ATO to monitor high-risk LRBAs and TBARs within SMSFs
Posted on March 25, 2019 by admin
The ATO is focusing on risky Limited Recourse Borrowing Arrangements (LRBAs) and failures in Transfer Balance Account Reporting (TBAR) in SMSFs this year. They have announced plans to contact trustees with high concentration risks in their funds and to crack down on misreporting. Limited Recourse Borrowing Arrangements:LRBAs allow a superannuation fund to borrow under strict conditions. The existing population of SMSFs that have entered into LRBAs, potentially on the basis of poor or conflicting advice, is a key area of concern for the ATO and has been rated a medium to high-risk. In 2017, approximately 95% of the LRBAs were for the purpose of purchasing property. Due to this prevalence, the ATO has concerns about the risk of members’ retirement savings in the event of a property decline. Transfer Balance Account Reporting:TBAR is used to advise the ATO when a transfer balance account event occurs within an SMSF, enabling an individual’s transfer balance cap and total superannuation balance to be recorded and tracked. One area of TBAR arrangements the ATO will be monitoring is the reporting of capped defined benefit income streams. In 2018, approximately 86% of SMSFs reporting a capped defined benefit stream had failed in their reporting obligations. […]
Changes to personal income tax
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The Personal Income Tax Plan has gone through recent changes regarding rates, thresholds and offset entitlements. These changes were announced in the 2018-2019 Federal Budget and were implemented at the start of the 2019 financial year. For the upcoming tax season, individuals should review these changes in case they are affected. The 32.5% tax bracket was increased from $87,000 to $90,000 for the years 2018 to 2022. The following two years will see a further increase to $120,000 and in 2024 it will increase again to $200,000. These changes will apply to residents, foreign-residents and working holiday makers. Pay As You Go (PAYG) withholding rates and schedules will also be updated to include these changes. Australian residents whose income does not exceed $125,333 could now be entitled to an addition to the low and middle income tax offset. This can be available after an assessment of a person’s individual income tax return. This addition applies to the 2018 to 2022 financial years. The amount you receive will be based on the following income levels: If below $37,000 you are entitled to $200 Between $37,000 and $48,000 you are entitled to $200 plus 3% of the amount of the income that […]
Income stream within an SMSF
Posted on March 18, 2019 by admin
One of the best ways to ensure regular, flexible and tax-effective income as a pensioner is through an income stream from your SMSF. As a member, you can receive an income stream in a reoccurring series of benefit payments from your super fund. Income streams from an SMSF are usually account-based, which means that the amount allocated to the pension comes directly from a member’s account. Once an account-based pension commences, there is an ongoing requirement for the trustees of the superannuation fund to ensure the pension standards and laws are met. Standards that must be met in order for SMSFs to pay income stream pensions include: The minimum amount must be paid at least once a year. Once the pension has started, the capital supporting the pension cannot be increased by using contributions or rollover amounts. When a member dies, their pension can only be transferred to a dependent beneficiary if they have any. SMSF trustees may need to amend fund trust deeds to meet the minimum pension standards. For more information on how to do this, you should consult a legal adviser. Records must be kept of pension value at commencement, taxable elements of the pension at commencement, […]
PAYG withholding: New penalties for non-compliance
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New penalties for business’s pay-as-you-go (PAYG) withholding and reporting obligations are to be introduced as a result of legislation commencing 1 July 2019. The law will now prevent businesses from claiming deductions for payments to employees and certain contractors if they fail to comply. Payments that are impacted include salary, wages, commissions, bonuses or allowances to an employee, payment under a labour-hire arrangement, payment to a religious practitioner, or payments for a supply of service. This measure highlights a key reason why governance over all employment tax is important. Specifically, the new laws will prevent an employer from claiming a deduction for payments to employees if the employer fails to: Withhold an amount from the payment as required under PAYG withholding rules; or Report a withholding amount to the ATO as required. If you make a mistake by failing to withhold an amount or to report it, your business will not lose its deduction if you voluntarily disclose this to the ATO before an audit or other compliance activity in regards to your tax affairs. Taking early action to ensure your business is compliant to these updated PAYG withholding laws will make a difference to whether you remain eligible for […]
Superannuation guide for retirement planning
Posted on March 8, 2019 by admin
As the time comes for you to consider leaving the workforce, it is necessary to plan how to make the most of your superannuation in order to strengthen the chances of a financially secure retirement. Careful planning can significantly boost your super and make a big difference to your future lifestyle. Identify your dependants and non-dependants:When it comes to planning your retirement and how your super will be used, ensure that you have clear plans about what happens to your super benefits and other assets in the event of your death. Identifying who will receive your super benefits becomes more important if you plan to leave them to a non-dependant for tax purposes, such as financially independent adult children. Combine your accounts:Consolidating your super funds could possibly save you thousands of dollars in fees. Other benefits include reducing your paperwork and making it easier to keep track of your super. You could also end up with more superannuation than you realise, as research has found that if all super fund members were to consolidate their multiple accounts, the average Australian account balance would increase by 79%. Do a financial stocktake:Another important step when it comes to planning your retirement is […]
Determining whether GST is for business or private use
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The goods and services tax (GST) is applied to most goods and services sold in Australia, taxed at a rate of 10%. If you run a business, you are likely to have GST obligations such as claiming credit for any GST included in the price of goods and services that have been purchased for your business. However, many businesses have expenses that are used privately as well as for business purposes. This means that a business must divide the GST on these costs between private and business use. The ATO allows an annual adjustment for these expenses when it comes to determining exactly how much something is used for business or private purposes. Common types of purchases that can be made for both business and private use include: Home office costs/home power use Home telephone and internet costs Motor vehicle purchases and running costs Computers and other electronic devices At the end of the financial year when the business’ income tax return is being finalised, adjustments can be made to account for the reduction in the GST amount for private use that can be claimed back. The adjustment will either increase the amount of GST that businesses are liable to […]
SMSF areas being monitored by the ATO
Posted on March 1, 2019 by admin
Self-managed super funds are closely monitored by the ATO to ensure regulations are being met across all areas. As SMSF are run by members, it is their responsibility to comply with all related super and tax laws. The independent nature of an SMSF creates an environment that people are confused by or can attempt to exploit. One area of concern for the ATO regarding SMSFs is that these types of funds are being used to gain access to super before preservation age. Preservation age is dictated by the year in which you were born, super cannot legally be accessed before you reach this age. A growing number of investors in their 30s, far off from their preservation age, are moving their super into an SMSF in an attempt to gain access to their super early. The ATO has noticed an increase in this strategy in the last five years. If found to be doing this, penalties can include funds being wound up, a 45% tax impost being applied, administrative penalties which have a cost attached, or being disqualified from running a fund. The ATO is also looking into possible problem areas in relation to SMSF contraventions. Loans to SMSF members, […]
ATOs small business benchmarks
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The ATO small business benchmark guides are designed to help small businesses compare performance with similar companies in the same industry. These guides have been updated to include data from the 2016-2017 financial year. Within this system, there are two benchmarks businesses can use. Performance benchmarks apply to all industries and businesses. This area consists of the financial ranges so you can make comparisons and improvements to your business performance. Ranges you can look into are income tax, which is information provided by businesses on their tax returns, and activity statements which are provided using financial year activity statements. Input benchmarks only apply to tradespeople working on projects and purchasing their own materials. Within this benchmark, you can receive an expected range of income based on labour and materials used in a project. This is designed to help estimate turnover and ensure records accurately reflect income. The small business benchmark system is also designed to aid the ATO in identifying businesses that may be avoiding tax obligations by not reporting elements of their income. The information reported by a business is compared to key elements of the benchmark for their industry, ensuring all activity is in line with the regular […]
