SMSF property investment regulations to keep in mind

Posted on 2 June '20 by admin

Property is a common investment option for SMSFs, however, the ATO has a number of regulations SMSF owners need to be wary of. The ATO is particularly concerned with those using SMSF assets to invest in property in a way that is detrimental to retirement purposes.

To ensure you do not breach provisions of the Superannuation Industry (Supervision) Act 1993 (SISA), here is a breakdown of the ATO’s common regulatory concerns:

• Whether arrangement amounts to your SMSF are being made to purposes outside of the sole purpose test (referred to as a collateral purpose).
• Whether your SMSF meets operating standards such as record-keeping, ensuring assets are appropriately valued and recorded at market price, and keeping SMSF assets separate from members’ assets.
• Whether the arrangement includes the SMSF acquiring assets from a related party.
• If the arrangement features the SMSF borrowing money and meets borrowing provisions.
• Whether the SMSF has contravened the in-house assets by exceeding the level of in-house assets allowed.
• Cases of illegal early release of superannuation when SMSF arrangements do not meet relevant payment standards.

Also keep in mind that you cannot improve a property or change the nature of a property while there is a loan in place. While you can look to make additional contributions to your SMSF to speed up the loan repayment process, you will be precluded from making further contributions to your SMSF if any outstanding loans in your super balance exceed $1.6 million.

In the case that any of the ATO’s regulatory concerns apply to you and your SMSF’s involvement with property investment, confirm your situation and report your circumstances to the ATO. Additional regulatory matters regarding income tax such as non-arm’s length income (NALI) provisions as well as GST need to be reported as well.

Closely held payees exemption to be extended

Posted on 2 June '20 by admin

Employers with 19 or fewer employees are temporarily exempt from reporting ‘closely held (related) payees’ through Single Touch Payroll enabled software. The exemption deadline has been extended from 1 July 2020 to 1 July 2021 as part of the ATO’s response to the COVID-19 situation.

A closely held payee is an individual directly related to the business, company or trust that pays them. Commonly, these are:

• Family relatives of a family business.
• Directors or shareholders if a company.
• Beneficiaries of a trust.

The closely held payees exemption is automatically applied, and employers do not need to report them to the ATO.

Employers still have the option to report their closely held payees’ payroll information through Single Touch Payroll if they wish to. This can be done each time a payment is made, following the same process that applies for regular employees.

Employers will need to provide payment summaries to their closely held employees and a payment summary annual report to the ATO at the end of the financial year unless they:

• report through Single Touch Payroll for their closely held employees, and
• lodge their finalisation declaration by the due date.

Spouse contributions – when are you eligible for a tax offset?

Posted on 28 May '20 by admin

Contributions made on behalf of your spouse to a complying superannuation fund or a retirement savings account (RSA) may be eligible for a tax offset.

The 2019/2020 tax rules allow you to claim an 18% tax offset on super contributions up to $3,000 on behalf of your spouse. While you are able to contribute more than $3,000, there will be no spouse contribution tax offset over this amount. The amount you can claim depends on your spouse’s annual income:

• $540 for spouse income of $37,000.
• $360 for spouse income of $38,000.
• $180 for spouse income of $39,000.

The tax offset may be available for individuals who meet the following eligibility requirements:

• Your spouse’s assessable income, fringe benefits amounts and employer superannuation contributions equate to under $40,000.
• Contributions made on behalf of your spouse were not deductible to you.
• You and your spouse were Australian residents at the time of contributions.
• Your spouse did not have non-concessional contributions that equated to a higher amount than their non-concessional contributions cap, or they did not have a total superannuation balance of $1.6 million or more at 30 June 2018.
• Your spouse is younger than their preservation age, or are not retired while being between 65 and their preservation age.

Under Australian superannuation law, your spouse can be either:

• Your partner who you are married to and live with, or;
• Your de facto partner, who you live with on a genuine domestic basis.

The spouse contributions tax offset can be claimed on your tax return.

What you need to know about fringe benefits tax

Posted on 28 May '20 by admin

A fringe benefits tax (FBT) is a tax paid on benefits provided to employees (usually non-cash). FBT is calculated based on the gross taxable value of benefits employers provide to their employees. Employees must lodge their return and pay the total FBT amount they owe for the previous FBT year. Due to COVID-19, the FBT lodgement deadline has been extended from 31 March 2020 to 25 June 2020.

The following are the types of fringe benefits you must lodge before the extended due date:

• Car fringe benefits: when a car your business owns or leases is available for employee private usage.
• Debt waiver fringe benefits: when you waive or forgive an employee’s debt (including those you write-off as a genuine bad debt).
• Loan fringe benefits: when you provide a loan to an employee and charge a low rate of interest or no interest during the GBT year.
• Expense payment fringe benefits: when you reimburse an employee for expenses they incur or pay a third party for expenses incurred by an employee.
• Housing fringe benefits: when you provide an employee with accommodation as a usual place of residence for the employee.
• Living-away-from-home allowance fringe benefits: any payments you make to compensate an employee for any disadvantages suffered because they have to live away from home to be employed at your business.
• Airline transport fringe benefits: any payments made in relation to airline transport.
• Board fringe benefits: meals provided to employees.
• Entertainment fringe benefits: payments for entertainment by the way of food, drink or recreation.
• Tax-exempt body entertainment fringe benefits: when you incur entertainment expenses and you are wholly or partially exempt from income tax or don’t derive assessable income from the activities related to the entertainment.
• Car parking fringe benefits: when you provide car parking for your employee.
• Property fringe benefits: when you provide free or discounted property (including goods such as electricity and gas, real property and rights to property) to an employee.
• Residual fringe benefits: broadly speaking, any rights, privileges, services or facilities provided in respect of employment.

Businesses who have paid less than $3000 in FBT in the previous year only need to make one payment when lodging their FBT this financial year. For businesses with more than $3000 in FBT, they must lodge their FBT quarterly. Clarify with your tax agent or accountant for your FBT details before lodging.

Your current employer superannuation obligations

Posted on 19 May '20 by admin

Paying your employees superannuation is an integral part of being an employer. Superannuation provides income for your workers in retirement and it is your legal obligation to make sure you are paying your eligible employees the right amount, on time, to the right place and also in the right way. The ATO has also introduced a few schemes to help employers meet their super obligations due to financial strain caused by COVID-19.

Your super obligations are summarized in the following:

• Check the eligibility of all your employees (some contractors or freelancers may be entitled to superannuation payments).
• Pay your eligible employees 9.5% of their ordinary time earnings.
• Super payments must be made at a quarterly minimum (employers who do not pay their superannuation on time may need to pay a superannuation guarantee charge).
• Pay super into your worker’s fund of choice.
• Pay the SuperStream way (both payments and data are sent electronically in a standard format).
• Streamline your payment process with Single Touch Payroll.
• Keep evidence to show that you have met your super obligations as an employer.

While the usual obligations apply, the ATO has also introduced assistance schemes in response to COVID-19 for employers. The superannuation guarantee amnesty, in particular, will provide you with arrangements which can adjust your payment terms and amounts relative to your financial circumstances as well as extend your payment plan to beyond 7 September 2020, provided you apply to participate in the amnesty by that date.

Applying for superannuation guarantee amnesty also means having any refunds returned to you as quickly as possible and being notified of any eligible income tax deductions you can claim on your contributions to employee super funds. However, if you are unable to maintain super payments despite being granted SG amnesty, you will be disqualified from the program. This disqualification will only apply to any unpaid quarters and you will need to pay a $20 per employee component for re-application of any unpaid quarters.

For updates in the event of more changes to super obligations and requirements, visit the ATO Super website or APRA-regulated funds page for more information.

Tax implications for workers with COVID-19 mobility restrictions

Posted on 19 May '20 by admin

Employees who are not living or working in their regular location due to COVID-19 mobility restrictions need to be aware of the tax implications that apply to their situation.

Individuals who ordinarily work and live in Australia but are temporarily overseas due to COVID-19 restrictions will not experience any changes to their Australian tax obligations. If the employee is paying foreign income tax overseas, they will receive a foreign income tax offset to reduce their Australian tax payable.

Foreign residents working from Australia who are not able to leave as a result of COVID-19 restrictions will not experience Australian tax impacts if their stay in the country is under three months. However, non-residents working in Australia for longer than three months may need to lodge an Australian tax return if they earn any assessable income from an Australian source. Other than this, their Australian tax obligations will remain unchanged.

Employment income will not be taxable in Australia if the employee:

• Is not an Australian resident;
• Are intending to leave as soon as they are able to;
• Has no employment connections to Australia other than the fact that they are performing remote work in the country.

Employees who typically reside in a country that Australia has a double tax agreement with may already qualify for an exemption in Australia.

What happens if your SMSF is non compliant?

Posted on 14 May '20 by admin

While there are benefits to running an SMSF, they do not come without their compliance responsibilities. This includes lodging your fund’s annual return on time, attending to reporting obligations, and having an investment strategy. SMSFs who do not meet their obligations are subject to penalties by the ATO through the following measures.

Education direction

An SMSF trustee who does not meet compliance requirements can be given a written direction to undertake a course of education that is designed to improve their ability to meet their obligations, reducing the risk of future non-compliance. The course may be completed online within a nominated timeframe. Failure to comply with an education direction can result in an administrative penalty of 10 units.

Administrative penalties

SMSF trustees are liable to pay administrative penalties if they contravene provisions of the Superannuation Industry (Supervision) Act 1993 (SISA). This includes contraventions of borrowings, in-house assets, education direction, duty to notify of significant adverse events, and accounts and statements. The minimum penalty is $1,050 and the maximum penalty is $12,600.

Enforceable undertaking

SMSF trustees may be able to rectify non-compliance by providing a written commitment to an enforceable undertaking. The ATO may or may not accept the undertaking, which should include:

• A commitment to ending the non-compliance behaviour.
• What action will be taken as rectification.
• The designated time period to rectify the contravention.
• How and when the trustee will report the completion of rectification.
• Strategies employed to prevent future contraventions.

Rectification direction

The ATO may decide to provide a trustee with written direction to rectify their contravention. The trustee will then be required to undertake specified action to rectify the non-compliance within a given timeframe. Rectification commonly involves employing managerial or administrative arrangements that will prevent similar contraventions in the future. Proof of compliance with the direction to rectify will be required. Failure to comply with the direction is an offence of strict liability, which can lead to disqualification or the removal of the fund’s complying status which may result in a significant tax penalty on the fund.

Disqualification

The ATO has the ability to disqualify individuals from acting as a trustee due to their non-compliance. This will take into account the severity of the contraventions and the likelihood of them reoccurring. Continuing to act as a trustee after disqualification is an offence that may result in further penalties.

Civil and criminal penalties

Civil and criminal penalties through court can apply when SMSF trustees contravene with provisions such as:

• The sole purpose test
• Prohibition of avoidance schemes
• Promotion of illegal early release schemes
• Duty to notify the regulator of significant adverse events.

Non-compliance notice

SMSFs may be issued a notice of non-compliance when serious contravention of super laws have occurred. This causes the fund to remain non-compliant until a notice of compliance is received. For every year the fund remains non-complying, its assessable income is taxed at the highest marginal tax rate.

Winding up the fund

After a contravention has occurred, the trustee may wind up the SMSF and roll over the remaining benefits to an Australian Prudential Regulation Authority (APRA) regulated fund. However, in some cases, the ATO may continue to issue the SMSF with a notice of non-compliance and/or apply other compliance measures.

Freezing the SMSF’s assets

A trustee may be given a notice to freeze an SMSF’s assets when it appears that conduct by the trustees or investment manager may adversely affect the interests of the beneficiaries. The notice may restrict the trustee or investment manager from acquiring assets and disposing of assets.

JobKeeper GST turnover test released

Posted on 14 May '20 by admin

The ATO has published a ruling on the decline in turnover test for businesses applying for the JobKeeper scheme as part of the Coronavirus Economic Response Package (Payments and Benefits) Rules 2020.

This turnover test requires businesses to calculate their ‘current GST turnover’ and ‘projected GST turnover’, subject to modifications to the definitions outlined in the Payments and Benefits Rules. The new ruling outlines the aspects of the decline in turnover in the following steps:

• Step A: what supplies are relevant when calculating projected GST turnover and current GST turnover,
• Step B: how you allocate supplies to relevant periods,
• Step C: how you determine the value of each supply that has been allocated to a relevant period, and
• Step D: The ATO compliance approach, which effectively allows you to work out Step B and Step C at the same time.

The turnover test period must be either a calendar month that ends after 30 March 2020 and before 1 October 2020, or a quarter that starts on 1 April 2020 or 1 July 2020.

During the turnover test period, businesses will satisfy the decline in turnover test if:

• Their projected GST turnover falls short of their current GST turnover for a relevant comparison period (the comparison turnover, and
• The shortfall expressed as a percentage of the comparison turnover equals or exceeds the specified percentage for the business

Keep in mind that the decline in turnover test applies to both entities that are registered and not registered for GST in determining if they are eligible for the JobKeeper payment.

The ruling also covers another approach to calculating business’ turnover – the cash or accruals approach – and outlines alternative methods that will allow for the allocation of supplies to a relevant period and determination of the value of those supplies.

Things to know about the First Home Super Saver Scheme

Posted on 4 May '20 by admin

Individuals looking to buy their first home may claim up to $30,000 of their super contributions through the First Home Super Saver (FHSS) Scheme, which aims to reduce pressure on housing affordability.

The scheme allows first home buyers to save money within their superannuation fund and accumulate faster savings with the concessional tax treatment of super. Eligible individuals who are able to use up to $15,000 of voluntary contributions per year, and a total of $30,000 contributions across all years. The FHHS amounts received will affect your tax for the year it is released to you; both the assessable and tax-withheld amounts from your FHSS payment will need to be included in your tax return.

The types of contributions eligible to go towards the FHHS scheme are voluntary concessional contributions and voluntary non-concessional contributions. Contributions can be made up to your existing contributions cap.

To be eligible for the scheme, individuals must:

• Be at least 18 years of age.
• Have not previously owned property in Australia, or have previously released First Home Super Saver funds.
• Have the intent to live in the property you use the funds to purchase as soon as practicable, for at least the first 6 of the 12 months of owning the property.

Individuals experiencing financial hardship may also apply for the scheme even if they have already purchased property in the past if their financial hardship has resulted in a loss of property interest. This may be applicable to individuals who have experienced events such as:

• Bankruptcy
• Unemployment
• Divorce
• Natural disasters
• Illness.

What you need to know about lodgement deferral dates

Posted on 4 May '20 by admin

Due to COVID-19 and unforeseen financial circumstances, the ATO has announced a series of lodgement deferral dates available for tax returns, fringe benefits tax returns, monthly and quarterly BAS, annual GST returns, PAYG summary annual reports and taxable payment annual reports.

Lodgement deferrals extend the due date for lodgement of a document without incurring a failure to lodge on time (FTL) penalty. To request for a lodgement deferral, simply complete an online application and lodge through online services provided by the ATO. The ATO will then assess and approve your requests within a 28-day period.

The extended lodgement dates for particular lodgements are listed below:

• Income tax 2018-2019 returns: 5 June 2020
• Fringe benefits tax 2019-2020 returns: 25 June 2020
• SMSF 2018-2019 annual returns: 30 June 2020

To request for a lodgement deferral for business activity statements, annual GST returns, PAYG summary annual reports and taxable payment reports, the ATO encourages businesses and employers to contact their tax or BAS agent to confirm their lodgement due dates and to submit requests as due dates are determined on a case-by-case basis.

While deferring a lodgement may be beneficial in the long term, it is still important to keep in mind your tax liability and how deferring lodgements may affect your cash flow options in the long term. Always discuss your options with a financial advisor or accountant before deferring your taxes as you may accrue more debt than expected otherwise.

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