Structured Settlement Contributions – What Are They And Why Should You Care?

Disasters, be they natural or man-made, can happen to anyone. It could be a car accident, a tree crashing through the roof, or a bushfire hitting your residence. In any case, an event that causes significant harm or impact that affects someone’s everyday life in an adverse way is never pleasant.

Thankfully, as a society, there are laws that provide compensation to people who experience these accidents as a result of someone else’s actions and are significantly impacted. If someone were to be (potentially) disabled for life due to such an incident, there may be a substantial compensation payout.

The idea of this compensation is not only to compensate for economic loss but to also provide a capital amount for the person’s living costs for the rest of their lives. Often that compensation will run to millions of dollars. Sounds like a lot, right?

If you receive compensation for becoming totally and permanently disabled, investing this lump sum should make it last far longer. This action will require careful planning and professional advice. Consulting with a professional on this financial decision may be in your best interest.

One effective strategy that can be used here is to make what is known as a Structured Settlement Contribution to superannuation.  You can then use your superannuation to pay you a pension.  If done correctly, all the money that your investment earns in super should be tax-free and all of the money that you draw out of super should also be tax-free. Removing tax from the equation when it comes to the money that you can draw out of your super will have a massive impact on your ability to have that money last your lifetime.

However, you need to make sure you comply with all of the rules around making a structured settlement superannuation contribution. These rules include:

1. You will usually have to be under 67 at the time of making the contribution
2. The contribution needs to be made within 90 days of getting the money
3. Two doctors need to certify that you are totally and permanently disabled
4. The payment must be compensation for personal injury where someone else was at fault or for workers compensation
5. You must notify your super fund that it is a structured settlement contribution

The contribution will also have no impact on your pension transfer balance limit.  This means that if you make a structured settlement contribution of $2 million then you will now be able to transfer $3.7 million into a pension instead of the usual $1.7 million.

The payments are usually received after a lengthy legal process and it is probably not something that will be top of mind for the 90 days following receipt of the funds but the decision to contribute the amount to superannuation can have a lasting positive impact on your after tax income.

Consulting with a registered professional about your options regarding contributions, withdrawals and general options can give a better understanding of what you might be in a position to do.

Business
advice

taxation
planning

compliance
services

News

Understanding Fringe Benefits Tax (FBT) And What It Covers

April 15, 2024

For businesses in Australia, providing fringe benefits to employees can be a valuable way to attract and retain talent, as well as incentivise performance.

However, employers need to understand their obligations regarding Fringe Benefits Tax (FBT). The Australian Taxation Office (ATO) administers FBT, a tax on certain non-cash benefits provided to employees in connection with their employment.

Let’s explore the types of fringe benefits subject to FBT to help businesses navigate this complex area of taxation.

1. Car Fringe Benefits

One common type of fringe benefit is the provision of a car for the private use of employees. This includes company cars, cars leased by the employer, or even reimbursing employees for the costs of using their own cars for work-related travel.

2. Housing Fringe Benefits

Employers may provide housing or accommodation to employees as part of their employment package. This can include providing rent-free or discounted accommodation, paying for utilities or maintenance, or providing housing allowances.

3. Expense Payment Fringe Benefits

Expense payment fringe benefits arise when an employer reimburses or pays for expenses incurred by an employee, such as entertainment expenses, travel expenses, or professional association fees.

4. Loan Fringe Benefits

If an employer provides loans to employees at low or no interest rates, the difference between the interest rate charged and the official rate set by the ATO may be considered a fringe benefit and subject to FBT.

5. Property Fringe Benefits

Providing employees with property, such as goods or assets, can also result in fringe benefits. This can include items such as computers, phones, or other equipment provided for personal use.

6. Living Away From Home Allowance (LAFHA)

When employers provide allowances to employees who need to live away from their usual residence for work purposes, such as for temporary work assignments or relocations, these allowances may be subject to FBT.

7. Entertainment Fringe Benefits

Entertainment fringe benefits arise when employers provide entertainment or recreation to employees or their associates. This can include meals, tickets to events, holidays, or other leisure activities.

8. Residual Fringe Benefits

Residual fringe benefits encompass any employee benefits that do not fall into one of the categories outlined above. This can include many miscellaneous benefits, such as gym memberships, childcare assistance, or gift vouchers.

Compliance With FBT Obligations

Employers must understand their FBT obligations and ensure compliance with relevant legislation and regulations. This includes accurately identifying and valuing fringe benefits, keeping detailed records, lodging FBT returns on time, and paying any FBT liability by the due date.

Fringe Benefits Tax (FBT) is an essential consideration for businesses that provide non-cash benefits to employees.

By understanding the types of fringe benefits subject to FBT, employers can ensure compliance with tax obligations and avoid potential penalties or liabilities.

Seeking professional advice from tax experts or consultants can also help businesses navigate the complexities of FBT and develop strategies to minimise tax exposure while maximising the value of employee benefits. Why not start a conversation with one of our trusted tax advisers today?

READ MORE