Category: Newsletters

SMSF Withdrawal and Re-Contribution Strategy: Tax Benefits

By the time a self-managed superannuation fund (SMSF) member reaches age 60, it is prudent for them to have considered reducing or eliminating tax liabilities for when retirement commences. One way of doing this is to utilise a strategy of withdrawal and re-contribution.

In the past, the re-contribution strategy – used to reduce one’s retirement tax burden – was limited to SMSF members under 67 years of age. A legislative change effective from 1 July 2022 extends the re-contribution strategy to SMSF members beyond 67 years of age (and up to 75 years of age).

What is the re-contribution strategy and how does it work?

Upon retirement, the re-contribution strategy is a method of withdrawing a sum of your SMSF money and then contributing it back in to your SMSF as a non-concessional contribution, thus converting a previously taxable portion (or all, depending upon individual circumstances) of your SMSF holding to a tax-free component.

This re-contribution strategy would ideally constitute a part of your tax-and-pension retirement strategy. It will require you to have met full eligibility criteria around release of funds and around non-concessional contribution (NCC) caps.

A condition of release of funds after age 60 (and before age 75) is suitable for the re-contribution strategy because a lump sump withdrawal is received tax-free. When it is time to re-contribute your withdrawal, you will want the amount to fall within your NCC contribution cap limit. Your total superannuation balance contribution cap limit may be increased by using the bring-forward rule.

The bring-forward rule allows contributions limited to $110,000 or one year for those retirees with a total balance of $1.59 and $1.7 million in their superannuation fund; $220,000 for those retirees with a total balance of $1.48 and $1.59 million; and the maximum $330,000 for those retirees with a total balance below $1.48 million.

What are the benefits to you and your beneficiaries?

If you are under age 60, then the re-contribution strategy has the benefit of enabling you to get a better tax outcome on SMSF pensions when the time comes to draw upon your SMSF.

If you are over age 60, then the re-contribution strategy has the longer-term benefit of enabling you to reduce the tax on death benefit payouts to your adult children. Upon your death, your non-dependent children would be liable to pay tax on any taxable portion paid to them as your beneficiaries, such tax would be 15% plus Medicare Levy. Instead, with foresight to have created a tax-free SMSF holding, the tax payable would be 0%.

An additional benefit of the re-contribution strategy is that it might offer some protection in the event of future legislative changes to the way retirement funds are taxed, particularly where no tax concessions currently exist.

Factoring in the re-contribution strategy to your estate planning as part of an overall retirement plan might well be favourable, both in the foreseeable and long-term future, for you and your beneficiaries.

How can YML help?

Talk to our YML Super Solutions Team today to see how YML Group can assist you with your retirement strategy. For more information, view our website and contact us on (02) 8383 4444 or by using our Contact Us page on our website.

Australia’s Labour Shortage – Could Co-Sourcing be the answer for your business?

Although Australia’s unemployment rate is sitting at 3.5% (June 2022), there are workforce shortages in numerous industries. According to labour market economists, the current demand for workers to fill both existing and new jobs is high and labour supply is taking its time to catch up. In other words, as the economy reignites, sufficient skilled workers are not available. Not only have closed borders during the pandemic created a shortage of hospitality industry workers amongst others but also many people in the Over 55 age group have chosen to retire early due to the pandemic.

What is Co-Sourcing?

Co-sourcing is based on developing a dedicated partnership between a business’s internal operations and an external expert. Co-sourcing blends established internal resources of a business with partial outsourcing for specialised knowledge within a contracting arrangement. A business retains control over the operational process and there is an assumed shared responsibility for delivering the end service.

Unlike outsourcing where a business allocates entire internal processes to be performed by an external provider, co-sourcing is for businesses who want professionals to work alongside their employees, providing specific guidance and skills that might be lacking. Typically, co-sourcing is helpful when you do not want an additional employee within your staff structure.

What are the benefits of Co-Sourcing?

You can expand your expertise pool with access to the right person to assist on a project or with administrative functions when and how you need them.

You keep control and involvement in the process as an external expert works with your internal team to meet common objectives.

Your business’s own procedures and policies apply to a co-sourced professional, so quality control is maintained for best outcomes.

Co-sourced professionals retain the knowledge you share with them, such that a long-term working relationship ensures continuity for your business.

Co-sourcing can be cost-effective because back-of-house costs are taken out of the equation, yet quality remains high due to your retaining control.

Entrusting your co-sourced professional or team enables everyone working for you to maintain focus on their designated roles and responsibilities and on what each of them is best at doing.

Overall, co-sourcing offers valuable resources, new skill sets and support when your business needs a step-up to finish tasks that require assistance or to undertake internal processes that are outside of your employees’ scope of knowledge or time.

Leveraging external expertise and internal support to create an enhanced and shared working environment is the essence of co-sourcing in today’s modern office.

Where to from here?

YML Group provides co-sourcing services in administration disciplines, dedicated professionals who partner with businesses and who use cloud-based technology to work seamlessly with businesses’ internal management and staff.

How can YML help?

Talk to our YML Business Services Team today to see how YML Group can assist you with our co-sourcing service. For more information, view our website and contact us on (02) 8383 4455 or by using our Contact Us page on our website.

Australia’s Holiday Maker Visa – Latest News

Hospitality and tourism are two sectors that have done it tough over the last two years of the COVID-19 pandemic, struggling to recover from disruptive border closures. To provide more support and employment in these areas, Australia’s Working Holiday Maker (WHM) visa program encourages young people from overseas who travel within Australia to take up the option of a second or third (year) WHM visa by taking on ‘specified work’.

A WHM visa (subclass 417) permits up a person to stay for up to 12 months and work on a temporary, a casual or voluntary basis. The main purpose of entering Australia on a subclass 417 visa is to holiday, to travel and to work as much or as little as a visa holder so chooses.

To qualify for a second year or a third year of travel and work in Australia, a visa holder must fulfil certain criteria. So long as a visa holder has met their visa conditions in the first year, including having worked in ‘specified work’ for a minimum period of three months (88 days) for a second visa and for a minimum period of six months (179 days) for a third visa, then an extended visa may be granted.

What is ‘specified subclass 417 work’?

Specified work is work in a primary role or function of certain industries to assist Australia with its economic recovery. Approved industries and geographic locations include:

Greater flexibility for WHM visa holders

Same employer for up to 12 months

A visa holder may remain working for the same employer in any sector, anywhere in Australia, for longer than six months (up to 12 months) without requesting permission. This option is in place for the remainder of this calendar year (until 31 December 2022) when it will undergo governmental review.

Higher cap for 2022-23 WHM visa program year

From 1 July 2022 a once-off 30% higher cap will increase the number of places available to WHM visa holders – from countries with which Australia has a Work and Holiday (subclass 462) reciprocal arrangement. This cap will remain for the 2022-23 year only.

WHM Visa Application Charge Refund

People with WHM visas between 19 January 2022 and 19 April 2022 may request a refund of their Visa Application Charge (VAC) until 31 December 2022 by using this link: Visa Refund Portal - Visa Refund Portal (homeaffairs.gov.au), so long as the age criteria is met during this period. Please check visa holders meet visa requirements.

There is no VAC applicable on new WHM visa application from 1 July 2022 until 31 December 2022.

Tax and superannuation for WHM visa holders

Workers under the WHM (subclass 417) visa program must obtain a tax file number (TFN) before working in Australia. The same tax and superannuation rules apply for overseas workers as for Australian workers. Employers must meet their relevant workplace obligations under the WHM visa program.

How can YML help?

Talk to our YML Chartered Accountants Team today to see how YML Group can assist you with your WHM visa applications. For more information, view our website and contact us on (02) 8383 4400 or by using our Contact Us page on our website

Investors and SMSF Members: How to Spot an Investment Scam

Australians are not immune to the nefarious activities of scammers, especially in the investment and self-managed superannuation fund (SMSF) sector. An investment scam can be operated in a sophisticated realm of actual accounts set up in legitimate financial institutions, real people on the other end of a phone call and slick online advertisements that beckon victims.

Whether you’re in financial hardship or you’re just keen to move your savings in to another fund, if you provide your personal and financial information to a scammer, you risk losing your money and severely impacting your retirement savings. It is rare that money lost to scammers can be found and returned to the victims of this crime.

What to look out for – What to do

It is important to remember that legally accessing money from your own investment fund or SMSF can only be done by contacting the financial institution where your money is held and fulfilling a process that occurs between your financial advisor and you. Educate yourself about the rules for Australian superannuation.

You can be targeted by a scammer online, by phone or by email. Offers of managing your superannuation fund, investing your superannuation in other asset classes such as property and providing early access to superannuation savings are all the types of enticements used as ‘hooks’.

Sometimes fraudsters call and claim to be from your financial institution, especially if you’ve already mentioned it during the call, so firstly, hang up from anyone you don’t know and check their credentials. Do they genuinely work for the company?

Other times someone might claim to be an independent superannuation expert, offering you a new investment option or a higher return on your savings. Is this person accredited as a financial expert? Check if they are listed on ASIC’s professional registers: Professional registers | ASIC - Australian Securities and Investments Commission You might also check APRA’s disqualification register: Disqualification register | APRA

When dealing with a scammer, pay attention to:

If you have provided enough information to a scammer, your funds might be moved without your knowledge. So, before providing ANY information to a third party, ALWAYS make your own independent enquiries. Ensure that anything you are offered is legitimate and mitigate your risk of falling victim to a fraudulent investment scheme.

How a scam can impact you

Your mental health is one aspect of your life a scammer might affect. If you need support, reach out to a trusted family member, a friend or call a support line for counsel.

Financial strain or hardship can be the result of losing part of or all your retirement savings and investments. When money is stolen from you, you might also suffer stolen identity.

You might be left with tax penalties for early release of funds from your SMSF. You might also incur greater financial losses due to not having access to the money that was stolen.

If an investment opportunity sounds or appears too good to be true, it probably is, so be cautious and make checking its legitimacy your priority.

How can YML help?

Talk to our YML Super Solutions Team today to see how YML Group can assist you with scam avoidance. For more information, view our website and contact us on (02) 8383 4444 or by using our Contact Us page on our website

 

Australia’s Minimum Wage Increases effective 1 July 2022

The Fair Work Commission enacted a requirement in the Fair Work Act 2009 whereby each year the Commission reviews the National Minimum Wage (NMW) and modern award minimum wages. Thereafter, the Commission makes an order on any alterations to current award remuneration.

This year, announced by the Federal Government on 15 June 2022, the Commission decreed that there will be increases enacted from 1 July 2022. Those changes are:

The National Minimum Wage has been lifted in dollars from $20.33 per hour to $21.38 per hour or to $812.60 per week.

In his announcement, the Commission’s president, Justice Iain Ross, stated that the Commission’s decision rested on the increasingly high cost of living in Australia. “Given the sharp rise in the cost of living since last year’s review, the increases we awarded last year [NMW by 2.5%] have resulted in a fall in the real value of the national minimum wage and modern award minimum wages”, said Ross.

When do employers start paying more to their employees?

The changes apply from the first full pay period on or after 1 July 2022 for most industries (see below for industries identified for a second stage rollout). For example, if your organisation’s weekly remuneration period starts on a Monday, then the first application of the increases will occur from 4 July 2022.

The impact on businesses’ costs is relevant in the Commission’s decision and the Commission was “satisfied that exceptional circumstances exist” for certain industries.

Although the wage increases occur from 1 July 2022, a second stage means that for some industries – that have been slower to recover in the current economic climate – the modern award minimum wages’ increase will only commence from 1 October 2022. Those industries are Aviation, Hospitality – Hospitality Industry (General) Award, Registered and Licensed Clubs Award, Restaurant Industry Award – and Tourism.

What do employers need to do now?

It is important the employers ensure that ALL their employees whose remuneration is affected by the changes receive correct payroll outcomes. Updating your payroll systems is essential now and YML Group can assist you with your finance procedures for a smooth transition to the new wages protocol.

To read a summary of the Fair Work Commission’s decision, see decision summary. 

How can YML help?

Talk to our YML Chartered Accountants Team today to see how YML Group can assist you with your payroll. For more information, view our website and contact us on (02) 8383 4400 or by using our Contact Us page on our website

Trust Distribution Minutes – SIGN before 30 June 2022

Legal ownership of assets in a discretionary (family) trust rests with a trustee of said trust fund. Income from the assets, however, calculated as distributable income, benefits the beneficiaries through trust distribution. See also Due Diligence – Section 100A

Signing your discretionary trust’s distribution resolution – in the form of a memorandum of minutes – is one of the essential tasks you or your trustee must undertake during June. These minutes are to protect your trust’s taxable income from being taxed at the highest marginal tax rate post 30 June.

The ATO’s legislation imposes the requirement that distributable income be calculated and resolved prior to 30 June – or by a date stipulated in your trust deed – and notification be given to the ATO via signed trust distribution minutes. Minutes of a resolution is the written advice used to inform the ATO of a trust’s allocation of its net income for the current financial year (2021/22).

By making a resolution a trustee is establishing which beneficiaries are ‘presently entitled’ and therefore assessed on a trust’s net income. Net income for tax purposes (distributable income) may be allocated to beneficiaries (person, company, another trust, charity) in accordance with the trust deed. This allocation of a trust’s net income must be determined prior to 30 June. Check your trust deed for specification of any alternate date.

Beneficiaries may only receive franked dividends or capital gains so long as such an entitlement is specified in a trust deed. Relying on a written record of an annual resolution of a trust’s allotment of its distributable income can help avoid conflict between a trust and its receiving beneficiaries.

When preparing trust distribution minutes, a clear methodology of the resolution must be described, so accurate recording and reference to a trust deed are necessary before trust distribution minutes can be signed. Evidence of a resolution and the distribution decisions made by a trustee might include diary entries, dated correspondence, meeting minutes and memoranda. Such documentation may be relied upon by the ATO to verify resolved and signed trust distribution minutes.

Due Diligence – Section 100A

It would be prudent during this process of resolving your trust distribution that the draft guidance on Section 100A (S 100A) of the Income Tax Assessment Act 1936 be strongly considered. It is anticipated that a ruling of S 100A would commence on 1 July 2022.

S 100A provides guidance to address ‘trust-stripping’ and other tax avoidance practices in the distribution of discretionary trust income. The ATO has concern for any trust entitlement allocation being distributed where there is no intention for beneficiaries to receive the benefit of any allocated trust entitlement.

The draft guidance includes:

  • A draft Taxation Ruling – TR 2022/D1 – referencing Income Tax: Section 100A Reimbursement Agreements 
 
  • A draft Practical Compliance Guideline – PCG 2022/D1 – referencing S 100A Reimbursement Agreements (ATO’s approach to compliance and the allocation of resources to review and assess)
 
  • A Taxpayer Alert – TA 2022/1 – referencing parents benefitting from any trust entitlement of their adult children
 

Referencing TA 2022/1, the ATO is concerned about family trusts wherein arrangements are made to distribute trust income to adult children, or other lower-taxed family members, and parents benefit via repayments and reimbursements then made by the adult children back to the parents. Where it is not intended that the adult children retain any benefit of the distributed trust income, rather their acquisition of the income is purely based on tax avoidance, then the ATO will assert its concern and authority. (Note: Minors are not affected by S 100A)

How YML Group can assist you

YML works closely with our clients to ensure that trust distribution minutes comply with the ATO’s requirements. We can prepare draft interim financial statements for your trust to be used to calculate your trust distribution percentages (actual dollar amounts are not required to be defined nor mentioned prior to 1 July). We will draft your trust distribution minutes for you to sign by 30 June 2022 or prior as may be required by your trust deed.

Click the link below to tell us which option would you like us to process.

          https://app.hellosign.com/s/7BDscddY

How can YML help?

Talk to our YML Chartered Accountants Team today to see how YML Group can assist you with your trust distribution minutes. For more information, view our website and contact us on (02) 8383 4400 or by using our Contact Us page on our website.

ACT NOW – YML can help you with Phase 2 Single Touch Payroll (STP)

Under Phase 2 – the first expansion – of Australia’s Single Touch Payroll (STP) digital system, employers who need to report their employees’ remuneration to multiple government agencies will have this burden reduced. Consequently, employees who use Services Australia will receive accurate payments at the correct times. This change is considered a streamlining of the STP process to the benefit of both employer and employee.

What does STP Phase 2 mean for employers?

STP Phase 2 is all about centralising and requiring more detailed upfront information from employers via STP digital reporting.

In one way, Phase 2 will reduce the reporting burden on those employers who currently need to provide information to multiple government agencies because employees’ payments information will be required to be provided once via STP under Phase 2.

The major adjustment for employers will be, in the first instance of data entry, to accurately classify all payments made to an employee. Where previously, one figure reported was satisfactory, the ATO will require – under Phase 2 – a breakdown of all specific payment types. This comprehensive breakdown is expected to ensure that those payment types that affect social security are treated properly.

The ATO will then be able to share employees’ payment information directly with Services Australia.

Let YML’s Bookkeeping Service help you with STP Phase 2

STP Phase 2 advances businesses to a more comprehensive and extensive bookkeeping exercise. We will ensure that your STP report is completed satisfactorily and in full compliance with your ATO obligations. STP Phase 2 is all about accuracy, classification and timely reporting. Gain peace of mind with YML Bookkeeping Service and let us save you time spent stressing over the day-to-day financials.

YML’s specialist Australian-focused Bookkeeping Service is offered to you via Business Process Outsourcing (BPO). With the expansion – Phase 2 – of Single Touch Payroll (STP) in Australia since 1 January 2022, the financial reporting requirements of all Australian businesses have increased, but you can have a dedicated YML virtual bookkeeper – ready to chat with you anytime you want and as often as you need – to keep your business on track.

YML’s Bookkeeping Service is a leading virtual process manager of all aspects of bookkeeping. A high qualified, specially trained, Australian-focused bookkeeper is available to partner with you and your business to help you manage the requirement of additional data in your STP report under Phase 2. Our staff will manage your bookkeeping and stay connected with you via video chat or via phone as often as you choose.

When does STP Phase 2 start?

STP Phase 2 commenced on 1 January 2022, however the ATO has a flexible approach to compliance over the first several weeks of the year. The ATO has advised it will accept those businesses who comply with the Phase 2 reporting requirements up until 1 March 2022 to have met the deadline.

If your Digital Services Provider (DSP) applies to the ATO for a deferral because it needs longer to update its software to be Phase 2-enabled, then your business receives a deferral also and may be granted up until 31 December 2022.

How can YML help?

Talk to our YML Business Services Team today to see how YML Group can assist you with Bookkeeping for STP. For more for more information, view our website and contact us on (02) 8383 4455 or by using our Contact Us page on our website.

‘PAYG Instalments’ – What is this system? When is it used?

Pay As You Go (PAYG)

In 1999 the PAYG system was introduced by the Australian Taxation Office (ATO) and today the ATO continues to administer it.

How does the PAYG system affect your business?

Most income received by employees is salary and wages and personal income tax on salary and wages is voluntarily collected by employers using the ‘PAYG Withholding’. However, there is another process which has been systemised by the ATO for businesses – such as partnership structures and sole traders – and that is ‘PAYG Instalments’.

Where income amounts drawn from a business are not subject to the withholding method of tax collection, there is a provision to pay instalments under ‘PAYG Instalments’.

The ATO determines whether you are eligible to use ‘PAYG Instalments’ and decides your instalment amount based on information provided in your previous financial year’s tax return. You may also use ‘PAYG Instalments’ on a voluntary basis – if approved by the ATO – as a cash management strategy, particularly if you are expecting a higher than usual tax bill in a given financial year.

‘PAYG Instalments’ Benefits

Rather than pay a large tax liability at the end of the financial year, the PAYG system enables businesses to pay income tax in instalments spread over the year, thus minimising any impact on business cash flow. This system further benefits businesses by lessening their tax burden at tax time.

Business and investment income accumulates tax liabilities throughout the year and to meet your income tax obligation, your business may have the option to pay a regular sum towards the expected total.

When are PAYG instalments paid?

PAYG instalments are generally paid quarterly and reported in your Business Activity Statement (BAS).

Quarterly PAYG instalments are made on the following dates in a standard income year:

Quarter
Period
Due Date
     
1 July – September 28 October
2 October – December 28 February
3 January – March 28 April
4 April – June 28 July

If you are a business with $20 million or more of instalment income, then the ATO requires PAYG instalments to be paid monthly. You will be advised by the ATO of your monthly instalment due dates.

The PAYG instalments paid are offset against your actual tax liability calculated at tax time. If too much PAYG tax was paid by your business come tax time, a reconciliation by the ATO would determine any tax refund due to your business.

All PAYG instalments must be paid in full prior to lodging a tax return.

YML Group has the expertise in tax planning to help you with ‘PAYG Instalments’ and make paying income tax less burdensome. YML Group can ensure that you make the most of the PAYG system and put your business in the position of meeting your income tax obligation whilst also managing your business cash flow.

How can YML help?

Talk to our YML Chartered Accountants Team today to see how YML Group can assist you with your PAYG taxes. For more information, view our website and contact us on (02) 8383 4400 or by using our Contact Us page on our website.

2022 Year-End Tax Planning – Our Tips

YML Group’s tips for small and medium businesses for EOFY tax planning can help prepare your business to avail itself of tax deductions and other tax-time financial strategies.

It is important to get your financial records in order and up to date, so you have all you need to complete and lodge a tax return. Your company data should have records for assets, liabilities, expenses, invoices, payments and receipts, bank statements, as well as evidence to support relevant deductions.

Your single-touch payroll (STP) system will be key to ensuring your business has accurate employee payment records.

Instant Asset Write-Off

Take advantage now of this deduction, allowing eligible businesses with a turnover of less than $50 million to claim a full tax deduction of eligible assets. For the next two income years – 2021/22 and 2022/23 – you can claim the full business portion of an asset up to $150,000, first held, used or installed for a taxable purpose between 6 October 2020 and 30 June 2023. Second-hand and new assets may be eligible. You can claim more than one asset each year.

The instant asset write-off will cease after financial year 2023, so now is the time to reap the benefit to your business.

Superannuation Concessional Contributions

On 1 July 2021 your superannuation concessional contributions cap rose from $25,000 to $27,500 for all ages. As the EOFY approaches it is time to add together concessional contributions – from any, and all, funds you hold – to determine whether your amount falls below the concessional contributions cap. If it does, up to $27,500 of your concessional contributions will be tax-deductible.

Concessional contributions include employer contributions and salary sacrifice contributions, as well as personal contributions claimed as a tax deduction.

Bad Debt Write-Off

Before claiming bad or unrecoverable debts as a tax deduction and to claim any applicable GST repayments, your business must write off any, and all, bad debt amounts prior to 30 June 2022. You must also have evidence on record showing the bad debt is unrecoverable, was initially included in assessable income and what actions you took to collect the debt within the current financial year.

Bring Forward Expenses

One tactic to reduce your current financial year’s taxable income is to consider bringing forward expenditure that might ordinarily be incurred in July and or August of the following income year. Paying or pre-paying future costs prior to 30 June 2022 will reduce your taxable income.

Defer Income

First making sure that your business has enough cashflow, consider deferring income by delaying invoices until after 1 July 2022. This is another tactic to reduce your taxable income.

Stocktake

If your business requires you to perform stocktaking, then undertaking a valuation of your trading (closing) stock prior to 30 June 2022 will ensure you have accounted for stock losses since stocktaking after 1 July 2021 (opening stock). This exercise prevents you from overpaying tax on stock.

As a business strategy, you might wish to use this data to review your pricing strategy for the next income year.

Next Steps

YML Group’s tax planning tips will get you ready for tax time. It pays to understand where you might be able to save on your tax and we have the knowledge and expertise to review your tax strategy and find tax deductions in your business.

How can YML help?

Talk to our YML Chartered Accountants Team today to see how YML Group can assist you with your tax planning. For more information, view our website and contact us on (02) 8383 4400 or by using our Contact Us page on our website.

NOW is the time to re-look at your SMSF loan’s interest rate

Whilst the Reserve Bank of Australia (RBA) holds rates at record lows – 0.1% cash rate, there are some economic conditions such as falling unemployment and growing wages that could foreshadow the RBA increasing rates in the coming months.

As the financial-year end nears, consider having another look at what rate you can secure for your SMSF loan. Currently, rates as low as around 3.9% are available and refinancing your SMSF loan can reward your fund and set you up before the RBA announces any increase to the current rates.

The RBA is keeping its focus on inflation and although Australia’s economy remains resilient, any actual inflation rise combined with other factors such as employment levels could see rates change. Therefore, NOW is the time to appraise your SMSF loan.

How can YML help?

Talk to our YML Finance Team today to see how YML Group can assist you with your SMSF loan. For more for more information, view our website and contact us on (02) 8383 4466 or by using our Contact Us page on our website.