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.

Succession – Do you have a Five-Year-Plan and an Exit Strategy?

What are you doing to adequately prepare your business for its life beyond your management or ownership of it? Ideally, you will assess your business’s performance and its value and take steps to align those with your personal financial goals for your retirement.

Succession planning is a process best done in stages over a long period, usually five or more years. Many business owners look to their businesses to fund their retirement, so spending time to consider all aspects of an exit strategy is essential for a fruitful outcome for both the business and for you.

Why do you need a five-year-plan?

To improve the chance of success of your business as it is handed to the next generation in your family or to another person promoted to take on the business, a checklist of tasks undertaken over a period of years would constitute a holistic succession plan.

Here is a checklist of tasks. Though not an exhaustive list, these tasks are the main ones that would generally be handled in succession planning:

Furthermore, a comprehensive checklist would also encompass financial planning tasks:

Succession planning is a tool to help you identify the current value and future competencies of your business. Likewise, having a clearly defined exit strategy as part of succession planning can expose best financial scenarios when the time comes to leave your business.

How do you exit a business?

Owning a successful business in Australia gives you opportunities, including a good lifestyle, a regular income and, in due course, can lead to retirement income. To achieve the goal of leaving behind a healthy and mature business, you will need to consider how you want to leave or ‘exit’.

Exiting a business can be done in numerous ways. Two common ways are:

Selling a business to a third party (open market) or to a strategic buyer, such as a competitor

During succession planning, particulars like transparent financials, IP protection, business asset preservation, staff retention, premises and/or equipment leases and legal formalities would be addressed and secured prior to any sales process commencing through a qualified agent.

Deciding to pass a business on to a child or another suitable successor

Just like selling a business, the details to cover in the succession plan are the same, however there is an extra consideration of whether you would choose to ‘gift’ a business without compensation. In this non-compensation scenario, a business valuation would be wise for tax purposes and seeking independent accounting and financial counsel would, likewise, be prudent.

Ultimately, an exit strategy can reward you for your years of hard work building a prosperous business. As a new operator comes on board, both your five-year-plan and exit strategy will prove to keep the business moving forward and, ideally, without the wheels falling off. You can enter your retirement with peace of mind.

How can YML help?

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

Superannuation death benefits – review succession

First and foremost it is important to understand that the payment of your superannuation death benefits are covered by the rules of your SMSF trust deed and do not automatically form part of your Estate for distribution in accordance with the terms of your Will. As trustee of your SMSF, you will need to make sure that you have read and understood your SMSF’s trust deed and that you comply with it at all times.

On your death, one option is to rely on the SMSF trustee’s wide discretion to determine who, within the operation of the law, will receive your death benefit and how much each beneficiary will receive.

The alternative is to remove the trustee’s discretion which gives you greater control in deciding how your superannuation death benefits will be cashed. This may be relevant if:                                                          

Subject to the specific terms of your SMSF trust deed, ways in which you could consider removal of trustee discretion include:

To ensure that your death benefits are cashed in accordance with your wishes, it is critical to ensure that your estate plans are comprehensive and that you understand the ownership and control of your assets on your death. It is also important that any superannuation death benefit advice you receive is consistent and complimentary to your overall estate plans and is not in isolation to the other.

At a minimum, we recommend that trustees have their SMSF trust deed reviewed to ensure maximum flexibility when dealing with death benefit payments. It is also recommended this be done alongside a review of any BDBN(s) to ensure that they too are valid and provide certainty in how death benefits will be dealt with upon your death.

When considered in light of an ageing Australia, the value of assets invested in SMSFs and recent court cases, having the correct SMSF documentation and process is essential to minimise the risk of litigation from disappointed beneficiaries to allow a safe passage of death benefits to your intended beneficiaries.

So what should form part of a comprehensive SMSF estate plan? At a minimum it should contain:

How can YML help?

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

Do you have yours by now? – Director Identification Number (DIN)

Enacted by the Australian Government as part of the 2020 Budget – Digital Business Plan, the mandatory registration of all Australian company directors is a new initiative to help:

• Prevent director involvement in unlawful activities
• Prevent fraudulent use of director identities
• Prevent false director identities from being created
• Authorities to trace – in real time – directors’ business relationships and their business activities within companies
• Create fairness in a more equitable business environment because wrongdoings by directors can be traced

What do you need to do?

Registration with the new Australian Business Registry Services (ABRS) maintained by the Australian Taxation Office (ATO) results in directors receiving a Director Identification Number or DIN. A DIN is a unique 15-digit numerical identifier. A director receives this DIN – a form of ID – once in a lifetime and it remains with a director even when changing companies.

Any director of a company or of a registered entity under the Corporations Act 2001 must acquire a DIN. It is free to apply.

How do you apply?

The ABRS directs you firstly to the myGovID app and then to apply through myGov. If you already have a myGovID, you can head straight to myGov. If you don’t have a myGovID, you can set one up. Use this link to learn how: How to apply for your Director ID (mcusercontent.com)

Another way to apply, if you live in Australia, is to call the ABRS and apply directly. You will be asked to verify your identity using your tax file number (TFN) and at least one identity document, as well as answer some questions. To call the ABRS, use this link: Contact us | Australian Business Registry Services (ABRS)

DEADLINE for Application for a DIN

Newly appointed directors within the past year will likely be aware of their requirement to register with the ABRS.

However, directors who have been in business for longer than the past 12 months must heed the deadline of 30 November 2022.

Note, even if you intend to retire soon, you will need to apply for a DIN and use it for the remainder of your directorship tenure.

Next Steps

YML Group has the expertise to determine your company position status and to assist you with your DIN application. You will be asked for your Tax File Number (TFN) to verify your identity as part of the application process. Penalties may be issued by the ATO for non-compliance with this new ‘Director ID’ law.

How can YML help?

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

Superannuation Guarantee Contribution – Reporting and Payments via STP

This year Australia’s Single Touch Payroll (STP) was streamlined under its first expansion, Phase 2. By now, employers mandatorily using STP to report their employees’ remuneration to multiple government agencies, including the Australian Taxation Office (ATO), are set to benefit from STP’s Phase 2 comprehensive and extensive bookkeeping capabilities.

Changes to Superannuation Guarantee Contribution

From 1 July 2022, changes to the superannuation guarantee contribution (SGC) commenced. These changes are applicable to employees who satisfy relevant superannuation guarantee eligibility criteria.

One amendment to the SGC is the removal of the $450 per month income threshold before SGC is payable. This amendment benefits casual and part-time workers who were exempt from receiving the SGC prior to this financial year.

With the removal of a cap, all employees over the age of 18 years, no matter how often they work in a month, are entitled to SGC. Also, any employee under the age of 18 years who works more than 30 hours per week is entitled to SGC. An employee’s earnings rate is no longer a barrier to receiving SGC.

Another amendment is the SGC amount payable by an employer has increased by 0.5% to 10.5% of an employee’s eligible earnings. This new percentage is applicable this financial year.

Legislation is in place that will require employers to add 0.5% each financial year until the SGC reaches 12% in the financial year 2025/26.

Setting aside additional remuneration funds will be necessary from now to meet new payment obligations.

The SGC changes will be required to be made through STP and businesses must be prepared to make their SGC payments. STP is the answer to accurately paying employees their due SGC with STP’s streamlined reporting pathways.

How to report via STP

STP Phase 2 is all about centralisation and the categorisation of more detailed information. After initial data entry, payment amounts are now individually classified. Previously, only total payment amounts were required to be reported.

Make sure that your employees’ correct superannuation information is on file. Note, you will need to add those employees who were not eligible for SGC prior to 1 July 2022. Remember to give your employees a choice of superannuation funds after first asking them if they have their own, preferred superannuation account.

It’s important to make sure that your STP software is connected to the ATO so that your reports are received accurately and timely by the ATO. If it has not already been done, your software service provider (SSP) can set up a direct link to the ATO for you.

Next, you will need to appoint someone in your organisation to authorise your STP reports. This might be you or a payroll manager or an external party such as a financial services provider. Once a STP report is authorised, you may send the report to the ATO yourself, or you might use a head office or external party to issue it. Ensuring any third parties are linked to your account and/or to the ATO is an important step in the STP process.

Finally, you can check that your report was received successfully at the ATO. Your SSP should be able to alert you to any reporting errors.

If you are late paying your SGC amount, then notify the ATO of any late SGC payments via the ATO’s process of lodging a Superannuation Guarantee Charge Statement within 28 days of the quarterly due date and pay the Superannuation Guarantee Charge which is made up of:

• SG shortfall amounts, plus
• Interest on SG shortfall amounts, plus
• Administration fee of $20 per employee per quarter.

Next Steps

The SGC changes will affect businesses differently, dependent upon the nature of the workforce within an organisation, so reach out to YML Group.

YML’s specialist Bookkeeping Service can help you with executing the 2022/23 SGC amendments.

We provide a high qualified, specially trained bookkeeper to partner with you and your business to help you manage both STP and your SGC obligations.

How can YML help?

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