Check your Single Touch Payroll (STP) software system – Is it fully ‘Phase 2’ compliant?

Australia’s streamlining of the Single Touch Payroll (STP) system for digitally reporting payroll and its various payment types to the ATO expanded at the start of this year under Phase 2. Are you set up and currently compliant under Phase 2?

If you have not met the initial Phase 2 compliance deadline of 1 March 2022, then check which Digital Services Provider (DSP) your company uses.

If you’re with Xero, then Xero has received an extension until 31 March 2023 for all its new and existing customers, giving you more time to ensure your reporting meets its compliance obligation. By this date, Xero users must have started reporting the additional information required by the ATO for STP Phase 2.

If you’re with another DSP, then it might have applied to the ATO for a deferral because it needs longer to update its software to be Phase 2-enabled. If so, then your business receives a deferral also and may be granted up until 31 December 2022.

Major Adjustments for Employers

To date, the ATO has found lodgement and/or failure to lodge errors being made by employers. Here are some tips to avoid making an error in your ATO report:

• • In the first instance of data entry, all payments to employees must be accurately classified. Where previously one figure reported was satisfactory, under Phase 2, a breakdown of all specific payment types is necessary. Match a Pay Item Description with a STP Phase 2 reporting category.

• • Allowances is a reporting category and, just as remuneration payments must be categorised, so too must allowances, each with its correct allowance type.

• • All the pay codes and categories must have the appropriate ‘reportable’ or ‘not reportable’ option selected against them. Employees will have understated total income received against their names at both the ATO and Services Australia IF the option ‘not reportable’ is selected. The ‘not reportable’ option means the data will not be released digitally to the ATO. This might result in your employees experiencing tax, superannuation and social security implications.

We at YML urge you to remember that correcting your STP Phase 2 reporting now is vital to avoid ‘failure to lodge’ and other penalties applicable after the first year of reporting.

Re-Mapping Pay Codes and Categories in your Payroll Software can be complicated

For those companies who are struggling to bring their bookkeeping in to Phase 2 mode, it is essential that you reach out for help.

It is a complicated process to re-map your system’s pay codes and categories for each employee and it can hinder your company’s ability to comply with STP Phase 2, especially because re-mapping processes differ between DSPs.

To achieve this initial set up and keep you on track with your STP Phase 2 reporting, YML’s Bookkeeping Service could be the answer for your business. We’ll help you stay on track with your STP Phase 2 reporting. How do we do that?

YML’s specialist Australian-focused Bookkeeping Service is offered to you via Business Process Outsourcing (BPO). YML will provide you with a dedicated YML virtual bookkeeper – ready to chat with you anytime you want and as often as you need – to keep your business in line with the ATO’s requirements.

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.

How can YML help?

Talk to our YML Business Services Team today to see how YML Group can assist you with your STP Phase 2 set-up. For more information, view our website and contact us on (02) 8383 4455 or by using our Contact Us page on our website.                            

Your SMSF – How much may you contribute under the Bring Forward Rule?

What is the Bring Forward rule and what does it mean for you?

From 1 July 2021 non-concessional (from after-tax income) contributions – up to a cap of $110,000 per year over a three-year period – may be made in to your superannuation fund account. Prior to 1 July 2021, the yearly cap was $100,000 over a three-year period.

The Bring Forward rule allows for a member to bring forward the caps of the later year or years to make a larger contribution in one year, up to a total cap of $330,000 (after 1 July 2021) over three consecutive years.

Provided that your total superannuation fund account balance does not exceed $1.7 million on 30 June of a financial year in which you wish to make excess contributions, you may add to your account.

The first time that you decide to make a non-concessional contribution of over $110,000, the Bring Forward rule is triggered, and the yearly cap no longer applies for the remaining two years. For example, if you were to add the whole three years’ worth of non-concessional contributions ($330,000) in the first year, you would be bringing forward the next two years under the Bring Forward rule.

Note, your fund’s fees and your life insurance premiums count towards your annual contribution caps.

What happens if you contribute more than the three-year capped amount?

If you make more than $330,000 in non-concessional contributions within three years, you might be liable to pay excess non-concessional contributions tax to the Australian Taxation Authority (ATO). The ATO will advise you of any relevant penalty.

Who is eligible to use the Bring Forward rule?

Since 1 July 2022, people under the age of 75 years are eligible to use the Bring Forward rule, up from 67 years of age, without satisfying the Work Test.

For those members over 75, the maximum amount you may contribute is $110,000 per annum – the Bring Forward rule no longer applies to you, upon meeting the Work Test criteria.

The Work Test requires that a member over the age of 75 is ‘gainfully employed’ and working a minimum of 40 paid hours during a consecutive 30-day period each financial year.

YML Super Solutions makes contributing to your SMSF easier

If you are considering building your retirement savings for an improved lifestyle, we at YML Group can help you by checking your eligibility to make additional contributions to your SMSF. We will also help you to track any previous years’ contributions so you can use the Bring Forward rule appropriately and beneficially towards making your future all that you want it to be.

How can YML help?

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

NEW Superannuation Guarantee (SG) Rate – Employers’ Obligations

What major change was made to SG eligibility?

From 1 July 2022 employers are required to pay Superannuation Guarantee (SG) to all eligible employees over 18 years of age regardless of how much they earn. One of the changes made to the SG scheme was the removal of the $450 per month income threshold before SG becomes payable to an employee. You might need to revisit your company’s pay cycle around 1 July to ensure that not only was SG paid fully in that relevant pay cycle – but also at a new rate – to your entitled casual and part-time workers.

Unchanged is that your workers who are under 18 years of age must work a minimum of 30 hours a week to qualify for the SG contribution.

What is the new SG rate?

An employer’s SG contribution has been increased by 0.5% to 10.5% of an employee’s eligible earnings. This new percentage applies from 1 July 2022. To meet this obligation, you will need to ensure that your company’s finances provide for additional funds for your new, higher SG payments to employees.

How does an employer pay SG?

Single Touch Payroll (STP) is the mandatory method of paying SG to employees. This streamlined digital reporting to the ATO will assist you to accurately calculate SG contributions to be deposited in to your employees’ superannuation fund accounts.

When must an employer pay SG?

Employees are entitled to receive the SG in to their superannuation fund accounts within 28 days of the end of a quarter. For example, the deadline for this financial year’s second quarter – 1 October to 31 December – is 28 January 2023.

What happens if an employer neglects to pay SG?

Whether an employer omits paying or short pays an employee entitled to SG, there is a penalty. If you fail to meet your employer SG obligations, you will need to lodge with the ATO a Superannuation Guarantee Charge statement to rectify payments owed to your employee/s. For failure to comply, penalties may apply include paying an amount up to 75% of the shortfall or the issuance of a director penalty notice equal to the unpaid SG amount.

To avoid penalties, you can:

• • Update your STP and accounting systems to incorporate the recent changes to SG.

• • Scrutinise and review all payments to make sure that your payments are accurate, and the data is correctly entered in to your STP system.

• • Pay SG by the deadline each quarter to be time compliant.

Help is available to you

YML Group has the know-how to set up both SG and STP for your company, giving you assurance and the ability to efficiently fulfil your employees’ SG contributions.

How can YML help?

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

What to know about Property as an Investment Asset Class

Self-managed superannuation funds (SMSFs) typically start by focussing on share portfolios and cash. Adding property in the mix can improve retirement income for SMSF members, however property is a large asset class requiring a thorough understanding for best investment practice.

A SMSF investor who is planning to retire using only residential property income might like to expand their options by considering non-residential property in their investment portfolio. Although property has long been favoured by trustees and residential properties offer a sound foundation, there is a variety of non-residential property types that can offer higher yields.

Types of Investment Property

Generally, these are investment-worthy property types:

Residential – Homes, including houses on individual parcels of land, apartments in shared blocks and holiday homes.

Specialist Commercial – Retirement facilities, education facilities, self-storage and other sites used for unique purposes.

Office – Commercial office spaces let to business tenants.

Retail – Individual shopfronts, shopping centres and arcades let to retail business owners.

Industrial – Warehouse facilities, logistics centres and other sites used to store and transport goods.

Diversified – A blend of Office, Retail and Industrial sectors.

Property Markets

If a SMSF owns only one property type, then it is subject to the cyclical property market with fluctuating value and income. Holding numerous property types in a SMSF’s portfolio can mitigate the financial effects of the ups and downs of the property market.

For example, a growing population in a city or regional area spurs a need for residential property, driving residential property rentals higher. Likewise, a strengthening economy incites increased business which in turn raises demand for non-residential property types.

Diversification in a property portfolio takes advantage of the varying property market cycles.

Property Ownership Costs and Real Estate Investment Trusts (REITs)

Owning property directly requires upfront capital, as well as the cost of administration, including costs associated with finding tenants and rent collection.

A SMSF trustee might decide to use an indirect way of investing in property via a Real Estate Investment Trust (REIT). It is not dissimilar to buying shares. A trustee purchases units of a REIT, thereby adding a property component to a SMSF’s investment portfolio.

Currently in Australia there are around 100 Australian Stock Exchange (ASX) listed A-REITs. Not only are A-REITs subject to a ASX compliance standards, but investors can benefit from greater flexibility with the ability to buy and sell for easier liquidity.

Tax on Investment Property via REITs

REITs use their own trust structure whereby tax is not paid at the entity (trust) level. Rather, income (after costs) is paid to the investor (SMSF) with all tax considerations being worked out at the end of the relevant financial year.

Investment Property Risks

Research is the primary task any SMSF trustee can undertake to make informed decisions about investing in property. There are risks to investing in all asset classes, but property is a broad class and requires close attention to what can be a fruitful, long-term strategy.

As there is limited data on non-residential property investing compared with residential property investing, it is essential to build knowledge by talking to people who have experience in making commercial property deals and managing such investment. Non-residential property is a large sector within Australia’s economy, and this sector can provide a SMSF with the income its members command.

Next Steps

It is important to not only research a new asset class to be added to a SMSF but also to seek professional advice before making the decision to include property in a portfolio. YML Group has the expertise to help you build your retirement income from owning investment property.

How can YML help?

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

Multiple Offset Accounts – Save money in more ways than one

A regular savings account might not offer you as much interest as what you would save in interest on your home loan by using an offset account. That’s right. There’s another, potentially worthier way to save money towards your financial goals.

As an offset account’s balance is offset against the amount still owing on your home loan, the money you put into your offset account not only builds your savings but also lowers the interest you will eventually pay on your mortgage.

Other possible benefits of using an offset account:

So why have multiple offset accounts?

If you like compartmentalising your savings OR if you are saving for many specific items – such as a wedding, a second property, a car or a holiday, then linking more than one offset account to your home loan might suit you.

Your total across all offset accounts is calculated by a bank (mortgage lender) and the combined value of your offset accounts is offset against your home loan.

As interest is only charged on the loan amount owing, your offset accounts’ combined value reduces the loan amount owing and subsequently you will pay less overall interest.

If you are paying principle + interest, then not only will you reduce the interest you pay but you will also see your equity in your property grow.

Next Step

For expert advice, YML Group can help you assess whether multiple offset accounts are right for you and can review your lender’s approach to multiple offset accounts.

How can YML help?

Talk to our YML Finance Team today to see how YML Group can assist you with your offset accounts. 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.

Important tools for your business: Cash Flow and Budgeting

Financially healthy companies can take advantage of business growth opportunities because banks and lenders like to see you have the capacity to pay back your loan. When asking ‘How healthy is my business?’, a cash flow statement has the answers.

Why create a Cash Flow Budget?

Budgeting your cash flow provides information which is useful for making decisions about the direction of your business. Are your business expenses too high? Can you afford to buy more inventory this week? Can you pay your suppliers next month?

If these questions cause you stress, make a cash flow budget and see how much easier it is to know what to do to sustain your business today and to help grow it in the future. There are myriad benefits to keeping abreast of your cash flow. Here are some of them:

            Know where your business is spending money

A cash flow budget includes fixed expenses like rental of premises and insurances and payroll, as well as variable expenses like utilities and maintenance and cost of materials. Because you will determine a timeframe for your cash flow budget, you will be able to process actual costs against your budgeted costs and see where your business’s money is going. This will assist you to make any necessary cost-cutting adjustments.

            Plan and make decisions with ease

To avoid putting your business at risk of any unwise decisions made without the support of accurate information, ensure you can make informed decisions by carefully managing and analysing your cash flow. Perhaps you need to reduce existing debt or perhaps you want to make a large future purchase. The easiest way to safeguard your business is to undertake cash flow management.

Not only does managing your cash flow help keep you on track with your objectives, but it can also help you with strategic planning by providing comparisons of spending performance over time.

            Improve business relationships

Accounts receivable is not cash and whilst your business is waiting to be paid by its customers, your suppliers require payment from your business. To ensure your business has enough funds to cover the costs of inventory and/or production materials, staying on top of your supplier costs by setting payment schedules based on planned cash flow will help protect your business relationships.

            Grow your business with confidence

You might want to grow your business gradually or expand your business to a new market or new premises at an opportune time. Either way, you will need plenty of cash. To mitigate the risk of growth without cash, manage your cash flow effectively. With consideration for cash flow over the course of your business activity, expansion can happen with greater certainty of success.

Cash Flow Analysis

Your cash flow budget gives you short-term insight in to where your business’s money is going. Once actual figures are applied against your budget, you will see where there are shortfalls and where you can create a financial safety net. This is called analysing your budget.

Creating a budget first requires you to choose a relative timeframe – monthly or quarterly or annual.

Apply income generated and include fixed and variable costs.

Net profit is calculated by subtracting operating costs from income. Using this comparison will enable you to analyse your cash flow budget.

Businesses can be profitable, yet still struggle to have enough cash to pay business expenses. This results in a business becoming insolvent. Therefore, it is crucial to monitor cash flow to build a financially healthy business.

Project your cash flow budget over 12 months and compare with actual figures to put you in the best position – to receive income timely, to turn over your inventory and to pay your bills. Ideally, you will then have succeeded in using one of the most important tools in business finance. It’s time to grow your business.

How can YML help?

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