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Tax on super death benefits for dependants vs non-dependants

Posted on July 9, 2020 by admin


A super death benefit is the super paid after a person’s death, usually to a nominated beneficiary. These benefits are subject to different tax treatments, depending on whether the beneficiaries are dependant or non-dependant. Superannuation death benefits will generally be received tax-free by tax dependants, who are considered to be: A child of the deceased who is under 18 years of age, A spouse or former spouse of the deceased, A person who has an interdependency relationship with the deceased (e.g. if they live together or have a close personal relationship), A financial dependant of the deceased. Dependants will not have to pay tax on the tax-free component of their super in the event that they: Withdraw it as a lump sum, or Receive an account based income stream. However, they will be taxed at their marginal rate if they receive a capped benefit income stream and: The deceased was at least 60 years of age at the time of death The dependent is over 60 years of age and the total of their tax-free component and taxed element exceeds their defined benefit income cap. Not all super death benefits are subject to tax; for non-dependants, there is a taxable […]


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Are you eligible for the small business income tax offset?

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The small business income tax offset can be used to reduce the tax you pay by up to $1,000 a year. Also known as the unincorporated small business tax discount, the offset is worked out on the proportion of tax payable on your business income. The rate of offset is 13% for the 2020-21 financial year and 16% for the 2021-22 financial year and onwards. The offset is only available to entities with an aggregated turnover of less than $5 million (from 2016-17 financial year onwards) and is capped at $1,000. The ATO will work out your offset based on your income tax return and uses your: Net small business income you earned as a sole trader, or Share of net small business income from a partnership or trust. Conditions for sole traders The offset is calculated based on net small business income for sole traders (which is the sum of your assessable income from carrying on your business, minus any deductions). Sole traders are not entitled to the offset in the event that their net small business income is a loss. Income and deductions that you need to include in your net small business income include: farm management deposits […]


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Do you need to lodge a transfer balance account report?

Posted on July 2, 2020 by admin


Self-managed super funds (SMSF) may be required to lodge a transfer balance account (TBA) report by 28 July 2020 in the case of a TBA event. A TBA report will need to be lodged with the ATO in the event that both of the following apply: A TBA event occurred in a member’s SMSF between 1 April and 30 June 2020, Any member of the SMSF has a total super balance greater than $1 million. SMSFs will also need to complete this report when a member needs to correct information about a TBA event that they have previously reported to the ATO or are responding to a commutation authority. According to the ATO, an event is classified as a TBA event if they result in credit or debit in a member’s transfer balance account. Such events include: Super income streams in existence just before 1 July 2017 that both continue to be paid on or after 1 July 2017, or were in retirement phase on or after 1 July 2017, Super income streams that stop being in retirement phase, Limited recourse borrowing arrangements (LRBA) payments entered into on or after 1 July 2017, LRBA payments resulting in an increase in […]


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COVID-19 factors to remember when filing your tax return

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The end of the financial year has rolled around again, but this time, COVID-19 may affect the way you fill out your tax return. The ATO has released a range of methods to make tax time easier for businesses and individuals experiencing unprecedented circumstances. How JobKeeper will affect tax returns Sole traders receiving JobKeeper payments on behalf of their business are required to include these payments as assessable income for the business. Employees receiving JobKeeper will see that those payments have been automatically filled out in their tax return. Individuals who have had their wages increase due to JobKeeper should identify whether they have been bumped into a higher tax bracket as a result. If an individual is working multiple jobs and receiving JobKeeper at one of these positions pushes them into a new tax bracket, they may be faced with a higher tax bill on their return if their other employers had continued deducting tax at their original lower rate. How JobSeeker will affect tax returns JobSeeker payments are considered taxable income. The ATO will automatically upload JobSeeker details in the ‘Government Payments and Allowances’ section of recipients’ tax returns. However, recipients are advised that there may be a […]


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Carrying on a business in an SMSF

Posted on June 25, 2020 by admin


Self-managed super funds can carry on a business providing the business is allowed under the trust deed and operated for the sole purpose of providing retirement benefits for fund members. Carrying on a business through an SMSF does have restrictions that other businesses do not have, such as entering into credit arrangements or having overdrafts. SMSF trustees that carry on a business through their fund must adhere to the sole purpose test. The ATO looks for cases where: The trustee employs a family member. The ‘business’ is an activity commonly carried out as a hobby or pastime. The business carried on by the fund has links to associated trading entities. There are indications the fund’s business assets are available for the private use and benefit of the trustee or related parties. The same regulatory provisions still apply to funds that carry on a business, i.e, SMSF investments must be made on a commercial ‘arm’s length’ basis, business activities must be conducted in accordance with the SMSF’s investment strategy, collectables and personal use assets cannot be displayed at the business premises and so on. The SMSF cannot be involved in the following business activities: Selling an SMSF asset for less than […]


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Cars and taxes for 2020-21 financial year

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New car threshold amounts will be implemented from 1 July 2020. Understanding the new thresholds and how they may affect your small business operations and vehicle usage will be important in preparing you for the financial year ahead. Income tax: There is an upper limit on the cost you use to work out the depreciation for the business use of your car or station wagon (including four-wheel drives). The maximum value you can use for calculating your depreciation claim is the car limit (irrespective of any amount you were paid for a trade-in) in the year in which you first used or leased the car. For the 2020-21 financial year, the upper cost limit is $59,136 including GST. Goods and services tax (GST): Businesses registered for GST with motor vehicles used solely for business purposes are entitled to claim a credit for the GST included in the price of the vehicle, provided they have a tax invoice. In the event that you purchase a car and the price is more than the car threshold, the maximum amount of GST credit you can claim is one-eleventh of your car limit amount. Keep in mind that you cannot claim a GST credit […]


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How to transfer a business property into your SMSF

Posted on June 18, 2020 by admin


Employers with a self-managed super fund (SMSF) looking to protect their business assets can consider transferring their business real property into their SMSF. Transferring business property into your SMSF is useful to protect your assets in the event of your business failing or facing litigation. It is possible for SMSF members to transfer business real property (land and buildings used exclusively for the business) to their SMSF by using a combination of methods. In-species transferAn in-species transfer in the context of a business property refers to the ownership transfer of a property from one entity to another without the need to convert it into cash. During an in-species transfer, the value of the property is considered a contribution to your SMSF and is restricted by CGT regulations and contribution caps. Cashing in your SMSFYou can use the cash available in your SMSF to buy your business property at market value as a normal cash purchase. The property must first be valued by an independent and qualified party before this is allowable. SMSFs that do not have enough sufficient capital to do this may consider using their non-concessional contributions cap to cover the outstanding balance. Limited recourse borrowing arrangement (LRBA)In the […]


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Landlord tax obligations under COVID-19 circumstances

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Property investors may have a number of tenants that have temporarily paused their rent payments or are not paying the full amount of rent owed due to being impacted by COVID-19. Regardless of rental income changes, landlords are still entitled to claim deductions on rental property expenses if they are still incurring regular rental property expenses. Landlords who receive a back-payment of rent, or an amount of insurance as a result of a decrease in rental income, will still need to include these amounts in their assessable income for the tax year that they receive the payment. Additionally, landlords may be faced with deferred loan repayments as a result of COVID-19. In this case, if your loan accumulates interest it will be considered as an incurred expense, meaning that you will still be able to continue claiming a deduction on your loan interest. It is likely that landlords of short-term rental properties have had their situation compromised by COVID-19 due to cancelled bookings and low demand. If your property is used both privately and for renting out short-term accommodation, you will be able to continue deducting property expenses in the same proportion as you were entitled to prior to COVID-19. […]


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Divorce and splitting your SMSF assets

Posted on June 11, 2020 by admin


Running an SMSF under regular circumstances comes with enough compliance obligations as it is. Adding divorce or separation into the equation can raise even more legal and tax issues that need to be addressed. The breakdown of your relationship does not absolve you from your responsibilities as an SMSF trustee; you are still expected to continue acting in accordance with super laws and in the interests of all members. As a trustee, you must: include another trustee in the decision-making process, and acknowledge requests to redeem assets and rollover benefits to another super fund. When it comes to dividing SMSF assets, separating couples can transfer assets, such as property, from one SMSF fund into another. During this process it is important to consider: How they will decide to split their superannuation fund. They can choose to enter into a formal written agreement, seek consent orders, or if the separating couple cannot reach an agreement, they can seek a court order. Whether they have the necessary documentation readily available, as it is essential in the event of an ATO audit. Due to there being beneficial tax consequences in splitting a superannuation fund, it is essential that the documentation, such as the […]


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Claiming self-education expense deductions

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Individuals upskilling and educating themselves during these down times may be eligible to claim a deduction for their self-education expenses. The deductions apply to self-education activities that are directly related to an individual’s work as an employee. In the case that individuals are looking to claim self-education expenses based on a course’s relation to their work, the relation must mean: maintaining or improving the specific skills or knowledge the individual requires in their current work activities; resulting in, or likely to result in, an increase in the individual’s income from their current work activities. There are many types of expenses you can claim as part of your self-education deduction, including: General course expenses (e.g. tuition fees, stationary, textbook, student union fees) Depreciating assets (e.g. computer, desk) Repair costs to assets used for self-education purposes Car assets (claimed using the cents per kilometre method) Work-related self-education expenses cannot be claimed as part of a deduction. These expenses include travel expenses, child care costs related to attendance of courses and capital costs of items (e.g. computers, desk) acquired for self-education purposes. Keep in mind that self-education courses which enable individuals to get new employment are not eligible for deduction claims. Some expenses […]


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Tax on super death benefits for dependants vs non-dependants

July 9, 2020

A super death benefit is the super paid after a person’s death, usually to a nominated beneficiary. These benefits are subject to different tax treatments, depending on whether the beneficiaries are dependant or non-dependant.

Superannuation death benefits will generally be received tax-free by tax dependants, who are considered to be:

Dependants will not have to pay tax on the tax-free component of their super in the event that they:

However, they will be taxed at their marginal rate if they receive a capped benefit income stream and:

Not all super death benefits are subject to tax; for non-dependants, there is a taxable portion. This component is largely made up of after-tax super contributions that the deceased member has made.

Super death benefit payments are subject to tax when:

Non-dependants must calculate how much money in the super account is a:

The amount of tax non-dependants pay will be based on their marginal tax rate, however, this amount may be reduced by tax offsets. For the taxed element of the taxable component, the effective tax rate is your marginal tax rate of 17% (whichever is lower). For the untaxed element of the taxable component, the effective tax rate is 32% or your marginal tax rate (whichever is lower).