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It would be prudent during this process of resolving your trust distribution that the draft guidance on Section 100A (S 100A) of the Income Tax Assessment Act 1936 be strongly considered.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:

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:

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.

Superannuation Contribution Laws are changing – Boost your Retirement Savings from 1 July 2022

The Australian Government has recently passed a Treasury Laws Amendment Bill, awaiting Royal Assent, through Parliament to change the ways that retirees may contribute to their superannuation funds. These are important changes that will include older Australians being able to make personal contributions without meeting the ‘work test’. Likewise, changes to the ‘bring forward’ rule and to the ‘downsizer’ contribution will help to boost retirees’ financials and thereby help to improve their retirement lifestyles.

‘Work Test’

The near abolition of the work test from 1 July 2022 is the dominant change for people aged between 67 and 75 years. For those retirees making concessional and non-concessional contributions, the requirement to work 40 hours in a 30-consecutive-day period in the financial year in which they choose to make contributions will no longer be law.

The original work test was an exemption granted some years ago whereby retirees over 65 years could make cash contributions in the financial year after retirement, so long as their superannuation fund’s balance was under $300,000.

Removing the work test will simplify the rules around contributions and enable more Australians to save for retirement through superannuation.

‘Bring-Forward’

The work test exemption will enable retirees to make bring-forward contributions until 75 years of age (or within 28 days of the end of the month in which they reach 75 years). What has not changed are the current bring-forward contribution limits.

Currently, bring-forward contributions are 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.

‘Downsizer’

To assist the property market and keep it in motion, the ‘downsizer’ contribution provides for Australians to contribute – once only – the sale (or part sale) of their principal home up to an amount of $300,000 to their superannuation funds. From 1 July 2022, the eligible age will fall from 65 years to 60 years. Other criteria around capital gains tax (CGT) still apply.

With the changes to take effect from 1 July 2022, the future looks promising for Australia’s seniors as superannuation laws change for the benefit of retirees and their families.

How can YML help?

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