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Did you know that there are 31 different business registers that a business or company may need to be registered with that are a part of ASIC? Some of these registers are being brought together, in what will be known as the Australian Business Registry Services (ABRS).
The Commissioner of Taxation was appointed in April 2021 as the Commonwealth Registrar of the ABRS. In the near future, registering a company will be done through the ABRS instead of ASIC. This is a part of the government’s move towards a more efficient digital economy.
Previously, a company or business was registered through ASIC, where a Tax File Number and an Australian Business Number would be required. These are obtained through the Australian Taxation Office (ATO) and are a critical part of setting up a business or company.
Beginning from November 2021, there will be an additional step introduced in the registering of a company, involving a Director Identification Number (DIN).
This director identification number is a unique identifier that a director will apply for once and keep forever.
Every company director will need to have a DIN prior to 30 November 2022, with Indigenous directors having an additional year (till 30 November 2023) to adhere to the new requirement.
This applies to directors if their organisation is a company, registered foreign company, registered Australian body or Aboriginal and Torres Strait Islander corporation.
In the future, registering a company will be done through the ABRS instead of ASIC. This is a part of the government’s move towards a more efficient digital economy.
Directors will need to apply for their director ID themselves because they will need to verify their identity. Eligible persons that have sufficiently established their identity, will be provided a DIN that they will keep for their lifetime – even if they cease to be a Director.
No one else will be able to apply on their behalf.
The new DIN Requirements apply to appointed Directors and acting Directors of Australian corporations and registered foreign companies, which includes those companies who are responsible for managed investment schemes and registered charities. This is set out under the Corporations Act 2001 (Cth).
As of the time of writing, the DIN requirements do not extend to unincorporated bodies, de facto or shadow Directors, or company directors.
DIN’s will be recorded in a new database to be administered and operated by the Australian Tax Office and be made available to the public.
The ATO will also have the power to provide, record, cancel and re-issue a person’s DIN. A DIN will be automatically cancelled if the individual does not become a Director within 12 months of receiving the DIN.
Following the DIN, the ARBS will then take over the Australian Company Register, the Business Names Register, and the Australian Business Numbers (currently on the Australian Business Register).
The ABRS is responsible for the implementation and administration of director IDs. ASIC will then be responsible for the enforcement of associated offences.
It is expected that around 10% of all Australians will require a DIN.
Despite the small number, it is a crucial part of the plan to prevent and halt phoenix directors from being appointed to companies, who then rack up significant debts that no one is held accountable for.
It is believed that this change will make the process cheaper, faster, and easier, as companies will no longer need to be first set up through ASIC before dealing with the ATO for an ABN and TFN.
If you currently have a company and do not already possess a MyGov account, now is the time to rectify it in the move towards DINs.Read more. "
Innovation is one of the pinnacles of good business practice. However, sometimes innovation isn’t a process that can be achieved by one person alone. In business, some of the best ideas and practices that your business might achieve could occur through collaboration.
Most businesses will have understood the impact and importance of internal collaboration between team members and already put into place tools to help promote this. However, what exactly does effective business collaboration look like?
Business collaboration is the leveraging of internal and external connections in order to generate ideas, find solutions and achieve common goals for your business. It can be done internally (through collaboration with your team), or externally (through the combined efforts of multiple businesses).
Many businesses are already seeing the benefits of remote collaboration within their teams, especially with regards to the time being saved and the increase in productivity.
Businesses may also find that learning opportunities are presented to their employees and team members through the interaction and collaboration with other businesses that could benefit them, with additional knowledge and skillsets gained throughout the process.
Even with many restrictions remaining in place that limit travel on both domestic and international scales, businesses are able to confer with remote workers and businesses through the assistance of digital technologies, thus enabling collaborative efforts to continue
As restrictions ease and businesses are able to engage with one another once again in face-to-face settings, remote collaboration tools can be used to facilitate inter-business collaboration from the ease of anywhere.
- Instant messaging – allows for quick online communication for day-to-day business with the teams involved.
- Video conferencing – replicating face-to-face contact without the need to travel into the office or to a meeting space.
- Online workspaces – communicating, collaborating, and sharing ideas in one online space, without the need to be in the same room or even area
- Cloud sharing – cloud tools offer functionalities for collaborating on files, tasks, projects, and calendars in real-time in one accessible, shared online space.
These tools allow businesses to work uninterrupted with individuals, clients and other businesses, as the distance between is no longer a major inhibiting factor to operations (if operations can be conducted away from the site). It can also potentially promote global interconnectedness for the business, as collaboration does not have to occur at a local or domestic level.
Your business might not collaborate with other businesses in exactly the same way as a business in the same industry. It’s important to know what might be the right form of collaboration for your business to benefit from it – and doing that will depend on what you may want to get out of it, and how long you may want it to last.
This is known as the traditional type of business collaboration, usually involving two or three companies temporarily working together. They are able to reach a common goal by combining their resources and knowledge, which can be effective for businesses with knowledge/resource gaps that another business could temporarily fill.
Competitors can be great collaborators if used appropriately. Co-opettion involves collaborating with competitors so that businesses can share resources, avoid duplication of their work and generate new customers for all parties involved.
When one large business manages a broad collaboration with multiple smaller, external partners, this is known as portfolio collaboration. The main, central business sets the rules for the collaboration and maintains it, offering many of the benefits of an alliance but in a long-term form that generates more connections between businesses.
Simply put, community collaboration uses one of the greatest resources that a business may have at its disposal – the community. Essentially, businesses collaborate with individuals or other businesses that are within their community. This can be done via both the business community (e.g local business partnerships) AND the customer community (e.g. social media influencers).
If a business knows of other businesses with similar goals and values that they want to uphold, they may instigate network collaboration. This style of collaboration means that the businesses may not necessarily be in competition with one another but, with shared interests can collaborate on mutually beneficial projects with access to one another’s resources and customer base.
Your business may choose to collaborate with other businesses through:
- A wiki, which can be used to share knowledge, improve training and contribute towards a strong company culture.
- Cross-promoting, where the businesses promote one another on various platforms. This could be done through social media, running partnered promotions, or even by getting creative with guest posts on websites or a shared podcast.
- Running a networking event to find new clients and potential future collaborators, which can be conducted online or in person.
- Community events can be a great way to connect your business with potential customers and collaborators, and running it with another local business is an effective way to put yourself out there and foster connections that could lead to long-term partnerships.
The rapidly changing and digitally-inclined business world means that businesses that don’t prioritise collaboration – both internally and externally – are likely to fall behind. Making the most of collaboration solutions and tools allows collaborations to be streamlined, which is beneficial to all involved.
If you are looking for advice on how to structure these collaborations or work out the best way to get involved with other businesses, you can plan out your way forward with our help. Start a conversation with us today.Read more. "
Depending on your relationship, you may have discussed with your partner the prospect of marriage. Or you might be more comfortable remaining in a long-term de facto relationship (especially since many de facto relationships have similar rights as those of a marriage).
You might share a lot of things with your partner (such as a mortgage, a family, or a car), but did you know that you might be able to boost their super for them?
Specifically, if you (or your partner) were unable to work for a length of time, such as during maternity/paternity leave, unemployment or are a single income household, the super fund of the non-working part of the pair might not be increasing. As a result, the retirement savings held in super for one member of these households may not be increasing as exponentially fast as the working member.
The good news is that when in a relationship, a spouse can boost their non-working partner’s super fund with their own contributions. The best part? It could be a tax write-off for the working spouse.
Under Australian superannuation law, a spouse can be a legally married partner with whom you live or your de facto partner. That gives additional benefits to those in de facto relationships, who can choose (if one member of the relationship isn’t working or earns less) to boost their partner’s super fund. A spouse must also be younger than 75 years old when you make the contribution.
One of the primary losses of super gains that can occur is a result of maternal or paternal leave. If you and your spouse are thinking about starting a family and may have to take time off work during the pregnancy, spousal contributions can be a great way to continuously inject funds into super so that the gap from the pause in employment can be mitigated.
If you are looking to help your spouse’s super grow, there are two ways that you can go about it.
- Making a Spouse Contribution to their super account
- Arranging for Contribution Splitting (also known as Super Splitting)
Spouse superannuation contributions can now be made for spouses earning up to $40,000 per year. If a spouse earns less than $37,000, the maximum tax offset of $540 can be claimed when contributing a minimum of $3,000 to their super. Anything contributed that is more than $3 000 will not receive the spouse contribution tax offset.
You will not be able to claim the tax offset if:
- A spouse has exceeded their non-concessional contributions cap for the financial year or,
- Their super balance is $1.6 million (for 2020/21) or more on 30 June of the previous financial year in which the contribution was made.
Another way to inject funds into your spouse’s super is to choose to have some of your own super contributions put into their super account. This is fine as long as they have not reached their preservation age yet, or are between their preservation age and 65 years and not retired.
Super contributions can only be split in the financial year immediately after the year in which the contributions were made or in the same financial year as the contributions were made. This is only if your entire benefit is being withdrawn before the end of that financial year as a rollover, transfer, lump sum or benefit.
Contributions can be split in two different ways.
- Employer contributions – the most common form of super contributions to split
- Personal tax-deductible contributions – money that you deposit into your super and claimed a tax deduction.
Spouse contributions are generally treated differently to contributions your spouse splits with you.
If your spouse makes a contribution for you, it counts towards your non-concessional contributions cap – not your spouse’s contribution caps. If you are currently employed by your spouse, any contributions that they may have made in this role are reported as employer contributions (not spouse). They may also include amounts transferred from your spouse’s or ex-spouse’s FHSA under a family law obligation.
If you are looking into spousal contributions into super, it is best to seek the advice of your financial advisor or superannuation provider, to best determine what path you should take.Read more. "
In spite of the many challenges that have faced many industries across the country during COVID-19’s persistence and ongoing effects, the retail industry through their continued, adapted operations has continued to progress.
As a result, retail workers across many stores may find that the taxable income from their work may have been affected by the changed situation. This may be a result of additional income, less income, or stagnation of their taxable income as a result of stand-downs, business closures or a forced pause in their operations.
No matter the situation though, retail workers will still need to ensure that all of their taxable income has been accurately reported and lodged in their tax returns.
If you are a retail worker earning your income or have earned your income in the industry over the course of the previous year, you will need to know:
- What income and allowances you may need to report
- What can and cannot be claimed as a work-related deduction
- What the records are that you may need to keep track of
This information may be applicable to income earned in the 2020-21 financial year, or to income earned over the next year.
Income and Allowances That You May Need To Report
On the 30th of June, you should have received an income statement or payment salary that shows what you have earned as a retail worker throughout the year. This should include your salary, wages or allowances for that income year.
You should include all of the income that you received during the year in your tax return, regardless of when you earn it. This may include:
- Any salary or wages that you may have earned as income.
- Any bonuses that may have been earned during the year.
- Any allowances that you may have received to compensate for an aspect of your work or to help to pay for certain expenses when you have travelled for work.
Allowances can also be if an employer pays you based on an estimated amount of what you might spend (e.g. paying cents per kilometre if you use your car for work). It may also be for the actual amount spent on the expense before or after the expense is incurred.
You may receive allowances
- For work that may be unpleasant, special or dangerous
- In recognition of holding special skills, such as a first-aid certificate or
- To compensate for industry peculiarities, such as work on public holidays.
Your employer may not include some allowances on your income statement or payment summary but may include them on your payslips. These can include travel allowances or overtime meal allowances (as paid per industrial law, award or agreement).
If that allowance isn’t on your income statement or payment summary and you spend the entire amount on deductible expenses, it should not be included in the tax return as income or claimed as a deduction. If you spent more than what was your allowance, you include the allowance as income in your tax return and can claim a deduction for your expense.
If your employer pays for the expenses that you occur exactly, that payment is considered a reimbursement. This is not included or considered to be an allowance, and as such, cannot be included as income in your tax return or claimed for a deduction.
Deductions That You May Be Able To Claim
If you are a retail worker looking for claimable deductions that may specifically apply to your profession, you need to:
- Have spent the money, and were not reimbursed for the work-related expense
- Have proof that the expense directly relates to earning your income
- Have a record that proves the expense was incurred (a receipt is usually acceptable).
You can only claim a deduction for the work-related portion of an expense. You can’t claim a deduction for any part of an expense that is not directly related to earning your income or that is private.
Some of the deductions that may be eligible as deductions for retail workers include:
- Car expenses – if you drive between separate jobs on the same day, or drive to and from an alternate workplace for the same employee on the same day.
- Clothing expenses – the cost of buying, hiring, mending or cleaning certain uniforms that are unique and distinctive to your job, or protective clothing that your employer requires you to wear.
- Meal expenses – the cost of overtime meals on the occasions where you worked overtime and took an overtime meal break and your employer paid you an overtime meal allowance.
- Self-education expenses – if your course relates directly to your current job.
- Seminars and conferences
- Technical or professional publications
- Union and professional association fees
- Phone and internet usage if your employer needs you to use your personal devices for work.
Always keep proof of any expenses that you may have incurred for which you want to claim deductions. This is usually a receipt but can be another form of written evidence (such as an invoice). Those records must show what you purchased, when, where, and how much you spent. They must be in English
There are a few exceptions to the rule. These include small expense receipts, hard to get receipts, overtime meal expense receipts and travel and meal expense receipts. These have special rules and conditions that you need to follow if attempting to claim on these.
If you would like further assistance or information on how you can handle your tax return as a retail worker for this current financial year or for last year’s return, you can speak with us. We can assist you in the process, and make sure that your tax return is lodged correctly.Read more. "
Being a contractor offers flexibility, choice and more control over your own schedule. It also means that you have different responsibilities from other employees that you may have to fulfil.
For employers, knowing the difference between a contractor and an employee is a must. It can lead to costly penalties if the two get confused.
An independent contractor is someone who operates under an ABN and is not an employee of the company that they perform work for. They may also provide services to another person or business,
Sometimes an independent contractor may operate their own business and have many clients, in other cases the independent contractor may only do work for one company.
There are a number of factors that determine whether or not you may be classified as a contractor versus an employee. These can include:
- How much control you have over the work you are conducting for the business – the more control you have, the more likely it is an independent contracting relationship.
- If you are allowed to pick when you are working – employees have set hours in their agreement.
- If you are running your own business and can have other clients while doing the work for this particular business.
- If you are able to delegate or subcontract the work to others.
- If you are the one responsible for your work and insurances – employees are covered by their employer, contractors are responsible for organising their own.
- If you are expected to have your own equipment prepared for the work that you will be performing – employees will be provided with the equipment that they need.
- If you bear financial risk for your errors. You might have to redo the work for no pay if you get it wrong
In Australia, independent contractors often use the sole trader business structure when operating and conducting their business. Due to this, there is a legal requirement that you register an ABN for yourself or your business if operating as a contractor/sole trader.
Having an ABN is important. It identities you and your business to the government, and helps with tax and other business-related activities.
Not everyone may be entitled to an ABN (especially if they are considered to be an employee for the work that they are performing),. As a sole trader though, you are as you are considered to be starting or carrying on an enterprise.
For those who wish to contract you for your services, an ABN means that your clients will not be required to deduct tax from you. If you invoice an organisation without being in possession of an ABN, they are required by law to deduct tax at the highest rate that they can, as well as declare the income you receive from them through to the ATO.
If you’re operating as an independent contractor or sole trader, losing a chunk of your income to tax before you even get paid isn’t something that you’re likely to want to happen. That’s why having an ABN is important for you, to ensure that that doesn’t happen.
If your business is looking into creating a working relationship with a contractor, you need to be careful that you do not fall into a sham contracting arrangement.
A sham contractor arrangement is when a business (or individual) tells a worker that they are an independent contractor. It can exist even if the worker is treated like an independent contractor in some ways such as having an ABN and providing invoices like what a genuine independent contractor might have to do.
It’s illegal, and may be done knowingly by an employer to avoid taking fiscal responsibility for paying legal entitlements to employees. It is illegal to:
- tell an employee they are an independent contractor
- say something false to convince an employee to do the same work for the employer but as an independent contractor
- dismiss or threaten to dismiss an employee if they don’t become an independent contractor, or
- dismiss an employee and hire them as an independent contractor to do the same work.
If you are concerned that you may be involved in a sham contracting arrangement, or are an independent contractor looking for assistance in ensuring that you are remaining compliant with your current obligations when it comes to tax, super or business, we can assist. We are also equipped to help you with dealing with an ABN.Read more. "
This year has seen a lot of amendments and changes to the rules governing superannuation funds and their providers by the Federal Government that may have an impact on how you as an employer deal with super.
Are you aware of the changes to “choice of fund” rules that you might need to be aware of as an employer of new to the workforce employees?
Currently, as an employer, you may be paying contributions to your new employees into a default superannuation fund of your choice if they have failed to provide you with their own choice of superannuation fund details. This may be due to not having a superannuation fund (as in, the employee is new to the workforce), or as a result of other circumstances.
As an employer, you must provide all new employees with a Superannuation standard choice form within 28 days of their start date. They may also be provided with one if:
- They as an employee request one
- You are not able to contribute to their chosen fund, or it is no longer a complying fund
- You change the employer-nominated fund into which you pay the employee’s contributions.
If the employee holds a temporary working visa or their super fund undergoes a merger or acquisition, they will not be able to choose their super fund themselves.
From 1 November 2021, if you have new employees start and they don’t choose a specific super fund, you may need to request their ‘stapled super fund’ details from the Australian Taxation Office.
A stapled super fund is an existing account that is linked, or ‘stapled’ to an individual employee, so it follows them as they change jobs. This change aims to reduce the number of additional super accounts opened each time they start a new job. If a new employee does not have a stapled fund and they do not choose a fund, the employee’s super can be paid into the employer’s default fund.
With fewer superannuation funds being opened, employees are less likely to generate ‘lost super’ as they transition through their employment periods and various careers leading up to their retirement.
As an employer, you’ll be able to request stapled super fund details for new employees using the ATO’s Online services for business.
To get ready for this change, you can check and update the access levels of your business’ authorised representatives (such as your accountant or bookkeeper) in Online services. This will mean you’re ready to request stapled super funds if needed. It will also assist in protecting your employees’ personal information.
As an employer, you legally cannot provide your employees with recommendations or advice about super unless you are licensed by ASIC to provide financial advice. You can give your employees information about choosing a fund however, including:
- Why do they need to choose a super fund?
- The process of choosing a super fund.
- Your obligations as an employer to pay the super guarantee and provide a default fund to pay into
- How they can nominate their chosen fund
Remember, registered tax agents and BAS agents like us can help you with your tax and super queries. Come and speak with us about your options, and to ensure that you are compliant with your super requirements as an employer.
If you are a new employee entering into the workforce, and you’d like to know more about your options when it comes to superannuation, you should have a serious discussion with providers and conduct your own independent research on the funds available.Read more. "
If you have disposed of any assets (which can include the loss, destruction or sale of an asset) which are subject to capital gains tax, you need to let us know as soon as possible. These are known as capital gains events, which can affect the way in which a capital gain or loss is calculated, and when it is included in a net capital gain or loss.
The type of CGT event that applies to your situation may affect the time of the CGT event’s occurrence, and exactly how to calculate your capital gain or loss. As mentioned earlier, a CGT event can involve the loss of an asset, the destruction of an asset or the sale of an asset.
The Sale Of An Asset
If there is a contract of sale, the CGT event happens when you enter into the contract.
A common CGT asset involved with contracts of sale that is often sold is the house. The CGT event, in that case, happens on the date of the contract, not on the date of settlement.
If there is no contract of sale, the CGT event is usually when you stop being the asset’s owner.
Your capital gain or loss for the assets is usually the selling price, less the original cost and certain other costs associated with acquiring, holding and disposing of the asset.
Loss Or Destruction Of An Asset
If a CGT asset that you own is lost, stolen or destroyed, then the CGT event happens when you first receive compensation for the loss, theft or destruction. In this way, the capital gain for such an asset is the amount of compensation less the asset’s original cost. If you do not receive compensation for the asset, the CGT event happens when the loss is discovered or the destruction occurred. Replacing the asset may result in being able to defer (or “roll over”) the capital gain until another CGT event occurs (e.g. selling the replacement asset).
The best way to ensure that you are doing the right thing when it comes to CGT tax is to keep your records up to date. This will assist us in ensuring that you are remaining compliant Any CGT events that have occurred need to be recorded (including asset disposals for at least five years after the event occurred. The best way to ensure this is to keep track of:
- receipts of purchase, transfer or sale
- if money was borrowed and details of interest
- receipts for insurance, rates and land taxes
- receipts for the cost of maintenance, repairs and modifications
- any market valuations
- brokerage on shares and cryptocurrency
- digital wallet records and keys.
Keeping accurate and well-maintained records for CGT events is of utmost importance, as it allows us to ensure that you are accurately reporting your transactions and lodging your return correctly. If they incur any net capital losses, this needs to be reflected in the return as they may be able to offset these against capital gains in a later year. Once a loss has been offset against a capital gain, you need to keep the records about that CGT event for two years (for individuals and small businesses) or four years (for other taxpayers).
If you are in the process of disposing of a capital gains asset, you will want to be certain that you are doing the right thing. Capital gains tax can be a tricky issue, with plenty of rigamarole. Come speak with us to ensure that your returns are lodged with the most accurate and correct information needed for submission.Read more.
A Restructure Only Means A Setback To Your Business, And Not A Closure – Here’s What The Reforms Could Mean For Your Business"
With the demanding conditions that have plagued the retail industry over the past twelve months, business owners need to be aware of all the restructuring options available before it is too late.
COVID-19 has unfortunately resulted in reduced foot traffic, store closures, the accumulation of legacy creditors and significant deteriorations in working capital positions.
Even with the support of JobKeeper and other government initiatives buoying business ventures from early 2021 to now, many family and small businesses are sure to continue to struggle.
The Misconceptions Of Formal Restructures
The idea of restructuring your business or reaching out for external help can appear scary and often seen as something to be avoided at all costs. However, business owners are not on their own when dealing with the difficult conditions facing them in their short-term future.
No one wants to see a business fail.
That’s why there are always options available to businesses. However, the longer a company holds off on making a decision, the more the business and its available options will deteriorate.
If companies and businesses can act early enough, their options include informal arrangements and advice, voluntary administration, and new restructuring reforms for small businesses.
With the availability of these options and the right people involved, there is no reason why a financially distressed small business cannot survive the challenging times and thrive in the future. All companies experience some form of distress from time to time and often at no fault of their own. The ones that survive focus on cash, seek appropriate advice from trusted advisors at the right time and act further on it.
How Might A Business Survive Financial Distress
Using the voluntary administration process as a restructuring tool allowed Tuchuzy (a well-known retailer in Bondi) to successfully deal with legacy creditors, refocus on high margin product lines, and ultimately, the company continued to trade profitably.
The key to Tuchuzy’s restructure was a ‘light touch’ administration to minimise costs and disruption to the business and closely working alongside the director to ensure the proposal submitted to her creditors would be acceptable than an immediate winding up scenario (of which it was).
There is a lot of flexibility and breathing space afforded in the voluntary administration process.
The administrator can quickly reset the cost base by exiting unprofitable stores, reducing the workforce, and focusing on only buying and selling favourable margin products.
Even when a liquidation becomes necessary, the process can be reasonably quick, fair and transparent if run properly.
The secret is to overcome the general stigma accompanying restructures and approach restructuring experts early who will ‘unemotionally’ explain each available option and provide an impartial recommendation that aligns best with the individual circumstances.
What Do The New Small Business Restructuring Reforms Mean For You?
For a business with few creditors and a single location, the process of voluntary administration can be expensive and unnecessary.
Indeed, voluntary administration is often not appropriate for many small businesses due to associated financial costs and the hurdle accompanying a director relinquishing control.
The government has responded to this critique and offered an alternative. This alternative comes at a perfect time as directors are, once again, exposed to personal liability for insolvent trading.
The new small business restructuring (SBR) reforms offer a lower cost and far simplified restructure process, critical for small businesses to continue to trade after government assistance such as JobKeeper ceased in March 2021. The reforms add an essential new path that will assist many retailers.
Though there have been only a handful of SBRs to date, and their effectiveness to save businesses is yet to be appropriately evaluated, it is an option to explore in the right circumstances.
Critical Questions Your Business Should Be Asking
The COVID-19 crisis has put a severe strain on many previously successful businesses. Though the government and many advisors are attempting to ensure that they do not collapse, directors and business owners need to be proactive and engage early for them to work.
Often businesses approach liquidators and advisors at the point where their financial problems have become insurmountable, and a liquidation/shutdown is often the only option left. The timing of coming and asking for help can be the difference between a shutdown and the continuation of trading.
With proper preparation and an effective plan that considers all stakeholders, any business should be able to restructure and continue to trade.
If your answer to any of the below questions is yes, you should seek immediate advice from a trusted restructuring advisor.
- Am I currently losing money?
- Am I finding it hard to pay bills on time?
- Have I got old debts that I am finding hard to pay down?
- Do I need some breathing space?
- Do I have my ‘head in the sand’?
There is a proverb that says that it is better to ask for forgiveness than to ask permission.
Generally speaking, the idea behind this saying is that if you ask for permission and you do not receive it, then the punishment will be a lot harsher than if you do the thing that you asked to do and get caught afterwards.
For example, if your children were to ask you if they could go to the local pool, and you deny them that request, the chances are that they would be in more trouble than if they simply circumvented you, and went anyway. It may also be said that you may never get caught doing the wrong thing, but asking for permission to do the act could have someone keeping watch over you.
The same cannot be said for Self Managed Superannuation Funds.
It is never a good idea to break the rules and then ask for forgiveness in that instance (or at least not intentionally). SMSF laws are complex. Breaking the rules could be thought of as being quite easy, but is not an excuse.
The Australian Taxation Office (ATO) makes each and every person appointed as a trustee sign a declaration that they are aware of the rules and enforce that that declaration must be witnessed.
Then, after signing a declaration that you are aware and know the rules, they also force you to appoint an independent auditor to thoroughly check everything you have done and to make sure that you have not breached any of the rules.
If they find out that you have breached the rules then that auditor must then report the breach to the Tax Office.
Once it has been reported, this breach must be addressed as quickly as possible. It is even better if you rectify the breach before the auditor reports the breach. Your attitude towards rectifying the breach has a lot of impact on the action that the Tax Office will take against you as a trustee.
Where you can show that this was an inadvertent breach and you fixed it immediately upon realising you made the breach then most likely you will not receive any type of punishment.
Conversely, where the breach was made knowingly and you show hesitancy in rectifying it you should expect to feel the full wrath of the regulator. The ATO does not take lightly to a person not administering their super to the letter of the law.
What Punishments Can The ATO Give You?
There are a number of sticks the ATO has to punish wayward SMSF trustees. The most common punishment used is a direction to do something. For example, you might have acquired an asset off a member that was against the rules. In this case, the ATO would direct you to sell that asset back to the members.
Further on the next level of punishment would be education directives. The ATO has the authority to force you to do some formal SMSF Trustee training. There are a number of providers of these training courses.
That is the extent of the punishments that do not incur monetary penalties. However, the next level of punishment is significant fines for each individual trustee or director of the corporate trustee. These fines can be up to $10,000 per person.
The biggest punishment that can occur is to classify the SMSF as “non-complying,” where the cost of this will be 47% of the accumulated taxable component of the whole fund.
Essentially, that’s half of your super taken from you.
That’s why we always recommend complying with the rules. When you are unsure of the rules, then you should seek further clarification from an expert (and keep off of the ATO’s naughty list while you’re at it).Read more. "
As a property investor, you might find yourself implementing repairs and renovation work onto a property to ensure that you are maximising its value on the market. However, though both can be claimed on your tax return, it’s of paramount importance that you know how to claim them. Getting it wrong can be both costly, and unlawful.
A rental property improvement is a renovation where something is improved beyond its original state and must be claimed with depreciation. This means that you are claiming a deduction for the decline in the value over the effective life of the renovation. For example, a rental property improvement that could be claimable by a property investor could include a bathroom getting retiled.
Maintenance and repairs however can be claimed differently, with all records kept containing accurate information on that work. This will assist in working out the depreciation of assets of the property.
A depreciation schedule is a report that outlines all available tax depreciation deductions for a residential investment property or commercial building. These depreciations can be claimed in your tax return each financial year and could help you to save thousands.
Investors who renovate and lodge their tax returns prior to ensuring that they have updated their tax depreciation schedule correctly could get caught out in making a mistake between the two types of work. Those who fail to properly record rental property improvements in a tax depreciation schedule risk making inaccurate claims and inviting the scrutiny of the Australian Taxation Office (ATO).
Your tax obligations and entitlements when renovating your property may change depending on how you go about it. Depending on whether you are a personal property investor, engaged in the profit-making activity of property renovations or carrying on a business involved in renovating properties, you will have to abide by certain requirements outside of maintaining the depreciation schedule.
Personal Property Investor
As a personal property investor engaging in renovations to a property:
- The net gain or loss gained from the renovation is treated as a capital gain or capital loss.
- Capital gains tax concessions such as the CGT discount and the main residence exemption may reduce your capital gain.
- You will not be required to register for GST as you are not conducting an enterprise.
Profit-Making Activity of Property Renovations
Consider yourself a ‘flipper’ of properties? You will be required to:
- Report your net profit or loss from the renovation in your income tax return as a result of the profit-making activity.
- Have an Australian business number.
- May be required to register for GST if the renovations are substantial.
In The Business Of Renovating Properties
If you are carrying out the business of renovating or flipping properties:
- They are regarded as trading stock (even if you live in one for a short period of time.
- The costs associated with buying and renovating them form part of the cost of your trading stock until they are sold.
- You calculate the business’s annual profit or loss in the same way as any business with trading stock
- You’re entitled to an Australian business number (ABN)
- You may be required to register for GST if the renovations are substantial.
In this instance, CGT does not apply to assets held as trading stock. Similarly, the CGT concessions (such as the CGT discount, small business concessions and main residence exemption) will not be applicable to the income gained from the sale of the properties.
If you are concerned about any of the topics discussed above, or want to know more about claiming property improvements on your tax return, you can come and speak with us for further information and advice.Read more. « Older Entries