Category: Newsletters
Is Your SMSF Investment Strategy Compliant?
Once a SMSF trustee has developed and executed a fund’s investment strategy, the Australian Taxation Office (ATO) recommends reviewing a fund’s investment strategy at least annually. A review will be necessary over time anyway due to naturally occurring changes of circumstances. For example, a change in management or members, market changes, government rule changes and investment fluctuations.The ATO is concerned that some trustees are not considering the diversification of their fund’s assets, potentially exposing a fund’s members to risk if more than 90% of a fund’s investments are held in a single asset class.
As of August 2019, the ATO has written to thousands of SMSF trustees to alert them to their obligation to review and diversify their investments for the health of a fund and for the benefit of a fund’s members.
Where a trustee has reviewed a fund’s investments, the ATO requires that the reasons behind investment decisions are provided in a written document for the ATO’s approval.
To be in accordance, under the law, an investment strategy is required to meet Sub-regulation 4.09(2):
”The trustee of the entity must formulate, review regularly and give effect to an investment strategy that has regard to the whole of the circumstances of the entity including, but not limited to, the following:
(a) the risk involved in making, holding and realising, and the likely return from, the entity's investments, having regard to its objectives and expected cash flow requirements;
(b) the composition of the entity's investments as a whole, including the extent to which they are diverse or involve exposure of the entity to risks from inadequate diversification;
(c) the liquidity of the entity's investments, having regard to its expected cash flow requirements;
(d) the ability of the entity to discharge its existing and prospective liabilities;
(e) whether the trustees of the fund should hold a contract of insurance that provides insurance cover for one or more members of the fund.”
As a trustee it is important that you carefully and comprehensively review your SMSF’s investment strategy and document clearly your decision-making behind said investment strategy – including objective, method, risk, liquidity vs illiquidity and diversification options.
So long as you can provide evidence to support your investment strategy, the ATO – joint (with ASIC) regulator of SMSFs – may deem your approach compliant and thus no administrative penalties would be meted out to you.
For more information, see also ‘Does your SMSF have an investment strategy?’ in YML Group’s July 2019 newsletter: https://ymlgroup.com.au/does-your-smsf-have-an-investment-strategy/
How can YML help?
Talk to our YML Super Solutions Team today to see how YML Group can assist you with reviewing your SMSF investment strategy. Contact us on (02) 8383 4400 or by visiting the Contact Us page on our website.
Deed of Variation – NSW Surcharge Land Tax
In June 2016 the NSW government introduced two surcharges payable by a ‘foreign person’ purchasing and/or owning residential property in NSW:
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Residential property and/or land held in trust wherein any person is deemed to be ‘foreign’ – an individual, a corporation, a trustee ‘not ordinarily resident in Australia’ and who holds a ‘substantial interest’ of 20% or more, including beneficiaries of a trust* – means the trust is liable to pay the surcharge/s. Where this is the case, a trust deed may be varied by drawing up a Deed of Variation to exclude any foreign person/s.
* For a full definition of ‘foreign person’, see https://www.revenue.nsw.gov.au/help-centre/resources-library/g009
Deed of Variation
By now, many discretionary trust deeds have been amended to exclude foreign person/s from benefiting from a trust. Did you amend your trust deed prior to 31 December 2019?
If you have not yet reviewed and considered your trust, it may be time to consult YML Group for an assessment of the ‘foreign’ status of your trust. A Deed of Variation may be used – going forward – to reduce and/or exempt your trust’s surcharge liabilities.
How can YML help?
Talk to our Accountants today to see how YML Chartered Accountants can assist you with your Trust Deed of Variation. Contact us on (02) 8383 4400 or by visiting the Contact Us page on our website.
5 Everyday Examples of IPA in Practice
Enhanced focus and productivity by your employees is achievable with the introduction and integration of Intelligent Process Automation (IPA) – software capabilities – and IPA applications can help mitigate human error in your business transactions with your clientele. How ‘real’ are these benefits of IPA?Here are five examples of IPA in the workplace:
- Human Resources (HR), both in the recruitment industry and in dedicated departments within organisations, use IPA for hiring new employees and for onboarding – domestic and/or remote employee induction.
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- Payroll Processing utilises IPA through the Australian Taxation Office’s (ATO) Single Touch Payroll (STP) software. Accounting departments are increasingly using IPA to perform numerous tasks, including data collection from timesheets, calculations of wages and payment of superannuation, to name but a few applications.
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- Customer Service, a vital department of many retail and service companies, uses IPA functions for slick interaction with customers. One highly-efficient use of IPA is the handling of customer email queries. Thousands of email queries may be sorted and amalgamated according to the level of critical response required. Promotional and other email campaigns may be automatically generated using CRM data analytics.
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- Order Fulfilment in small and large retail businesses is easier and well-regulated via IPA. With reduced human intervention, robotics can handle the fulfilment process and provide systematic updates of orders to customers, accelerating despatch communication.
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- Social Media Management helps businesses grow – new leads, conversions to sale – and there are various IPA software platforms available to make keeping abreast of a target market easier, faster and more comprehensive without the need for 24/7 manpower. Businesses can manage multiple social media channels all at once, providing their audiences with timely, relevant and engaging content.
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IPA, encompassing Robotic Process Automation (RPA), saves businesses time and money, as demonstrated in these five examples of workplace process automation. Where tasks are rule-based, repeatable, manual and repetitive, IPA and RPA are the future of more efficient and smarter workplaces for all stakeholders.
How can YML help?
Talk to our YML Innovation Team today to see how YML Group can assist you with your IPA strategy. Contact us on (02) 8383 4400 or by visiting the Contact Us page on our website.
How a Mortgage can improve your Financial Position / How a Mortgage can grow your Wealth
A mortgage strategy can have a positive impact on your ability to maintain cash flow, sustain your home mortgage and provide investment opportunities for you. Setting up a mortgage need not mean impairing your wealth accumulation – in fact, your mortgage, managed well, can enable you to acquire assets, increase your tax deductions and improve your general financial status.To start, you’ll want to align your mortgage strategy with your future property and financial goals. Considering your goals, you can take three steps towards creating a bespoke mortgage strategy:
| 1. Plan your lifestyle – Decide your property and investment goals. |
| 2. Create a strategy – With qualified professional advice, determine the steps needed to manage your mortgage to reach your goals in Step 1. |
| 3. Choose who will help you to execute your mortgage strategy – Find a lender, agree a suitable interest rate and communicate regularly as your circumstances change. |
Your mortgage strategy will profoundly affect your wealth growth, so you may want to consider these options:
Offset Account/s
An offset account is a practical device – a transactional account linked to your home loan – to help reduce the amount of interest paid and the term of a variable home loan. It is often included as a feature with most standard variable mortgages, so it is likely you will have one at your disposal.
The balance in your offset account is ‘offset’ against the mortgage balance and interest is charged only on the lowered mortgage balance. You have financial flexibility by being able to withdraw from the offset account at any time, whilst still paying down your home loan.
Budget Management
Managing your money is essential to the success of your mortgage strategy. You will need to stay abreast of your expenditure and keep a record of your remaining balance to enable you to more easily make investment decisions and still pay off your mortgage debt. A budget can be created and managed with your lender to show your financial position at any time.
Interest Claims
When you borrow money to pay for business expenses and for investment costs, you may be able to claim a tax deduction for the interest paid on the borrowed money. By borrowing money pre-tax for tax-deductible purchases, you can save money. Seek advice to ensure your interest claims are permissible tax deductions.
Manage Your Risk
Managing your financial risk is as important as managing your money. By managing your cash flow and ensuring you maintain a balance of funds, you can help mitigate any potential financial loss at times of investment insecurity.
Your offset account can offer a buffer through the redraw of equity in your home if needed. Fixed interest rates on your loans can provide certainty through difficult times. Restructuring your home loan and/or changing lenders can keep investment opportunities open to you by enabling you access your wealth for future growth.
Wealth Growth
These aforementioned options to help grow your wealth, implemented with expert advice, may allow you to hold on to your investment property/ies (avoid selling and incurring the associated costs), minimise your debt, optimise tax deductions where applicable and, ultimately, enable you to acquire more assets and to secure a more stable financial future.
As it can be highly impractical to design your own mortgage strategy, you are encouraged to solicit a mortgage lender or advisor. Call YML Group’s Finance Team for an appointment.
How can YML help?
Talk to our YML Finance Team today to see how YML Group can assist you with your mortgage strategy. Contact us on (02) 8383 4400, or by visiting the Contact Us page on our website.
ATO is Auditing Rental Property Expense Claims
Owners earning an income from their primary and/or investment property must look at their tax obligations and ensure they understand the basics. Keeping accurate income and expense records is a great way to start. Use these records to ensure you make the most of your investment by declaring all rental income and only deducting appropriate expenses.Whether you are a seasoned rental property owner or you are new to the game, tax law can be complex and the Australian Taxation Office (ATO) is focussed on auditing those investors with impermissible income and/or dubious claims.
Rental Income
Firstly, the ATO looks for evidence that your property is genuinely a rental. Only the periods of time that your property is available for rent may be considered generating assessable income. This stands to reason if the rental property is also your home where periods of personal use may not be claimed. Where the rental property is an investment or secondary property, you must report all rental income derived from it during periods it is let on a commercial and/or non-commercial (family/friends) basis.
Expense Claims – Don’t make a mistake!
Do you want to avoid an ATO audit? It’s important to stay abreast of the changes in tax law and to adhere to the ATO’s strict guidelines for how to treat rental income and related expenses. So long as you can substantiate an expense and it is permissible, you can claim it.
Generally, costs such as advertising your rental property, loan interest and related fees, council rates, strata levies for sinking funds (apartment/villa), building insurance and other relevant insurances may be tax-deductible.
Expenses incurred in your acquisition of the property, expenses incurred by a tenant such as utility usage (electricity, gas, water), and especially costs paid during periods when a property is not available for rent may not be claimed as tax deductions.
Travel expenses, in particular, may not be claimed since 1 July 2017 when the ATO excluded travelling to and from a property – unless a business run by you is being carried on within it – from the permissible expenses list.
Depreciation
Repairs to a rental property may be tax-deductible. Improvements, however, may be depreciated. For example, if you fix a broken oven, it is a repair expense, but if you replace a broken oven, that may be deemed a capital improvement.
Depreciation may be a valuable tax-time tool for rental property owners. You can claim depreciation of a building and its built-in components over a number of years. Consider using a Quantity Surveyor to ascertain the value of a building’s construction and its parts, making it easier to create a depreciation schedule for your rental property.
ATO Audit
The ATO would check that your rental property is available for rent by investigating rental property websites and other means of confirming that you are declaring any and all rental income. An ATO audit would require you to give proof of rental listing/s, advertising materials and evidence (photos) of a property’s rentable condition.
Finally, remember to keep invoices, receipts and bank statements for all expenditure on your rental property. This is your most basic tenet for best practice rental property investing.
The ATO’s 2019 guide for rental property owners: https://www.ato.gov.au/uploadedFiles/Content/IND/downloads/Rental-properties-2019.pdf
How can YML help?
Talk to our Accountants today to see how YML Chartered Accountants can assist you with your rental property investment. Contact us on (02) 8383 4400 or by visiting the Contact Us page on our website.
RBA Cash Rate Reductions – What it means for your Loan
When the Reserve Bank of Australia (RBA) sets the cash rate down (or up), Australia’s banks have a choice to pass on the new rate as a lower (or higher) interest rate to its customers with loans, including mortgages. With the new lower cash rate, a record low, of 0.75% in October, most banks did not provide the full rate cut to their customers’ loans.This recent rate decrease is therefore good for people with a variable interest rate mortgage. Although a change in the cash rate would not normally affect those people with a fixed rate mortgage, all four major banks have lowered their fixed rate for new mortgage loans.
Currently, a home loan sees a fixed rate of approximately 2.8% - 2.99% on principle + interest repayments; an investment loan sees a fixed rate of approximately 3.19% on principle + interest repayments.
The RBA is closely monitoring the markets and it does not rule out a further reduction in the cash rate in the coming months or even as soon as this month, November 2019.
Take the time to review your loan/s and consult a qualified financial advisor for the best interest rate/s now available.
How can YML help?
Talk to our YML Finance Team today to see how YML Group can assist you with your mortgage refinancing. Contact us on (02) 8383 4400, or by visiting the Contact Us page on our website.
Gift or lend to your child?
Deciding how to help your child/ren with money warrants an exploration of two very different ways to provide them financial assistance. You might choose to gift them money OR you might prefer to enter into a loan agreement with them. Your options will depend upon your own personal financial circumstances at the time of the request for help. What will you do?First, consider whether you can afford to give money to your child and not see it returned to you. This is a gift. A gift of money to an adult child is generous, requiring no repayment by your child but no financial benefit to you, the giver.
Now, let’s consider you lend an amount of money to your child, setting up a ‘payable on demand’ loan agreement. This loan of money can protect your financial future by ensuring that you may recall the loan at any time or at a time agreed, or you can forgive the loan at a later date, even include it in your Will.
Lending is preferential to gifting – Why?
Imagine your gift $100,000 to your child for the purchase of a home. In the event of your child marrying and subsequently divorcing, the $100,000 gift would be lost to you as part of your child’s divorce settlement with their soon-to-be ex-spouse.
Instead, if you draw up a legally-binding loan agreement with your child and lend them $100,000 towards their property purchase, should your child and his/her future spouse divorce, then the $100,000 contribution you made could be returned to you and not considered part of the marriage assets for distribution between the divorcing couple.
Lending, instead of giving, an amount of money to your child helps protect your money from a myriad of situations whereby the money might be lost. For example, your child could divorce, go bankrupt, suffer from an ongoing medical condition that prevents them from working, or even break off their relationship with you. Furthermore, you might need the loaned money should you fall ill or require it to maintain your retirement.
Formalising a Loan to your Child
It is important that you discuss a loan with your child and that you both agree terms of the loan agreement.
Create a formal written document, using a certified professional, to ensure that the loan will be honoured by the Family Court of Australia or any other legal body as may be the case.
So long as you choose to provide the loan interest-free, there will be no tax payable or tax gain. Include the statement ‘Interest rate as advised by the Lender’ and you may be able to raise the interest rate from zero, should there be a future need to do so, such as increasing the amount owed to you in the case of your child’s divorcing (thereby reducing the amount available for distribution in any divorce settlement).
Finally, at all times, consult a certified professional about lending money to your child and formalise a loan for the sake of your child and you. Ideally, never ‘gift’ money to you child. Providing financial assistance to your child can be a loving gift when done with the best intentions as a loan.
How can YML help?
Talk to our YML Super Solutions Team today to see how YML Group can assist you with creating a loan agreement. Contact us on (02) 8383 4400 or by visiting the Contact Us page on our website.
Proposed Superannuation Guarantee Amnesty – Have you correctly paid your staff super?
The Australian Government has proposed a Superannuation Guarantee (SG) Amnesty which has not yet been enacted by Parliament. What would it mean for you as an employer?Proposed Superannuation Guarantee Amnesty
An amnesty would enable employers to self-correct any past non-compliance of their superannuation guarantee to employees. You would be asked to voluntary disclose superannuation guarantee shortfall and non-payment to potentially avoid being liable for:
- Extra administration fees associated with late payments
- Penalties of up to 200%
Until such time as the proposed amnesty passes royal assent, under current existing law, an employer who has neglected to maintain accurate payment of superannuation to their employees is liable to the Australian Taxation Office (ATO) for outstanding staff superannuation.
When superannuation is not paid on time in to the correct fund or at the minimum amount by employers, the ATO is responsible for collection of unpaid superannuation under their Superannuation Guarantee Charge (SGC) arrangement.
SGC – How to pay?
If you have a superannuation guarantee shortfall to rectify, you are required to lodge a SGC Statement by the quarterly due date and pay any superannuation guarantee shortfall to the ATO. This statement enables you to report and calculate what is still owing to your employees and to the ATO (administration fee).
The SGC covers any unpaid or underpaid amounts due to employees, any interest on those amounts and an administration fee of $20 for each employee affected by your error. The SGC is a non-tax-deductible amount.
For the first quarter of the current financial year, 1 July – 31 October, the due date to lodge your SGC Statement is 28 November 2019.
SGC – How to avoid paying it?
Although the ATO ultimately will seek outstanding superannuation guarantee amounts for employees, it is important that all employers aim to pay and succeed in paying their obligatory superannuation guarantee to their employees in a timely manner.
Single Touch Payroll (STP), compulsory for all Australian employers from 1 July 2019, is the new reporting method of salaries, wages, PAYG withholding tax and superannuation to the ATO. By using STP-enabled software to report to the ATO, you will be able to keep informed of any miscalculations and revise staff superannuation payments immediately, thereby potentially avoiding the SGC.
Future Outstanding SG Payments – What will happen?
Recently, the proposed Superannuation Guarantee Amnesty was re-introduced in to Parliament for further consideration and debate. Whilst a SG Amnesty is not yet law, failure to pay the superannuation guarantee to employees may result in penalties under new legislation passed in December 2018: a fine of up to $10,500 or 12 months’ jail time.
All employers must abide by their obligation to pay their employees the superannuation guarantee. With STP-enabled software, businesses can face a future without penalty.
Avoid relying on the proposed SG Amnesty to stop you neglecting your SG obligation. Rather, it is important to seek professional advice about payment options now.
How can YML help?
Talk to our Accountants today to see how YML Chartered Accountants can assist you with your Superannuation Guarantee obligation. Contact us on (02) 8383 4400 or by visiting the Contact Us page on our website.
Low and Middle Income Earners – Tax Offsets
The Australian Government’s Personal Income Tax Plan changes are now law. As announced in the Federal Budget this year, from 1 July 2019 a new tax offset was created to enable low and middle income-earning Australian residents to receive tax offsets after lodging their tax returns, thereby reducing the tax payable on their taxable income.What you need to know about Tax Offsets
You are eligible for a tax offset if you are an Australian resident and you receive an income. The tax offset amount you receive is dependent upon your taxable income amount.
A tax offset is non-refundable, meaning if a tax offset reduces your tax payable to zero, you will not receive any unused portion of the tax offset amount.
The Australian Taxation Office will assess your taxable income and determine your tax offset amount. You are not required to make a claim yourself. Furthermore, any tax refund resulting from the application of a tax offset will be deposited in your bank account.
What might your tax offset entitlement be?
Low and Middle Tax Offset
The Low and Middle Tax Offset is used for those individuals whose annual taxable income is less than $126,000. The maximum tax offset amount is $1080 on income up to $126,000. Whether you receive the full $1080 will be determined by the ATO and will be based on your individual taxation circumstances.
During financial years 2019, 2020, 2021 and 2022, the Low and Middle Income Tax Offset will be applied to eligible Australian earners. The Low and Middle Income Tax Offset is NEW this year and is in addition to the Low Income Tax Offset.
Low Income Tax Offset
The Low Income Tax Offset is used for those individuals whose annual taxable income is less than $66,667. The maximum tax offset amount is $445 on income up to $37,000 per annum. This tax offset amount is reduced by 1.5 cents for each dollar over $37,000, up to $66,667. The Low Income Tax Offset is not new and is now complemented by the Low and Middle Income Tax Offset.
How can YML help?
Talk to our Accountants today to see how YML Chartered Accountants can assist you with your personal tax return. Contact us on (02) 8383 4400 or by visiting the Contact Us page on our website.
Small Business Cyber Security
Did you know that 43% of cyber-attacks target small businesses? A study* across 86 countries and over 41,000 cyber-attacks determined this to be true. So what can you do about protecting your small business, your customers and your reputation from a hacker determined to steal your business data?First, it’s important to remember that cyber security risks exist but you also want your business to benefit from the online world to broaden your reach, expand your clientele and utilise distant third-party suppliers, so make sure you draft – and put in to action – a responsible cyber security plan.
Next, let’s look at these tools and processes to help you in safeguarding your business data and then make them part of your cyber security plan:
| 1. | Security Software |
| There is a myriad of software available that can be uploaded on to your server to help prevent infection from malware (software sent to you that may infiltrate or damage your data) and from viruses, as well as provide filters for spam and spyware. A reputable software provider can assist you with finding the best-for-your-business software tool to install. |
| 2. | Online Transactions |
| When your customers use your website to order products and/or services online, your business is responsible for detecting fraudulent transactions and for paying any costs related to fraud. In order to protect your customers and your business, consider using machine learning, whereby fraud prevention is automated. In addition, relying on your payment gateway provider is worth considering as artificial intelligence used by them will likely help your business too. |
| 3. | In-House Security |
| a. Educating employees is key to internal security measures. Start by collating a record of all device information (hardware and software), passwords and access codes. Train your employees to use computer equipment correctly and to navigate online safely. Remind them that the use of an external hard drive, even a personal USB, is a risk to cyber security as malware can inadvertently upload on to your business server. |
| b. Change passwords frequently, ideally marking a regular day or date in your cyber security plan. |
| 4. | Data Storage / Encryption |
| Data back-up is a process that is essential for anyone using a computer. This is one of the easiest ways to make certain that your business data is safely stored elsewhere, enabling you to still access stolen data if it is illegally accessed. Regular decluttering of data will help to ensure that only data necessary for the day-to-day is kept on your server and devices. Consider external cloud storage and external hard drives held off-site. In addition, encryption of data is a tool that will convert data in to secret code before it travels online, making it near impossible to be accessed by hackers. |
| 5. | Stay Up-to-Date |
| Small business management and their IT department should remain vigilant to cyber threats by keeping up-to-date with the latest online scams and security risks. You can subscribe to service providers whose job it is to alert you to cyber security concerns. |
A single attack successfully executed by an unwarranted perpetrator, either internally or externally, can wreak havoc on your business, potentially disrupting your customers, your employees and the business itself. The financial ramifications of not protecting your online transactions and your business data could be disastrous.
Avoid being one of the many small businesses attacked from cyberspace by formulating and implementing your own business cyber security plan today.
*Verizon 2019 Data Breach Investigations Report (DBIR)
How can YML help?
Talk to our YML Innovation Team today to see how YML Group can assist you with your cyber security. Contact us on (02) 8383 4400 or by visiting the Contact Us page on our website.
