were engaged by the business at any time in the 6 months before 6 October 2020, other than as an employee, to perform a substantially similar role or substantially similar functions or duties to those performed as an employee. For example, JobMaker cannot be claimed for a contractor who becomes an employee. JobMaker also cannot be claimed for: Sole traders (as they cannot employ themselves); Partners of a partnership; Trustees and beneficiaries of trusts (that are not widely held unit trusts); or Directors or shareholders of companies (that are not widely held). JobMaker also cannot be claimed for close associates of the business and its owners. A “close associate” is a relative of an individual, partner, trustee, beneficiary, director or shareholder. The rules also apply on a look-through basis. For example, this would mean that a child of a director of a trustee company of a trust is excluded. A relative is: The spouse of the person; A parent, grandparent, brother, sister, uncle, aunt, nephew, niece, lineal descendent or adopted child of that person, or of that person’s spouse; The spouse of the parent, grandparent, brother, sister, uncle, aunt, nephew, niece, lineal descendent or adopted child of that person, or of that person’s spouse. How do I register JobMaker Businesses will need to elect to participate in the JobMaker scheme with the ATO. This election can be made at any time before the end of the JobMaker claim period your business wants to claim payments for. For the first JobMaker period (7 October 2020 to 6 January 2021), the claim period ends on 30 April 2021, which means that if your business wants to claim JobMaker for this period it needs to register with the ATO by 30 April 2021. Your business only needs to register once for JobMaker. This can be done through: ATO online services through myGov; The Business portal using myGovID; or Contacting us here at Paris Financial for assistance. When you register, your business will need to provide: Headcount at 30 September 2020 (see Calculating baseline headcount and payroll below); Payroll for the 3 months up to and including 6 October 2020; and Contact details. Each of your eligible employees must give you written notice in the approved form (the JobMaker employee notification) confirming that: The age condition was met; They met the social security payments condition; and They have not provided a notice to another entity of which they are currently an employee, unless that notice has ceased to have effect. A notice ceases to have effect as soon as the relevant employment arrangement ceases. The JobMaker employee notification You can give your employees the pro-forma ATO JobMaker employee notice or create your own as long as all of the relevant information is included. Once complete, the form is held on file (it does not need to be lodged with the ATO). Each employee will need to be added to Single Touch Payroll three days prior to the end of the relevant JobMaker claim period. Calculating baseline headcount and payroll On registration, your business will need to establish your baseline for: Headcount; and Payroll The details you provide as part of the registration process can be amended until the first claim is submitted. However, once the first claim is submitted, it is unlikely the details can be changed so it will be important to ensure that the headcount and payroll figures are correct as these form the basis for calculating the JobMaker payments. For each JobMaker period, you will need to establish that your headcount and payroll continues to demonstrate that at least one additional employee was employed (see Ongoing JobMaker reporting below). How is baseline headcount calculated? The baseline headcount figure is simply the number of employees employed by your business at 30 September 2020. Each employee is counted as one, regardless of whether they are full-time, part-time or casual. Contractors and sub-contractors are not counted. If someone is engaged on a fixed-term contract you will need to check whether they are classified as an employee or contractor. If your business did not have any employees on 30 September 2020 or started business after 30 September 2020 then the baseline headcount is zero.The baseline headcount figure will be adjusted in the second year of the JobMaker scheme to ensure new employees are not counted twice. How is baseline payroll calculated? Your business’s baseline payroll figure is the total payroll paid within the three months up to and including 6 October 2020 (i.e., a period of 92 days). This figure is also used for the purpose of determining the credit for the first JobMaker period, but adjustments will sometimes need to be made to this figure for future periods. ‘Payroll’ includes: Salary, wages, commission, bonus, allowances; PAYG withholding amounts; and Salary sacrificed super contributions and fringe benefits The ATO suggests that the following payments do not count towards the baseline or total payroll expenses: Government Paid Parental Leave (GPPL); Workers’ compensation absence (not able to work); Reimbursements of expenses incurred by employees; Directors’ fees (that are not salary and wages); Lump sum payments (lump sum A, B, D and E); Exempt foreign income (exempt from pay as you go withholding); Eligible termination payments; Fringe benefits provided to an employee which are not part of an effective salary sacrifice arrangement; and Amounts contributed as super to meet employer super guarantee obligations. Baseline payroll appears to focus on when payments are made, rather than the period that they relate to. Your business’s payroll expenses must have increased in the JobMaker period compared to the baseline payroll amount to be able to access JobMaker for that period. If payroll does not increase, your business will not be eligible for a payment for that period. The payroll increase amount also provides an upper limit on the JobMaker payments for that period. That is, your business will not be eligible for payments that exceed your increase in payroll. If your business is a new business that started after 6 October 2020, the baseline payroll amount will be zero. If the business only started employing employees part way through the three months up to 6 October 2020, then the baseline payroll simply includes the payroll expenses up to that date. New employee example Mary runs a small bakery business with one full-time employee. Her employee is paid a salary of $30,000 a year. The baseline payroll expenses for the first JobMaker period is the sum of the payroll amounts for the three months (92 days) up to and including 6 October 2020. Mary’s baseline payroll amount is $7,500. The bakery has had a growth in sales which prompts Mary to hire an assistant manager on 7 October 2020. The manager is paid $80,000 per year. The bakery’s total payroll expenses for the JobMaker period will be $27,500 ($20,000 for the assistant manager and $7,500 for her other employee). As the total payroll expenses for the JobMaker period exceeds the baseline payroll amount by $20,000, she has a payroll increase. If Mary satisfies the other requirements, the bakery will be eligible for the JobMaker Hiring Credit payment for the period. ATO example: JobMaker Hiring Credit – Your payroll How is the ‘20 hours per week’ requirement calculated? An employee needs to have worked an average of at least 20 hours per week for the full weeks employed for the JobMaker period being claimed. To work out the number of hours that they must have worked or been paid for in the relevant period, start with the total days that the individual was employed by the entity in the JobMaker period. Then, divide this by 7 and round down to nearest whole number. This figure is then multiplied by 20. Hours of paid work include paid overtime, paid leave and paid absences on public holidays. It does not include any unpaid leave. The number of hours actually worked include any hours worked, including unpaid overtime, paid leave and paid absences on public holidays and might be more appropriate if an employee is not paid on a particular rate (such as salaried employees). Hiring an eligible employee partway through a JobMaker period Marco is a 30-year-old labourer who was receiving the JobSeeker payment. On 28 November 2020, Marco started employment with a construction company. Marco worked for 25 hours per week for the rest of the JobMaker period. To satisfy the minimum hours requirement, Marco must work at least 100 hours in the period (being 40 days employed, divided by 7, rounded down and multiplied by 20). Marco will satisfy this requirement, as he has worked 125 hours in the remainder of the period. ATO example: JobMaker hiring credit – Your eligible employees Calculating your JobMaker claim Assuming the business and your employees are eligible, and you have enrolled for JobMaker, the next step is to work calculate your JobMaker claim. The ATO will work out the actual amount owing to your business. You are responsible for reporting the headcount and payroll for a period. Your business is only eligible for JobMaker payments if the headcount and payroll have increased against your baseline for the relevant period. Calculating the JobMaker amount can be complex. Broadly, the hiring credit payment for a particular period is the lesser of: The headcount amount for the period; and The payroll amount for the period. The headcount amount is based on mixture of factors including: Total increase in headcount; Number of days in the period; Number of days the additional employees were employed in the period; and Whether the employees are higher or lower rate. The ATO will calculate the amount based on: STP information; Headcount; and Payroll information provided in the registration and claim form. You can use the ATO’s JobMaker Hiring Credit payment estimator to estimate the payment you may receive for cashflow purposes. Headcount increase The headcount increase condition operates a bit differently depending on which JobMaker period you are dealing with. For the first four JobMaker periods, headcount at the end of the relevant period is measured against headcount at 30 September 2020. From the fifth JobMaker period (in 2022) onwards the baseline headcount figure will be adjusted. Your total headcount for a particular JobMaker period only includes employees who are employed at the end of the period. Employees who worked during the JobMaker period but were not employed at the end of the last day of the period are not taken into account. Headcount increase number for first JobMaker period example ABC Pty Ltd (ABC) has been operating a local grocery since the 1990s. On 30 September 2020, ABC had 15 employees. On 7 October 2020, in anticipation of an increase in business over the holiday period, ABC takes on an additional 2 employees. ABC’s new employees (and their existing employees) are still employed by ABC at the end of the first JobMaker period (6 January 2021). ABC’s headcount increase number for the first JobMaker period is calculated as follows: 17 (employees employed at the end of period) − 15 (baseline headcount for period) = 2 ATO example: JobMaker Hiring Credit – Conditions for making a claim Termination of employment example On 31 January 2021, ABC’s temporary employees stop working for ABC, as does one of ABC’s other employees. ABC does not have any other staff movements for the second JobMaker period (7 January 2021 – 6 April 2021). ABC does not have a headcount increase in the second JobMaker period because the number of employees employed at the end of the period (14) is less than its baseline headcount (15 employees on 30 September 2020). As ABC does not have a headcount increase in the second JobMaker period, it is not entitled to a JobMaker Hiring Credit payment for this period. ATO example: JobMaker Hiring Credit – Conditions for making a claim Payroll increase The payroll increase test involves comparing the total payroll amount for the JobMaker period with your baseline payroll amount.The payroll figure reported as part of the registration process is the total payroll paid within the three months up to and including 6 October 2020 (i.e., a period of 92 days). However, this won’t necessarily be the baseline payroll figure for each JobMaker period. This is because the figure needs to be adjusted if the relevant JobMaker period does not have 92 days. For example, the first JobMaker period ending on 6 January 2021 has 92 days so the amount reported to the ATO as part of the registration process should be used as the baseline payroll amount. However, the second JobMaker period runs from 7 January 2021 to 6 April 2021 and has 90 days. As a result, the baseline payroll figure needs to be adjusted so that amounts paid / applied on the 7th and 8th of July 2020 are not included. Rather, the baseline payroll amount for this JobMaker period covers the 90 day period from 9 July 2020 to 6 October 2020 (inclusive) – see Key JobMaker dates. Key JobMaker dates JobMaker period JobMaker period dates Days in JobMaker period Claim period 1 7 October 2020 – 6 January 2021 92 1 February 2021 – 30 April 2021 2 7 January 2021 – 6 April 2021 90 1 May 2021 – 31 July 2021 3 7 April 2021 – 6 July 2021 91 1 August 2021 – 31 October 2021 4 7 July 2021 – 6 October 2021 92 1 November 2021 – 31 January 2022 5 7 October 2021 – 6 January 2022 92 1 February 2022 – 30 April 2022 6 7 January 2022 – 6 April 2022 90 1 May 2022 – 31 July 2022 7 7 April 2022 – 6 July 2022 91 1 August 2022 – 31 October 2022 8 7 July 2022 – 6 October 2022 92 1 November 2022 – 31 January 2023

Refunds for Tax Losses

02 Dec 2020 01:12:00 GMT

If your company has made a loss, you may be able to claim a tax refund for tax previously paid on profits. In the 2020-21 Federal Budget, the Government announced that businesses with turnover under $5bn will be able to offset any losses made between 2019-20 and 2021-22 against previously taxed profits between 2018-19 and 2020-21. The loss carry-back rules enable a company to offset tax losses against profits taxed in a previous year, generating a refundable tax offset. The amount carried back can be no more than the earlier taxed profits, limiting the refund to the company’s tax liabilities in the profitable years. The company can choose to carry-back a loss or carry it forward. That is, tax losses for the 2019-20, 2020-21 or 2021-22 income years can either be: Carried forward and deducted against income derived in later income years; or Carried back against income of earlier income years as far back as the 2018-19 income year to produce a refundable tax offset. Previously, tax losses could only be carried forward and deducted against income in later income years. This is not the first time that carry-back losses have been allowed. The loss carry-back rules were introduced some years ago by the Gillard government for the 2012-13 year, then repealed. The loss carry-back rules also interact with the Government’s Budget measure allowing immediate expensing of investments in capital assets. The new investment will generate significant tax losses in some cases which can then be carried back to generate cash refunds for eligible companies. What entities are eligible to carry-back losses? Corporate tax entities are eligible to carry-back losses – a company, a corporate limited partnership, or a public trading trust – BUT only if the entity has lodged an income tax return for the current year and each of the five years immediately preceding it. If your company has not kept up to date with its reporting obligations, it might not be able to use the new rules. Claiming the refundable tax offset Businesses will need to elect to utilise their carry-back losses when they lodge their 2020-21 and 2021-22 tax returns. That is, even if the company made a loss in the 2019-20 year, it cannot claim that loss until the 2020-21 tax return is lodged. For the 2020-21 income year, a loss carry-back tax offset may be available to a company if: It has a tax loss in the 2019-20 income year and/or the 2020-21 income year; It has an income tax liability in the 2018-19 income year and/or the 2019-20 income year; and For the 2020-21 income year and each of the previous five income years, either the entity has lodged an income tax return; the entity was not required to lodge a return; or the Commissioner has made an assessment of the entity’s income tax. The carry-back cannot generate a franking account deficit. That is, the refund is further limited by the company’s franking account balance.

JobKeeper: The Next Phase

22 Oct 2020 01:02:00 GMT

The first tranche of JobKeeper ended on 27 September 2020. We look at the issues for those seeking to qualify for the second tranche of JobKeeper and for those no longer eligible. Wrapping up JobKeeper If your business is no longer eligible for JobKeeper payments, there are a few things you need to do: Advise your employees and business participant – For anyone receiving JobKeeper payments from your business, you should advise them in writing that the business is no longer eligible, JobKeeper payments ceased on 27 September 2020, and their pay will revert to the conditions that apply under their employment agreement. This is particularly important for those who have been receiving top-up payments. Ensure payroll adjusts – Double check your payroll to ensure that top-up JobKeeper payments have been removed from 28 September 2020 onwards. Make sure you keep all of your records relating to JobKeeper including your calculations and rationale for the decline in turnover test, your employee JobKeeper nomination forms, and any other records for at least five years. Is my business eligible for JobKeeper payments from 28 September? Existing JobKeeper participants need to pass the extended decline in turnover test to continue to receive JobKeeper payments on behalf of employees. This extended test looks at your actual GST turnover for the September 2020 quarter (for JobKeeper payments between 28 September to 3 January 2021), and again for the December 2020 quarter (for payments between 4 January 2021 to 28 March 2021). To pass the extended decline in turnover test, your business will need to show an actual decline in turnover between the September 2020 quarter (July, August, September 2020), and the same period in 2019 by 30% (15% for ACNC registered charities and 50% for large businesses). My business has not received JobKeeper previously. Can we get it now? If your business passes the eligibility criteria, you can access JobKeeper when you need it for your eligible employees. For JobKeeper, your business needs to pass the eligibility tests for the period you are seeking to claim JobKeeper payments. My business can’t pass the decline in turnover test because we were impacted by a natural disaster/drought in 2019 Special rules exist to ensure that businesses trading (or partially trading) in a region impacted by natural disasters or drought in 2019 are not detrimentally impacted when calculating the decline in turnover tests. Assuming the drought or disaster impacted your GST turnover, the alternative test enables you to use a period in the year immediately preceding the year in which the drought or natural disaster was declared for the decline in turnover test comparison. This is, if your business was impacted by drought/disaster in the September quarter of 2019, you can use the September quarter of 2018 for your comparison period. If 2018 was also a drought/disaster zone, you can keep going back until the first year preceding the declaration of drought/disaster. To use this test, your region must be subject to a formal declaration of drought or disaster (for example from Government) or have been publicly identified by an agency such as the Bureau of Meteorology. My business fails the test because its turnover is ‘lumpy’ If your business has ‘lumpy’ or irregular turnover, there is an alternative decline in turnover test that you might be able to apply. This test only applies if your GST turnover is irregular, like what often occurs in the building and construction industry, and not simply a seasonal variation. To understand if your turnover is irregular, look at the 12 months before the test period and divide the 12 months into 3 month periods. If the lowest GST turnover for any of these 3 month periods is no more than 50% of the highest of the 3 month periods, then the test can be applied as long as your business’s turnover is not cyclical. Alternatively, you can look at the 12 months before 1 March 2020 instead of the 12 months immediately before the test period. If your GST turnover is irregular you can compare your current GST turnover for the test period with the average current GST turnover for the 12 months immediately before the applicable test period or 1 March 2020, multiplied by 3. My business is a new business without a 2019 comparison period. Can it receive JobKeeper payments? If the business is a new business that started trading after 1 March 2020, the business will not be eligible for JobKeeper payments (although there are special rules for not-for-profit or registered charities in some circumstances). If your business started trading before 1 March 2020 but after 1 July 2019, there are alternative tests you can use to determine whether your business is eligible for JobKeeper payments from 28 September 2020: Comparing the actual GST turnover for the test period with the turnover of the 3 months immediately before 1 March 2020 (for example, comparing the September quarter 2020 with the 3 months prior to 1 March 2020). Comparing actual GST turnover for the test period (for example, the September quarter 2020) with the average turnover since the entity commenced (using whole months). What happens if a business restructure (or sale or acquisition) impacts on your numbers? An alternative decline in turnover test is available where there has been a disposal or acquisition of part of the business, or restructure in the business, or combinations of those, and this changed the entity’s current GST turnover. The alternative test compares the GST turnover for the test period with the current GST turnover for the relevant month immediately after the disposal, acquisition or restructure, multiplied by 3. If there is not a whole month after the last acquisition, disposal or restructure, and before the turnover test period, then the month immediately before the turnover test period is used. Where there have been multiple disposals, acquisitions or restructures, you can use the whole month immediately after any of the disposals, acquisitions or restructures, multiplied by 3 for the alternative test. What happens if fast pre COVID-19 growth makes the comparison period unrealistic? If your business was experiencing strong growth before the pandemic hit, your comparison period numbers can be skewed. This alternative test is for entities with substantial pre COVID-19 growth. First you need to test if your growth is considered substantial. That is, GST turnover increased by: by 50% or more in the 12 months before the turnover test period or before 1 March 2020, or by 25% or more in the 6 months before the turnover test period or before 1 March 2020, or by 12.5% or more in the 3 months before the turnover test period or before 1 March 2020. If there is substantial growth and you used the period immediately before the turnover test period to determine whether there is a substantial increase in turnover, then the alternative test compares GST turnover for the test period (for example, the September 2020 quarter) with turnover for the 3 months immediately before the test period. If you are using the period immediately before 1 March 2020 to determine whether there is a substantial increase in turnover, then the alternative test compares GST turnover for the test period (for example, the September 2020 quarter) with turnover for the 3 months immediately before 1 March 2020. I am a sole trader (or partnership) impacted by illness, injury or leave For sole traders and small partnerships (4 partners or fewer) with no staff, your income is often impacted by your ability to work. If your comparison period is impacted by illness, injury or leave, you can use the month immediately before the month with sickness, injury or leave is used, then multiplied by 3. Does the business need to re-enrol? Your business does not need to re-enrol if it is already receiving JobKeeper payments. Employers continuing to receive JobKeeper payments will need to: Advise the ATO of the payment tiers of eligible employees (or your business participant), and Advise your eligible employees of the payment tier that is applicable to them. Make sure you keep records of your calculations for the decline in turnover test, and the JobKeeper payment tiers for employees. Identifying the JobKeeper payment rates If your business is eligible for JobKeeper from 28 September 2020, you will need to identify all of your eligible employees and the JobKeeper payment rate applicable to them. From 28 September 2020, the JobKeeper payment rate will reduce and split into a higher and lower rate based on the number of hours the employee worked in a specific 28 day period prior to 1 March 2020 or 1 July 2020. For eligible employees who have been employed since 1 March 2020, employers need to choose the reference period that provides the best outcome for the employees. For many employers, this will be the pre COVID-19, 1 March 2020 reference date. For eligible employees employed after 1 March 2020, use the pay periods prior to 1 July 2020. If the pay cycle is longer than 28 days, a pro-rata calculation needs to be completed to determine the average hours worked and on paid leave across an equivalent 28 day period. For example, if the relevant monthly pay cycle has 31 days, you take the total hours for the month and multiply this by 28/31. Speaking to a MyBusiness podcast, ATO Deputy Commissioner James O’Halloran said the ATO is, “…looking for what is a natural record or support that does demonstrate that effort of active participation in a business on behalf of businesses and in terms of employees on what basis the hours have been done.” What happens if the employee’s hours were different to normal in the reference period? Alternative tests are available where: The reference period is not typical of the employee’s hours or you use a rostering system and there is no typical pattern in a 28 day period – use an earlier 28 day period or multiple 28 day periods that more accurately represent the employee’s typical arrangements. That is, you select the next 28 day period before 1 March 2020 or 1 July 2020 that represents the employee’s typical employment pattern. For workers that don’t have a typical pattern because of a rostering system like fly-in-fly-out workers, an average of the hours worked over the employee’s rostering schedule and proportionally adjusted over 28 days can be used to work out a typical 28-day period. The employee started work during the reference period. Use a forward-looking alternative test. In these circumstances, use the pay cycle immediately on or after 1 March 2020 or 1 July 2020. For employers with fortnightly or weekly pay cycles, you must use consecutive weeks. Where an employee was stood down, use the first 28 day period starting on the first day of a pay cycle on or after 1 March 2020 or on or after 1 July 2020 in which they were not stood down. What happens if the employee’s salary is not linked to hours? Some employees will automatically qualify for the higher JobKeeper payment rate. To qualify for the higher rate, these employees: were paid at least $1,500 in the reference period; were required to work at least 80 hours under an industrial award, enterprise agreement or contract; or, it is reasonable to assume that they worked at least 80 hours during the applicable period. What about directors and partners in a partnership? Business participants (sole traders, the self-employed with an ABN, or one partner in a partnership, beneficiary of a trust, or director/shareholder), must use the month of February 2020 (the whole 29 days) as their test period. The test looks at the number of hours you were actively engaged in the business – actively operating the business or undertaking specific tasks in business development and planning, regulatory compliance or similar activities. Other than sole traders, a business participant must provide a declaration to the business entity confirming their hours worked over the reference period. Sole traders need confirm details with the ATO. Where February 2020 was not typical, you can use the next typical 29 day period, or if you commenced during February, March 2020. My employer is no longer eligible for JobKeeper. Can I receive JobKeeper from another employer? Employees and business participants can normally only have one nominated employer for the JobKeeper scheme (ever). If your nominated employer is no longer eligible for JobKeeper payments, you cannot be a nominated employee of another employer. The main exception to this is where the individual ceased to be employed or actively engaged in the business (as a business participant) of the original entity after 1 March 2020 but before 1 July 2020. They must also have met the conditions to be treated as an eligible employee of the new employer at 1 July 2020.

Has COVID-19 devalued your business?

23 Sep 2020 00:53:00 GMT

If you are selling your business, merging, acquiring, or inviting in new investors, you need to understand the value of your business. But, to what degree does the pandemic impact on value? Should you discount or hold firm to pre COVID-19 performance on the basis that ‘we’re going to come out of it eventually’? Fair market value is the price that would be negotiated in an open market between a knowledgeable, willing but not too anxious buyer and a knowledgeable, willing but not too anxious seller dealing at arm’s length within a reasonable time frame. Value and price may not be the same thing. The price you are offered (or offer), will often depend on the anxiousness of the parties. For example, a seller that does not need to sell where the business being sold adds synergy value to the purchaser, may look to obtain a premium on value. And, even where a quick sale is required it may not be discounted if the liquidated asset value of the business remains high (i.e., the assets of the business are worth more broken up and sold off than as a whole). However, to understand the value of a business, the pandemic necessitates a depth of investigation beyond the norm. You cannot simply ignore the pandemic and rely on pre-pandemic performance and financials, even if you are enthusiastic about the future. Previously, anyone looking to buy or sell a business would likely analyse the past three years trading figures to help determine a value but this historical analysis may no longer present an accurate picture. For some businesses, history is no longer a reliable predictor of fair value. The Government controls put in place to contain COVID-19 transmission – closures, social distancing, border and travel restrictions – have a material economic impact. Closures and distancing impact in different ways and need to be considered at both an industry sector and individual business level. Government stimulus packages may also be providing abnormal short-term outcomes. For some businesses, the operating and financial impact is material. And, this may flow into the underlying value of the business. All valuations consider present and emerging risks and the current and anticipated business environment. This analysis is then brought into the modelling and valuation conclusion. COVID-19 creates its own set of considerations for analysis including: COVID-19 impact at an economic, industry sector and business level. The supply chain across the customer and supplier base with a view to identifying possible COVID-19 impacts in the supply chain. Earnings normalisation including the removal of stimulus support measures. For the 2020 year, a deeper analysis is likely to be required with possible segmentation by quarter. Current and forward year position COVID-19 risk in applying earnings multiples COVID-19 related assumptions A hypothetical investor might have been prepared to pay $1 million for a business. That business might be on offer for $800,000 and appear as if the investor has struck a bargain. But, the business might actually only be worth $600,000, and not such a good deal after all. Take the hypothetical example of a printing business. The business has been established for more than 10 years and has a history of profitable operation, with revenues of $5-6 million and EBIT of $800-900k per annum for each of the past 3 years. The business has a large client base of just over 400 active accounts. Trading patterns seem consistent to prior years up to March 2020. Between March and June 2020 there was a 40% downturn with the business closed or working on a limited roster for an 8 week period during the initial COVID-19 lockdowns. The business is currently moving back to normal operations but this is not yet reflected in revenues. The impact of COVID-19 in this scenario might be discounted as the business appears to be returning to normal conditions and it has a solid history of trading and profitability. The largest customer of the business represents less than 2% of total revenue and the next two largest customers represent just over 1% of revenue. Two of the three customers have resumed their pre COVID-19 printing order levels. A large number of customers seem to spend between $5-20k per annum with the business. However, during a customer sensitivity analysis, it’s found that 70% of customers are from the live entertainment sector (although their two largest clients are not in this sector). As a result, the business is likely to have a material downturn until the entertainment industry resumes or the business is able to replace the business it has lost. A consequence of this is that value may be impacted. Almost all businesses are valued by one of two methods. The first is the industry approach, where sales of similar businesses are used for comparison. The basis of this method is that the market provides a reliable indicator of value. This method works best in a stable and active market and where recent history is a reliable indicator of the present. But, COVID-19 casts doubt on the reliability of past sales that occurred outside of pandemic conditions. The other typical method of valuing a business is based on its maintainable earnings. This method is used for businesses with a trading history where it’s likely that the value of the business will exceed the underlying value of its assets. This method determines the future maintainable earnings of the business, an appropriate earnings multiple, and the value of any assets surplus to the core business. The multiple applied to the business may be impacted by COVID-19 as the multiple falls as risk increases. For example, a business that was valued at four times earnings pre-pandemic might achieve a lower multiple as the pandemic presents a risk to the likelihood of the business achieving earnings consistent with pre-pandemic conditions. Unlike the ASX, there is no index to indicate the value of private businesses. The pandemic has added significantly greater complexity to the valuation process, meaning buyers and sellers should work even more closely with their advisers before making a decision. If you are purchasing a business and would like a due diligence completed, or looking to sell, merge or engage with investors, contact us for more details on the steps to take.

The Little Disaster – Structure for Success

27 Aug 2020 00:49:00 GMT

Having the right structure can be the key difference for financial independence. Regardless of whether you are running your business or selling it, structure is everything. The New Financial Year is a great time to be looking at your business structure. The small business tax laws in Australia are very flexible and give businesses a chance to restructure and get themselves right. We recently encountered a business structure that was so bad that we nicknamed it “The Little Disaster.” The Little Disaster For the sake of this example, we will call this client Jack Dawson. (Not his real name) Jack had a family business under a trading company. This was the first mistake, but it gets worse. Out of 100 shares in the company, 50% of the shares were in Jack Dawson’s name, and the other 50% of the shares are in a discretionary trust. What happens when Jack wants to get some money out for his investments? The only way for Jack to receive funds from the business is through a dividend. But remember, only 50% of the shares are in Jack’s name so the dividend is divided 50/50 between Jack and the Titanic Trust. Out of the $100k paid out via a dividend from the company, $50k goes to Jack. But now tax comes into play. Jack has a good growing business, so he will be paying 40-45% tax on what he’s received. The other 50%, flows through his discretionary trust and down to Money Bags Pty Ltd. However Money Bags Pty Ltd has a lower tax rate of 27.5%. This is a structuring disaster. Structure for Success After speaking with Jack Dawson, we were able to help him restructure his business into a winner. The new structure may seem much more complicated, but when it comes to trusts, complexity is your friend. In the good structure, the family is running their business under a discretionary trust, which is called the Averted Disaster Trust. Whenever the Averted Disaster Trust makes some excess cash, the excess cash flows into The Averted Investments Trust. The Averted Investments Trust can then purchase property, shares, et cetera. The investments in the Averted Investments Trust’s are asset-protected against the business. (This is why you need a second trust.) Money from The Averted Investments Trust then flows into Moneybags Proprietary Limited at the tax rate of 27.5%. This is where Jack can access funds for investment. How’s your structure looking? Do you have a Little Disaster on your hands? If you need a restructure, talk to the right people. Get your structure right with Paris Financial, the structure and small business champions.

Increased flexibility for Parental Leave Pay for self-employed

14 Jul 2020 00:45:00 GMT

From 1 July 2020, parents accessing the Government’s parental leave pay (PPL) scheme will have greater flexibility and options. Targeting the self-employed and small business owners, the changes introduce a new flexible paid parental leave pay period of 30 days. Previously, new parents could apply for PPL for a continuous block of up to 18 weeks. The changes split this time period into two: A continuous period of up to 12 weeks, and 30 flexible days. Parents can take the 18 weeks in one block or, under the new rules, take the 12 week period and then use the additional 30 days at a period and in a way that suits them but before the child turns 2 years of age. For example, assume that when Jane, who works five days per week, has a child, she initially claims 12 weeks. Jane returns to work part time for three days per week. In that case, Jane would apply to be paid parental leave pay on the two days per week that she is not working. The administration of the PPL will change in some scenarios. For Jane’s case above, the employer would administer the scheme for the first 12 weeks but then the Government would directly pay Jane for her flexible days. If an employee wishes to access flexible parental leave pay, they will need to negotiate time off work or a part time return to work with their employer. If the employer is unable to accommodate the request, then the employee may take the 18 weeks as one block. The changes to the paid parental leave scheme apply to babies born on or after 1 July 2020. The scheme commences from 1 April 2020 to give parents applying for leave the flexibility to use the new arrangements (but only if their child is born on or after 1 July 2020).

Business owners now personally liable for GST compliance

10 Apr 2020 00:27:00 GMT

From the start of April 2020, the tax office will be deeming directors as entirely liable for their company’s GST responsibilities. The additional liability is an extension of the already existing DPN (Director Penalty Notice) regime. Previously, the regime had applied to PAYG withholding and superannuation guarantee liabilities, but the extension also covers GST, luxury car tax and wine equalisation tax. Although the majority of Australian businesses do meet their GST liabilities, some struggle to make payments on time due to cash-flow issues. Company directors who fail to report and pay overdue GST will now be held accountable – and the ATO suggests that penalties could be severe. Inadvertent oversights and systemic errors will not be excused. Even directors who resign prior to the GST due date will still be liable. Passive and inattentive directors should take this as a serious warning of significant consequences if GST compliance is not met in the future. As a result of this change, it is more important than ever for business owners to understand and adhere to their tax obligations. It is also vital that directors are structuring their business strategically to ensure that their assets are protected if something goes wrong. Most directors find that keeping up-to-date with complex tax law is challenging and best left in the hands of a tax accounting professional. If you need some assistance with small business tax or tax structuring for asset protection, contact one of our tax champions.

What types of insurance should a business have?

18 Mar 2020 00:03:00 GMT

Insurance often seems like an enormous waste of money… until you need the cover. Depending on the unique size and nature of your business, some insurance options may or may not be necessary. However, everybody venturing into a business venture should take the time to evaluate what insurance options they may require. Insurance can work in various ways. Some insurance companies are investment-type funds where your contributions can gain additional profit over time. Alternatively, other insurance companies will expect regular payments to be made by you to enable your cover. Before committing to anything, it’s vital that you investigate the specific details of each policy and company. If it doesn’t meet your needs and adequately cover you, you could be frustratingly pouring your cash down the drain. Tax audit insurance As we have mentioned in a previous article, tax audit insurance is very important for most small business owners. This type of insurance covers you for all the associated fees relating to dealing with the tax office in the case of an audit. Your tax accountants don’t make any money out of the insurance. It simply reduces your costs if you are chosen to be audited. Because the ATO now have an outstanding data matching system and are conducting more audits than ever, tax audit insurance is critical. Workers’ compensation insurance If you employ staff, you will need to acquire workers’ compensation insurance. This ensures that workers can access first aid, compensation if injured and unable to work, and return-to-work rehabilitation. As a sole trader, you cannot be covered as an ‘employee’ of your business with workers’ compensation. Instead, you will need to seek your own personal death, illness and disability insurance. These insurances through private insurers should compensate you in the incidence of lost revenue whilst you recover. Public liability insurance A popular type of insurance for small business owners or sole traders is public liability insurance. In the case that you are liable for damages or injuries to another person or property, this will cover your legal costs. Other similar forms of insurance can include: product liability insurance (if your product causes injury, damage or death), professional indemnity insurance (if your professional advice causes injury, damage or death) and cyber liability insurance (if you breach security of electronic information). If you own a registered vehicle, you will already be paying third party personal injury insurance as part of your registration fee. Income protection insurance Both sole traders and bigger business owners should obtain income protection insurance. In the unfortunate situation where you are injured or ill and unable to work, this insurance will cover you for lost income as a result of the injury or illness. Types of insurance associated with loss of income include: disability insurance (covers part of your normal income if you become disabled), employee dishonesty insurance (covers losses resulting from employee fraud and theft), and business interruption insurance (covers loss of profit due to business damage by fire). Personal insurance Personal insurance will give financial security to you, or your family, in the case of illness, loss of ability to earn income, total and permanent disability, and death. Forms of personal insurance can include: life insurance (provides a lump sum if you die or suffer permanent injury), total and permanent disability insurance (provides a lump sum if you are permanently disabled before retirement), and trauma insurance (if you have a specific life-threatening illness). Stock, product and equipment insurance If you rely on stock, products, assets or equipment for the smooth sailing of your business, you should consider insurance options to cover these items. Different insurance providers may provide a comprehensive product and asset insurance, whereas others will offer more specific insurance types. Related insurance products include: building and contents insurance, burglary insurance, deterioration of stock insurance, electronic equipment insurance, farm insurance, goods in transit insurance, machinery breakdown insurance, tax audit insurance, property in transit insurance. As mentioned previously, the types of insurance that you choose to invest in will depend entirely on what matters to you and your future business direction. Always get a microscope and read the fine print – you need to ensure that your chosen policy can provide you with all the cover you require.

How to know if your worker is an employee or a contractor.

06 Feb 2020 23:57:00 GMT

Determining whether your worker is an employee or a contractor can often be a challenging task. However, it is an important distinction to make. As an employer, the definition of your worker determines what tax and super obligations you have towards them. If a business misclassifies an employee, it impacts on superannuation guarantee (SG), PAYG withholding, workers compensation, and payroll tax. In fact, if you inaccurately determine what your worker is, you could face serious penalties and charges. As a business owner engaging others, the onus is on you to get it right. Even if you engage a contractor and he tells you he is a contractor, the ATO can still decide otherwise. When the tax office believes he is an employee, it will be you who is responsible for paying the penalties. For example, you will owe him superannuation on top of what you have already paid. Are they an employee or a contractor? According to law, “…the distinction between an employee and an independent contractor is rooted fundamentally in the difference between a person who serves his employer in his, the employer’s business, and a person who carries on a trade or business of his own.” Some key questions to ask yourself include: Can the person subcontract or delegate others to do the work? (If yes, they could be a contractor) Are they paid on an agreed quote? (If yes, they could be are a contractor) Do they provide their own tools and equipment? (If yes, they could be a contractor) Are they legally responsible for their own work? (If yes, they could be a contractor) Do they operate their own business independently of yours? (If yes, they could be a contractor) Apprentices, trainees, labourers and trades assistants should always be treated as employees. Companies, trusts and partnerships should always be treated as contractors. If you have hired an individual, the details of their working agreement (including whether they are an employee or contractor) should be within their contract. Though, no single factor is determinative. If you engage contractors, it is essential to get the facts of the relationship right. Business owners need to take a proactive approach to reviewing arrangements to ensure that the business is not exposed to material liabilities. If you require any further help with understanding your tax and super obligations to employees and contractors, you can chat to one of our small business tax champions.

What business structure is best for cryptocurrency investors?

02 Jan 2020 23:44:00 GMT

After deciding to invest in cryptocurrencies, you will need to make a choice of which structure you would like to invest or do business in. There are a variety of structures available in Australia, and each can make a significant difference to your future. The main structures currently include: Sole trader/investor Company Partnership Trust Superannuation As everybody is in unique circumstances, there will be some structures that do and do not suit your needs. To assist you with identifying what structures could be appropriate for you, their predominant features are listed below. Sole trader If you’re a sole trader, you’re an individual and the sole owner of the investments. The income your investments make belongs to you. You report the income on your individual tax return and pay tax on your capitals gains or trading income at your individual marginal income tax rate. You’re responsible for all decisions and losses for your investments. This means you have complete control over your investments, but it also means your personal assets are at risk if things go wrong. The benefits of being a sole trader include an easy setup and low costs. Partnerships In a partnership structure, you and your partners own the investments together and share the income/losses of the investments. A partnership can have two or more partners. Each partner reports their share of the capital gains or trading income in their own individual tax return, and pays tax at their individual marginal income tax rate. The partnership must lodge a partnership income tax return every year with the Australian Taxation Office (ATO). The setup process for partnerships is relatively easy, and running costs are low. Companies A company structure means that your crypto investments are owned by a separate legal entity from you. This means the company has the same rights as a natural person and can have debt, sue and be sued. A company is owned by its shareholders and run by its directors. The personal assets of directors and shareholders are separate from the company, so they can’t be used to pay company debts. In certain cases where directors breach their duties, they may be held personally responsible for company losses. The income and losses that the crypto investments make belong to the company, and is reported on a company tax return. A company needs its own TFN. Companies have higher establishment costs and can be more complex to run in comparison to sole traders and partnerships. Trusts In a trust, a trustee is responsible for dealing with the trust, including lodging returns and distributing income or losses to the beneficiaries. A trustee is also responsible for overseeing the payment of debts. Using a trust structure means that investment activities are held and controlled by a trustee for the benefit of others (the beneficiaries). A trustee is responsible for everything in the trust, including income and losses, and must report income in a trust income tax return. A trustee can be an incorporated company or a person. Superannuation Self-managed super funds (SMSFs) are becoming popular amongst those who wish to increase their level of control over their superannuation funds, reduce complexity of their superannuation, minimise costs for management and administration expenses, and work purposefully toward fulfilling their financial retirement and lifestyle goals. SMSFs can be a particularly good tax planning tool when acquiring crypto investments however caution needs to be taken to ensure the Trustee of the Fund maintains a diversified asset allocation portfolio to minimize risk. Lack of diversification or concentration risk can expose the Fund and its members to unnecessary risk if a significant investment or asset class fails. At retirement upon switching to pension phase, the income earned by superfunds is tax free and the allocated pension paid by the superfund is taxed concessionally, giving tremendous tax planning benefits to the recipients. Superannuation has the lowest tax rate available and is a great vehicle for maintaining control. What structure suits you and your cryptocurrency trading? Ultimately, the best structure for you will depend upon your unique goals and needs. If your investments or investment trading business is new and small, being in a sole trader structure may likely suffice. However, larger investment trading or growth portfolio’s may need to investigate company and trust structures. If you require any further assistance with investment structuring and comprehending your tax obligations as a cryptocurrency investor or trader, you can contact the Cryptotax team on 0456 248 264. Cryptotax, a division of Paris Financial, was the first tax accounting firm establishing solely for the cryptocurrency community. It is our objective to give you a greater understanding of your taxation obligations in Australia, and highlight the benefits that may be derived in structuring your investments differently.

SMEs Must Speak To Both Their Accountant And Broker Before Purchasing Property

26 Nov 2019 02:13:00 GMT

Small businesses across Australia are gradually coming to terms with the fact that unified accounting and lending solutions are vital for growing their SME and establishing assets. As mentioned in a recent article by AccountantsDaily, having both a talented accountant and a talented broker is crucial for lending success. However, most importantly, the accountant and broker should have a strong relationship because the two areas are much intertwined. Particularly when purchasing property, either for self-occupying or investment purposes, an accounting and broking team that can work together is vital. A small business accountant and/or property tax specialist can: Give you advice on whether you should be purchasing in your own name, in a trust, in a partnership, or in a SMSF. Assist with maximising your total return if the property is an investment. Interpret your business trajectory and objectives, and seek a solution that is in-line with that. Inform your broker of your business cash flow circumstances. Work with the broker to uncover a finance structure that will allow for tax effectiveness and competitive interest rates. If the accountant and broker are working separately, neither parties will be informed of important details on their end. It is the same deal when considering business loans and other forms of finance. At Paris Financial, we have property tax accounting services and lending solutions under one roof. Our teams can work together to ensure that every area of your finances are covered. We are also small business tax champions, so we have extensive experience managing the complex matters associated with business structures and loans. Before you make your next property purchase, be sure to get in touch with our full financial service team.

How Much Can You Claim On Your 2019 Return?

16 Oct 2019 02:16:00 GMT

It’s tax time yet again, and many Australians are wondering what areas are best to make their claims. This year, the ATO are analysing a number of areas. As well as diligently watching small businesses and high wealth business owners, they are investigating individual returns, modern economy workers and property investors. Individuals For those lodging an individual tax return, the key areas that the tax office are watching are: Clothing and laundry deductions Home office deductions Overtime meals expenses Home internet/ mobile claims Motor vehicle deductions Modern Economy With the rise of the gig economy, the ATO are not taking any chances with incorrect claims in this space. If you are working in these areas, you need to be careful: Cryptocurrency trading Ridesharing (Uber and Lyft) Renting home spaces/items (Airbnb and Stayz) Property Investors As always, property investors face significant scrutiny from the tax office. In 2019, the ATO will be targeting: Excessive interest Jointly held claims Holding homes Initial repairs The ATO have sophisticated data matching tools which allow to identify any out-of-the-ordinary or ‘too high’ claims. If you are claiming too much in any given area, you will be audited. If you need any assistance with your lodgements, you can get in touch with the small business tax champions. Our 40 years of tax knowledge means we can balance the need for a large return with the need to be accurate and legitimate. Contact us today.

The Difference Between Income Tax And Instalment Tax

30 Sep 2019 02:15:00 GMT

When it comes to income tax in small business, a lot of people don’t understand the difference between income tax and instalment tax. To help you understand, here is an example of an income tax account which I will explain. This assumes that you are running the business through a trading trust and distributing out profit at the end of the year to a company beneficiary. Company Income Tax Account Trust Profit $10,000 Tax $2,750 Instalments paid $2,000 Left to pay $750 The Trust Profit received by the corporate beneficiary is $10,000. The tax rate is 27.5%, so that is $2,750 in tax, assessed by the ATO on the profit and loss of that company beneficiary. During the year, the company has been required to pay company instalments which are just tax paid on a quarterly basis, assessed by the tax office. This amount of $2,000 is a cash flow item during the year. It’s not what is actually happening for the income tax for the year. It’s prepayments on this tax. The instalments during the year were $2,000 and what’s left to pay on the income tax return is $750. But at the end of the day, the income tax to pay on this company, for that particular financial year is $2,750. Income tax is what actually happens and is what gets assessed at the statutory tax rates. There’s a clear difference between PAYG instalment tax for companies and individuals. PAYG instalment tax, pay-as-you-go instalment tax, is what the tax office assesses to get their money upfront in the next financial year. It’s a cash flow item, purely and simply. They want their money upfront for the next year. The ATO takes last years actual tax amount increases it by a small amount then send a bill quarterly. When this money is paid it goes into the detail of the integrated client account in accounting speak. So they are saying they want to cover what’s going to happen in the 2019 year. What actually happens in the year could be completely different. And this is pure cash flow, folks. A lot of people look at their integrated client account and say “We’re paying too much tax we don’t know where it’s going.” When it comes to instalment tax, it’s cash flow and the tax office works out what you should pay. If your activity drops you won’t have to pay the quarterly instalment amounts. If your business activity drops my suggestion is to go and talk to your accountant and they should be able to drop the amount per quarter that you have to pay. Ultimately, PAYG instalment tax for companies and for individuals are prepayments only, and they are cash flow items in your business. They are not the actual result, so don’t get bamboozled. Income tax is the actual tax figure.

60,000 Tip-Offs Helping The ATO To Find Tax Cheats

16 Aug 2019 06:54:00 GMT

Tip-offs to the Australian Taxation Office (ATO) have reached an all-time high with close to 60,000 tip-offs received between June and May 2019. This is almost double the number of the previous year. The ATO thinks the number of tip-offs will reach around 70,000 for the full financial year. Common problem areas that people feel obliged to report include suspected tax evasion, illegal phoenix activity, and the black economy. More than half of all tip-offs received were for suspected under reporting of income or about the cash economy, for example businesses demanding cash from customers or paying their workers cash in hand. The effectiveness of the tip-off line has led the ATO to dub it the “crime stoppers” for tax. ATO Assistant Commissioner Peter Holt suggests that the people doing the right thing “have had enough of competitors cheating the system and getting an unfair advantage.” The tip-off line has been so successful that a new and improved “Tax Integrity Centre” launched this month to provide a single point of contact for reporting suspected tax evaders. Some of the typical behaviours reported include: Discounts for cash, cash deals without a receipt or a discount for cash/mates rates Jobs paying cash wages without payslips or superannuation entitlements Not ringing up a sale on the till or keeping the till drawer open Having two sets of books Deleting transactions on the point of sale system Claiming work-related expenses the taxpayer is not entitled to Attempts to avoid paying child support or other obligations by appearing to earn less income than what the person receives Failing to lodge returns or keep records Arrangements that promise tax benefits like fabricated deductions or schemes out of step with the intention of the law Business owners are often reported for: Claiming personal expenses on a business account so they can claim deductions Paying employees late or less than they should Not paying superannuation or other employee entitlements The top 5 tip-offs to the ATO: Under-reported income 31% cash economy 27% non-lodgment 25% inadequate or no superannuation paid 8% over-stating expenses 3% The best way to avoid getting tipped off and caught by the ATO is to only make legal and accurate claims. At Paris Financial, we are focused on getting you a sizeable tax return whilst staying in line with tax laws. Our strategy for business owners centres around putting their businesses in the most tax-effective structures and sourcing informed ways to reduce their tax. We do not rely on dodgy methods to help you save money. As a result, we are trusted by thousands of business owners each year. If you want see how much tax we can save you legally, contact us today.

Airbnb Renters To Be Under Tax Office Scrutiny

10 Jul 2019 06:55:00 GMT

Similarly to last year, users of the highly popular Airbnb platform will struggle to get away with illegal deductions on their 18/19 tax return. The ATO have announced that they will make a significant effort to track down nearly $8.7 billion in expected tax revenue. By making use of modern data-matching technology, the ATO can receive information regarding the use of homes being rented online. They can compare your property against others in the area to ensure you are within a similar tax bracket. If not, you will become a target for inquiry. In particular, the ATO believe there will be a number of incorrect claims during periods of no tenancy. In order to claim any deductions, tax payers must have evidence that their home was available in these periods and not used for private purposes. There are a number of tax laws and regulations surrounding online rental deductions. Some of the major notes to remember include: The income you receive is definitely taxable, contrary to what you might have heard. Some expenses can be claimed in full, like the cleaning, depreciation on furniture used, Airbnb fees etc. Other expenses (interest, rates, electricity, etc) can be claimed but must be apportioned based on how much of the house has been rented and how much of the house is to be shared. The expenses also need to be apportioned according to the amount of days the extra rooms are genuinely available for rent. CGT is applicable on the small portion of time that the whole home was not your principle place of residence. The laws are alike for other online rental platforms, such as Stayz. To ensure you are receiving a great tax return, without making illegal deductions, you should turn to a property tax specialist for assistance.

Extension & Increase To The Instant Asset Write-Off For Small Businesses

10 Jun 2019 23:23:00 GMT

The popular instant asset write-off for small business has been extended and increased. The new laws: • increase the threshold below which small business entities can access an immediate deduction for depreciating assets and certain related expenditure (instant asset write-off) from $25,000 to $30,000; and • enables businesses with aggregated turnover of $10 million or more but less than $50 million to access instant asset write-off for depreciating assets and certain related expenditure costing less than $30,000. Assets will need to be used or installed ready for use from Budget night until by 30 June 2020 to qualify for the higher threshold. Anything previously purchased does not qualify for the higher rate but may qualify for the $20,000 or $25,000 threshold. Similarly, anything purchased but not installed ready for use by 30 June 2020 will not qualify. In summary: Claim up to $30,000 for assets purchased from 2 April 2019 until 30 June 2020 Claim up to $25,000 for assets purchased between 29 January 2019 and 2 April 2019 Claim up to $20,000 for assets purchased before 29 January 2019. The instant asset write-off only applies to certain depreciable assets. There are some assets, like horticultural plants, capital works (building construction costs etc.), assets leased to another party on a depreciating asset lease, etc., that don’t qualify. For assets costing $30,000 or more For small businesses (aggregated turnover under $10m), assets costing $30,000 or more can be allocated to a pool and depreciated at a rate of 15% in the first year and 30% for each year thereafter. If the closing balance of the pool, adjusted for current year depreciation deductions (i.e., these are added back), is less than $30,000 at the end of the income year, then the remaining pool balance can be written off as well. The ‘lock out’ laws for the simplified depreciation rules (these prevent small businesses from re-entering the simplified depreciation regime for five years if they opt-out) will continue to be suspended until 30 June 2020. Pooling is not available for medium sized businesses which means that the normal depreciation rules based on the effective life of the asset will apply to assets that don’t qualify for an immediate deduction. The amendments apply from 7.30 pm legal time in the Australian Capital Territory on 2 April 2019 until 30 June 2020. If you would like further information on how this affects you, you can contact one of our small business tax champions.

Fringe Benefits Tax Is a Nuisance

29 May 2019 00:08:00 GMT

Fringe Benefits Tax is a shocker… too much complexity and compliance involved too much paperwork no great benefit to anyone at all It’s particularly frustrating for our small business clients, as they often have work-related car use or take their employees out for lunches or social functions. The paperwork involved in these situations is ridiculous. Recently, Tony Greco, while talking to AccountantsDaily, has expressed a similar opinion. He believes that “the government will be unlikely to abandon fringe benefits tax despite its high compliance cost to revenue intake ratio in the absence of holistic tax reform.” As I’ve mentioned in a previous video, employers have to wear the administrative cost, rather than the government, which is difficult for small businesses to bear. Greco thinks this is a “hidden cost” from a government perspective. Thankfully, at Paris Financial, we do know how to handle it. We’re small business tax champions and have wrapped our heads around the complexities involved. So if you need assistance, you can contact us.

Claiming Car Expenses: Cents Per Km or Logbook Method?

28 May 2019 00:52:00 GMT

From 1 July 2015, the ATO reduced your options for claiming car expenses down to two methods: cents per kilometre method logbook method Both methods have benefits and cons, and which method is right for you will depend on your circumstances. Cents per km method The cents per kilometre method is easier for record keeping, involves more simple calculation, and is generally suited to those with less vehicle use. You simply keep a record of the number of kilometres you’re traveling for work or for business over the duration of the year and you claim these using a set rate. Currently for the 2019 financial year, that rate is 68 cents per kilometre. The negative of this method is that you are limited to a maximum of 5000 work related or business kilometres per year. That gives you a total maximum claim of $3,400. If you’re using your car a lot for work, you may find that this is quite limiting. Cents Per Km Method Pros Cons Simple calculation and record keeping Total claim limited to 5000kms, or $3400 No need to keep all receipts for running expenses No separate claim for depreciation of car Generally suited to people with lower business vehicle use Logbook method The logbook method can allow for greater claims depending on how much you’re using your car for work or business. However, there are more recordkeeping requirements – the main one being that you must keep a 12 week logbook that records all of your trips, both business and private for that 12 weeks. At the end of the 12 weeks, you calculate your work related or business percentage use, and you can claim that percentage of all deductions for your car. You also need to keep all receipts for fuel, insurance, registration, interest, and servicing throughout the year. As mentioned, despite the additional effort, it can often lead to a greater claim if you are using your car a lot for work and business. Logbook Method Pros Cons Potentially allows for much larger deductions More time consuming record keeping requirements Ability to claim a percentage of actual expenses as well as depreciation of the vehicle Must keep receipts for all car expenses Generally suited to people with large amount of business related vehicle use Which is best for you? As you can see, both methods do have their differences and can have their benefits depending on your situation. It’s best to consider which is most realistic for you. Think about: Will you have the time or the ability to save all of your car-related records? Do you have a lot of business related vehicle use? Are you willing to put in potentially more effort for a potentially better return? If you have any questions, please don’t hesitate to contact us or speak to your current accountant. We can assess your current situation and suggest the best option for you.

How Tax Planning Can Maximise Your Tax Return

22 May 2019 02:14:00 GMT

As tax advisors, the coming months are the most important time of the year. If you are a small business owner, you should consider this as a vital period for you too, because right now is when you are best to conduct your tax planning. From early May until mid-June, you need to be making decisions on what’s happening in your business from a tax perspective. If you leave it until July or August… the bird has already flown. Act now. We can simplify tax planning into four key areas. Asset purchases. If you’ve got a business which is earning less than 10 million in turnover, you can spend on asset items that are less than $30,000 ex-GST before the 30th of June and get an immediate write off. This is an absolute winner for small business. Before you buy, ensure that you really do need the item. If you’re gonna fork out 10 grand on a new item, the government will roughly give you back about 30%, so you’ll get back three grand. Therefore, you’re still out of pocket seven grand. Assuming you do need the item, and you need it before the 30th of June, asset purchases are a really good way to reduce your tax and keep your business operations going, and they’re good for cash flow. Super contributions. The government started to squeeze super in all areas, but before the 30th of June, especially if you’re starting to contribute more to super and you’re getting a little bit older like my good self, $25,000 per person is the tax deductible amount of super contributions for the 2019 year. $100,000 per person is amount for non-concessional contributions, meaning you’re putting 100 grand in from your private savings (outside of the business), into your super with no tax deduction, but it’s still getting into that superannuation environment. End-of-year adjustments. This can be relevant for people who are having an absolute booming year in 2019, but they’re expecting that things may not be as good in 2020. It’s a good idea to try to slow the income down towards the end of the year and maybe increase the expenses. I’ll leave it up to you how to do that – use your own skills, but it’s usually something to do with invoicing and operations and maybe some prepaid expenses. These end-of-year adjustments, moving income and expenses around, are only relevant for you if you can see either a big or bad year this year or the next year. If you’re steadily growing or you’re going on a level plane with your business, end-of-year adjustments won’t give you much at all. Trust distributions. If you’ve got a growing business in a trading trust, you’ll need a company at some point in your business lifecycle. Total corporate beneficiary is absolutely vital to minimise your tax. They are superb for cash flow, trust distribution, and to reduce your tax. However, a trust distribution and the paperwork must be done before the 30th of June. So make sure you talk to your tax advisor about those as soon as possible. With all four of these areas, it’s important to talk to your tax advisor now. Have a look at your P&L from the 1st of July 2018 until the end of April or March 2019, and you’ll have nine or 10 months of solid figures that your tax advisor can use to minimise your tax for the 2019 year. If you’d like some assistance in this space, myself and my team are more than happy to chat on (03) 8393 1000.

Our Pre-Election Tips & Advice

13 May 2019 00:17:00 GMT

We’re two weeks out from the federal election, and it’s time to freeze. Don’t do anything, small business people. I’m telling you, this is a tax election, the first one since about 1999. It’s all about tax! But, don’t do anything drastic, because there’s loads of things that can change post-election, whoever gets in. Billy Shorten, if he gets in, is going to shake it up like John Howard did back in 1999 of the year 2000. Why do nothing? Why freeze and do nothing? The reason is because things change once the parliament comes back together. A great example is from ten years ago when trusts needed to change and the federal government said they were going to change the laws on how we distribute money. Lawyers went out and did seminars all over the country, hitting up accountants to change trust eds for all their clients. Right at the end, the law came out completely different to what they’d proposed because of the machinations of the senate. So all the fuss was over nothing. Right at the moment, two weeks out from the election, all sorts of people are saying the law’s going to change because Billy is gonna get in. Don’t listen. Don’t do a thing. Post-election, we’ll really know what’s going to happen. So tune into the Tax Champion on YouTube and get on all of our social channels, because once the laws do change and we’ve got black and white rules for tax law, we will give you everything you need for small business. But for now… wait, wait, wait. Do nothing folks. And we’ll see you in a few weeks’ time. Pat Mannix, Partner, Paris Financial

Three Must-Know Tips For Commercial Leases

29 Apr 2019 01:23:00 GMT

Have you heard of the famous tagline from The Fly? “Be afraid… be very afraid.” When it comes to commercial leases, this quote definitely applies. I talk mainly from bitter experiences of my own. Lesson 1: Term One year is not right. A small business person will not get a one year term in a commercial premises. One year probably will not suit you anyway because you will want some of your own fixtures and fittings. Five years is not right either. It is far too long and if you outgrow your lease, you will be stuck there for five whole years or looking to sub-tenant the place and paying rent for maybe a year or two while you find one. The Commercial agent you engage will be in no hurry though because their landlord will still be receiving the money that you are paying. Oh, this has been sooooooooo painful over the years and cost my family a holiday or two in lost funds going out to landlords monthly rent with empty premises. A three-year term is the perfect length term for a small business. Lesson 2: Area To a degree, choosing an area is about taking a leap of faith. However, there are some things to beware of. Don’t pick a large premises in the hope that your business is going to grow 50, 60, 70 or 80%. The area for growth should only be anywhere between 20 and 40%. Too much space will likely mean that you have a lot of costly, barren space. In my career in small business I have seen many clients’ business go under from the weight of unused space. Alternatively, too little space could mean you outgrow your leased premises far too quickly. Always aim for a premises which has room for 20 to 40% growth from your current operations. Then if you outgrow that over a three year term, it’s no worries. You can move and begin the 20 to 40% growth over three years again. Lesson 3: Make good is bad Buried in the contract of a commercial lease are these two beautiful words: make good. When you get to the end of your lease and you’re ready to move on, the commercial agent is going to tell you to get the walls painted, steam clean the carpet, pull down the office you put up, and throw everything in the bin. They will force you to make the place ‘good’, which ultimately makes you feel bad because it costs a large sum of money to move out. You’ll also need to manage the building and repair contractors. It is NEVER good enough for the landlord after your first efforts to Make Good. I’m feeling pained and bitter writing this…..can you feel it? This is just something to be aware of when you move out of the building. Commercial leases are a must for many small businesses, so these are my few tips to help you out before you get into tricky situations. Pat Mannix, Partner, Paris Financial

Do I Have To Pay GST On My Residential Property Development?

18 Apr 2019 05:09:00 GMT

It’s easy to become confused about GST and how it applies to residential property developments. Below, I’m discussing small scale developments, rather than larger scale. This means one, two, three units, or similar. A change of intention means change of responsibility Although the same principles apply, the intentions change more regularly with smaller developments. When your intention for these new properties changes so does your responsibility for GST. Some people aren’t always aware of this, and they are shocked when they realise that the GST they claimed needs to now be paid back to the ATO, or they have to pay more GST to the ATO than what they originally realised. Sometimes this scenario can result in your property sales making a loss, in which case you may have been better off renting the property out for a few years. A typical scenario You’ve got a block of land which you’re going to build three units on and then sell them. That’s great. You know that GST is going to apply. So, that’s not an issue. However, when you go to put them on the market, you find that the market has dropped and you’re not going to get your money back. So, you decide to rent them out for a little while. At that moment when your intention changes, your entitlement to have claimed all the GST on the build changes too. You’re no longer entitled to it. So, it involves some quite complex calculations where we have to adjust the GST and pay back some of what you’ve claimed to the ATO. Now, If the opposite occurred and you were building with the intention of renting. Then, instead, you decide to sell, you would now be able to claim the GST on the build that you hadn’t been able to claim previously. The first step…? Property tax law, and in particular, GST on residential property developments, is complex. It’s vital that you keep a record of your original intentions and also when they do change. You’ll also find that speaking to your tax accountant will be very valuable for assisting you to make the best decisions that enable the best tax outcomes.

Overcapitalising: What It Is And How To Avoid It

10 Apr 2019 23:21:00 GMT

As a home owner or property investor, you may have heard the term ‘overcapitalising’. But what exactly is it and why is it considered bad? While adding a new deck or kitchen can increase the value and enjoyment of your property, overcapitalising can end up costing you more than you planned. Here’s a closer look at what overcapitalisation is, why it’s bad, and how you can avoid it and still increase the value of your property. What is overcapitalising? Simply put, overcapitalisation is when the cost of a home improvement is more than the value it adds to your property. For example, if you buy a property for $500,000 and spend $100,000 on a new outdoor kitchen area with timber decking and fancy landscaping, it doesn’t automatically increase the property’s value to $600,000. If similar properties in your neighbourhood are selling for a maximum of $525,000, your eye-popping improvements are unlikely to increase the selling price beyond this – meaning you have overcapitalised. Why should overcapitalisation be avoided? Aussies love investing in their homes. However, keep in mind that while certain renovations can increase the value of your home, there is an upper limit on what properties are worth at any given time. If you find yourself in a situation where you have to sell an overcapitalised property on short notice, you could find yourself losing out on your investment. Increase the value of your property without overcapitalising While overcapitalising is never a good idea, there’s no question that the right renovations can significantly add value to a property. Some areas where home improvements can make a big difference include: new curtains or blinds a fresh coat of paint inside and out updating light fittings with modern fixtures renovating an old kitchen or bathroom refinishing floors and replacing carpets adding a carport or garage. When it comes to renovations, the key is to increase the kerb appeal without exceeding your budget. Consider your neighbourhood and the types of features that buyers or renters are likely to be looking for, and be willing to set your personal preferences aside. While you may enjoy having a beautifully landscaped yard or pool, the next person living in the house may not. In other words, it pays to be practical. A good rule of thumb In general terms, you’ll probably avoid overcapitalising if you keep the cost of your renovations to less than 10% of the value of your home. The less you need to invest in your home to give it that wow factor, the more you can expect to get back when it’s time to sell. And always keep a close eye on the sale price of similar properties in your area. With many people continuing to depend on property investments to meet their financial goals, it’s important to make sure you have the right information and tools on your side. Talk to your mortgage broker about how to unlock the full potential of your home or investment property with a renovation. © Advantedge Financial Services Holdings Pty Ltd ABN 57 095 300 502. This article provides general information only and may not reflect the publisher’s opinion. None of the authors, the publisher or their employees are liable for any inaccuracies, errors or omissions in the publication or any change to information in the publication. This publication or any part of it may be reproduced only with the publisher’s prior permission. It was prepared without taking into account your objectives, financial situation or needs. Please consult your financial adviser, broker or accountant before acting on information in this publication.

Warning For Tax On Overseas Income

10 Apr 2019 04:28:00 GMT

Do you earn income overseas? A recent case highlights why you might pay more tax than you thought on foreign income. If you are an Australian resident and earn income from overseas, such as income from investments, sale of assets such as property, distributions from foreign trusts, etc., you will generally need to declare that income in your Australian tax return. If you have paid tax in a foreign country on that income, you might be able to claim a foreign tax offset to reduce your Australian tax liability. Sounds simple enough, but… A recent case highlights where problems can occur and you might end up paying a lot more tax than you thought. The taxpayer in this case was a resident of Australia but was taxed in the US on gains they made on interests in US real estate. Most of the gains they made were taxed at a concessional rate of 15% (rather than the normal rate of 35%) because the interests had been held for more than one year. Some of the gains were ultimately taxed at 35% in the US. The capital gains were also taxed in Australia and qualified for the general CGT discount of 50%. As the taxpayer was a resident of Australia and had paid tax on the US gains, the taxpayer claimed a foreign income tax offset for all of the US tax they paid. However, the ATO amended the tax assessment and only allowed a tax offset for slightly less than 50% of the tax they paid in the US. The issue? The problem for the taxpayer was that while the US and Australia both have tax concessions for longer term capital gains, they operate quite differently. The US applies a lower rate to the whole gain while Australia applies a normal tax rate to half of the gain. Unfortunately for the taxpayer, the Federal Court held that the Commissioner’s approach was correct. If foreign tax has been paid on an amount that is not included in your assessable income then you cannot claim a foreign tax offset on it. In this case, the portion of the capital gain that was exempt from Australian tax due to the CGT discount was not included in assessable income. It is not uncommon for people who have made capital gains on foreign assets to assume that they get all of the tax they paid overseas back. Unfortunately, that’s not necessarily the case and often only a partial credit is available, if at all. For more information, please book in for a complimentary consultation with a Tax Champion.

Amendments To Retirement Phase For Super

27 Mar 2019 00:27:00 GMT

Treasury Laws Amendment (2018 Measures No. 4) Bill 2018 passed both Houses on Tuesday, the 12th of February 2019. Schedule 8 to this Bill makes miscellaneous amendments to the taxation, superannuation and other laws. It also includes the amendment to the meaning of the term retirement phase that was impacting the payment of reversionary transition to retirement income streams (TRISs) since super reform started on the 1st of July 2017. As part of the super reform, the transition to retirement income stream is no longer considered to be in the retirement phase, so where a recipient of transition to retirement income stream (TRIS) who was in pension phase dies, the reversionary TRIS could only be paid to a reversionary beneficiary who satisfied the condition of release. Otherwise, the reversionary TRIS would cease to be in the retirement phase. This has now been fixed with the passing of Treasury Laws Amendment (2018 Measures No. 4) Bill 2018, so the transition to retirement income streams can be paid to a reversionary beneficiary, irrespective of whether they have satisfied a condition of release. Allowing a TRIS to revert in all cases will automatically simplify administrative processes for superannuation funds. It will also make it easier for superannuation members.

ATO Increases Home Office Expenses Rate

13 Mar 2019 23:18:00 GMT

Small businesses and taxpayers who run their office from their home will now be able to claim a larger rate for their running expenses. The rate has been increased from 45c per hour to 52c per hour, and the change is effective as of 1 July 2018. The rate includes the following home office running costs: cleaning costs heating and cooling lighting decline in value of furniture and furnishings. In order to make a claim for home office running expenses, the worker must keep a record to show how many hours they work from home. Alternatively, instead of using the fixed hourly rate option, taxpayers can calculate their actual expenses individually. In this case, a record must be kept of all bills/charges. The taxpayer must also proportion what percentage of the charges are related with the home office, which is done by calculating the floor area used for work as a percentage of the total home floor area. Other expenses that are not included in running costs are: internet and phone costs decline in value of a computer decline in value of office equipment. These expenses can be claimed in some circumstances, but this is dependent on the reason you work at home. The below table explains further. Expenses Home is principal workplace with dedicated work area Home not principal workplace but has dedicated work area You work at home but no dedicated work area Running expenses Yes Yes No Work-related phone & internet expenses Yes Yes Yes Decline in value of a computer (work related portion) Yes Yes Yes Decline in value of office equipment Yes Yes Yes Occupancy expenses Yes No No Table: ATO If you are confused or concerned, you may contact a tax champion at (03) 8393 1000 who will be more than happy to discuss what you are eligible to claim.

Five Areas Of Concern For Growing Businesses In 2019

13 Mar 2019 01:15:00 GMT

If you’ve got a growing business, these are the main areas you need to be concerned with this year. 1… Your People. Your staff are your number one asset. Look after them. Get your industrial relations right with your employees. Pay them correctly. The Fair Work Ombudsmen in Australia is cracking down on employees’ underpayments, so you’ll need to get them on the right pay rates asap. 2… Single Touch Payroll. From 1st July, small businesses with less than 20 employees will need to have STP. So, start looking at software now. 3… Negative Gearing. Billy Shorten is looking at changing negative gearing. For many business people who are starting to grow, they want to develop their property portfolio. The mooted changes of negative gearing won’t be good for small business, but we’ll have to wait and see what happens. 4… Capital Gains Tax. Low or no CGT is a key part of businesses being able to grow their wealth. It’s going to be vital to keep an eye on this area to see if any changes occur post election. 5… Franking Credits. Company franking credits help small businesses by helping them to run cash flow. The government may or may not make significant changes in this area. Unfortunately, any changes could be bad for small business people. Whatever you do as a business owner, don’t make decisions until the law officially changes. Even then, don’t make decisions without the right tax advice.

No Tax Deductions If You Don't Meet Your Tax Obligations

08 Mar 2019 01:02:00 GMT

New laws passed by parliament last month directly target the behaviour of taxpayers that don’t meet their obligations. Tax deductions denied If taxpayers do not meet their PAYG withholding tax obligations, from 1 July 2019 they will not be able to claim a tax deduction for payments: of salary, wages, commissions, bonuses or allowances to an employee; of directors’ fees; to a religious practitioner; under a labour hire arrangement; or made for services where the supplier does not provide their ABN. The main exception is where you realised there is a mistake and voluntarily corrected it. For example, if you made payments to a contractor but then later realised that they should have been paid as an employee and no PAYG was withheld. In these circumstances, a deduction may still be available if you voluntarily correct the problem but penalties may still apply for the failure to withhold the correct amount of tax. Are you in the road freight, IT or security, investigation or surveillance business? The Taxable Payments Reporting system was introduced to stem the flow of cash payments to contractors and rampant under reporting of income. Since the building and construction industry was first targeted in 2012, the reporting system has expanded to include cleaning and courier services. Now, a broader set of industries have been targeted. If you have an ABN, and are in road freight, IT or security, investigation or surveillance, then any payments you make to contractors will need to be reported to the Australian Tax Office (ATO). Be careful here as the definition of these industries is very broad. For example, ‘investigation or surveillance’ includes locksmiths. The definition covers services that provide “protection from, or measures taken against, injury, damage, espionage, theft, infiltration, sabotage or the like.” IT services are the provision of “expertise in relation to computer hardware or software to meet the needs of a client.” This includes software installation, web design, computer facilities management, software simulation and testing. It does not include the sale of software or lease of hardware. Road freight is typically goods transported in bulk using large vehicles. This includes services such as log haulage, road freight forwarding, taxi trucks, furniture removal, and road vehicle towing. The addition of road freight to the taxable payments reporting system completes the coverage of delivery and logistics services as businesses in courier services are already obliged to report payments to contractors to the ATO. If your business is impacted by these changes, you need to document the ABN, name and address, and gross amount paid to contractors from 1 July 2019. Your first report to the ATO, the Taxable Payments Annual Report (TPAR), is due by 28 August 2020. This might seem like a long way away but it will come around quickly and you need to ensure that your systems are in place to manage the reporting required easily and accurately. Who needs to report? The obligation to report contractor payments to the ATO is already quite broad. The addition of road freight, IT or security, or investigation or surveillance services, adds another layer. Service Reporting of contractor payments Building and construction services From 1 July 2012 Cleaning services From 1 July 2018 Courier services From 1 July 2018 Road freight, IT or security, or investigation or surveillance services From 1 July 2019 For businesses providing mixed services, if 10% or more of your GST turnover is made up of affected services, then you will need to report the contractor payments to the ATO.

A Simple Guide To Small Business Loans

06 Mar 2019 02:55:00 GMT

Small business loans can be great when you need to get your brand up and running or cover unexpected expenses. However, it’s useful to understand the difference between the available options before committing to one. To help you make the right choice, here’s what you need to know about some of the more commonly used business loans. Line of credit/overdraft A line of credit involves overdrawing on your business’s bank account up to an amount approved by your financial institution. This is commonly used for short-term capital, or as a source of cash flow to keep operations running smoothly. Pros: Flexible – use funds as needed and repay at your own pace. Allows you to establish a good credit history for future borrowing. Simpler application process than other loan types. Cons: The bigger the overdraft, the bigger the fees. May incur fees even when not being used. Bank term loan (secured or unsecured) A bank term loan is a medium-to-long-term loan option commonly used for purchasing equipment or covering business start-up costs. It involves borrowing form a lender and making regular repayments over an agreed period. Pros: Flexible – choose from fixed, variable, split rate or interest-only loans. Allows you to borrow a larger sum over a longer term, with lower interest rates. May be able to match the loan term to the life span of the underlying asset. Cons: May be subject to borrowing minimums. Attracts set-up and service fees. Variable rates can fluctuate, resulting in higher repayments. Mortgage loan A mortgage loan can be used to cover most of the upfront costs of purchasing a property for your business. The property is then used as collateral by your lender until you’re able to repay the loan amount and the incurred interest. Pros: Flexible – choose from fixed, variable, split rate or interest-only loans. May offer features such as redraw facilities and no-penalty early repayment. May be easier to obtain than a bank term loan. Cons: May be subject to borrowing minimums. Attracts set-up and service fees. Variable rates can fluctuate, resulting in higher repayments. Lease financing Used primarily for equipment and vehicle purchases, lease financing means the lender owns the asset and charges the business a hire fee. At the end of the lease agreement, the business may be able to refinance or purchase the asset. Pros: Allows you to maximise the use of your working capital. May entitle you to certain tax deductions. Cons: May be more expensive than other types of financing over the long run. May be subject to hefty early termination fees. Looking for the right business loan? Understanding how the different commercial loans vary can help you choose one that best suits your business needs. Make sure you speak with a professional mortgage broker before making any decisions to ensure your business gets the right level of financial support. © Advantedge Financial Services Holdings Pty Ltd ABN 57 095 300 502.

Accessing Your Super For Estate Planning Purposes

01 Mar 2019 00:52:00 GMT

You normally can’t use your super until you reach your preservation age but there may be a way to have your super released early if you meet an eligibility requirement. In relation to estate planning the relevant tests would include; On compassionate grounds. You have a terminal illness. Access on compassionate grounds It may be possible to withdraw some of your super on compassionate grounds which can include paying for expenses associated with a death, funeral or burial. The amount of super that you can withdraw on compassionate grounds is limited to what is reasonably needed. A super withdrawal on compassionate grounds is paid as a lump sum after tax has been withheld. If you are under 60 years old, this is generally taxed between 17% and 22% which will depend on a variety of factors. If you are over 60 years old, you will not be taxed. If you are a member of an Exempt Public Sector Super Scheme you need to apply directly to your scheme for early release of superannuation as there will be specific rules in relation to early release of superannuation Access for compassionate reasons requires that the Department of Human Services (DHS) is satisfied that your application meets the eligibility criteria. If you are consider to meet the grounds of “compassion” you will be allowed to withdraw some of your super for paying for expenses associated with a death, funeral or burial of a dependant. As access is only granted to help you cover unpaid costs if you’ve already paid those costs, even by using a loan or credit card, you won’t be able to access your super. Terminal Illness You may be able to access your super if you have a terminal medical condition (TMC) as assessed by the tax office. From a tax perspective a TMC requires the following evidence; two registered medical practitioners must certify, jointly or separately, that you suffer from an illness, or have an injury, that is likely to result in death within a period (certification period) within 24 months after the date of the certification at least one of the registered medical practitioners is a specialist practising in an area related to your illness or injury In the first instance you should contact your super fund to request access to your super due to a terminal medical condition. Any payment from the superfund will be as a lump sum fund and will be tax-free if you withdraw it within 24 months of certification. Some superannuation funds may not allow access to your funds due to a terminal medical condition, in which case you may consider moving your super to a different fund. However this may result in the cancellation of life insurance so you should seek advice from a financial planner before changing funds. You do not pay tax on super that you withdraw because you have a terminal medical condition regardless of your age or whether it would normally be taxable. Palliative care If you need an early release of super to pay for palliative care, you can apply directly to your super fund and do not need to submit an application to DHS. The fund can release the money when you have a terminal illness and you won’t pay any tax on this amount, however in contrast applying through DHS may result in the need to pay tax on the money you access. The requirements for accessing superannuation to pay for palliative are that firstly you need help paying for palliative care and secondly you can’t pay any other way ie loans, investments etc If your application is successful, you can access enough of your super balance to cover reasonable costs however it is unlikely to be successful if you or your dependant don’t have a terminal illness the real issue is an inability to meet living expenses. Fortunately a partner is automatically considered to be a dependant otherwise it is necessary to provide evidence that they person is dependant upon you for domestic, personal or medical care. There are evidentiary requirements as well as you need to provide unpaid invoice and quotes and account for possible health insurance rebates. Funeral Early release of super may also be possible if you need to cover the cost of a dependent’s funeral and you don’t have any other options for payment. You’ll need to apply to the DHS to let your super fund release money to cover reasonable costs, which include expenses such as the funeral service and headstone but not the wake. This concession doesn’t apply if you are applying in relation to someone who was not a dependant, the funeral has already been paid or you are trying to prepay your own funeral. As with other categories, evidence of unpaid invoices or quotes need to be provided as does evidence of dependency. Paris Financial has both estate planning and superannuation experts who are ready to assist you in achieving your financial desires. You can contact a Tax Champion today on (03) 8393 1000.

How Your Bank Calculates A Business Risk

25 Feb 2019 06:15:00 GMT

Just like you, banks are in business – and they don’t succeed by making bad deals. When they consider your loan application, they’re calculating the financial risk of entering into an arrangement with you. Let’s break it down. What the bank considers For the bank, financial risk comes down to whether you can repay your commercial loan and the interest in the agreed time. According to the Australian Bureau of Statistics, as of June 2016, the exit rate across all Australian businesses was 12.3% (percentage of businesses that ceased trading). To protect itself, the bank is looking for evidence that your business won’t fall among these statistics and fail to repay the principal amount. When assessing financial risk, one of the main factors the bank looks at is you, the business owner. What skills and experience do you have? Do you understand your business and have a clear and realistic plan for developing it? Importantly, they’ll also be looking at your credit history, and any debt you may have. Banks also consider: · Security: The bank will evaluate what you’re offering as security against your loan – this might be a family home or other assets such as stocks and shares. · Industry: Lenders view some industries as riskier than others, because of conditions such as competition, profitability and the economic climate. If your industry is seasonal, such as tourism or agriculture, they’ll want to know how you’ll manage repayments in the off season. · Cash flow: ASIC reports inadequate cash flow among the top reasons why companies become unable to repay debt. The bank will want to see what revenue you have coming in, and be assured you can pay wages, keep the business ticking and make your loan payments on time – even if something unexpected happens. Show the bank you’re managing risk Having higher risk doesn’t mean you won’t get a loan. But you need to show the bank you’re aware of the risks and are taking the necessary steps to manage them. Start by making a risk management plan that documents your business’s specific (financial and other) risks and identifies the steps needed to reduce or manage them. See business.gov.au for useful tips on risk management and tools to plan for it. Regularly review and act on your plan. No matter the size of your business, that’s an essential part of good business management. Next, when preparing your loan application, think about what will convince the bank you’re on top of your business risks. Here are some ways to do just that: · Provide all the documentation the bank asks for. · Use a business plan to succinctly explain what your goals, objectives and target markets are with any forecasts that might help. · Supply solid evidence of your personal experience and credentials. · Make sure your financial records and forecasts are in good order (poor financial control and lack of financial records also rate highly among ASIC’s top reasons for company insolvencies. Convincing the bank that you’re on top of risk management doesn’t involve smoke and mirrors. It’s about understanding your business, having robust practices, planning for the future and demonstrating you’re on top of any present or potential risk. © Advantedge Financial Services Holdings Pty Ltd ABN 57 095 300 502. This article provides general information only and may not reflect the publisher’s opinion. None of the authors, the publisher or their employees are liable for any inaccuracies, errors or omissions in the publication or any change to information in the publication. This publication or any part of it may be reproduced only with the publisher’s prior permission. It was prepared without taking into account your objectives, financial situation or needs. Please consult your financial adviser, broker or accountant before acting on information in this publication.

ATO Continues To Knuckle Down On Property Claims

25 Feb 2019 06:13:00 GMT

If you own an investment property, it’s more important than ever that you know what you can and can’t claim in your tax return. About $45 billion in rental expenses were lodged to the ATO in the last financial year, which has prompted them to put property investor compliance as a priority on their radar. The ATO’s data matching program has already caught out a high number of dishonest property owners. Here are a number of things that you should be conscious of: Short term rentals: There is no such thing as a rental hobby. All income from renting out all or part of a property must be declared as rental income. Holiday homes: If you want to claim expenses, the home needs to genuinely be available for rent. Expenses associated with your personal use of the property cannot be claimed. Loan calculations: You can only claim the portion of interest that is related to the rental property itself. If you refinance to purchase something unrelated to the property, the interest on this portion of the loan cannot be claimed. Claiming immediate deductions: While you are entitled to claim the cost of repairs immediately, there are other home improvements that are considered ‘capital works’ and can only be claimed over a number of years. If you need any assistance with understanding tax in relation to property, you can contact a property tax champion at Paris Financial. Bec Mackie, Partner, Paris Financial

Four Areas The ATO Are Targeting In 2019

19 Feb 2019 23:31:00 GMT

The tax office now have the best computer system that they’ve ever had, and they’re putting it to use on the Australian public. There are four things that the ATO won’t let slide in 2019. The cash economy. They want the cash economy to be declaring all of their income. No excuses. They’re starting to look at money going in and out of bank accounts, above about $5,000 to $10,000. The tax office are also hammering GST in this area, using statistics and tax averages from specific industries to see if people are reducing their tax via the cash economy. High wealth individuals. People of high wealth are often in extremely complicated tax situations to save themselves a lot of tax. However, the ATO knows that many smaller tax agents cannot cope with the complexity of the law. Hence, small tax agents working with high wealth individuals can expect an audit. Multi-nationals profit shifting. Finally, the Australian government are tackling the profit shifting of big multi-nationals. They are putting a target on tax dodging and kicking the money back to the Australian people. Work-related deductions for employees. If you’re claiming more than $2,000 to $5000 in a particular deduction area on your individual tax return, it’s likely you’ll get caught. Make sure you have your receipts, make sure you’re claiming things according to tax law. This is the second year that the tax office have targeted this area, and last year they discovered thousands of incorrect claims. If you’re unsure about your tax strategy or what you can legally claim, you can come and speak to a Tax Champion at a no-obligation, complimentary consultation. Pat Mannix, Partner, Paris Financial

How Much Does An Average Funeral Cost?

10 Feb 2019 23:32:00 GMT

The price of a funeral will largely depend on what you decide to include in the ceremony. The devil is in the detail. It’s like the idea of: “Do you want fries with your order?” Just like weddings, it is all about the up-sell and emotional value-add. Arguably, the value is only gaining for the funeral company. Essentially we are looking at: funeral director fees; the cost of the coffin; casket or urn, burial or cremation fees; and, the cost of arranging memorials. The main costs of a funeral Funeral director fees These costs will vary by funeral director and per location both in terms of price and exactly what is covered which is why ideally it would be ideal if you could obtain a breakdown of the costs! As this is probably unlikely the next best option is to make sure you check with your chosen funeral provider exactly what is covered by their fees. Professional Fees Think “event planning” kind of like the role played by Jennifer Lopez in the movie the wedding planner. Professional fees covers the cost of the funeral director’s time when planning, organising and conducting a funeral. This can include the following. Arrange and co-ordinate the funeral service Organising relevant administration and legal documents, including death certificates, doctors certificates, burial and cremation orders Assist with the organisation of music, singers, organist, etc. Care for, and preparation of, the deceased Attendance and conduction of the funeral service Liaision with clergy, cemeteries/crematoria, florists, newspapers, etc. Assistance with pre-planning the funeral Facilities and equipment This is the cost or hiring venues and staff for the funeral as well as use of facilities involved with caring for the deceased. This may include items such as: Mortuary fees for the care of the body Refreshments & catering for the event Chapel hire fees Viewing room hire and staff Transportation The funeral director will help arrange transport of the deceased which may include: Transfer of the deceased from place of death Hearse on day of funeral Transfer from the funeral home to crematorium, cemetery or memorial park The items above are pretty much the basic tasks but the costs could vary depending on staff involved and what sort of funeral you wish to plan. Coffins & caskets Coffins and caskets in Australia come in a wide variety of styles to meet the needs of all and can range from simple to a completely personalised coffin or casket. Generally speaking, the average cost of a coffin or casket will be between $1,000 and $4,000 however some coffins or caskets may be more than $15,000. After a cremation, the ashes are typically stored in an urn which come in a wide variety of shapes and materials although realistically the only real requirement is that the urn has a lid. Prices of urns will vary according to the design, construction and material however the typical price will be between $100 and $500. You can also choose your own container to use instead of an urn, provided it has a lid. Burial or cremation Burial : The cost of a burial usually involves the purchase of a gravesite or crypt, the right of interment, opening/closing fees and maintenance. This is normally purchased from the cemetery with the assistance of a Funeral Director. Costs will vary depending upon the cemetery, what sort of burial site is required and even which state you live in. Below are some rough costs you can expect. A traditional grave site and headstone will be between $5,000 and $10,000 A larger plot with a small monument will be between $30,000 and $60,000 A crypt with be between $50,000 and $100,000 A family mausoleum will be anywhere from $400,000 up to $1,000,000 – I think I will order two! Cremation : Generally the cost of arranging a cremation will be less than a burial. The fees associated with cremation will usually include: The cost of conducting a cremation Preparing the cremated remains Sometimes the cost of the urn Depending on where the ceremony might be held, you may also hire their chapel Without memorialisation or conducting a ceremony at the venue, the average cost for cremation fees is between $1,000 and $3,000. Like a burial, these fees will generally be in addition to the cost or arranging a funeral ceremony itself. The funeral director will help make all these arrangements for you and the crematorium will contact you to arrange for memorialisation if you so choose or collection of the cremated remains. Memorials Memorials come in all shapes and sizes and include anything from more traditional plaques and headstones through to full scale monuments or even memorial trees, gardens and benches. Memorials will generally be organised directly with the memorial park of your choice but your funeral director should be able to help. Cost will depend upon selection of burial or cremation, the type of memorial and any religious considerations. If you would like to know 8 tips for reducing the cost of a funeral, click here. For more information or assistance, head to InvoCare or contact Paris Financial’s Estate Planning team on (03) 8393 1000.

Contractor Or Employee? Defining Workers In The Gig Economy

07 Feb 2019 23:26:00 GMT

When determining whether a worker is a contractor or an employee, the courts say “… the distinction between an employee and an independent contractor is rooted fundamentally in the difference between a person who serves his employer in his, the employer’s business, and a person who carries on a trade or business of his own.” What to do if you engage contractors If you engage contractors, it is essential to get the facts of the relationship right. Business owners need to take a proactive approach to reviewing arrangements to ensure that the business is not exposed to material liabilities. Key factors include: Whether the work involves a particular profession or skill set. The level of control the contractor has over how the contract is executed. The ability of the contractor to delegate work to another person. Whether the contractor supplies his own tools or equipment. Whether the contractor has his own place of business. The contractor’s ability to generate goodwill or saleable assets during the course of the contract. How the contractor is paid (for hours worked or a result). The level of risk the contractor bears. Whether the contractor is independent or in reality, simply ‘part and parcel’ of the organisation they contract to. A contractor working through a company can be a factor, but all factors must be looked at. No single factor is determinative; it is the weight of evidence, on balance, across all of the factors. A bunch of contractor myths: The subby has an ABN so it’s OK – myth. Everyone in my industry does it this way – myth. As long as the subby does at least 20% of their work for another business it ok – myth. We have always engaged contractors as subbys and we don’t need to change now – myth. The subby has a business card and a registered business name – myth. If I do have a proper contractor, that also rules out super – myth (some contractors attract super). I only engage a subby for specialised skills, qualifications or trades so they are contractors – myth. The worker wants to be engaged as a contractor so we can treat them as a contractor – myth. We signed a contractor agreement so they are a contractor – myth. The implications of misclassifying a worker The implications of misclassifying a worker go well beyond industrial relations. If a business misclassifies an employee, it impacts on superannuation guarantee (SG), PAYG withholding, workers compensation, and payroll tax. These entitlements will often need to be met even if the misclassification was a genuine mistake. Getting it wrong can be a very costly exercise particularly if the error is evident over a number of years and if you are going to take one thing from this article it should be this: If you are a business owner engaging others, the onus is on you to get it right. Even if you engage a contractor and he tells you he is running his own business or signs a sub-contractor agreement or whatever – if the ATO decide he is an employee – it’s you who pay the penalties and the subby actually comes off better (for example he ends up with superannuation being owed to him by you on top of what you already paid). Further for super guarantee obligations, there is no real time limit on the recovery of outstanding obligations. However, the ATO will generally only go back 5 years unless the individual employee can prove an entitlement beyond this point. Remember that employers that fail to make their superannuation guarantee payments on time don’t just pay the outstanding superannuation but are subject to the SG charge (SGC) and lodge a Superannuation Guarantee Statement. SGC is made up of: The employee’s superannuation guarantee shortfall amount; Interest of 10% per annum; and An administration fee of $20 for each employee with a shortfall per quarter. Unlike normal superannuation guarantee contributions, SGC amounts are not deductible to the employer, even when the liability has been satisfied. Ken Burk, Partner, Paris Financial

Small Businesses Encouraged To Start Single Touch Payroll Early

06 Feb 2019 00:04:00 GMT

The tax office will soon begin sending letters and notifications to small businesses, encouraging them to begin early use of Single Touch Payroll (STP). Although small businesses with 19 or less employees do not need to have switched to STP until 1 July 2019, it is recommended that they purchase and set-up the software soon. This will enable them time to learn and understand it. There are over 750,000 businesses in Australia that have 19 or less employees – making up more than 35% of all Australian businesses. When counting employees, businesses must consider full-time, part-time and casual workers. The headcount must also include employees based overseas and any employee absent or on leave. There are a multitude of providers popping up now or adding STP to their existing software and we would recommend contacting us here at Paris Financial so that we can assist you in making an informed decision about which one is the right one for you and your small business. Employers who already have STP software may need to update the software so that it includes STP reporting. In this case, it is best to speak to the payroll software provider and request assistance. If you require any further help please contact us here at Paris Financial on (03) 8393 1000. Ken Burk, Partner, Paris Financial

Phoenix Activity Results In Stricter Tax Monitoring

04 Feb 2019 05:28:00 GMT

Illegal phoenix activity has a large impact on the Australian economy. According to reports in July 2018, phoenix companies caused a $5 billion loss to Australia – through unpaid trade creditors, unpaid entitlements to employees, and unpaid tax and compliance costs to the government. What is phoenix activity? Phoenix activity is when a new company is created to continue the business of an existing company which has been deliberately liquidated to avoid paying taxes. As well as causing significant drain on the Australian economy, phoenix companies are a hindrance to the company’s employees, suppliers, customers and competing businesses. How is this affecting tax monitoring? The government are taking numerous steps to crack down on phoenix activity. One of their recent actions has been developing the director penalty regime which makes directors personally liable for company debts. There has also been the introduction of a new GST withholding regime for new residential property, which requires purchasers to directly remit GST to the ATO. Avoiding phoenix companies There are a few measures that can be taken to ensure you are not doing business with illegal phoenix companies. All it involves is some research. Firstly, you can confirm that the business is registered and has a valid ABN. This can be searched for online. You can also source a company report from ASIC. Secondly, you can use a search engine to research the company and its directors to discover if there are any concerning or adverse media reports. If you do identify a phoenix company, you can call the Phoenix Hotline on 1800 807 875, or report them online. Emily Kermac, Partner, Paris Financial

Property Spruikers Aim To Steal Your Money

04 Feb 2019 05:17:00 GMT

Introducing my pet peeve: property spruikers. I can’t stand them. Lately, I’ve had a number of ads pop up in my Facebook page advising me to get in touch with companies that are all telling me the same thing – that I need to be taking advantage of the new government initiative to pay off my mortgage sooner. All these companies are ever talking about is negatively gearing property. They want to get you into their organisation so that they’ve got control of your money. It’s obviously not something that you should do. I would hate to think any of my clients or anybody that I know, really, was involved in something like this. It’s been great to see that the ACCC is taking this sort of thing very seriously. In mid-November, they fined a guy called Rick Otton for $18 million. It was all due to the underhanded tactics that he was using in relation to property investors and getting money off people. $18 million is one of the highest fines the ACCC’s ever issued. It’s wonderful to see that they’re taking this seriously because these people really need to be stopped. If you’re ever unsure about anything in relation to investing in property, get in touch with myself or one of the other property tax specialists at Paris Financial, and we’ll be very happy to help you out. Bec Mackie, Partner, Paris Financial

Tax On Shares: ATO Extends Data Matching Program

30 Jan 2019 23:32:00 GMT

The Australian Tax Office (ATO) is utilising data provided by the Australian Investments and Security Commission (ASIC) to data match share trades. The ATO is accessing more than 500 million records detailing price, quantity and time of individual trades dating back to 2014. The information complements information that the ATO already holds from brokers, share registries and exchanges. Utilising this wealth of information, the ATO will explore what has been reported on tax returns, specifically, capital gains on the sale or transfer of shares and the losses claimed. Given that more than 5 million Australians now own shares, the ATO is keen to ensure that errors are minimised. “Almost one third of all Australian adults own shares, and there is evidence that some taxpayers are getting it wrong when it comes to reporting their capital gains or losses from the sale of shares. In particular, we tend to see higher rates of error among those who don’t regularly trade in shares and who are not aware of the tax implications,” Assistant Commissioner Kath Anderson said. With penalties as high as 75% of the tax shortfall, it is important to ensure that you have your documentation in place for share trades and transfers including records of share purchase and sale prices, as well as costs like brokerage fees. If you sold part of your share holdings, you need to keep records of the parcel you sold and the parcel you are still holding. Emily Kermac, Partner, Paris Financial

Problems That Occur When Subdividing Your Land

15 Jan 2019 23:44:00 GMT

Many Australians decide to subdivide their backyard without considering how that can affect them from a tax point of view. Subdividing is a strategy that we’re finding to be more and more popular. Typically, our clients have a primary residence with a rather large backyard and they decide that they don’t need that land. Therefore, they decide to subdivide it. They either sell it off, build something on it and sell it off, or build something on it and move into it. An issue arises when the decision is made to subdivide and sell that vacant land before anything is built on it. What’s the issue? That vacant land does not actually get covered by your Primary Residence Capital Gains Tax Exemption. Hence, the land will be subject to tax and the cost base of that land is actually your original purchase price from way back when. You can’t even use some other rules that are available when it comes to properties, such as the Market Value Substitution Rule. This is quite a complex tax position to put yourself in. It’s very important that you understand the advantages and disadvantages of subdividing your land. Ultimately, it is in your best interests to talk to one of the Tax Champion property specialists here at Paris Financial. Bec Mackie, Partner, Paris Financial

Working From Home: What Deductions Can You Claim?

09 Jan 2019 23:00:00 GMT

For a while now, the Australian Taxation Office (ATO) has been concerned about tax deductions individuals have been claiming for a whole host of expenses. The latest on their ‘hit list’ are home office expenses. We guide you through what you can and can’t claim if you work from home. Last financial year, 6.7 million taxpayers claimed a record $7.9 billion in deductions for ‘other work-related expenses’ which includes expenses for working from home. While the ATO appreciates that technology has led to more people working from home and greater flexibility, they don’t believe that all of the claims being made are legitimate. Take the example of the school principal who claimed $2,400 for electricity and phone expenses incurred during the year. The principal had a letter from the school verifying that they were required to work from home outside of school hours but could not explain how she calculated the claim. The principal ended up voluntarily reducing the claim by 70%. Or, the advertising manager who claimed her rent as a tax deduction because she worked from home at irregular hours to manage the timeframes of overseas clients. Her deduction for rent was rejected. A major bugbear for the ATO are the people who claim 100% of their expenses like mobile phone plans and internet services when they are mostly for personal use. If you claim 100% of your phone and internet and you are not running a business from home, you can expect the ATO to look closely at your claims (that goes for subcontractors as well!). What can you claim? Working from home A lot of people do some sort of work from home. It might be simply answering emails on the couch or working from home a few days a week. So, what can you claim if you’re putting in extra hours? If you don’t have a dedicated work area but you do some work on the couch or at the dining room table, you can claim some of your expenses like the work-related portion of your phone and internet expenses and the decline in value of your computer. This of course assumes that your employer doesn’t reimburse you for your phone and internet expenses and you purchased your computer for yourself. You can claim up to $50 for phone and internet expenses without substantiating the claim (although the ATO may still ask you to prove that you actually incurred the expense), or you can work out your actual expenses (see Working out the work-related portion of your expenses). If you have a dedicated work area, there are a few more expenses you can claim including some of the running costs of your home such as a portion of your electricity expenses and the decline in value of office equipment (see Working out the work-related portion of your expenses). Running a business from home If your home is your principal place of business, you might be able to claim a range of expenses related to the portion of your home set aside for your business. What the ATO is looking for is an identifiable area of the home used for business. Take the example of a hairdressing business that runs out of the hairdresser’s home. One room is dedicated as a salon and is not used for any other purpose other than the salon. For the portion of the house taken up by the salon, the hairdresser can claim running expenses such as electricity and the interest on the mortgage. The downside to claiming occupancy expenses such as interest on a mortgage is the impact it has on your tax-free main residence exemption for capital gains tax (CGT) purposes. In general, your home is exempt from CGT when you sell it. However, if you use your home to earn assessable income like the hairdresser, then you might only qualify for a partial exemption on the sale. If you are claiming part of your home as a business expense, then it is unlikely that any gain you make on your home will be fully CGT-free. You might also need to obtain a valuation of your home at the time it was first used to generate business income. Working out the work-related portion of your expenses You need to be able to prove how you came up with your expense claim. This includes having a documented method of calculating the work related portion of that claim if the item you are claiming is used for private and work purposes. For phone and internet expenses for example, you might look at the number of work calls, the time spent, or data downloads as a portion of the total bill. The other method is to complete the equivalent of a log book or diary over four weeks to track your work use of the item, then apply the work percentage over that four weeks to your annual expense. If for example you used your phone for 20% of the time over the four weeks you documented in your diary, you could then claim 20% of your annual phone expense as a home office expense (assuming your circumstances don’t change across the year). What home office expenses can be claimed? Running expenses – if you have a dedicated work area such as a study set aside for work, the essentials to keep the work area running like electricity, cleaning, office equipment etc., can be claimed as an expense. Of course, any claim can only be for the work-related portion of the expense. If your family use your home office as well or you use it for personal use, then you can only claim a portion of the expense. Running expenses can be claimed: at a fixed rate of 45 cents per hour – you will need to track either the actual amount of time you work from home or keep a log book over 4 weeks that can be applied to your expenses across the year. or as an actual expense – to claim an actual expense you need to document the total expenses for lighting, cleaning, heating and cooling for your home for the year, work out the floor area of the part of your home that you use for work as a percentage of the total floor area, and then work out the percentage of the year you used that part of your home exclusively for work. Occupancy expenses – expenses such as rent, interest on your home loan, property insurance, land taxes and rates can only be claimed if your home is your ‘place of business’ and no other work location has been provided to you. A place of business is unsuitable for any other use other than business, like a doctor’s surgery connected to a home or a hairdressing salon in a room of the house. Occupancy expenses can be claimed by calculating your total expenses × floor area × percentage of year that part of your home was used exclusively for work. Generally, occupancy expenses are not a deduction available to employees. Work related phone and internet expenses – unless you run your business from home and you have a dedicated phone and internet line it’s unlikely you can claim 100% of your phone and internet expenses. If your employer provides you with a phone, you cannot make any claim for these expenses. If you are a casual worker you cannot claim a deduction for phone rental expenses. For the rest of us, you can claim up to $50 for phone and internet expenses without substantiating the claim (but the ATO still might expect you to prove the claim), or you can work out your actual expenses. Claims for actual expenses can be made by working out the work-related use of the phone and internet and then applying that percentage to the expenses. Decline in value – for depreciable assets such as computers and printers, you might be able to claim decline in value if the cost of the item was over $300. Decline in value deductions might also be available for office furniture used for work purposes in a home office, but not if the individual is using the fixed rate of 45 cents per hour to claim running expenses. Expenses Home is principal workplace with dedicated work area Home not principal workplace but has dedicated work area You work at home but no dedicated work area Running expenses Yes Yes No Work-related phone & internet expenses Yes Yes Yes Decline in value of a computer (work related portion) Yes Yes Yes Decline in value of office equipment Yes Yes No Occupancy expenses Yes No No Source: Australian Taxation Office Ken Burk, Partner, Paris Financial

The Rules For GST And Food

07 Jan 2019 01:52:00 GMT

Owners of cafes and restaurants, and any businesses that sell or prepare food, need to be aware of when to charge GST. Unfortunately, it is not often a simple yes or no. Navigating the world of food and GST can be like weaving through a maze. A delicious maze, albeit. According to the ATO, the following foods are GST-free: bread and bread rolls without a sweet coating (such as icing) or filling – a glaze is not considered a sweet coating cooking ingredients, such as flour, sugar, pre-mixes and cake mixes fats and oils for cooking unflavoured milk, cream, cheese and eggs spices, sauces and condiments bottled drinking water fruit or vegetable juice (of at least 90% by volume of juice of fruit or vegetables) tea and coffee (unless ready-to-drink) baby food and infant formula (for children under 12 months of age) all meats for human consumption (except prepared meals or savoury snacks) fruit, vegetables, fish and soup (fresh, frozen, dried, canned or packaged) spreads for bread (such as honey, jam and peanut butter) breakfast cereals. However, this list doesn’t consider all GST rules, and some of the above items may still need to be charged GST. Consider the following questions: Is the food expected to be consumed in the same location it is sold (a restaurant or café)? Is the food ready for consumption away from where it is sold (a takeaway meal that is already cooked & heated ready to eat)? Is the food marketed as a prepared meal (comes with a knife and fork, has all the ingredients for a complete meal, packaged in a takeaway container or box)? If you answered yes to the above, then it is likely that you should be charging GST on the food. The ATO have created an online tool that can help with understanding where GST must be charged. There are also some simplified accounting methods available to small business food retailers that allow you to estimate your GST at the end of each tax period. If you have any questions, or wish to discuss your eligibility to use the simplified methods, book a consultation with one of our Tax Champions on (03) 8393 1000. Source: ATO Emily Kermac, Partner, Paris Financial

What Changes As A Small Biz Owner Once My Kid Turns 18

07 Jan 2019 01:36:00 GMT

Are you a parent with a kid graduating and going to Schoolies this year? I’ve got some good news for you… No, I can’t promise you they’ll be safe and sound. But I can give you some pleasing financial info. While your kid is gallivanting around, we can work out how to use those kids to our benefit in your business. This is for those out there who have a growing small business in a trading trust. So, your kid has either just turned 18 or is turning 18 soon. That signals happy days, from a tax viewpoint. If you’re running your business through that trading trust and you’re making profit at the end of the year, you’ll obviously distribute that profit via a minute just before the end of the financial year. And when your kid turns 18, finally they can start working for you without even lifting a finger. Before the end of the year, kids over 18 can go from only earning $416 as a distribution from the trust, and they can start to get $18,200 tax free coming out of the trust. Then the next 18,800 is taxed at 19%. That’s a beautiful set of numbers that can start to be used for your advantage in a growing small business. You can start to distribute to your kids and see a major tax saving. To recap: Up to $18,200 distributed to your 18 year old, TAX FREE $18,800 distributed to your 18 year old, taxed at 19% It’s all legal so you should follow it. Call the Tax Champions on (03) 8393 1000 to find out more information. And keep your heart in your mouths, because those kids at Schoolies really do gallivant around. Pat Mannix, Partner, Paris Financial

What's The Tax Benefit Of A Negatively Geared Property?

07 Jan 2019 01:29:00 GMT

When we’re talking about investing in property, there are two ways the property can be structured. It can be: positively geared, meaning that it’s generating cash flow and income negatively geared, meaning that the expenses are greater than the income you receive from that property With a negatively geared property, you’re going to have generated a loss, and that loss is then used to reduce your taxable income and increase your tax refund at the end of the year. Another great advantage with negatively geared properties is the use of depreciation. Depreciation is the write-off of the cost of the assets and the building itself. This can be claimed over time and can increase your tax refund. The laws around depreciation did change recently, so it’s important that you get the right advice. I suggest speaking to a quantity surveyor. It’s a good idea to come in and have a chat to myself or one of the other property specialists here at Paris Financial, and we’ll be able to make sure that you’re structured correctly to get the most out of your properties moving forward. Bec Mackie, Partner, Paris Financial

Super Splitting With Your Spouse

17 Dec 2018 02:01:00 GMT

Super splitting is important when one member of a couple has a much higher super balance. It is also beneficial for couples that have a large age gap between them. Also, people with relatively low superannuation amounts will benefit from the ability to split super contributions with their spouse. According to the super splitting provisions, up to 85 per cent of a member’s super contributions can be split with a spouse. Super splitting is not possible when/if: The funds deed does not allow super splitting, a member has already made an application for super splitting in the relevant year, the amount of the benefit to be split exceeds the maximum splittable amount, the members spouse is 65 years or older, or the members spouse is aged between 54 and 65 and they have already retired. In the circumstance of super splitting, a spouse refers to: a person that the member is legally married to, a person that the member is in the relationship with that is registered under certain state or territory laws that including registered same-sex relationships, a person of the same or different sex who lives with a member on a genuine domestic basis in a relationship as a couple also known as a de facto spouse. An application to split a member’s super contribution with their spouse can be made immediately after the end of the financial year in which the contributions were made. Not all contributions are splittable with a spouse. In simple terms: only concessional contributions, including employer, salary sacrifice and self-employed contributions, can be split with a spouse. So what’s the benefit? Super splitting can essentially double the tax-free lump sum limit. Those who are over 54 but under 60 can withdraw up to $195,000 as a lump sum. Lump sums withdrawn in excess of that limit are typically taxed at 15 per cent. A couple that would have only had access to the maximum tax-free lump-sum payout for the working spouse can gain access to the tax-free amount for both. Also, super splitting can be useful when a person has a much younger spouse and they want to build up their superannuation to amplify their age pension entitlement. Superannuation is not considered an asset by Centrelink until a person reaches the age pension age. With both of these strategies, it is important that they are begun as soon as possible. The earlier the second strategy is started, the less superannuation the older member will have when they become eligible for the age pension. Combined with the pre-60 re-contribution strategy Super splitting as a strategy can be combined with the pre-60 re-contribution strategy to create a tax-free super pension for a non-working spouse. The working spouse, upon reaching their tax-free lump-sum threshold in the super fund, would need to split the maximum contribution with the non-working spouse. Once the non-working spouse turns 55, they can advise their super fund that they have retired and request a lump-sum payout up to the tax-free limit. The non-working spouse would then start an account-based pension made up of tax-free pension benefits. Before doing anything It is important that you speak to a superannuation professional before splitting your super with your spouse. The strategies outlined in this article may not actually benefit everyone, so it is vital that you discuss your options with an expert. Paris Financial can assist you today on (03) 8393 1000.

How Much Can I Save By Purchasing Property In A SMSF?

17 Dec 2018 01:47:00 GMT

Quite a few years ago, I did some calculations on having a geared property within super versus a market linked ungeared fund portfolio. I ran a model where I kept the parameters of the returns both from a capital perspective and a revenue perspective on the property and the managed fund the same. Essentially I wanted to match apples with apples. So what was better: A geared property with a SMSF loan. VS A non-geared, market linked managed fund. I ran the model on the below basic assumptions: 3% revenue return on the managed fund 3% rental yield on the property 6-7% compound capital growth over those portfolios over a 10 and a 20 year period With the power of lending and the power of tax benefits within a self managed super fund, I realised you are going to end up about a third better off if you choose to purchase property in a SMSF. 33.3% better off. That’s huge. Admittedly, there are all sorts of assumptions in there. The main assumption is that you’ve bought the right property that will give you at least a 3% yield every year and 7% compound capital growth. But if you’re capable of getting that right property, you can be 33.3% better off. This is not advice or official statistics – I’m musing as the man in the street with a little bit of tax knowledge chucked in. What you need to do is talk to your lender, your financial advisor, and your tax accountant if you are even contemplating such a transaction with your retirement savings. I’m just relaying the numbers I’ve done calcs on. Pat Mannix, Partner, Paris Financial

New Rules For Gift Card Expiry Dates

10 Dec 2018 04:09:00 GMT

In Australia, around 34 million gift cards are sold each year with an estimated value of $2.5 billion. On average, an estimated $70 million is lost because of expiry dates. Until recently, there was no national regulation for the minimum length of time a gift card should last. In late 2017, New South Wales introduced laws* requiring a minimum three year expiry period for gift cards sold in that state and South Australia was in the process of enacting laws, but no uniform standard applied across Australia. Applying from 1 November 2019, new laws are in effect that introduce a regime for the regulation of gift cards including: A minimum 3 year expiry period Bolstering disclosure requirements, and Banning post-supply fees. What business needs to do From 1 November 2019, businesses should ensure: All gift cards have a minimum three year expiry period. Any existing gift card stock should be run down and production reviewed to ensure that once the new regime comes into effect, only compliant gift cards are issued. Ensure disclosure requirements are met. The expiry date or the date the card was supplied and a statement about the period of validity must be set out prominently on the gift card itself. For example, if the supply date was December 2019, “Supply date: December 2019. This card will expire in 3 years,” or “Valid for 3 years from 12/19”. It is assumed that the card expires on the last day of the month where only the month and year are displayed. If the gift card does not expire, the card will need to clarify this by stating words to the effect of, “never expires”. Post-supply fees are not charged. A post-supply fee is a fee that is charged reducing the value of the gift card such as administration fees for using a gift card. Post-supply fees exclude the fees that are normally charged regardless of how someone pays for a product or service. For example, booking fees, a fee to reissue a lost or damaged card, and payment surcharges. A number of larger businesses have adopted a 3 year expiry period following the introduction of NSW laws. These include David Jones, Myers, Westfield, Rebel Sport, Coles, and Dymocks. Other retailers have no expiry dates including iTunes, JB Hi-Fi, EB Games, Woolworths and Bunnings. Generous expire periods are a point of difference when consumers are working out which retailers gift card to purchase. What happens if a business ignores the new rules? Once the new rules come into effect, if a gift card is supplied with less than a three year expiry period, the disclosure requirements are not met, or post-supply fees are charged, a penalty may be imposed of up to $30,000 for a body corporate and $6,000 for persons other than a body corporate. In addition, the ACCC has the ability to impose infringement notices. Each infringement notice is 55 units (currently $11,500) for a body corporate and 11 units (currently $2,420) for persons other than a body corporate. What happens if a business becomes insolvent or is sold? The consumer’s rights do not change if the business becomes insolvent or bankrupt. The consumer becomes an unsecured creditor of the business. If a business changes owners, the new owner must honour existing gift cards and vouchers if the business was: sold as a ‘going concern’. That is, the assets and liabilities of the business were sold by the previous owner to the new owner. owned by a company rather than an individual, and the new owner purchased the shares in the company. *Amendments to the NSW Fair Trading Act 1987 require that most gift cards and vouchers sold from 31 March 2018 have a 3 year expiry period. In addition, no post-purchase fees can apply to redeem the voucher (including activation fees, account keeping fees, balance enquiry fees, telephone enquiry fees and fees applied when a card is inactive or not being used). See Fair Trading for more details. Ken Burk, Partner, Paris Financial

Changes to Courier and Cleaning Services Reporting

03 Dec 2018 23:26:00 GMT

If you are a business that provides cleaning or courier services, you will now need to lodge a Taxable Payments Annual Report (TPAR) to inform the ATO about your payments to contractors. The report will need to be completed, even if only a small portion of your income comes from cleaning or courier services. The term ‘contractors’ can include subcontractors, consultants and independent contractors. They may be operating as sole traders (individuals), companies, partnerships or trusts. In the past, this type of reporting was only relevant to those in the building and construction industry. However, the new legislation extends the taxable payments reporting system much further to include cleaning and courier services. The ATO will use the information to ensure that contractors are reporting all of their income and meeting their tax obligations. So what exactly do you need to do? You must keep all of your records about payments made to contractors. More specifically, the information you need includes: Their ABN Their name and address Gross amount you paid them during the financial year (including GST). If your business is required to lodge a TPAR, it will need to be lodged before 28 August 2019 and should include all payments made to contractors between 1 July 2018 and 30 June 2019. The report can be lodged online or by a paper form. If you provide cleaning or courier services and do not believe that you need to lodge a TPAR, because you have not made any payments to contractors, you will still need to lodge a nil report with the ATO. Our Tax Champions are equipped with the correct knowledge and experience to assist you through this process. If you require any assistance, contact Paris Financial on (03) 8393 1000, and we will be happy to help. Emily Kermac, Partner, Paris Financial

Important Tax Dates: December 2018

02 Dec 2018 23:57:00 GMT

Dates to remember in December.. December 21 – November Monthly Instalment Activity Statement (IAS) due Coming up soon.. January 15 – Tax Return Lodgement due for medium/large entities January 21 – December Monthly Installment Activity Statement (IAS) due January 28 – December Quarterly Superannuation Guarantee Contribution due

Risk Averse Banks Taking A Toll On Small Business

28 Nov 2018 23:12:00 GMT

You’re probably somewhat aware of how powerful the banks are. But do you really know the full story? I’d like to explain how they control a lot of stuff that’s going on in the economy. The benefit of the banks – on a macro level Let’s go back to 2007 and 2008. In the United States, the Global Financial Crisis occurred. Loans were being given out by all sorts of banks and financial institutions in the U.S. to people who really couldn’t afford them. It was rife. It messed up the whole of the banking system and property prices in the U.S. dropped considerably. They’re only just starting to recover over the last 18 months in America. A full decade later. How’d the Aussies get through it? The banks. Many years ago, the government set up Australian Prudential and Regulation Authority (APRA). It was a stroke of genius by the government because it locked in certain conditions that the Australian banks had to operate under. In particular, the big four banks were a lot more restricted in their lending practices than what the bigger banks in the U.S. were. Hence, our property market did not implode like in the U.S. and we made it through. At a macro level, APRA and the big four banks in Australia are absolutely fantastic. They’ve kept this country floating above water. The downfall of the banks – on a micro level Those of us in small business land tend not to think of the banks so highly. In 1997, the Asian Currency Crisis occurred and a number of Asian currencies fell straight through the floor. During that time again, the property prices held pretty well through that period in Australia. However, when the Asian crisis hit, the banks turned into absolute poindexters. They called many small businesses and put mounds of pressure on them. They threatened that if their small business messed up and started going downhill, they would not be there to help. They would just drag the rug out from under them. I had a great client during the period of the Asian Currency Crisis in the late 90’s. He had a fair bit of capital equipment on finance and he had some other bank overdraft lending as well. Business was going beautifully. When the Asian Currency Crisis hit, the big bank called him in and hammered him. They wanted figures from him every single month and intended on keeping an unnervingly close eye on him. The banking industry is so strong and risk averse, that they will crack onto small businesses and pull the rug out from under them. How is this taking affect right now? It’s looking like the ALP might get in federally. They have threatened some restrictions in taxation laws. The banks are scared. They’re not taking any risks. They are looking at their small business clients and keeping an eye on them. They’re demanding all their information. They’re hammering them constantly for figures and proof that they’re not going to go under. They want to put pressure on them now, because if the laws do change, they will be under the pump. One of my small business clients had it happen to him in the past week. The bank called and pressured. “We want the figures in, what’s the situation with all of your lending?” My client simply said: “Calm the farm”. But the bank has every intention of making the ‘farm uncalm’. They are demanding a look into the businesses finances and the operations of the business. They’re causing chaos where calmness is needed. This will continue as we lead up to the election because the big banks know where the potential risks are. Beware of the rug being pulled Essentially, the banks at the macro level in Australia are absolutely fantastic. They keep things on track for the country. However, if you’re at the small business level and present any sort of a risk to them, they don’t care about you. They will pull that rug from underneath you if things get risky. Right at the moment, in November 2018, it’s a little shaky. Property markets have corrected a little bit. There could be a change of government and tax laws might be shaken up. If you’re getting hammered from your bank, this is why. They see small business as a risk. Pat Mannix, Partner, Paris Financial

ATO Swoops In Like Superman On Non-Lodgements

25 Nov 2018 23:51:00 GMT

The ATO are about to help us Tax Practitioners out big time. Much like Superman, their computer system continues to be used for community good deeds. According to the ATO, us tax heads will now get notified by email about clients who are not meeting overdue lodgement obligations. The tax office will refer to an external collection agency if they do not lodge. This is a brilliant move by the ATO to chase down these super-tax-procrastinators and give us a hand reining them in. A couple of years ago, the ATO were threatening us poor little tax agents that they would put the squeeze on us if our clients didn’t lodge. Finally they’ve got the message that we try as hard as we can, but unless they have a massive stick (an ATO addressed letter) the clients will just procrastinate. While we’re on the topic of super-tax-procrastinators, I must tell you the ultimate story in this space. I had a client who had not lodged for 7 years and despite a number of letters and efforts, nothing happened. In the end, the ATO took my client to court. We tried extremely hard to keep him out of court and negotiate with the ATO, but they refused. He went to court with a specialised lawyer, got a slap on the wrist and some big penalties, and since then he has been far better at delivering his tax work for us to do. This client had to go to Court to smarten up. It would have been far better if he got debt collection notices from the ATO instead. At the end of November, the ATO have said that they’ll commence sending letters directly to clients’ nominated address. An example of the letter will also be sent to tax agents. “This letter will ask clients to seek your help to get their obligations up to date or contact us. If they take no action, we will refer their obligations to an external collection agency,” said the ATO. “The pilot programs run on reining these procrastinators in have demonstrated that the actioning of lower risk, lower complexity, outstanding lodgement and payment cases by an external collection agency is a viable, effective and efficient option to complement ATO strategies,” the ATO stated. My message to the ATO: YFB (no, I’m not going to elongate this… you can work it out for yourself) because this will rein the clients in and improve our lodgement on time list that they so dearly break our precious things over. Pat Mannix, Partner, Paris Financial

Trained Professionals: Get Pelted With Easy Money

23 Nov 2018 02:27:00 GMT

Are you a trained professional looking to go into public practice? Well, I have some advice for you. This is for accountants, lawyers, doctors, and allied health professionals. You can get money really easily if you just look in the right spots. Where’s the right spot? Financiers. There are some really specialist financiers out there who can get you what you need to get started. In particular, you should be looking at: Bank of Queensland ANZ Bank Medfin, who are owned by NAB. If you’re looking to get out there and set up yourself as a professional service business, these banks will literally throw money at you. No kidding – because you’re a trained professional, they will just give you capital to get you started. It all started in the late ‘80s and the early ‘90s when a few South African fellows came out and lobbed here in Australia. They decided they could trust trained professionals. They believed the risk of actually losing money to them would be very low. Trained professionals can be trusted because of the professionalism and ethics they’ve learnt over their years of training. If you’re just a standard business out there and are not a professional, you’ll have to dig up money elsewhere. This will most likely mean accessing equity from your principal place of residence, an investment property, or taking some of Mum and Dad’s money. But doctors, allied health, accountants, lawyers and the like, you’re the lucky ones. So go set yourself up with one of these banks. Oh, and one more thing: get a mortgage broker to make sure they all stay honest. Pat Mannix, Partner, Paris Financial

Accelerated Tax Rate Reduction For Small Business

18 Nov 2018 23:20:00 GMT

Small business is still a vote winner with the Government and Opposition teaming up to accelerate tax cuts for the sector by 5 years impacting on an estimated 3.3 million businesses. Parliament recently passed legislation to accelerate the corporate tax rate reduction for corporate tax entities that are base rate entities (BREs). Under the new rules: A 26% rate will apply to BREs for the year ending 30 June 2021, and A 25% rate will apply to BREs from 1 July 2021 Year Aggregated annual turnover threshold Eligible companies* Entities under the threshold Other corporate tax entities 2015-16 $2m SBE ($2m threshold) 28.5% 30% 2016-17 $10m SBE ($10m threshold) 27.5% 30% 2017-18 $25m BRE 27.5% 30% 2018-19 to 2019-20 $50m BRE 27.5% 30% 2020-21 $50m BRE 26% 30% 2021-22 $50m BRE 25% 30% * Small business entity (SBE), Base rate entity (BRE) The amending legislation also increased the small business income tax offset rate to 13% of an eligible individual’s basic income tax liability that relates to their total net small business income for the 2020-21 income year and 16% for the 2021-22 income year onwards. The small business income tax offset continues to be capped at $1,000 per individual per year. This means that if your business operates as a sole trader for example, the amount of tax you are likely to pay will be reduced from 2020-21 but only up to the $1,000 cap. What is a base rate entity? Between 1 July 2015 and 30 June 2017, we used the concept of a small business entity (SBE) to work out what tax rate applied to a company. The concept of an SBE has now been replaced with a base rate entity (BRE) for company tax rate purposes. However, the concept of what a BRE actually is has changed over time to extend the lower tax rate to more companies and to restrict what entities can access the lower tax rate. For the 2017-18 income year, a BRE was a company that had an aggregated turnover at the end of the income year of less than $25 million and no more than 80% of its income was passive in nature. Passive income includes some dividends, interest income, royalties, rent, net capital gains and some trust and partnership distributions. For 2018-19, the threshold to be a BRE has increased to companies with an aggregated turnover up to $50 million. The problem for franking credits The company tax rate changes have also impacted on the maximum franking credit rules. In 2015-16, the first year small business entities could access a reduced company tax rate of 28.5%, the maximum franking credit rate for franked dividends remained at 30%. However, from the 2016-17 income year onwards the maximum franking credit rate needs to be determined on a year-by-year basis. In many cases this means that if the company’s tax rate is 27.5% then the maximum franking rate will also be 27.5%. In some instances, a company will have paid tax at 30% in prior financial years but when it pays out the profits as a franked dividend, the maximum franking rate will be 27.5% or lower. The company may end up with surplus franking credits trapped in its franking account. This can lead to double taxation as shareholders won’t necessarily receive full credit for the tax already paid on those profits by the company. It will be important to look closely at this issue each financial year as there are some strategies that can potentially be applied to prevent franking credits being trapped in the company and minimise the incidence of double taxation. If you have any questions or concerns, it is best to contact a Tax Champion on (03) 8393 1000. We would love to help. Emily Kermac, Partner, Paris Financial

November 2018: Important Tax Dates

15 Nov 2018 00:38:00 GMT

Dates to remember in November.. November 21 – October Monthly Instalment Activity Statement (IAS) due November 25 – September Quarterly Business Activity Statement (BAS) due, if lodging through a Tax/BAS Agent Coming up soon.. December 21 – November Monthly Instalment Activity Statement (IAS) due January 15 – Tax Return Lodgement due for medium/large entities January 21 – December Monthly Installment Activity Statement (IAS) due January 28 – December Quarterly Superannuation Guarantee Contribution due

Cooling Your Jets On Impending Law Changes

12 Nov 2018 02:37:00 GMT

Having been in small business tax for 40 years, Dad and I have seen it all……… especially the politics of tax law changes. With that experience comes this most salient point. Political promises, and the resultant legislation changes that sometimes accompany these promises, can never actually be acted upon until they become law. Tax Lawyers in particular always encourage the preparation of materials, updates and seminars for “inevitable” tax changes that may or may not become law. In our experience, many of these laws are passed with last minute changes and concessions given in politics. This then changes how we advise in public practice. A very good example of this was the change to Income Distributions of Trusts a few years ago. The Lawyers were espousing and indeed selling trust deed amendments at between $700 and $1000 to bring ALL trusts in line with the “law change”. At the death, the government allowed a definition to be inserted in the law change that effectively meant 98.16% of discretionary trust deeds DID NOT have to spend money on lawyers to alter their deeds. This is just one example of many where cooling your jets on impending tax law changes is a must. So it looks like Bill Shorten and his Labor Government may win a federal election in six months time. Bill has said that he’ll ditch tax refunds on Self Managed Super Funds in pension via their Franking Credits. This may or may not eventuate… What if a number of those big powerful unionists have a little whisper to Billy that their large pensions in CBUS (Construction and Building Industry Super) are going to be badly affected? Perhaps they’ll sway Billy’s mind. My point is: DO NOT act on tax advice that is going to happen (or even if it is almost certainly going to happen), because what may seem like reality often becomes a furphy at the last minute. You’ll always get gutsy REAL advice from Paris Financial about what is tax law and NOT what might become law. Pat Mannix, Partner, Paris Financial

ATO Finds $850 Million In Superannuation Guarantee Audit

07 Nov 2018 01:37:00 GMT

I note the ATO have raised $850 million dollars recently with their Superannuation Guarantee Audits. Talk about a terrible situation – non-compliance by business owners and a piss-weak ATO system for collecting SGC. It’s been horrendous since it’s inception on 1st July 1992. I’ve been in Public Practice for all of those years, learning about small business and advising small businesses. A quarterly obligation that wasn’t backed up by a lodged document with the ATO has meant employers have been able to let this key employee benefit get pushed back in their payments queue. It hasn’t been given the respect that it’s deserved. As a result, it’s usually been employee whistle blowers who have brought this to the attention of the ATO so that they receive their rightful entitlements. Of course what has happened in the past is that the employer receives a notice for their whole workforce super requirements and they then have all their key assets (their people) off side. They have big penalties and interest to pay as well. Talk about a Shitstorm for their business culture… Small Business is hard enough without the temptation of having a weak government system chase a key employee obligation. Thankfully, Single Touch Payroll has arrived for larger employers and it’s due for smaller businesses of less than 20 employees shortly. Finally us employers will be reporting Employee Superannuation to the ATO on a regular basis and the ATO can get straight onto the slow payers and tell them to settle payments immediately or risk being driven out of business. This system will be far better for all concerned. It will save the Australian people not just their entitled super, but the cost of the ATO having to chase this superannuation which has been so inefficient since 1992 and all the way up till today. Single Touch Payroll? I say bring it on. It will solve multiple payment issues. Pat Mannix, Partner, Paris Financial

Allied Health: Keep Your Software Separate

29 Oct 2018 00:35:00 GMT

There are a number of different types of software out there for allied health businesses. Practice management software The most common ones include Nookal, Cliniko, TM2, Frontdesk and PPMP. My advice for anybody looking at industry software for allied health, is to look for something cloud based. These days, it’s important to have everything in the cloud so you can be working off of iPads, desktops, a couple of printers, and not even have a server. It’s brilliantly smooth, efficient and safe. Nookal is one of my favourites for small businesses kicking off. It’s a great cloud-based product which has been developed in Australia, up in Brisbane. Cliniko is also cloud-based and quite popular. TM2 is cloud-based, and designed in Europe. There’s also Frontdesk and PPMP which have been around for many years with physios. These are all practical pieces of software for practice management that you should consider for your practice. Every allied health business has slightly different requirements so you will decide what features matter to you and what will be the right practice management software. Accounting software For payroll, accounts payable, general ledger, bank reconciliations, and for your bookkeepers/accountants, you will need some accounting software. I mention to a lot of small business people that Xero is the key product out there. Xero is cloud-based and known by a lot of bookkeepers. MYOB and Quickbooks Online are also cloud-based and quite good, so using these is fine. The important factor here is to ensure the software is cloud-based and being used by your bookkeeper. Don’t interlink them This is key: don’t link your practice management software and accounting software. Keep them separate. At Paris Financial, we’ve had a couple of clients who have had a world of trouble trying to link their software. In particular, many try to link Cliniko and Xero, and it never works out for the best. Despite all the “time saving” and wonderful things you might hear about software linking with Xero, really you are just taking a step back and double handling the same transaction in both pieces of software. You’ll end up in a tizz. In your practice management software, you should run all of your accounts and fees through there. Do your own reconciliations through here. Then in your accounting software, you can do an overall income reconciliation. Don’t link them. We can help The Tax Champions at Paris Financial have been working with allied health professionals for more than 20 years. This includes physios, osteos, chiropractors, podiatrists, and other Allied health businesses. We are able to analyse from a tax perspective, a financial operational perspective and a structuring perspective to ensure that your allied health business is set for success. We also have three partners who are qualified to do business valuations in the allied health industry. If you would like to speak to a Tax Champion, contact us today on (03) 8393 1000. Pat Mannix, Partner, Paris Financial

Superannuation Requirements For Temporary Residents

29 Oct 2018 00:31:00 GMT

Most people are unaware that temporary residents working in Australia are eligible for super guarantee (SG). It is vital that all businesses who employ temporary residents are aware of the relevant super requirements. Generally, if you pay a worker $450 or more before tax in a calendar month, you have to pay SG on top of their wages. Temporary residents are included in this. If the temporary resident leaves Australia, they are able to claim the super you paid. This is called a departing Australia superannuation payment (DASP). There are a few requirements that need to be met, including: They must have accumulated superannuation whilst working in Australia Their visa must have ceased to be in effect (eg. expired or cancelled) They have left Australia They are not an Australian or New Zealand citizen Assuming that they meet all of these necessary requirements, they will be able to extract the super amount in full upon departure. Temporary residents can start their DASP application using a free online application system while they are in Australia. It’s simpler for them to get any supporting documents certified while they are in the country. However, they must wait until they leave the country to go back to their saved DASP application and submit it.

Single Touch Payroll (and all the surrounding panic) Is Here

25 Oct 2018 23:11:00 GMT

Single Touch Payroll is here for those small businesses with 20 or more employees. It is due to come in for those Employers employing 19 people or less from the 1st July 2019. This is not law yet but it’s on its way and some micro businesses are needlessly panicking. The ATO are leading the charge in providing a solution for those businesses with less than 5 employees. Assistant Commissioner and STP lead, John Shepherd says, “you won’t need to buy payroll software, if you are a micro business. We’re working on something that’s fit for purpose, like an app, to get the STP information in but is also easy to use, doesn’t take much time and doesn’t cost micro businesses extra.” He goes on to say, “We’ve spoken to some different banks and the possibilities around as people pay staff through internet banking being able to submit the single touch pay run information at the same time and we expect that to be part of the list of options that come forward over the next 12 months.” In addition, earlier this month, the ATO began seeking expressions of interest from digital services providers to develop Single Touch Payroll software for the micro business market, looking at a low or no-cost solution, software that has a simple user experience and a solution that will enable STP reporting within no more than 5 minutes. This is all excellent news and my message to business owners is: DON’T PANIC…… Take a chill pill, all will be sorted. Pat Mannix, Partner, Paris Financial

Cash Payments Are Holding Your Business Back

22 Oct 2018 01:08:00 GMT

Are you missing out on customers because you still think “cash is King?” Today’s business owners need to keep up with many changes. According to research by Colmar Brunton, the trend towards cashless payment has escalated, with 86 per cent of businesses agreeing that customers expect to pay via electronic means? The research shows that cash is only the preferred payment method for transactions under $5, and for anything over $50, the vast majority of people want the ease and security of an electronic payment. Payment options are constantly evolving and consumers are shifting towards an increasingly cashless society. If you don’t already offer an electronic payment system, it may be worth checking whether you’d benefit from one. Three out of four businesses think that accepting electronic payments can: Save costs Increase efficiency Improve record keeping. Research has found that consumers view electronic payments as more convenient, affordable and secure compared to cash payments. Nearly half of those surveyed feel inconvenienced when there isn’t an electronic payment option. Consumers are also twice as likely to associate ‘cash-only’ as negative. This may impact your reputation, and drive customers to your competitors who offer electronic options. Offering electronic payments will make it easier for your customers by giving them an extra option to pay. The costs associated with accepting electronic payment has reduced dramatically too, with some card readers now costing under $100. The government has also started looking into plans to introduce an economy-wide cash payment limit of $10,000 as part of a wider effort to eliminate the black economy and people dodging tax. Take the time to think about your business needs, as well as the needs of your consumers, and consider whether offering electronic payments is the next step for you. As always, Paris Financial is here to assist you in any way possible. If you think you need further information on anything in this article, please contact us. Ken Burk, Partner, Paris Financial

Always Start With The End In Mind

14 Oct 2018 23:48:00 GMT

If you’re entering small business, promise me one thing. Start with the end in mind. Make an exit strategy. The day that you get your biggest pay in small business is the day you sell the business. That’s when you utilise your exit strategy. Other reasons that you might need an exit strategy are because of: illness to yourself, family illness, wanting a change of career, being too tired, not having someone to take over the business, etc. In 1999, the Aussie government made it a heck of a lot rosier to sell your growing small business. Essentially, if you’ve got less than six million bucks, you’re going be able to sell that business and pay no tax. One of my clients followed this advice of starting with the end in mind and it worked out very well for them. They were a couple. The fella was in the building game and worked for high-end builders on big construction building projects. He had his own building license as well, so he was a pretty smart cookie on that side of things. The lady was a high-energy person and had some good experience in the hospitality industry. They came to me one day and said: Look, Pat, we’re thinking of setting up a coffee shop. My initial thought was Cafes are hard work. You have to get the lease right. You have to have a fair bit of money right at the start. It’s tough. But they persisted, and did so with my advice. First of all, they understood the value of what they were trying to build. They knew the value of one cup of coffee and how that would amount to profit if they were selling x amount of coffees per week. Secondly, they understood the building industry. They found a fantastic corner block so they could put the tables and chairs at the sides of the building. The fella got all of the building permits, knew what they could and couldn’t do, and then they were able to get the permit for the cafe very easily. The lady was absolutely brilliant at interior design and got the right layout for the shop. Thirdly, they understood that a café has a limited life. They knew they would need an exit strategy to sell the business within a few years because they would get tired. Café’s gradually draw the physical energy out of you, if done properly. One important tactic that they used was buying the premises. They bought the café property in their self-managed super fund and ran the business through a trading trust, so they had the enormous tax benefits there. When the business kicked off, it ran really well. The place was humming, and they had it at the point where they were getting really tired. It was at its peak. So they employed their exit strategy and sold the business on the market 3.5 years after it opened. They got a very good price, but held on to the freehold, to the property, which was in their self-managed super fund. Suddenly, they had a commercial property which was had a big value increase because of the business running inside it ( hint hint – the commercial value of premises is a function of how much rent is charged to the tenant ) and could earn good rent off the business owner who came in and bought the business off of them. They got out, paid zero tax, and off they went into the sunset. The key for them was having an exit strategy and starting with the end in mind. My advice? That was a real-life example of a real client starting with the end in mind. When you start a small business, consider what it is going to be worth in three, four, five, six years’ time? You don’t know what’s going happen in life, so it is vital to be prepared. The tax laws have been set here so you can get a big payday one day and pay zero tax when you sell. Exit strategy… what’s yours? Pat Mannix, Partner, Paris Financial

It's Time For Global Sincome Tax

11 Oct 2018 23:10:00 GMT

How refreshing it was to read Tom McIlroy’s article this week in the Financial Review. As I’ve said previously, the Aussie Government is tackling the Multinational Corporate Tax Raiders with gusto and they have hauled billions of tax back from these thieves. It’s a pity about the many years before that they have been doing this. According to Tom: “The Tax Office said on Tuesday its special tax avoidance taskforce had collected $5.6 billion in extra tax revenue in just two years, a substantial and lasting return on $679.9 million in extra budget funding for increased scrutiny and expanded compliance approaches.” Why can’t this approach and effort be extended to the Citizens of the World rather than just Australia, so that all OECD countries can benefit from this rigour on Large Company tax rip-off. Only an OECD approved tax, such as the Sincome Tax, will lock down this money across the world in a genuine tax move on globalisation. The ATO is also examining whether tax promoter penalties could be applied to big four accounting firms (Deloitte, EY, KPMG and PwC) as it trawls through emails that detail how aggressive schemes were marketed. Hallelujah! The collusion and oligopolies are being looked at. I’m not sure whether you’ve heard this term, but I’ll say it again: Tax the Bastards. And the losers in all this scrutiny. The top 0.5% of the population. We’re hardly crying for them here in small business land. Pat Mannix, Partner, Paris Financial

Australians Pay $107,000 To Tax Scams

10 Oct 2018 06:22:00 GMT

The ATO has been made aware of fake tax agents who are conning members of the public and making them believe that they owe debt. The scam has taken the form of a cold-call, with fraudsters phoning victims and convincing them into giving information about their finances and current tax agent. The fraudsters then typically begin a three-way call, adding a third person who impersonates the victim’s usual tax agent. This scam has resulted in a number of Australians being fooled into depositing up to thousands of dollars into bank accounts held by scammers. In some cases, the fake agents have asked victims to deposit their funds into Bitcoin ATMs or in iTunes gift cards. According to the ATO, in July alone, Australians lost more than $107,000 to tax scams. If you do receive a call from the ATO, the best way to avoid being scammed is to request that they post you a copy off the agreed payment arrangement, showing the available payment methods. If in doubt, please contact us so that we can confirm the balance owing and correct payment details for you. If you believe you have been scammed, it is vital that you contact the tax office and report the situation. Emily Kermac, Partner, Paris Financial

Utilising Redraw For Your Investment Property

05 Oct 2018 04:42:00 GMT

Redraw works for purchasing investment from home loan equity, or other IP equity. My client, let’s call her Rachel, is planning on moving into this property for one to two years and renovating it during that time, before moving on to her next property and renting this one out. There are many things to think about when getting a mortgage but I am only going to look at the potential tax effects of different loan structures. She has a mortgage broker that she has used before, so no need to introduce her to our new in-house broker but we did discuss the loan structures and how her intentions for the property can influence the type of loan that may be best for her. As Rachel told me her intention is to live in the property and then rent it out, the first thing I brought up was an offset account and the differences between offset and redraw. An offset account is actually a separate account linked to your mortgage in such a way that the balance of the account is used to reduce the interest payable on your mortgage. So, by putting all available cash in your offset account, you are reducing the interest paid on your loan (and increasing the principal component of your repayments). This is different than a redraw facility where you make higher repayments, or deposit lump sums, to reduce the amount of your loan and therefore the interest payable. For most people, the choice of one or both of these facilities is likely driven by rates and fees but if you are borrowing for an investment property (or potential rental property) then you should also consider these facilities from a tax perspective as the advantages and disadvantages can substantial. As an example, let’s assume in 12 months’ time Rachel receives an inheritance of $200,000 and wants to reduce the interest on her mortgage. Her brother told her that she should just deposit it to her mortgage account and reduce her interest payments, then draw it back out when she buys a new house. She gives us another call to get our advice before doing anything. The table below compares putting the funds into an offset account or depositing straight to the loan with a redraw facility. Offset Redraw Loan balance $500,000 $500,000 Deposit to offset $200,000 $0 Deposit to redraw facility $0 $200,000 Interest calculated on: $300,000 $300,000 As you can see there is no difference in the amount used to calculate the interest each month. Now let’s fast forward to when Rachel has completed the reno’s and is ready to purchase a new home and rent this one out. She wants to use the $200,000 as her deposit to purchase this new property. Let’s see the example: Offset Redraw Loan balance $500,000 $300,000 Withdrawal from offset $200,000 $0 Withdrawal from redraw $0 $200,000 Total loan amount $500,000 $500,000 Interest on loan (4.5%): $22,500 $22,500 Investment loan amount: $500,000 $300,000 Tax Deductible Interest: $22,500 $13,500 Now you can see the real benefit of the offset account comes when the purpose of the original property changes from private to investment. With an offset account Rachel can claim interest on the full loan amount as she only withdrew the savings from a bank account (albeit linked to her mortgage). As we can only claim interest on money used for investment purposes the interest on the amount Rachel ‘redrew’ for her new home is not tax deductible meaning difference in deductions against her new rental property of $9,000. Remember to speak to your accountant about your personal situation and not take advice from the guys at the pub or footy club, or even in your family! Bec Mackie, Partner, Paris Financial

ATO Detects Over $53 Million Worth Of Tax Time Errors

01 Oct 2018 02:28:00 GMT

The Australian public has lodged nearly six million tax returns already this year, with over $11.9 billion in refunds processed, which is $270 million more compared with the same time period last year. According to ATO commissioner Kath Anderson, the Tax Office had to correct more than 112,000 tax returns, totalling more than $53 million. “Our investment in advanced analytics is allowing us to closely scrutinise more returns than ever before, and make immediate adjustments where taxpayers have made a mistake. In the first half of tax time, the ATO’s analytics and compliance models automatically adjusted more than 112,000 tax returns to correct mistakes in returns, totalling more than $53 million,” said Ms Anderson. Some common mistakes made by taxpayers include claiming deductions on haircuts, grooming or fitness expenses, when these costs do not directly relate to the individuals line of work. It had been noted by the ATO that Flight attendants frequently make errors in their returns. Those in the flying industry can claim overnight travel costs where they have not been reimbursed but cannot claim a deduction for things like hairdressing, cosmetics, and hair and skin care products. There are often mistakes in the building and construction industry as well. These workers cannot claim clothes or shoes that are not uniforms or are not designed to provide you with sufficient protection from the risk of injury at your worksite, even if the item is called ‘workwear’ or ‘tradie wear’ by the supplier. With the ATO becoming stricter than ever, it is vital that individuals are lodging their tax returns correctly. If you would like a tax professional to assist with your return, please contact Paris Financial at (03) 8393 1000. Emily Kermac, Partner, Paris Financial

Every Three Year SMSF Audits – A Ludicrous About Face

01 Oct 2018 02:13:00 GMT

As a Tax Advisor to small businesses that run Self-Managed Super Funds (SMSFs), I am aghast at the way our federal government and, in particular, Canberra bureaucrats treat this sector. For many years the Industry Funds and Funds Management sectors of Superannuation have lobbied the government to “straighten out” SMSFs. The main reason is that SMSFs are a threat to these sectors and so the witch-hunt has been on to weed out “all the baddies” and put enormous amounts of red tape around SMSF Auditors. SMSF Auditors now must: be registered with ASIC; be registered with the ATO; have enormous amounts of regular professional updates; and also be audited by their peak professional bodies, such as the Chartered Accountants ANZ and CPA Australia. The red tape and scrutiny is way over the top when almost all SMSFs are doing the right thing. Recently, after wrapping this area of small business in a ridiculous amount of red tape, the Treasury came out in the Budget and suggested that these SMSF audits should happen every three years rather than every year. Do they have nothing to do up there? I can’t believe it. Let’s make these people answerable to everyone – we can then put them out of business by leaving their skills on the shelf two out of every three years. This is bureaucracy and lobbyists gone mad and the loser is small business. Many of our clients have commercial property in their SMSF that their own business runs out of and there is a commercial lease in place. They have a few more blue chip assets such as shares and that is it. It’s a perfect way to run their small business and save for retirement. These are the people that lose out because SMSFs are a political football. Just let them be and small business people will be encouraged to self-fund for their own retirement in a legitimate way. They should only be audited every year to make sure the complex rules are followed. Pat Mannix, Partner, Paris Financial

Changes To CGT Exemption For Inherited Property

27 Sep 2018 04:07:00 GMT

When someone inherits a dwelling there are some special rules contained within the main residence exemption provisions that can provide a full exemption if certain conditions are met. If the conditions are not met, the beneficiary might face a nasty capital gains tax (CGT) bill for their good fortune. In some cases, these conditions require the inherited property to be sold within two years of the date of death to qualify for the exemption, although the Commissioner has the discretion to extend this period in some situations. To simplify the tax requirements for beneficiaries (and executors) and ensure that they don’t have the threat of a large tax bill hanging over their head, the ATO has outlined a safe harbour for inherited property. The safe harbour allows beneficiaries and executors to apply the exemption if the property is sold more than 2 years after the date of death without having to seek approval from the ATO, as long as the property is sold within 3 years of the date of death and certain other conditions are satisfied. This could be relevant where there was a delay in selling the property because of factors beyond the control of the beneficiary or executor such as a challenge to the will or where the complexity of the estate delays the completion of the administration process. Basically the ATO have extended the current two years to three, with a few additional conditions to obtain the extra year. We recently had a client who required an extension and they found the ATO to be very obliging in their circumstances. If you have any questions or require any assistance please call the team at Paris Financial. Bec Mackie, Partner, Paris Financial.

What Is The Best Software For Accountants?

19 Sep 2018 04:32:00 GMT

I want to give you my honest and fair opinion of what’s out there on the market. Firstly, let’s examine the most popular ones. QuickBooks The original QuickBooks is now owned by Reckon. Reckon is reasonable for a decent-sized business, but it has really lost that micro and gig business markets. For bookkeepers and business owners who are used to Reckon, it’s still good software and it works reasonably in the cloud. QuickBooks Online is now an American piece of software. It’s a good, sleek piece of software that isn’t overly expensive. The difficulty in Australia is that not a lot of contract bookkeepers know it. So when you go out there as a business owner, and you look for help, or you’re looking for another contract bookkeeper, there’s not many of them around. MYOB MYOB has fought back pretty hard in the online market. They’ve got MYOB Essentials, which is a reasonable bit of software which can do quite a few things. It’s also totally cloud-based. Their main legacy product from the old days is Account Right. This is partially cloud based and still has different version issues but hey we use it here at Paris because our bookkeeper knows it backwards and if it ain’t broke don’t fix it. The fact that MYOB has had such a big foothold in the market from the first decade of the noughties, means it’s still used widely Xero There are a lot of bookkeepers out there who understand Xero, which is why many accountants tend to use and recommend it. It’s purpose built for the cloud and for the Australasian Market. Two massive ticks. Others There’s also Saasu, Sage and a couple of others but they occupy a minor share in the market. The lack of bookkeeper knowledge of these pieces of software hampers their takeup. My favourite for clients (but they’re also a hidden monster for efficiency) I tend to predominantly recommend Xero for client software. Be careful though… this company has had a massive impact on smaller accounting firms. They’ve cut their prices for the use of their software for small firms of 1-10 people and have shoved their bookkeeping/one ledger solutions down the throats of accounting firms. The result is that many small accounting firms have lost their way by trying to solve bookkeeping queries and installations all the while becoming Xero’s debt collector and losing focus on tax. Fancy that – Xero have made the most foolproof debt collection policy in the history of the world. Everything is paid C.O.D. by their major customers accountants and bookkeepers. I’m green with envy – that was a masterstroke. For accountants, it provides a mountain of administration and paperwork. The amount of terrible tax structuring and tax advice coming out of smaller firms when the tax laws have become even more complex proves to me that many Xero based Accounting firms are caught up in lower grade work and penny pinching on software. Dumb, Dumb, Dumb. Us Public Accountants should stick to tax. It’s no wonder we can offer a 20% discount for first year’s fees because so many new clients we see have been badly structured by Accountants right up to date in IT but way behind in tax knowledge. If you would like to know more about the history of accounting software, please read this blog post. Pat Mannix, Partner, Paris Financial

Oligopolies and Monoliths Thrive Again

14 Sep 2018 04:51:00 GMT

I note a recent article in The Australian by John Rolfe calling for the breakup of Google by News Corp. Below is an extract of this: News Corp Australia has made a submission to the Australian Competition and Consumer Commission’s digital platforms inquiry to split up Google. It is believed to be the first time a major media company anywhere in the world has suggested Google be split into different businesses. It comes as regulators and politicians around the globe look to the ACCC inquiry for ideas on how to grapple with Google’s growing dominance. The ACCC is examining the impact of search engines, social media platforms and content aggregators “on the supply of news and journalistic content and the implications of this for media content creators, advertisers and consumers”. News Corp are making this submission out of self-interest, of course, but they are cottoning onto the next level of democracy that needs to get up to the international level. The interconnected world is allowing monopolies and oligopolies to thrive again. The only way for democracy (99.9% of everyone) to fight back is to create rules that must be obeyed at the international level. The first rule to bring up to international level is easy. Tax the multinational bastards! The second? Bring competition policy up to the international level. This will take longer but it is still vital. People may think this is a pipe dream to have international laws in Company Income Tax and Competition… but when 99.9% of people are disadvantaged, a trickle will become a groundswell and voila! We’ll be putting some fairness into these disgusting monoliths such as Google. Pat Mannix, Partner, Paris Financial

Offset VS Redraw For Property Investors

14 Sep 2018 04:49:00 GMT

Having the right loan structure when purchasing a property is imperative, whether you are purchasing a main residence or investment. Here is an explanation of the difference between an offset account and a loan redraw facility. An offset account is actually a separate account linked to your mortgage in such a way that the balance of the account is used to reduce the interest payable on your mortgage. So, by putting all available cash in your offset account, you are reducing the interest paid on your loan (and increasing the principal component of your repayments). A redraw facility is where you make higher repayments, or deposit lump sums, to reduce the amount of your loan and therefore the interest payable. The redraw facility is the ability withdraw these additional payments at a later stage. For most people the choice of one or both of these facilities is likely driven by rates and fees but if you are borrowing for an investment property (or potential rental property) then you should also consider these facilities from a tax perspective as the advantages and disadvantages can substantial. I will be following up with more details and some examples of how each facility works and how it can benefit you financially, and more importantly, from a tax perspective. Bec Mackie, Partner, Paris Financial

The History of Accounting Software for Small Businesses

09 Sep 2018 23:32:00 GMT

Grab yourself a cup of tea or a coffee, folks. The history of accounting software is below. The beginning In the mid 90s, we had a heap of DOS-based software. It was terribly designed and very difficult to use. You needed a real boffin or a poindexter to run it. Eventually, things started to change. The price of PCs started to drop and Windows came around to compete with Macs. Bringing MYOB to Australia MYOB started as a tiny company in America. It was designed and built specifically as a Graphic User Interface ( GUI ) piece of software which meant built for Mac/Windows. A couple of Australian lads noticed how advanced it was for accounting software and decided to head over to the U.S. and check it out. One of the boys, Craig Winkler, was a local lad from Blackburn. The other, Brad Shofer, was from Sydney. They saw it and immediately agreed that MYOB was a game-changer. Hence, they brought the software back to Australia and put it into all of the new PCs that were coming out with Windows. It was a winner among small business people, bookkeepers and accountants and quickly stole the market. I would estimate it took 70% of this huge market in Australia. Craig and Brad did it so well in Australia they ended up buying the U.S. company and then growing it into a public company here in Blackburn. What about QuickBooks? QuickBooks was another piece of software that was the only real competitor of MYOB and it took up most of the remaining 30% of the market. Quickbooks was in some ways easier to use but the bane of us clunky Accountants because too many figures would move compared to the rock solid debit/credit system of MYOB. However with both QuickBooks and MYOB, tax accountants across the country were able to deal with and organise their client’s accounting information so much easier and the transfer to a tax return was also far easier. The introduction of cloud based software A few years ago when cloud-based software was introduced, everything turned on its head. Craig, then the CEO of MYOB, tried very hard to get MYOB into the cloud. He knew it was the way of the future But, he was being restricted a lot by the directors of MYOB at the time. Craig eventually cashed in his MYOB shares to Private Equity and he walked out the front door and dumped millions into Xero. Switching to Xero Xero is software designed and built in New Zealand specifically for the cloud with automatic bank feeds. The fact that the software, like MYOB in the 1990s, was purpose built for the modern IT platform meant they constructed with a clear vision unconstrained by historical influences. The company has skyrocketed in popularity. Xero is great because it only has one version, whereas the old MYOB had multiple versions of the same software. Having just one version makes it efficient and simple. Accountants are using exactly the same software as their bookkeepers and clients. The other benefit of cloud based Xero is that everything is done in live time. Accountants can get into the software and make changes, and bookkeepers/clients immediately know what is going on. If you want to know what the Tax Champion recommends as the best current software for accountants, read: What Is The Best Software For Accountants? Pat Mannix, Partner, Paris Financial

Tax Obligations For Car Sharing

09 Sep 2018 23:15:00 GMT

Some people don’t use their car every day of the week, so on the days it’s not sitting in the car park at work, it’s off earning a few extra bucks. There are many third party services popping up that make it possible for your car to earn some income while you are not using it, such as Car Next Door, Carhood or DriveMyCar Rentals. But, the ATO are now examining these arrangements to ensure everyone is paying their fair share of tax. The ATO has flagged these car sharing service platforms and believes that, by using their sophisticated data matching systems, they can identify where sharing platforms are being used to generate income. If you are generating income by renting out or sharing your car, you should be aware that you can also claim relevant expenses that you have paid. The expenses you can claim include: platform membership fees availability fees cleaning fees car running expenses There are a couple of ways to determine the expenses claimable – you could simply use the cents per kilometre method, or you can keep a logbook and any private travel will need to be determined in these calculations. The most important thing that you must do is keep accurate records of the activity, income and costs. The sharing platform will be able to provide detailed records of the income and the kilometres travelled for sharing purposes, which can be used as a good start on calculation for tax. However, a detailed record of expenses must also be kept. Even though this will be the most time consuming aspect to the arrangement, it is critical to ensure you are not left paying way too much tax. Also, depending on the circumstances, you may also be required to be registered for GST or it may be beneficial to register for GST. If you have any queries on the sharing economy and the details mentioned above, please give us a call on 8393 1000 to discuss. Ken Burk, Partner, Paris Financial

Small Businesses Do Need Tax Guidance

06 Sep 2018 00:00:00 GMT

We’re glad to hear the head of the ATO, Chris Jordan, has come out recently and commented on tax obligations for small business people. It’s very complex, but so important that small business people get it right. Mr Jordan mentioned that disputes or misunderstandings typically occur when small businesses fail to comply with their GST or PAYG obligations. “If you don’t make any profit, you don’t pay tax and that makes sense but you do withhold money from salaries, you do collect GST, you do have an obligation to pay super and Australia is not the longest but the second longest period of time in the world where you can collect something and not pay it,” said Mr Jordan. Good tax accountants should guide their clients through the complex system. Once the ATO beds down the Single Touch Payroll system throughout the whole of the business community over the next 3 years, small business people will be made to pay their obligations in a timelier manner. This will clean up those in the wrong business or deliberately ignoring employee obligations, hence making Australian Business better. If you need assistance understanding tax for small business, contact our office on 03 8393 1000 and a Tax Champion can help you. Pat Mannix, Partner, Paris Financial

Can I Claim Travel Expenses For My Rental Property?

04 Sep 2018 01:40:00 GMT

There have been some changes to the ability to claim travel expenses and there seems to be some confusion as to what can be claimed. The law was changed as of 1 July 2017 and the travel deductions now differ for residential and commercial properties. Travel expenses relating to inspecting, maintaining, or collecting rent for a residential rental property cannot be claimed as deductions by investors. The travel expenditure is also not recognised in the cost base of the property for CGT purposes. However, if you own commercial property these expenses for inspecting, maintaining, or collecting rent will be deductible. Remember you need to keep your receipts and a log book or other record if claiming cents per kilometre. Bec Mackie, Partner, Paris Financial

Time Is Up For Dodgy Accountants

29 Aug 2018 05:26:00 GMT

We absolutely love that the ATO has singled out the presence of about 500 dodgy tax agents in the Aussie tax community. The ATO assistant commissioner, Adam Kendrick, has recently spoke about these dodgy agents eating into market share of good quality, well trained tax agents… “They are the ones who are gaining an unfair advantage and by doing so are increasing their market share unfairly. In this group we are seeing intentional and sustained misreporting, usually through making false deductions claims and they are generally unresponsive to our initial interventions,” said Mr Kendrick. Mr Kendrick went on to tell all reliable tax agents to whistle blow on dodgy agents and help eradicate them from the tax landscape. We applaud the ATO in issuing such bold language. The Australian Tax Laws are extremely complex. They should be administered by CPA and CA trained tax accountants who are thoroughly educated in tax and can apply all the laws correctly. Pat Mannix, Partner, Paris Financial

Online Accommodation Rentals To Be Targeted By ATO

22 Aug 2018 05:06:00 GMT

Australia has seen a huge surge in property owners renting their house or rooms out via the likes of the hugely popular Airbnb app. As a result, the ATO are now going to gain access to data match these online platforms. As we have covered in many articles, the tax consequences of renting your property (whether it be a room or the entire house) are sometimes not taken into full consideration by individuals. Advertising and mainstream media have often reported favourably on renting through the likes of Airbnb, how easy it is to do, earn a little extra cash….etc. Unfortunately, they generally forget to mention the implications it can have on CGT when the time comes to sell the property. The ATO have decided to pursue potential lost revenue by lodging their intention to collect data to identify individuals who have or may be engaged in providing accommodation services through an online platform during the 2016 to 2019/20 financial years. Data collected will include all payments made by the platforms to accommodation providers, including those made by international entities. The data will then assist the ATO to identify taxpayers who have failed to declare income and/or the adjustments for CGT on sales of properties that have been rented during this period. Rebecca Mackie, Partner, Paris Financial

Rental Bond Data Matching By The ATO

22 Aug 2018 04:27:00 GMT

The ATO is expanding its data matching program to include rental property bond data dating back to 20 September 1985 (the introduction of the CGT regime). This announcement reinforces the ATO’s intentions to crack down on expenses claimed back by individuals on their annual tax returns in an attempt to claw back millions. This data will assist the ATO identifying individuals who have income tax reporting obligations for income producing properties or have a CGT event arising from the sale of real estate property for the period from 20 September 1985 to the current 2019/20 financial years. The data collected “will be electronically matched with certain sections of the ATO data holding to identify taxpayers that can be provided with tailored information to help them meet their tax obligations, or to ensure compliance with taxation law.” If you have any questions please contact our office on 03 8393 1000. Rebecca Mackie, Partner, Paris Financial

Property Investment for Small Business Owners

20 Aug 2018 03:58:00 GMT

At Paris Financial, the Tax Champions, we have a massive amount of clients who are trying to grow their passive wealth through property investment. Some do property development as well. It’s a big thing in Australia, especially with the growth of the property market. I even do it myself. If you are in a growing small business, however, you need to take a different approach to property investment. Let’s imagine someone working in a big building in the city. If they are on a salary of over 100k per annum and are the main bread winner in their family, they will often develop their property investments with negative gearing. Negative gearing Negative gearing is when an investor borrows money to acquire an income-producing investment, and the gross income generated by the investment (at least in the short term) is less than the cost of owning and managing the investment, including depreciation and interest charged on the loan. Here’s a classic example of negative gearing. Rent $10,000 Interest $11,000 Expenses $4,000 Loss $5,000 $5,000 x 0.3 $1,500 The interest and the expenses are more than the rent, taking the sum into the negative. That gives you a $5,000 loss. You put this off against your tax, and the ATO gives you back $1,500. An investment trust is important In small business, a key asset protection strategy is to set up an investment trust outside of your main trading trust. This investment trust is what buys your investment property. You need to do this because you cannot have it in your name as the director of the company who is running the business. This is far too risky in a litigious society. You can’t have it in the non-working partner’s name because you will start to get hit with capital gains tax as well as paying too much income tax. So, set up the investment trust. It will have the rent from that investment property, the interest, the expenses, and, therefore, you’ll end up with a loss. Still following along with my previous example, the investment trust will have the loss of $5,000 in it. The profitable trading trust then distributes to the investment trust and the $5000 is offset saving the $1500 in tax. Trusts cannot claim losses. They need to be carried forward, UNLESS your profitable business distributes to it as above. Hence, the key strategy for small business is to direct some of the profit from your trading trust or successful business, and offset the negative gearing in the investment trust.

Business Intuition Is Not Bullsh!t

17 Aug 2018 01:16:00 GMT

Business Intuition is not bullsh!t. It is real. If you want to be successful in small business, you will need it. Expanding on the idea of business intuition, there are five key ingredients that will enable you to make it big in small business. I’d like to think I’m an authority on this subject because we have a few clients at Paris Financial who are multi-millionaires. Not just one million. Multi-millionaires. These people have started something from scratch, gone through all of the pain of small business, and now they are succeeding on a large scale. My experience has led me to believe that these successful multi-millionaires have five things in common. Emotional intelligence Our most successful entrepreneurs have very high emotional intelligence. Most of them have high IQs too, but it is their emotional intelligence that is ridiculously high. They understand people, whether it be business people, suppliers, their own employees… they can read people like a book and it helps them to develop strong relationships and gain knowledge from others. If your EI is off-the-scale, then you’re in with a chance to be successful too. Understanding of value This is the most important. Our multi-millionaire clients always have a brilliant understanding of value and they utilise this knowledge to allow their business to thrive. Firstly, they understand value at the micro level of their business, whether that is a product or service. They can comment on the cost of their product, the expenses associated with that product, and the sale of that product. They then also understand value on a macro level, considering how their product fits into the value of their entire business. All their decisions are made based on this intuition. Your business intuition must be highly directed and attune to value to be a successful business person. They pay everything on time This sounds simple, doesn’t it? But it’s true – people who pay everything on time are more likely to succeed in small business. Massive companies, like the big banks and Superannuation Funds are examples of entities that will hold onto money for as long as they can. They keep it on the money market to make more money. This is typical of Big companies and of course they often bully smaller companies by holding onto their supplier payments. Very average and “grubby” small business people tend to hold their suppliers out as well because they think it saves them money. This is a complete waste of time. Our biggest and best entrepreneurs always pay things on time. This is efficient and, once it’s done, they don’t have to think about it. Simple Acceptance of tax Obviously at Paris Financial, we try to minimise tax as much as we can legally. However, our biggest clients are aware that taxes are inevitable. They just pay it. Don’t even think about it. No complaints. They are good people Finally, our best performing small business clients and entrepreneurs are good people. Very good people. Many of us are brought up to to think these very successful people are ogres who have bullied people into submission to make their millions but these days it is the opposite. Today you can’t make it big in business if you’re not a good person. They look after their employees and they negotiate well with suppliers and customers. They have a kind heart and great passion for what they do. Screwing people over in Modern Australia is just not the way to a successful business. Looking after people and gaining loyalty is the way. So, if you want to start your own small business, you should consider whether you have BUSINESS INTUITION. Can you put a tick next to each of these five points? They’re not bullsh!t – they’re traits of Paris Financial’s multi-millionaire clients.

Death and Small Business CGT Concessions

08 Aug 2018 03:30:00 GMT

They say that two things in life are inevitable – death and taxes. This doesn’t mean that the two have to happen at the same time. Generally where there is a change of ownership in small business, a CGT event is deemed to have occurred which may result in a capital loss or taxable gain. When a person dies, their assets are transferred to their legal personal representative (LPR) or are acquired by a surviving joint tenant, if one exists, and as such the Capital Gains Tax rules apply. However any capital gain or loss is ignored, even if only temporarily, in the following circumstances; When assets are transferred from the deceased to a legal personal representative; or When assets are effectively acquired by a surviving joint tenant, if one exists; or Where the LPR transfers the asset to a beneficiary of the estate. The LPR, beneficiary or surviving joint tenant is generally, taken to have acquired the assets on the date of death at the price paid by the deceased, except for assets the deceased acquired before 20 September 1985 whereby market value at date of death is used. By transferring the cost base (price paid) of the asset any unrealised capital gain or loss is deferred until the later sale of the asset by the LPR, beneficiary or joint tenant. Sometimes the asset in question will be a business asset which opens up another whole range of issues to do with the small business CGT concessions. Fortunately the LPR or beneficiary of the deceased estate will be eligible for the small business CGT concessions where: the asset is disposed of within two years of the date of death (longer if an extension is granted), and the asset would have qualified for the small business CGT concessions if the deceased had disposed of the asset immediately before their death. Provided these conditions are satisfied, the small business CGT concessions are also available to the trustee of a testamentary trust, a beneficiary of such a trust, and a surviving joint tenant. Hold on… what if it takes longer than two years to sell? If a person carrying on a business dies and their business assets are transferred to their LPR, beneficiary, surviving joint tenant, or trustee or beneficiary of a testamentary trust (the transferee), and the sale of assets occurs after the two-year time limit then the active asset test is applied to the transferee. This can create a significant tax liability upon the sale of the business if the transferee does not continue to carry on the deceased’s business, or use the asset in another business. Although the tax office may allow an extension to the two years, there is a real risk that after the two-year time limit, the active asset test may not be satisfied and the small business concessions may not be available. For more information on the matter, please contact Steve Wildes on 03 8393 1000. Steve Wildes, Partner, Paris Financial

Death and Small Business CGT Concessions

08 Aug 2018 03:30:00 GMT

Clothing Deductions Hung Out To Dry

08 Aug 2018 01:05:00 GMT

The Australian Taxation Office is closely examining work-related clothing and laundry expense claims of taxpayers submitting their 2017-18 tax returns. The ATO says that clothing claims are up nearly 20 per cent over the last five years with people either making mistakes or deliberately over-claiming. Common mistakes include people claiming ineligible clothing, claiming for something without having spent the money, and not being able to explain the basis for how the claim was calculated. “Around a quarter of all clothing and laundry claims were exactly $150, which is the threshold that requires taxpayers to keep detailed records. We are concerned that some taxpayers think they are entitled to claim $150 as a ‘standard deduction’ or a ‘safe amount’, even if they don’t meet the clothing and laundry requirements,” Assistant Commissioner, Kath Anderson, said. While this particular announcement focuses on clothing related expenses, it has been clear for some time now that the ATO is paying very close attention to work related expenses in general. All claims should be supported by evidence – just in case the ATO decides your claim requires closer scrutiny. We have heard of a number of real life examples in the last year or so where the ATO has queried and challenged very small deduction amounts which could not be supported by appropriate evidence. What can I claim? You can only claim a deduction for the cost of buying and cleaning: Occupation-specific clothing – for example, the checked pants a chef wears. Protective clothing – fire-resistant and sun-protection clothing, safety-coloured vests, non-slip nurse’s shoes, rubber boots for concreters, steel-capped boots, gloves, overalls, and heavy-duty shirts and trousers, and overalls, smocks and aprons you wear to avoid damage or soiling to your ordinary clothes during your income-earning activities. Unique, distinctive uniforms – clothes that are designed and made for the employer and not publicly available – like shirts with the company logo. Just because your employer requires you to wear a suit, this does not mean you can claim the cost of the suit or its cleaning. If you have any further questions regarding what you can and can’t claim, call us on 03 8393 1000. Emily Kermac, Partner, Paris Financial

Small Businesses Can Get Into Trouble

07 Aug 2018 02:33:00 GMT

Tax accountants are not here to save lives, but from time to time, we do have to swan in at the right time and save a family. I had a client recently who owned a small business in a really tough industry. They had bought the business and been running it for a few years, just ticking along. They knew the business reasonably well from an operational viewpoint. But even still, they started to run into some financial trouble. They weren’t dealing with their people very well. Their employees were getting away with a few things they shouldn’t have been – they were gilding the lily. My client was struggling to control that area of the business. Further along the track, they got into unmanageable financial misfortune. I was asked to go and have a chat to this couple. They were lovely people. Early 50s. Salt of the earth types. They were just trundling along and doing their best. I sat down with them and had a look at their numbers. The numbers don’t lie. It wasn’t looking pretty for them. They needed it between the eyes so I went whack: ‘This is over. It’s time to give up.’ All that stuff you learn about never giving up, staying determined, setting your organisation on your life goals and bloody mindedly getting there… it’s a load of bullshit when you are about to lose your house or key financial assets. Don’t get me wrong, the conversation with this client was tough. It was difficult for them to hear. Towards the end of chatting to this couple and advising that they talk to their administrator and do their best to deal with their creditors and the bank, the lady revealed something to me that really reiterated that it was over. She mentioned that that week they had to go into hospital because her daughter had what looked like a terminal illness. Tears came out, tissues came out. It was hard. My advice is that if you run into trouble in small business, sometimes you have got to give up. This is not about phoenix companies making their way back; this is about real people who have gone into business for the right reasons and they are trying to do all the right things. Anyone can run into issues. Sometimes it simply doesn’t work out and the figures show that. If that is the case, it might be time to give up, start again in life, and save yourselves. This is the ultimate asset protection. It’s called the Corporate Veil. If the time comes and you’re told to give up, give up.

Your Income is Your Number One Asset

03 Aug 2018 04:21:00 GMT

I’ve already given you two tips about asset protection. Firstly, you must put the family home in the non-business person’s name. Secondly, you should only have one director of your trust and they should be the fall guy. Onto my third tip. It is likely that your most major asset when starting out in small business is going to be your income. It’s probable that you’ve left a job where you had risk insurance already in place for you, such as sickness and accident insurance via work cover, or some other insurance that was covered by your employer. When starting out in small business, you have to take 100 per cent responsibility for the income you’re going to generate. That means you need a defensive strategy in place for your income. It’s called Income Protection Insurance. Don’t even hesitate in doing it. The younger you are, the better. Income Protection Insurance simply means that if you need to leave work because you’re ill, you will be covered so that income can keep coming through and you can keep paying your bills. Depending on your policy, Income Protection Insurance can cover you whether you get injured or ill at work or outside of work. Being the #TaxChampion, it’s important that I mention you should have that Income Protection Insurance in your own name so you can get the best tax deduction. A lot of Income Protection Insurance can be found within superannuation, and in Australia there is a 15 per cent tax deduction. If you have it in your own name, it’s likely that you can get a 30 per cent or 40 per cent deduction, depending on your situation. Income Protection Insurance is vital as a defence strategy when starting out in business. The earlier you can get it, the better, because the older you get, the more expensive it is. Get it in place BEFORE you take the plunge into small business. For more information about asset protection, contact Paris Financial on 03 8393 1000.

Two Directors is Wrong, Wrong, Wrong

03 Aug 2018 01:17:00 GMT

In my last article about asset protection, I told you to put the family home in the non-business person’s name, so the fall guy has nothing in their name. Remember, the family court overrides everything. So, there’s no need to get wobbly when you’re talking about whose name the family home should be in. Below, I will give you a second strategy for asset protection in business. This one is really simple. Most of our clients start up in a trading trust, with a trustee company. These trusts are fantastic for small business. The trustee company, which has the power to run that trust in business, needs a director. That trustee company also gives the business asset protection. However, a big mistake that I regularly see is clients having both personal partners as directors of that trustee company. It’s wrong, wrong, wrong! By now, you should have set up the fall guy to take all that risk in business. You should’ve put that family home into the non-business person’s name. The next step is to ensure that the director of the trustee company is the fall guy. Here’s the deal: You need to be careful. We encourage all of our clients to do the right things, but small business owners are still always at risk of getting into trouble. You need to cover off all five areas of small business, but you’ve only got a limited amount of time. Also, legislation in all areas of small business is getting more stringent and beefed up. The lawyers are after you. So, my tip is that the fall guy has to be the director. Therefore, if something bad happens in the business and the director cops it, what does that director have in their name? Nothing. The lawyers can’t take anything! Make sure there is only one director of the trustee company, and that one person is the fall guy. Having two family directors is a mistake that I see far too often. Get it right.

When Can You Take Your Super?

02 Aug 2018 06:55:00 GMT

When can you take your super? The cash sitting in your superannuation fund can be tempting, particularly if you are short of cash. But, the reality is there are very few ways you can take advantage of your superannuation once it has been contributed to the fund – even if you change your mind. The sole purpose test underpins access to your superannuation – that is, superannuation is for the sole purpose of providing retirement benefits to fund members, or to their dependants if a member dies before retirement. It’s important to keep this in mind because it’s often forgotten when people are tempted by ‘too good to be true’ schemes to access their super early. The ATO recently warned against a scheme spreading through suburban Australia where scammers encourage people to access their superannuation early to pay debts, take a holiday, or provide money to family overseas in need. All the scammers need is a fee for their services and you to sign blank forms and provide identity documentation. Typically, the forms are used to roll-over your super from an industry fund, establish an SMSF, and open a bank account for the new SMSF. Once the superannuation is rolled into the SMSF, the funds are accessible to withdraw. Problem is, accessing the superannuation is illegal unless you meet the conditions. Any super that is withdrawn early is taxed at your marginal tax rate even if the money is returned to your fund later, plus you are disqualified from being a trustee of your SMSF. If you knowingly allow super benefits to be accessed illegally from your fund, penalties of up to $1.1 million and a jail term of five years can apply. Generally, you can only access your super once you turn 65, when you reach preservation age and retire, or reach preservation age and choose to keep working and start a transition to retirement pension. Currently, the preservation age is 55 years old for those born before 1 July 1960. It then increases by one year, every year, up to the maximum of 60 for those born after 30 June 1964. There are some very limited circumstances where you can legally access your super early. Treasury is in the midst of a review into the early release of superannuation. The review was sparked by a rapid increase in requests for early access to fund medical treatments such as gastric banding surgery. “A significant proportion of recent applications appear to relate to out-of-pocket expenses associated with bariatric surgery (that is, weight loss surgery), with a smaller proportion attributable to assisted reproductive treatment (ART), also referred to as in-vitro fertilisation (IVF) treatment.” The review, however, is focused on more than medical treatments, looking at the issue broadly including whether it is appropriate to provide early access to superannuation to pay compensation to victims of crime. Compassionate grounds Superannuation benefits can be released on compassionate grounds to meet expenses related to medical treatment, medical transport, modifications necessary for the family home or motor vehicles due to severe disability, and palliative care. Funds may also be released on compassionate grounds to prevent foreclosure of a mortgage or exercise of a power of sale over the fund member’s home (principal place of residence); or to pay for expenses with a dependant’s death, funeral or burial. Early access to super needs to be a last resort. It’s up to the person applying for early access to prove to the regulator that they don’t have the financial capacity to meet these expenses without access their superannuation. In 2016-17, the Department of Human Services received 37,105 applications for early access to superannuation on compassionate grounds, with 21,258 approved. The average amount released was $13,644. The great majority (72%) of funds released were on medical grounds, 18% were released for mortgage payments. A person seeking early release for medical treatment must provide written evidence from at least two medical practitioners – one of whom must be a specialist – certifying that the treatment or medical transport: is necessary to treat a life threatening illness or injury; or alleviate acute or chronic pain; or alleviate an acute or chronic mental disturbance; and is not readily available to the individual or their dependant through the public health system. At present, the Department of Human Services will respond to applicants within 28 days. The applicant then must approach their superannuation fund trustee who has ultimate discretion regarding the release of the funds. From 1 July 2018 however, the Australian Taxation Office will take over administration of early release applications, streamlining the process so applicants and superannuation funds receive the compassionate release notice electronically and simultaneously. First home buyers The First Home Super Saver Scheme (FHSS) enables first-home buyers to save for a deposit inside their superannuation account, attracting the tax incentives and some of the earnings benefits of superannuation. Home savers can make voluntary concessional contributions (for example by salary sacrificing) or non-concessional contributions (voluntary after-tax contributions) of $15,000 a year within existing caps, up to a total of $30,000. Mandated employer contributions cannot be withdrawn under this scheme, it is only voluntary contributions made from 1 July 2017 that can be withdrawn. When you die Superannuation is not an asset of your estate so your superannuation is provided to your eligible beneficiaries – your spouse (de facto) children or a financial dependant – by the fund trustee. Putting in place a binding death nomination however will direct your superannuation to whoever you nominate, so long as they are an eligible beneficiary. If you have nominations in place, it is essential that you keep these current. Death benefits are normally paid as a lump sum but in some circumstances can be paid as an income stream. Just be aware that with the $1.6 million transfer balance cap in place, if your superannuation is paid as a death benefit pension to your nominated beneficiary, this could tip them over the cap. It’s a good idea to get estate planning advice to manage it correctly. Divorce and super The Family Law Legislation Amendment (Superannuation) Act 2001 allows superannuation to be split during a divorce either by agreement or by court order. Before making a superannuation agreement, the parties must receive separate and independent legal advice. The agreement must be in writing and must be endorsed by a qualified legal practitioner. Where the superannuation is split by order of the family court, the court decides on how the fund is split. Essentially, the amount of split super is rolled into the other parties superannuation fund. The same rules apply to accessing superannuation. That is, it cannot be accessed until you turn 65 or reach perseveration age. If you and your spouse have an SMSF, you need to continue to manage the fund. Relationship breakdown does not suspend your obligations as trustee. What happens if you contributed too much? If you contributed too much superannuation to your fund, you cannot simply withdraw the amount. If you breached your contribution caps, you can apply to withdraw the amount above your cap from the fund. The excess amount is treated as personal assessable income and taxed at your marginal tax rate plus an excess concessional contributions charge. Withdrawal of the excess amounts should not occur until the ATO provides you with a release authority that then needs to be given to the superannuation fund. If you did not breach your contribution limit but simply overcommitted to superannuation, you cannot simply withdraw the amount. Using SMSF assets and funds In general, the assets of an SMSF cannot be used for the personal use or enjoyment of the fund members (or their associates such as friends or family). If the SMSF owns a holiday home, you cannot use it, if the fund has vintage cars, you cannot drive them, if your fund owns art, you cannot hang the art in your home or your office. The exception to this is business real property. For example, assuming the trust deed allows for it, business owners can use their SMSF to purchase a building, then lease that building back to their business. Business real property is land and buildings used wholly and exclusively in a business.

The Fall Guy

02 Aug 2018 05:18:00 GMT

There’s a series of strategies that you have to put in place in business for asset protection. Take heed because asset protection is the number one defensive strategy for business. In sport, like in business, it is defence that wins premierships and success. When starting a new business, asset protection needs to be your number one defence strategy and it should be put in place at the setup stage of your business. When you’re starting in business, we, as advisers, are looking for a fall guy. Usually, the personal partners (hubby and wifey, hubby and hubby, or wifey and wifey) come and see us. One of them is going to kick off the operations and that person is, what we call, the fall guy. The fall guy has to take all the risk in business and be the one to run the operations. We want nothing over any value in the fall guy’s name. Absolutely nothing! It’s not a perfect world. Bad things sometimes happen to good people. So if a business falls over the fall guy can go with it but hard earned assets built along the journey MUST be fully protected. This brings me to the first lesson of asset protection. It’s more than likely that the new business operator part owns their own home and has a mortgage with the bank. The number one thing you need to do in regards to asset protection in business is: Put your principal place of residence (your home) in the non-business operating personal partner’s name. We get hilarious reactions when we mention this to clients. Let me give you an example. John and Jill Smith walk in. Johnny might be the fella starting up a business. He’s also the one operating the business. Therefore, Jill is the non-business person in the relationship. We would look at John and say, “put your house entirely in Jill’s name.” Johnny goes ballistic. But there’s a couple of good reasons why we suggest this. You do not want the house you’re living in to be in another structure name like a trust or a company, because those entities don’t get the capital gains tax free concession that the Aussie government gives out. So it has to be in your own name. And you must have the house in the non-business person’s name, because if the fall guy goes down in business, lawyers will start coming after their house. Having the home in the non-business person’s name protects you from this. The conveyancing cost of taking the fall guy off the property title is minimal, in most states of Australia there is no stamp duty and there is no Capital Gains tax either. Another vitally important note: if the house is in Jill’s name, and Johnny and Jill have a relationship breakdown, the family court overrides everything. They will ignore the fact that that property is in Jill’s name and they will separate belongings to the way the family settlement is. So never fear Johnny, you’ll still get half the dough. The family law overrides everything. There you go, folks. That’s your tip. Lawyers are out there trying to get their hands on your assets in every way they can. Get your defensive strategy right. The key is to have the family home in the non-business person’s name.

GST On Property - Will It Affect You?

31 Jul 2018 05:34:00 GMT

A few months ago we wrote about the proposed changes to how GST on new properties is accounted for. These changes are now law, coming in as of 1 July 2018. We are now seeing a number of clients asking how this will actually work: Who is affected? The types of property transactions affected are taxable supplies of new residential premises or potential residential land. Contracts for these transactions entered into before, on, or after 1 July 2018 are impacted by the changes. There is transitional relief available for suppliers and purchasers who have entered into contracts before 1 July 2018. Instead of paying the full contract price to the supplier (for example vendors and property developers) at settlement, a purchaser is now required to withhold an amount from the contract price and pay that amount directly to the ATO. What the ATO require? There are two online forms that need to be submitted to the ATO. The GST property settlement withholding notification form (form one) is used to advise the ATO that a contract has been entered into for the supply of new residential premises or potential residential land in which there is a withholding obligation. The purchaser or their representative (usually a conveyancer or solicitor) can submit form one at any time after a contract has been entered into and prior to the date the withholding obligation is due. Usually that will be the settlement date but if the contract is an instalment contract it will be the date the first instalment is paid. The GST property settlement date confirmation form (form two) is used to confirm the settlement date. The purchaser or their representative can submit form two at the time the withholding obligation becomes due, either when the first instalment is paid or at settlement, or as soon as practical thereafter. Purchasers are only required to submit one set of forms for each property transaction. If however, the purchaser or supplier details have changed since lodging the GST withholding notification form, you will need to complete and submit another form one GST property settlement withholding notification form. Who can complete and submit? Purchasers are required to complete and submit the two online forms. A purchaser can authorise a representative to submit the forms on their behalf by giving them a signed declaration which states that the purchaser has authorised the representative to lodge the document; the information is true and correct; and the purchase is aware that the representative is not a registered tax agent or Australian legal practitioner and they cannot provide tax agent or legal services (conveyancers only). This declaration needs to be kept for five years and does not need to be submitted to the ATO. Depending on the state or territory the property is located in, the purchaser’s representative can include a: conveyancer solicitor What happens next? Once the GST property settlement withholding notification is received, a unique lodgement reference number (LRN) and payment reference number (PRN) will be issued by email within 24 hours. Only one unique PRN is issued per withholding notification form, even if multiple purchasers or suppliers are supplied on the form. The purchaser’s obligations are not complete until the GST property settlement date confirmation has been submitted and the withholding payment has been made. These changes may take a while to get used to, if you have any questions please don’t hesitate to contact us. Rebecca Mackie, Partner, Paris Financial Source: ATO

What Do You Need to Know About Airbnb?

30 Jul 2018 04:59:00 GMT

Let’s rent the house out for a bit of extra on the side! So there are extra rooms that you don’t use and it’s just occurred to you that the extra cash that could come in from renting a room or two on Airbnb outweighs the negatives of having a complete stranger in your home – OK, what do you need to be aware of? 1. The income you receive is definitely taxable – contrary to what you might have heard. 2. Some expenses can be claimed in full – like the cleaning, depreciation on furniture used, Airbnb fees etc. 3. Other expenses (interest, rates, electricity, etc) can be claimed but must be apportioned based on how much of the house has been rented (one or two bedrooms) and how much of the house is to be shared (lounge, kitchen, etc) this is where it can get complex and it is time to get the tape measure out and work out the floor space rented, shared and private. 4. The expenses also need to be apportioned according to the amount of days the extra rooms are genuinely available for rent – as the term suggests, it’s when a visitor can genuinely book and stay. If there are too many exclusions like no kids, pets, Collingwood supporters, etc. then this is not generally available for rent. 5. The biggest possible negative may be the one that sneaks up on you – no, not the Collingwood supporter – the Capital Gains Tax (CGT). CGT is applicable on the small portion of time that the whole home was not your principle place of residence. This includes each time that you have rented out one of the rooms! This will be very tricky to calculate if records are not kept and it is up to you to keep track or pay more CGT than necessary on the sale of your home one day. Alternatively, you might decide to rent out your whole place while you take a job interstate or overseas, or simply take a decent holiday break. Do note: 1. Again, the extra income will be taxable – just like renting it out via a real estate agent long term. 2. Expenses directly relating to the rental period, cleaning, repairs (after the 250 kids + Facebook party gets out of control) and Airbnb fees are deductible. 3. All the other costs of holding the home over the year are partly deductible depending on the period that the home is genuinely available for rent as above. 4. CGT is a bit different when renting out the whole place as opposed to renting out part of it. Basically, as long as you return to the house within 6 years of the first Airbnb stay, you (or your spouse) do not buy another principle place of residence whilst away and there has never been a time when only part of the house was rented while you lived in the rest of it, you probably won’t have a CGT problem later. However the CGT rules are very complex and the ATO are targeting short term rental areas more and more. In particular, they are targeting properties rented out using Airbnb as there has been a lot of confusion about what is and what is not taxable. As always, please feel free to contact us here at Paris Financial on 03 8393 1000 if you have any queries regarding Airbnb and holiday rentals. We have specialist experience in this area and are ready to assist. Ken Burk, Partner, Paris Financial.

2018 Tax Checklists

25 Jul 2018 06:28:00 GMT

We have taken the time to prepare comprehensive Tax Checklists for 2018, designed to guide you in providing all the correct and relevant information to maximise your tax return. These checklists are very detailed and you may find some sections that are not relevant to you. If so, these sections can be left blank. We have the checklists available on our website in excel, which enables you to key your information straight in. If you have any questions or queries please do not hesitate to contact our office on 03 8393 1000. Rebecca Mackie, Partner, Paris Financial

ATO Changes for Building and Construction Service Clients

24 Jul 2018 06:31:00 GMT

If you are running a business primarily in the building and construction industry and you make payments to contractors for building and construction services, you will need to lodge a Tax Payments Annual Report. The ATO now requires you to report these payments on the Taxable Payments Annual Report by 28 August each year. If you are running a business in the building and construction industry but do not make payments to contractors, it is likely that you will need to lodge a Nil report. This can be done via the ATO website or through your business portal. Who does this change apply to? You are considered to be a business that is primarily in the building and construction industry if any of the following apply: in the current financial year, 50% or more of your business income is earned from providing building and construction services; in the current financial year, 50% or more of your business activity relates to building and construction services; in the financial year immediately before the current financial year, 50% or more of your business income was earned from providing building and construction services. If you have any queries regarding Taxable Payments Annual Report, please call Paris Financial on 03 8393 1000. Emily Kermac, Partner, Paris Financial

It's All Your Fault - Part 2

24 Jul 2018 03:12:00 GMT

I learnt all of my small business tax and training off of my dad, Noel, and his partner, Bill. In particular, I used to answer to Bill. He was a tremendous boss who really understood small business and tax, and all of the processes and procedures involved with both. After about six or seven years of working with Bill and Noel, I came across a client in fibreglass. They had an opening for someone to come in and help out with financial management. I went to Bill and mentioned that I wanted to get an equity stake in their fibreglass business. Bill responded negatively and said I was making a huge mistake. “They’re dills Pat” were his exact words. But I did it anyway. I sold my house in Glen Waverley so that I could join the fibreglass company. Three months later, I LOST ALL OF MY LIFE SAVINGS. I had no money left in the bank. And guess what? Just to add to the burn, the house that I sold in order to fund the fibreglass company became close to the number 1 capital growth property in Melbourne. The truth: it was all my fault and I had to take full responsibility because it was small business. There’s a couple of lessons to learn from this. You must understand the business operations What did I do? I joined a fibreglass business although I had no idea what fibreglass was all about. Everyone entering into small business should fully understand the operations of that business. At Paris, we get plenty of clients who want to open something like a café or a gardening business, but often they have no idea how to make a coffee or plant a tree. This is a crucial mistake. We advise these people to spend at least 3 months working in the chosen industry to see if they are cut out for the hours, working conditions and indeed the operations of that industry. Successful people starting out in business know their operations because the business is within their chosen area of expertise. They “stick to their knitting”, which is vital. Don’t bet the farm If you’re going to go into small business, never put your life savings on the line. You are risking losing it all. I was 30 when I lost my life savings and so I’ve had time to recover. Don’t make the same mistake I did. Don’t bet the Farm.

What Will The ATO Audit This Year?

20 Jul 2018 06:11:00 GMT

It can often be difficult to know where exactly the tax office are going to be focusing their audits. As it is the start of a new financial year, I thought I would provide some insight into where the ATO will be pointing their guns in 2018/19. Do not believe that the ATO’s audits are random First things first, it is important that you are aware that the tax office conduct their audits in a manner that is anything BUT random. Like any other organisation with a huge computer system, they know exactly where the money is and exactly where to audit. They are really going for it. I believe that this year they will find MILLIONS. Watch out for work related deductions This year, the tax office are focused on work related deductions for individual tax returns. Why? They believe they will be able to find billions of dollars through work related deductions. I, too, believe they will be able to find a huge amount of coin in this space. A few months ago, I was talking to a high level tax officer and he mentioned that he was DETERMINED to chase work related deductions. Individuals, beware. You must have your receipts So, how can you ensure that you will be found clean after an ATO audit? Make sure that when you are lodging your individual tax return or getting in contact with your tax accountant, you have all of your receipts. If you have a log book for a car, ensure that you have it filled in 100% and everything is fully up to date. Don’t get caught out. One more thing… The tax office also puts tax agents out of business. If you are with a dodgy agent who is getting two grand refunds for every client that walks through the door, that tax agent will be put out of business fairly quickly. The ATO can, and will, find these agents very easily. Pat Mannix, Partner, Paris Financial

Company Disaster

15 Jun 2018 02:56:00 GMT

We are talking today about business structures and in particular the disaster that is companies when running a small business. We need to go back in history and look at the year 1999, the Federal Government of that year changed the rules on small business. In particular, they put in place the Small Business Capital Gains Tax (CGT) Concessions and they may as well have written into the legislation that if you’re not running under a family trust or a unit trust for your business, it is an absolute disaster – especially if you’re trading under a company structure. I’ll explain a small business structure, or a small business under a company structure, and how it is an absolute disaster. Company As an example, we’ve got a business worth $800,000 and the family are going to sell under a company structure. When they sell they get a 50% small business discount on their capital gains tax, so now they only have to deal with an amount of $400,000. The $400,000 is taxed at the company rate, which is 27.5%, and that’s $110,000 in company tax. But this is the kicker, folks, and it kicks right where it hurts. An additional $160,000 has to be paid in personal tax when you’re trying to get hold of the discounted $400,000, which is not taxed by the company, and that is the kicker, folks. Even though you’re getting a 50% discount on capital gains tax for the company, it’s when you try to pull that $400,000 out of the company, the tax office hits you with this extra $160,000. So in total, they kick you where it hurts at $270,000 in tax. That my friends, is the disaster when selling a small business under a company structure, and it gives me the absolute shivers when we have clients coming in stuck in these company structures. Trust Let’s have a look at what happens in a trust for the same small business. First of all, the trust gets a 50% discount. Only trusts and individuals running in business get this extra 50% discount on capital gains tax. Once again, we’re dealing with $400,000. The $400,000 then gets another 50% discount and it’s the same discount as what the company gets, which is a small business discount. Now we’re dealing with the remaining $200,000 and the tax office allows us to put that $200,000 directly into superannuation. And you guessed it folks, the amount you pay is $0 in tax. So that my friends, is how you set up in business. A Trust Structure Will Save You $$$ Even today, when the tax office looks like they’re squeezing out trusts, they are not. You need the right tax advice to do this. And some people say, “Oh no, I can’t set up under a trust structure, it’s so complicated with settlors, appointors, beneficiaries, trustees and trust deeds”. Get over it and trust in your accountant. Trust that they are going to put you into a trust. Here’s a little bit of a comparison: look at the complication between $0 and $270,000. I’ve said this before in another article, keep it complex stupid when you’re structuring your small business. I cannot put it any plainer than this: you must set up your growing small business in a trust structure, and if you’re advised to set up in a company, get your head read. If you’ve got a growing small business and you’ve got a company structure, don’t go back to your tax accountant, go to a psychologist ’cause you are in trouble. That’s all I’ve got for you today, folks, a quick story, a succinct story. Get into a trust if you’re not already, and if you’re starting out and you’re going to make some dough, get into a trust structure because capital gains tax will kill you. Of course, as there are many ways to skin this cat you need seek advice for your individual circumstances. If want more information, or some advice surrounding your structure, then give us a call on 1300 4 PARIS. See you next time at the Tax Champion. Pat Mannix, Partner, Paris Financial

Tax Planning Tips - 2018

04 Jun 2018 03:00:00 GMT

Here are our top five tax planning tips for 2018. It’s early June now, and a perfect time to go over these tips. 1. Bloody Get It Done The emphasis is with the word bloody, because it is a lot simpler these days to get tax planning done. Most of you in small business should be in the cloud and your bookkeeper’s got all your books in order. It is so much easier now to get tax planning done and inexpensive from your tax accountant. Years ago, we used to have to crunch a client’s figures, get them all in order, then talk to them and do some extra planning and it was quite expensive to get this done. These days we can look straight into your cloud based file, your book keeper’s done a good job and we can get it done for you at no huge cost. Bloody get it done. It’s early June. 2. Deferring or Bringing Forward Income Deferring or bringing forward income, and we can say the same for expenses as well, either deferring or bringing forward expenses, is purely based on a financial year to financial year difference in what sort of money you’re going to make in business. If you’re looking to make some decent money in the 2019 financial year, you might look at bringing forward some income into the 2018 year and holding off on some of your expenses until the 2019 financial year. This way your 2019 figures should be lower than originally forecast. Deferring or bringing forward income is all about the difference between your profit from one financial year to the next. If they’re going to be fairly similar or there is a slight increase or decrease, there’s no real big deal to deal with tip number two. 3. Write Off Assets Purchased Under $20,000 Number three is the write off of assets which are under $20,000 ex-GST. In the budget a couple of weeks ago, I mentioned that this is a really good kick up for small business. If you’re getting towards the end of a financial year, which we are now, you can race off to some of the places where you can purchase assets for less than $20,000 and immediately write them off. It’s a really good one for small business. If you need any equipment, don’t hesitate to go out and get it in June. 4. Superannuation Contributions Super Contributions is still a good one. Generally we talk about a 15% benefit there so the money going into Super’s taxed at 15%, whereas if you receive it yourself, very generally, it will be taxed at about 30%. There is a benefit here by putting Superannuation away for yourselves. Whether you do this can also depend on your stage of life, you’ll need to get some advice about that, but very generally speaking, you can put 25 grand into Super and there is a 15% benefit. 5. Structure and Restructure This one’s the big kicker folks and the one that you’ve really got to concentrate on and, make sure you get it right. It’s restructuring. With restructuring, I’d mentioned recently about keeping things complex with a tax structure. If you are stuck in a company structure, make sure you look at it now, because you do have the potential to restructure on the 1st of July 2018. The government changed the rules a couple of years ago to allow you to move between structures, companies, partnerships and trusts for commercial reasons. There is a very good commercial reason to get into a trust and that is, to give you all the business flexibility you need. This is why restructuring is really important. Very hard to do it five or six years ago, much easier today. If you’ve got less than 10 million turnover in your business, you can restructure. The other part about restructuring is, what other things can be put in place from the structuring view point before the 30th of June, before the horse has bolted as we call it. You might want to put in place a Self-managed Super fund or you might be wanting to put in place another trust structure for your investments to protect your assets from the working capital of the business. There are a number of reasons why you may want to restructure, and you’ve got to do it before the 30th June. This is because you’ve got to get things in place and ready for the 1st of July 2018, whether you’re going to start trading under a new structure or there is a change your circumstances. So, this one’s the most important one folks, number five – restructure. It’s not too late, these are the five tax planning tips you need to heed, it’s as simple as that. There’s other little rats and mice you can do with tax planning, knock yourself out, because these are the five main ones, and good luck with it. Do it now. Pat Mannix, Partner, Paris Financial

One-off Super Guarantee Amnesty

30 May 2018 03:41:00 GMT

Employers that have fallen behind with their superannuation guarantee (SG) obligations will have 12 months to “self-correct” under a new amnesty announced late last month. The ATO estimates that $2.85 billion is currently owed in late or missing SG payments. Running from 24 May 2018 for 12 months, the amnesty encourages employers to reduce this SG gap by providing relief from the punitive penalties that normally apply to late payments. Even if you do not believe that your business has an SG underpayment issue, it is worth undertaking a payroll audit to ensure that your payroll calculations are correct, and employees are being paid at a rate that is consistent with their entitlements under workplace laws and awards. Qualifying for the amnesty The amnesty applies to employers that have underpaid or not paid SG for any period from 1 July 1992 up to 31 March 2018. To qualify for the amnesty, employers must disclose the outstanding SG to the Tax Commissioner and either pay the full amount owing or enter into a payment plan with the ATO. Bear in mind that the amnesty only applies to “voluntary” disclosures. The ATO will continue its compliance activities during the amnesty period so if they discover the underpayment first, full penalties apply. The amnesty also does not apply to amounts that have already been identified as owing or where the employer is subject to an ATO audit. What employers normally pay Normally, if an employer fails to meet their quarterly SG payment on time they need to pay the SG charge (SGC) and lodge a Superannuation Guarantee Statement: The SGC comprised of: The outstanding SG entitlements (although this component might be higher than what it would have been had the entitlements been paid on time) Interest of 10% per annum, and An administration fee of $20 for each employee with a shortfall per quarter Penalties of up to 200% of the amount of the underlying SG charge A general interest charge if the SGC or penalties are not paid by the due date On top of this, the SGC amount is not deductible – even if you pay the outstanding amount. That is, if you pay SG late, you can no longer deduct the SG amount even if you bring the payment up to date. What employers will pay under the amnesty The SGC: The outstanding SG entitlements Interest of 10% per annum No administration fees No penalties A general interest charge. An extra benefit of using the amnesty period to catch up is that the SGC amount is deductible. The ability to deduct SGC and the reduction in penalties could be significant for employers that have fallen behind with their SG obligations. Where to from here? Legislation enabling the amnesty is currently before Parliament and will not become law until at least June 2018. Despite this, the clock is ticking. If your business has fallen behind on its SG obligations, and is eligible for the amnesty, you need to start working through the issues now or contact us to work through the issues with you. There are several calculations and ATO forms that need to be completed and these may take some time to prepare. If your business has engaged any contractors during the period covered by the amnesty, then the arrangements will need to be reviewed as it is common for contractors to be classified as employees under the SG provisions. If you have not undertaken a payroll audit or an audit of rates paid to employees, you should do this within the next 12 months. If a problem is revealed, you can correct it without excessive penalties applying. If you are uncertain about what Award and pay rates apply to employees, the FairWork Ombudsman’s website has a pay calculator or you can contact them online or call them on 13 13 94. For further information please Paris Financial on 03 8393 1000. Emily Kermac, Partner, Paris Financial

The Killer - Part 2

15 May 2018 03:02:00 GMT

The killer is multinational corporate tax rates. Do you know why? Because they are ZERO, and if a multinational isn’t on ZEROincome tax rate, they are close to ZERO. It’s an absolute disgrace these multinational companies paying ZERO tax. So they’re punching us from behind, they’re kicking us down below, they are absolutely killing us. It’s an outrage but you can’t get this on the normal media. There was one bloke who was giving it to them in the normal media, Michael West, the old Fairfax reporter. He was doing a great job reporting on these bastards, but anyway they kicked him out. Go and have a look at his site, michaelwest.com.au and he names some of these corporate bastards paying mostly ZERO income tax. To get an understanding of how these multinational companies pay ZERO tax and how we need to look at trying to get them to pay, we need to look back in history. Lets wind the clock all the way back to how tax started. Years and years ago there was a famous king sitting on the hill eating his grapes, getting fanned by one of his juniors. He had his gaggle of women, or men, whatever his sexual preference was in those days and he was just lapping it all up. The pack horses would trot up the hill, carrying all his provisions, bring up all his gold and he sat there as the king and everyone else just copped it. Anyway, one day the King said, “look I want to make a little bit of a pathway, a bigger pathway up the hill that these pack horses can drag more stuff on”. The King then put down his demand for the first pathway or road. Anyway the malnourished peasants down the bottom of the hill started to say, “well we just can’t provide that, it’s impossible”. “We can’t do it, there’s not enough people and money to do build that”. Then came the light bulb moment that changed the course of history. One of the little peasants who had rotten teeth and raggedy hair, said to his mate, why don’t we tax the bastard? The other fellow said, what a great idea. And That is how tax started. Here we are in 2018 and we’ve got these multinational companies making all the money in the world, and they’re paying ZEROtax. So what I am saying is tax the bastards. That’s what we should do. So in that little story of the history of tax, we’re the peasants of today and the multinational companies are the Kings. But behind all those multinational companies are people, and what are they doing? They’re holidaying in Portsea, they’re living in Vaucluse in Sydney. They’re up in the Hamptons in New York, they’re in Monaco and all of the these multinational companies are totally over inflated in their share price. So the top small percentage of the world are killing us and giving it to us and it is unfair. By the way. This isn’t a left wing argument at all, I advise small business people here in Australia on the best tax outcomes. Small business people often vote for the right parties like the Liberals, so we are not ranting for the left. It’s not political, it is real and everyone needs to get angry about it. Pat Mannix, Partner, Paris Financial

The Killer - Part 1

08 May 2018 03:10:00 GMT

Who can forget the Killers allowing Jack Riewoldt, or Jack Revolting as we call him, to belt out Mr Brightside on stage after the Tigers won the 2017 AFL GF? I can’t, it’s like another Richmond theme song that will live long in the memory of this long suffering Tigers supporter. Magic Stuff. I couldn’t help myself starting with a little self-indulgence, but it’s actually The Killer and not the Killers I wanted to focus on in this rant. The Killer is the most passive aggressive infiltration of globalisation gone wrong and it’s only attacked by little lame ducks (scribes) like myself out here in small business land having virtually no influence. But, you gotta have a go, so here goes. The Killer puts pressure on all forms of government except those governments that allow it to infiltrate and ruin. The Killer does not choose political sides. It is not sexist, nor racist and it applies to all faiths. The Killer is slowly but surely killing us because it is creating the social divide that eventually leads to upheaval. The Killer is run by elite white collars, mainly lawyers, passively implementing the social divide that continues to creep unabated. The Killer is the enemy of small business and the middle class not to mention the lower classes. The Killer will be revealed shortly… Pat Mannix, Partner, Paris Financial

The Great Australian Nightmare

23 Apr 2018 03:14:00 GMT

It’s known as the Great Australian Dream, owning your own home. In the past this has been an attainable goal for most hard working people. However this is becoming less realistic today for people wanting to live in suburban Melbourne or Sydney due to the high inner city/suburb property prices. For growing small businesses, owning your own home by aggressively paying home loan debt is the quickest way to lose money and the dumbest thing you can do. We see it all too often here at Paris Financial and we need to straighten people out for a few reasons. Firstly, your family needs to be earning a minimum of $200,000 from a small business to make this nightmare a reality. You see if your business is starting to earn this sort of money then you are starting to pay much higher taxes, especially if you withdraw the money to pay off a private mortgage with a bank. Generally speaking you will be paying 40-50% tax when you should only be paying about 20-30%. We are brought up on the idea of the Great Australian Dream and this manifests itself in not only the man in the street telling you to pay your loan down as soon as you can, but many accountants and mortgage brokers will also tell you this. The usual line of owning your own home as quickly as you can is coupled with people advising you that the interest on your home is not tax deductible, unlike interest paid on an investment property which is tax deductible. This can be true for the salaried person working for a big company or a micro business running under a sole trader tax structure. This is ludicrous advice for the growing small business owner. You see if the excess money that would be drawn from your business to pay off the home loan either pays off a business debt or investment debt in the correct structure then the cash savings can be in excess of 20% depending on your circumstances. I’m not sure where you can invest these days to get that sort of a return on your money (because I am not a Wealth Advisor and so am not licensed to give financial advice). But, I suspect that putting in place an ingenious tax strategy to save this sort of cash is the best tax advice that you will likely ever get. Yes, that’s right, around 20% is doable and possible. A key part of this strategy, that is seldom shared, is when you draw money out to pay off your private home loan the tax paid on this money is gone forever to the ATO and your fellow Australians. A worthy place to send it indeed. However, if you follow our tax strategy, a fair proportion of the tax paid HAS NOT GONE forever. “Where is it?” I hear you ask. It is in a franking account. “Did Frank someone make his mark and so they named it after him?” Is your next question. No, the ATO called it Frank because they’ve marked this account as Company Tax paid in a small business structure and so not only does this money never have to be paid again but it may even be refunded to you one day – if you are structured correctly. And let me tell you, this franking account is paper gold especially for a rainy day in the future. Our politicians over the last 20 years have really looked after small business with the changes in tax law, but people have to take advantage of them and structure themselves correctly. The laws are complex and as small business tax accountants we are continually updated month after month to stay abreast of this complexity. To keep it simple in growing small businesses with regards tax structures and loan repayments is stupid and complexity needs to be embraced. Trust in your Tax advisor is a pre-requisite. In Episode 2 of the Great Australian Nightmare I’ll run through an example of a smart client willing to listen to their small business tax accountant and when the s#!+ hits the fan they were structured correctly. Counter to this I’ll give you an example of a dumb client listening to “the Great Australian Dream” in his own head and not listening to sound, complex tax advice. The difference is stark and it should help you understand that paying off your private home loan when you have a growing small business is indeed the Great Australian Nightmare. Pat Mannix, Partner, Paris Financial

Your Business Has Been Selected For An ATO Audit!

18 Apr 2018 03:49:00 GMT

These are the words nobody ever wanted to hear, but have you ever wondered how the ATO identifies who to audit? One positive is that the ATO is very upfront when it comes to who they intend to target. Every year they publish small business benchmarks that outline what a typical business ‘looks like’ in different industries. If your business falls outside of those benchmarks, the ATO is likely to take a closer look at why that is. Falling outside of these ATO benchmarks might not indicate a tax related problem. It might mean that your business has a different business model to the norm or is performing poorly relative to others in the industry. If your business does fall outside of the benchmark however, it is important to ensure that the reasons why can be clearly articulated (and preferably documented) and the reason for those differences is not tax evasion. If the business cannot prove that they are outside the benchmarks, the ATO is likely to simply apply the benchmark ratio and issue a revised tax assessment. This is after a review or audit has occurred and can also come with significant penalties and interest depending on the circumstances. We find that the main areas the ATO look at are: cost of sales to turnover (excluding labour) total expenses to turnover rent to turnover labour to turnover motor vehicle expenses to turnover non-capital purchases to total sales, and GST-free sales to total sales. For example, for a veterinary practice with a turnover between $300,000 and $800,000, the cost of sales to turnover ratio is expected to be between 25% and 29% (averaging at 27%), and average total expenses are 78%. The cost of labour to turnover ratio is between 21% and 29% and rent is between 5% and 8%. These ATO benchmarks are based on industry wide research that the ATO conducts and as such they are also a useful tool for anyone wanting to understand what is typical in their industry and how they perform against the average. It might also indicate opportunities for improvement and where the business is falling behind its competitors. Paris Financial can assist you with a review of your business if you feel that your business may be operating outside the industry benchmarks or simply not performing as expected. Ken Burk, Partner, Paris Financial

Bookkeepers - Godly or the Devil Incarnate

29 Mar 2018 03:16:00 GMT

At Paris Financial we champion small businesses, the risks they take and the effort it requires can never be underestimated. One of the biggest risks a small business person takes is engaging a bookkeeper. Whether the bookkeeper is a family member, an employee or a contractor, they are vital to your business. As fables go I cannot think of a more important bookkeeper than Walter Payne for Al Capone in Brian De Palma’s awesome movie The Untouchables. This 1920’s Chicago set classic is in my top 5 movies of all time and the Bookkeeper was the key to bringing down one of the most infamous gangsters of the 20th Century. If you haven’t seen it, treat yourself. In the Untouchables Walter Payne was the God like figure the Feds wanted to capture. God like because he had all the illegal business details, was fiercely loyal to Capone and kept superb, methodical books balanced to the cent. If you have made the plunge and found a bookkeeper with scrupulous loyalty and high attention to detail like Walter Payne then you’ve got the main key to the financial side of your business. As Small Business Tax Champions we are here to advise you on tax, structures, asset protection, lending and investments but your bookkeeping should be done by a bookkeeper not by us. In our tax and accounting industry there is an ongoing debate about who should be doing what for clients regarding preparing monthly/quarterly reports for management and the Business Activity Statement (BAS) for the ATO. Without a shadow of a doubt this should be performed by your bookkeeper, whether they are in house or external. There are 3 reasons for this: Bookkeepers charge about half the average hourly rate compared to a Junior/Backyard Tax Accountant. Bookkeepers have better attention to detail and client service at the transactional level of a small business. Your Tax Accountant must be competent and finding value for you in tax, which is a tough enough job with the tax law complexity. They should not be focussing on the day-to-day transactions of your business. In addition, bookkeepers now need to be certified with a bookkeeping body like the Institute of Certified Bookkeepers which enables them to lodge as a BAS agent with the ATO. Their level of skill is now better than it has ever been and they are getting an enormous amount of help on the Accounting side. This Accounting help is coming via double entry cloud based software programs like MYOB/Quickbooks/Reckon/Sassu/Xero. The debits and credits get done in the background leaving the bookkeeper to concentrate on the setup and allocation of the client’s transactions. Counter to engaging a God Like bookkeeper who you trust with all your business finances there is always the chance that you have employed the Devil Incarnate. I mean that’s a harsh term but I’m not sure how else to classify a person who gets inside your financial life, has access to the paying or receiving of money and then justifies their reason for helping themselves. An excellent way to see one of these types of characters in action is to watch that wacky Foxtel show Mystery Diners. The intrigue of the show is watching someone so guilty justify their actions. It is the main attraction of the show. If you haven’t seen it watch an episode and see the reactions. Early in my life as a Tax practitioner I had a client running a reasonably sized house building company begin running into financial difficulties. The Owners, lets call them Billy and Jean (who was leaving her husband for another man), were going through a divorce at the time. Billy was still running the business and Jean was no longer managing the administration. A common scenario for a couple who unfortunately find themselves in the middle of a divorce. As Billy started to struggle with managing the business and dealing with his divorce the business kept losing money. As Billy’s external accountant I would catch up with Billy to discuss taxation matters and Penny would always be very accommodating with me, giving answers to all my questions. Finally the business went under and the authorities cleaning up the mess found that Penny had stolen over $200,000 from the business and spent most of it on gambling as she was going through her own divorce. I’m sure everyone has heard these stories about how people steal from the inside of a small business but if you haven’t just remind yourself of that classic 90’s advertising tag line by supermodel Rachel Hunter, “It may not happen straight away but it will happen”. The only way to ward against this is to keep up your vigilance and your business intuition but don’t get paranoid. Yep, a real balancing act that one. They say the devil will find work for idle hands to do, but the devil is also attracted to bookkeeping roles in small business where the owner is not vigilant. For Billy, this meant that Penny was able to take advantage of the fact he was distracted by his personal life, and Billy just didn’t realise until it was $200,000 too late. So what should you do: Engage a bookkeeper for your small business – one that you can trust! Regularly check on the accounts of your business and also check on the bookkeeper as well. Electronically double sign on each payment until you have 100% trust in your bookkeeper – this is something that takes time. It also may never happen. Pat Mannix, Partner, Paris Financial

Safe Insurance or a Future Street Fight - Part 2

20 Mar 2018 03:23:00 GMT

My previous article ended with a fight about to ensue after a claim was put in for professional indemnity insurance. We finished off with your claim being in the hands of Specialist Lawyers and the fact you are in a white collar street fight. These Lawyers are specialists in their area of the law and slowing things down. They are the wolf and you are little red riding hood. I’ll forgive you if you think I’ve plagiarised the little red riding hood and the wolf fable. I promise I’m not doing that and will take on any lawyer wielding a copyright document from the 10th century when the fable was first released. Ok got that paranoid defensive argument documented, lets move on. So we left off in PI-1 with you putting in a claim for PI Insurance. The shiny salesperson who sold you the insurance has flicked your claim to a set of specialist lawyers. The Wolf has entered the story. So lets work through a good example, read it and weep. The Lawyer, lets call him Theo, gets in contact with the claimant (you) and asks the facts of what has happened. He’ll remind you that this insurance is in place to protect against the clients suing so DO NOT ADMIT any mistake to the client. Theo is reminding you that the client is now the enemy and if the client doesn’t point the finger then there is no claim. So lets have a think about who that client may be. Now many small business people who’ve built a professional services practice have built it via their personal networks or local community. If the business grows it means that your client base will start to fill with your initial clients’ friends, families etc. Based on this the client is going to be very closely connected to you and more than likely ensconced in your private life. So lets call the client that Theo is saying to ADMIT NOTHING to Jack. Theo and Jack are present we just need to bring this fable fully to life with the Insured Bunny. Lets call the Insured Bunny (claimant) Don and lets say he is a running a white collar small business. Don put in the claim to the Insurance Company because he discovered he’d made an honest mistake that will likely cost Jack $100,000. Theo reminds Don that he should not admit a thing to the client. In street language Theo is saying “so do you feel lucky…….punk?” Then Theo straight out asks the question to Don. “You haven’t admitted any mistakes have you Don?” Now Don is an ethical small business person and so he’s left in a quandary. The multiple choice question is what’s the ethical thing for Don to do: Admit no mistake to Jack who has been a friend of Don’s for 20 years. Jack maybe unwittingly out of pocket $100,000. Don and Jack’s relationship suffers irreparable damage that is likely to spread to other clients and friends. The Insurance company doesn’t have to payout. The Lawyers get their fees or are they on commission for success? Suggest to Jack that he has made a mistake and ask Jack to sue him because it’s the decent and right thing to do. Don then tells Theo that he has admitted a mistake to the client. Theo tells you that there is no valid claim based on the fine print in the PI Insurance contract at clause 28, a)iii)c)iv. Neither A nor B, Don will choose his own street smart way of dealing with this that cannot be written here. If you answered C you are street smart, you’re rat cunning and Don and Jack maybe looked after with the policy but Don still has a long way to go in the many rounds and long fight with Theo. So Don’s survived the early rounds, he’s not getting much sleep and then Theo chimes in a few weeks later with a myriad bunch of questions which are designed to trick and cough up the wrong answer (the Right Answer for the Lawyer). If Don makes it through these Theo will then, go away, ask for more answers, slow the whole process down again and not return calls. Theo’s job now is to hold onto the payout, try and get the amount down and delay it as long as he can. You see Theo and his bosses make money by keeping yours in their pockets (read money markets) and want to try and frustrate you by completely dropping away the service. This will go on and on and then Don hopes to finally get his payout to settle Jack’s $100,000. Don ends up weary, punchdrunk and has been Theo’s playtoy for a number of months. He’s been in a long, bruising, white collar street fight and that is real life professional indemnity insurance. So with a ghastly story like this which is not uncommon, what should you do? Here is my advice: Always take out professional indemnity Insurance if you are running a professional services business. Asset Protection must be a single minded goal and business insurance is a key piece. This fable should not deter you from putting insurance in place. Get some street smarts, start by watching Fight Club. If you need to put in a claim, heighten your senses, you are about to enter the ring. Don’t take a chill pill, take a steady stream of them because you’ll need the patience of Jobe. DO NOT have any growth assets in your name when running a business. Pat Mannix, Partner, Paris Financial Note: This scribe does not encourage drug use he’s trying to emphasise the stress of an insurance claim. The names in this article are purely fictional. Any names synonymous with real life are in the imaginative minds of skilled lawyers.

Safe Insurance or a Future Street Fight - Part 1

14 Mar 2018 03:20:00 GMT

If you are contemplating going into business in professional services then you need to consider Professional Indemnity insurance or PI as it’s known in the white collar world. PI insurance is a key piece of asset protection for your small business and will help you sleep at night, but you may still need a tablet to get your full 8 hours after you’ve finished reading this. Now I’m not encouraging drug use but you are going into business so it sort of comes with the helter skelter territory. PI Insurance is put in place to limit exposure to losing your assets due to bad advice or other mistakes. To put this in place you usually contact your professional association’s favoured insurer and start filling in the forms. This is generally a pleasant process and as your business grows you proudly fill in higher numbers of clients/patients etc each year. It’s essentially a no frills process and as the years go by you’re hassled by the salesperson a number of times to get it in by 5pm on the 30th of June. I usually complete mine around 11pm on the 29th of June accompanied by my favourite Shiraz. Once you have PI Insurance in place you are all set and protected in business right?…. Think again sister. When you establish PI Insurance and renew each year, you are signing off on a potential future street fight. If a fight does start it begins with that dreaded word that is best isolated for the fear it puts into this scribe……………………… CLAIM ……………………….. If you put in a cl cl cl claim (it’s even hard to type let alone say) the street fight starts. So are you street smart? Do you have street cred? Are you training for this? Have you watched that wonderful movie Fight Club where Tyler Durden shows you what you need to do? The answers to these questions is usually no. You’re likely a pussy in the white collar boxing ring. You are most probably too nice, you can’t fight and you struggle with confrontation. Great, I’ve finally got your attention. You see, as soon as you put in your cl cl cl claim the email is received by the Shiny/Happy Insurance Salesperson and within 20-50 seconds they have referred it to another team of professionals outlined below. If you are one of the lucky few that is street smart and can fight in the white collar arena then get ready for your next test. Yes this street fight is not 15 rounds over 2 to 3 hours it is 20-40 rounds over 6 months to 2 years. “Who is willing to fight for this preposterous length of time” you ask. One word my friend Lawyers! That’s right, you didn’t sign PI cover to protect your assets with that lovely no frills adminny/salesperson from that nice insurance company. Don’t be daft, you signed up for a future white collar street fight with a bunch of specialised white collar lawyers. And let me tell you, they love these fights, like a mother loves a new born 6 months after it’s over colic! So you are now setup for the fight after you’ve put in the claim. Tune in next time and I will tell you how these white collar Mike Tysons will throw you around the ring like a screaming sack of straw! Pat Mannix, Partner, Paris Financial

Property Development Tax in a Nutshell

14 Feb 2018 03:51:00 GMT

Are you considering a development as your next venture within the world of property? Have you reviewed your potential income tax and GST liabilities? Clients who are building new residential properties, whether intending to keep the property and rent it out or to sell for a profit, are often unaware of the potential tax implications. When I inform clients of the potential tax implications of selling they are often quite surprised that GST could apply and they wouldn’t necessarily be eligible for CGT discounts. In recent years there have been a couple of cases where the ATO have determined property sales to be profit making, rather than realisation of capital assets so it is important to ensure you have discussed your plans with your accountant and you are fully aware of the potential tax consequences. How the sale of the new property is treated for tax purposes all comes down to your original “intention” at the initial time of purchase (and the ability to prove this intention to the ATO). Proof of your intention may include items like email correspondence with your accountant and minutes of meetings. There are three possible outcomes and subsequent tax implications: Merely realising an asset: CGT (sale of investment property) Once-off profit making scheme: CGT, GST and Income Tax (build a single property with intention to sell) Serious development: CGT, GST and Income Tax (multiple properties built and sold) Capital gains tax AND income tax can apply to situations where the property purpose has changed. For example, lets say you purchase a property and rent it out for a few years, you then approach the council and are told you can build four townhouses on the land. It is at this point, when the “purpose” of the property changes, that the property changes from being a capital asset, to being trading stock, and a CGT event occurs. The value for CGT then becomes the cost for the land trading stock to ensure you are not taxed twice. CASE STUDY: Ron & Brenda own an investment property in the Melbourne suburb of Ashburton. They have been renting this property out for five years and are now trying to decide what to do with it. They have three options: Sell as is. The sale of the property will be subject to capital gains tax. As they have owned the property for more than 12 months they will be entitled to the 50% discount. Subdivide the backyard, build a new property and sell both with the intention of making a profit. As with option 1, selling the existing home will be subject to CGT and the 50% discount will be available. Selling the back house will most likely require registration for GST (as the new house is being sold within the first five years of construction) and the profits will be subject to income tax. The margin scheme may also be able to be used to reduce the GST liability. Submit plans to council, obtain permits and build 5 townhouses which they sell. Ron and Brenda are now in business as developers. At this time, when their land changes from being a capital asset to trading stock on hand they have a CGT event. They will also have to account for GST and income tax on the profits, and again they may be able to use the margin scheme. The margin scheme is applied to reduce the amount of GST payable on the sale, and is based on the difference between the purchase price and the sale price. When using the margin scheme you are still entitled to claim the credits for any GST you have paid to your suppliers. Keep your eyes open for a future article explaining the margin scheme in more detail. As you can see, there is a lot to consider. Whether you are planning a large development or a one-off build, not understanding the tax implications could be very costly. Venturing into the world of property development can be quite complex so please give us a call so we can advise you on all the potential tax implications ensuring you have the best advice possible before making any decisions. Rebecca Mackie, Partner, Paris Financial

Does It Really Matter If I Pay Super Late - What Is All The Fuss About?

07 Feb 2018 03:55:00 GMT

Have you been hearing scary stories about employers getting into trouble for not paying super for employees or paying a little bit late? Thinking it doesn’t apply to you and that it all works out in the end? Well it is true, it looks like the government is toughening up on those employers not quite managing their super obligations. There is a proposal to introduce legislation that would see the ATO able to pursue criminal charges against Directors who fail to meet their superannuation guarantee (SG) obligations. A recent analysis by Industry Super Australia submitted to the Economics References Committee into Wage Theft and Superannuation Guarantee Non-compliance, indicates that employers failed to pay an aggregate amount of $5.6 billion in SG contributions in 2013-14. On average, that represents 2.76 million affected employees, with an average amount of over $2,000 lost per person in a single year. The ATO’s own risk assessments suggest that between 11% and 20% of employers could be non-compliant with their SG obligations and that non-compliance is “endemic, especially in small businesses and industries where a large number of cash transactions and contracting arrangements occur.” At present, under reporting or non-payment of SG is usually discovered: When the employer misses the quarterly payment, or When the year-end accounts are prepared and the accountant breaks the bad news, or From the ATO’s hotline (yes, your employees can dob you in). New legislation seeks to introduce a series of changes to how employers interact with the SG system and give some teeth to the ATO to pursue recalcitrant employers. The new rules, if passed by Parliament, generally come into effect from 1 July 2018 and include: The ATO can force you to be educated about your SG obligations At present, if an employer fails to meet their quarterly SG payment on time they need to pay the SG charge (SGC) and lodge a Superannuation Guarantee Statement. The SGC applies even if you pay the outstanding SG soon after the deadline. The SGC is particularly painful for employers because it is comprised of: The employee’s superannuation guarantee shortfall amount – so, all of the SG owing Interest of 10% per annum, and An administration fee of $20 for each employee with a shortfall per quarter. Unlike normal SG contributions, SGC amounts are not deductible, even if you pay the outstanding amount. That is, if you pay SG late, you can no longer deduct the SG amount even if you bring the payment up to date. This can translate to quite a higher amount of tax than would otherwise be payable. Always remember that superannuation payments are due “28 days later” (like the movie), that is 28 days after the end of the BAS quarter. Where attempts have failed to recover SG from the employer, the directors of a company automatically become personally liable for a penalty equal to the unpaid amount. Under the proposed rules, the ATO will also have the ability to issue directions to an employer who fails to comply with their obligations. The Commissioner can direct an employer to undertake an approved course relating to their SG obligations where the Commissioner reasonably believes there has been a failure by the employer to comply with their SG obligations, and, of course, a direction to pay unpaid and overdue liabilities within a certain timeframe. Criminal penalties for failure to comply with a direction to pay Employers who fail to comply with a directive from the Commissioner to pay an outstanding SG liability face fines and up to 12 months in prison. Before hauling anyone off to prison the ATO has to consider the severity of the contravention including: The employer’s history of compliance (superannuation and general tax obligations) The amount of unpaid super relative to the employer’s size And steps taken by the employer to pay the liability, and Any matters the “Commissioner considers relevant”. The ATO will tell employees if an employer is under paying or not paying SG The proposed new rules will allow the ATO to tell current and former employees about the failure (or suspected failure) of an employer to comply with their SG obligations. The ATO can also advise the employees what action has been taken by the ATO to recover their SG. This disclosure cannot relate to the general financial affairs of the employer. Extension of Single Touch Payroll to all employers Single Touch Payroll – the direct reporting of salary and wages, PAYG withholding and superannuation contribution information to the ATO – will be compulsory from 1 July 2018 for employers with 20 or more employees. Under the proposed rules, this system would be extended to all employers by 1 July 2019. In addition, Single Touch Reporting will extend to the reporting of salary scarified amounts. We envisage that small business accounting software providers will embed the single touch payroll requirements into their software. This may be a good time to upgrade if you don’t use up to date software. Once single touch payroll comes in the ATO will know exactly how much super and PAYG withholding they should expect to see being paid and they will then have the ability to monitor things much more closely than they do now. Now is a good time to review your payroll and ensure that your business is not unknowingly or inadvertently breaking the rules. Don’t hesitate to call us here at Paris Financial if you are unsure of your superannuation obligations or if you have gotten behind, there will never be a better time than right now to get things back on track or clarified. Ken Burk, Partner, Paris Financial

Don't Make it Your Problem - DATA BREACH

30 Jan 2018 03:25:00 GMT

You better be ready Mr or Mrs Business Person because New data breach rules come into effect from 22 February 2018. These rules place an onus on business to protect and notify individuals whose personal information is involved in a data breach that is likely to result in serious harm. Regardless of how good your existing systems are, data breaches are a reality either through human error, mischief, or simply because those looking for ways to disrupt are often one step ahead. But it’s not all about IT, there have been numerous cases of hard copy records being disposed of inappropriately, employees allowing viruses to penetrate servers after opening the wrong email, and sensitive data on USBs lost on the way home. Just last year almost 50,000 employee records from Australian Government agencies, banks and a utility were exposed and compromised because of a misconfigured cloud based ‘Amazon S3 bucket’. AMP was reportedly one of the worst affected with 25,000 leaked employee records. The Notifiable Data Breach (NDB) Scheme affects organisations covered by the Privacy Act – that is, organisations with an annual turnover of $3 million or more. But, if your business is ‘related to’ another business covered by the Privacy Act, deals with health records (including gyms, child care centres, natural health providers, etc.,), or a credit provider etc., then your business is also affected (see the full list). Special responsibilities also exist for the handling of tax file numbers, credit information and information contained on the Personal Property Securities Register. What you need to do It’s important to keep in mind that complying with these new laws means more than notifying your database when something goes wrong. Organisations are required to take all reasonable steps to prevent a breach occurring in the first place, put in place the systems and procedures to identify and assess a breach, and issue a notification if a breach is likely to cause ‘serious harm’. As I type, we here at Paris Financial are complying, and it needs you to look at your whole Risk Minimisation Plan which is of the utmost importance. So contact your IT specialist and MAKE SURE you comply. If you would like to chat about what we are doing don’t hesitate to contact me here at Paris Financial. Pat Mannix, Partner, Paris Financial

Tax Services & Al

29 Nov 2017 03:28:00 GMT

Recently the ATO commissioner Chris Jordan said a practice built on supplying “simple returns” needs to look at their business model. The ATO’s free products have come under fire by high volume tax agents, however, this is exactly the area where artificial intelligence will likely dominate and human intelligence may not be required. The ATO are not the only large entity investing in software that will cut the time and people required to fill in forms but more highly trained people are required to deliver the right advice for small business people. Tax Advisers need to be adding value to a client’s financial situation. This can be via software advice, systems advice, structures for business, structures for property and of course quality, timely tax direction. The proliferation of artificial intelligence coming into the accounting/bookkeeping space for small business means the cost of these services is reducing. Juxtaposed next to this is tax legislation getting more complex and voluminous. In essence tax advice can only be dispelled to small business people via those who both know the law and can interpret it in plain language to their clients. At Paris Financial we champion small business people for their effort, enterprise and multifaceted skills. So if you need small business tax, lending or wealth advice come and have a complimentary consultation with us. Pat Mannix, Partner, Paris Financial

Do you use your car for work or in your business?

27 Sep 2017 02:55:00 GMT

YES? ... You should speak with us here at Paris Financial about claiming this in your Income Tax Return. But, be aware that the ATO have strict rules about what and how car use can be claimed. The biggest mistake that the ATO have found recently is people claiming for private trips in their car. Work related trips DO NOT include getting to your normal place of employment and home again, this is private. Work related trips do include the following: Home to work trips only apply when: You had to cart a really big bunch of stuff to work – like extension ladders, wheelbarrows and other bulky tools. A small bag of tools or a briefcase is not bulky enough. If there is a secure place in which these things can be stored at work then the ATO would obviously ask why are you taking them home at all? If you start work at home (as it is your base of employment) and then travel to work (not including firing off an email or two early and then heading into the office). You don’t really have a place of employment, you travel around lots of different sites all day. Work related trips also include: If you have two jobs – the travel from Job 1 to Job 2. From your normal place of employment to another office, site or similar and back to the normal place or directly home. Home to an alternative office, site or similar, then on to the normal place of employment or directly home. So now that we have worked out what can and cannot be treated as business kilometres we can discuss how the claim can be calculated and substantiated: Using the cents per km method – you determine how many kms you have travelled for work purposes and then claim 66c per km (up to a maximum of 5,000km) The ATO are worried that taxpayers are simply claiming 5,000 km with no basis or reasonable calculations. The underlying message here is that you must have some form of reasonable estimate of the kms travelled. Keep a logbook. Under this method you need to keep a logbook for a 12 week period (there are a few apps available for smartphone users or an actual little printed book) that needs to be representative of your usual use. The resulting business percentage is used to claim a portion of all the costs of the car like fuel, rego, insurance, financing, depreciation, repairs & maintenance etc. If you are registered for GST and the car is used in a business, then some of the GST can be claimed as well. But, the logbook must be done, when you sell the car there might be increased tax, and there might also be GST payable back to the ATO. There is also a luxury cart limit on the GST and depreciation limiting the benefit of expensive cars. Things can get even more complex when the car is used in a business structure like a trust or company – any private use needs to be calculated in a more complex way. This is something that should be discussed in person. If you are unsure, the best thing you can do is ASK! Give us a quick call on 03 8393 1000, and explain what you are doing and why you think there might be a car claim in the future, we can tell you what you need to do (not what you should have done after it’s too late). Ken Burk, Partner, Paris Financial Follow me on Twitter Image courtesy of Napong at FreeDigitalPhotos.net

Main Residence Exemption – The Burden of Truth

05 Sep 2017 22:54:00 GMT

I would expect that the majority of property owners and investors have heard something about the “six year main residence exemption for Capital Gains Tax purposes”. If not, here is a brief rundown: If you own a property which you live in for a period of time as your “main residence”, then you rent the property, but go on to sell the property within six years of moving out, you can claim the Main Residence Exemption – meaning that you will not have to pay capital gains tax! This Exemption is most commonly used when people upgrade the family home, but keep the old home and rent it out. It can turn out to be an excellent tax effective strategy to sell the original home just before the six years in up, resulting in no CGT being payable. Don’t get too excited, there is strict criteria to be met! There are a number of very important issues to be aware of if you are planning on using this strategy. Firstly, we need to look at the period of time you have lived in the property. For existing properties, the ATO legislation does not currently state how long you need to have lived in the property to be able to apply the exemption. If you only reside in the property for a short period of time, you will need to be able to show that you moved out for valid reason such as a new job interstate…and not just back in with our parents so you can claim the exemption! Proof that you actually lived in the property for that period may be required. This can be shown by: Evidence the rest of your family lived there, such as school fees; Using the property as your mailing address; Having the utilities connected in your name at that address; Being enrolled to vote at that address; Having your drivers licence address as that address; Whether you have all of your personal possessions there. Another important point to consider is that while Capital Gains Tax is calculated from contract date to contract date, the “six years” used for the main residence exemption is calculated to settlement date – so don’t get caught out with a settlement date more than six years from the date you moved out. You also need to be aware that you can only apply the exemption to one property at any given time. If you have upgraded the family home and are now selling the old one intending to claim the exemption, the new property will be subject to CGT for the period you have claimed the exemption on the old property. As an example, if you purchased your new property five years ago and sell it in five years then CGT will apply to half your gain even though you have always lived in the property. Most people prefer the immediate tax savings from claiming the exemption, however, you do have the choice whether to apply the exemption, or not. In addition, it is possible to move back into the property. For example: after moving out of the property, you move back in after 5 years, live there for another two years and then move back out – this will reset your exemption for another six years. Of course all the same rules apply second time around so ensure you have valid reasons other than avoiding CGT for moving back in and out of your property and can prove you lived in the property for the amount of time you claim. Lastly, the ATO have made incredible advances in their technology over the years and their data matching is no exception. As soon as you sell the property, the State Revenue Office sends the details to the ATO, the ATO then look up your previous returns and see that you have declared rental income but no capital gain – this may just be the red flag that puts you into the ATO Audit basket! There is no doubt that you may be entitled to a legitimately claim the CGT Exemption, HOWEVER, you will need to have proof that you lived in the property and had legitimate reasons surrounding you vacating the property, other than avoiding CGT! If you think this could be relevant to your situation please send me an email or give me or give me a buzz #03 8393 1000, I am happy to help. Rebecca Mackie, Partner, Paris Financial Follow me on Twitter Image courtesy of hyena reality at FreeDigitalPhotos.net

What is a 'Cryptocurrency'

24 Aug 2017 03:32:00 GMT

A cryptocurrency is a digital or virtual currency that uses cryptography or encryption for security. A cryptocurrency is difficult to counterfeit because of this security feature. A defining feature of a cryptocurrency, and arguably its most endearing allure, is its organic nature; it is not issued by any central authority, rendering it theoretically immune to government interference or manipulation. Breaking Down 'Cryptocurrency' The anonymous nature of cryptocurrency transactions has many benefits however also makes them well-suited for a host of nefarious activities, such as money laundering and tax evasion. The first cryptocurrency to capture the public imagination was Bitcoin, which was launched in 2009 by an individual or group known under the pseudonym Satoshi Nakamoto. As of 1st June 2017, there were over 16.3 million bitcoins in circulation with a total market value of just over $71.05 billion AUD (based on coin price of $4,359.39AUD as at 9th August 2017). Bitcoin's success has spawned a number of competing cryptocurrencies (of which there are now in excess of 700), such as Ethereum, Litecoin, Namecoin and PPCoin to name, but a few. 'Cryptocurrency' Benefits and Drawbacks Cryptocurrencies make it easier to transfer funds between two parties in a transaction; these transfers are facilitated through the use of public and private keys for security purposes. These fund transfers are done with minimal processing fees, allowing users to avoid the steep fees charged by most banks and financial institutions for wire transfers and completed in the most expedient manner, immediately. Central to the genius of the initial cryptocurrency, Bitcoin, is the block chain it uses to store an online ledger of all the transactions that have ever been conducted using bitcoins, providing a data structure for this ledger that is exposed to a limited threat from hackers and can be copied across all computers running Bitcoin software. Many experts see this block chain as having important uses in technologies, such as online voting and crowdfunding, and major financial institutions such as JP Morgan Chase see potential in cryptocurrencies to lower transaction costs by making payment processing more efficient. As reported online by theguardian.com on 1st July 2017, that “On 19th June 2017, the International Monetary Fund issued a staff discussion note stating that banks should consider investing in cryptocurrencies, saying; “Rapid advances in digital technology are transforming the financial services landscape, creating opportunities and challenges for consumers, service providers and regulators alike”. However, because cryptocurrencies are virtual and do not have a central repository, a digital cryptocurrency balance can be wiped out by a computer crash if a backup copy of the holdings does not exist. Since prices are based on supply and demand, the rate at which a cryptocurrency can be exchanged for another currency can fluctuate widely. Cryptocurrencies are not immune to the threat of hacking. In Bitcoin's short history, the company has been subject to over 40 thefts, including a few that exceeded $1 million in value. Still, many observers look at cryptocurrencies as hope that a currency can exist that preserves value, facilitates exchange, is more transportable than hard metals, and is outside the influence of central banks and governments. This is an informative article only and Paris Financial does not make the recommendation that clients should invest in cryptocurrencies or any other financial products without consulting their financial advisors first. Pat Mannix, Partner, Paris Financial Follow me on Twitter @mannix_pat Image courtesy of holohololand at FreeDigitalPhotos.net