Background
The main residence exemption allows capital gains to be tax free for Australian taxpayers when they sell property that was their place of residence, subject to certain criteria. The exemption applies to property that was never available for rent, and also for a further six years once it has been available for rent (the “six year rule”). There is also the requirement that no other property is nominated as the taxpayer’s main residence. It is important to note that when a property is reoccupied as the main residence the six years will also reset.

New legislation
On 9 May 2017 as part of the Federal Budget, the Government announced they would be removing the Capital Gains Tax (CGT) main residence exemption for foreign residents. This was enacted on 12 December 2019, however the rules are to be applied retrospectively to CGT events from 7.30pm AEST on 9 May 2017 onwards. Transitional relief is available to those who acquired their main residence after 9 May 2017 and sold before 30 June 2020.

Individuals
If at the time the CGT event occurs the taxpayer is classified as a foreign resident, they will not be entitled to the main residence exemption. For individuals, the CGT event is generally the time a contract for the sale was entered into. This includes Australian citizens or permanent residents who live overseas and are classified as non-residents for tax purposes.

The new legislation does not allow for any apportionment of the main residence exemption for the time of residency. There is also no cost base reset available at the time of becoming a foreign resident. If someone has lived in their Australian property for 30 years, moves overseas, and then sells their property, they will be subject to tax on the total gains from the original purchase cost. Holding costs can usually be applied to decrease the gain, however records of these are likely to not have been kept as they have were never before expected to be required at sale in this scenario.

Deceased estates

The trustee of a deceased estate is not entitled to the CGT main residence exemption if the deceased individual was a foreign resident at the time of death. However, a beneficiary of the deceased estate that is a foreign resident, is entitled to the main residence exemption if the deceased person was not a foreign resident excluded from the exemption.

Life events test
If a taxpayer has been a foreign resident for less than 6 years, they may be able to access the main residence exemption if they satisfy a “life events test”, with applicable events including terminal illness, death and divorce. Speak to an accountant at FAJ to see if this may apply to you.

Conclusion
If you plan on moving abroad, we strongly suggest speaking to your accountant well in advance about your property holdings.

Expatriates over 65 selling their main residence may have increased flexibility in some circumstances by utilising the “super downsizer scheme” which was introduced from 30 June 20.

Other related blogs:

Six-year main residence exemption
CGT main residence exemption and moving overseas  

Author: Jake Solomon
Email: jake@faj.com.au

 

The super guarantee amnesty is a one off chance for employers to catch up on missed employee super with reduced penalties.

Whether it was past cash flow problems or not understanding super guarantee rules, it is not too late to correct past happenings to protect your business from harsh penalties.

On the 6th of March 2020 an amnesty for unpaid super guarantees was introduced. By law, an employee is entitled to a super contribution of 9.5% of their gross wage to be paid by their employer, provided they earn more than $450 in a calendar month. The Guarantee will increase from 9.5% to 10% on July 1 2021, and will rise to 12% from 1 July 2025.

The Amnesty is to encourage employers who have not been meeting their super obligations to come forward and report without risk of increased fines and penalties, while also allowing deductions to reduce their tax liability. Employers will need to lodge their super guarantee amnesty using an approved form before the 7th of September 2020.

Where the disclosure results is a large liability, and becuase of the impacts of Coronavirus, the ATO may establish payment plans for employers. However, only payments made before 7 September will qualify as a tax deduction, and it is imperative that once negotiations are made with the ATO, the employer must meet these obligations. Failure to make payment will result in disqualification from the amnesty. Penalties and interest will then apply.

It may seem daunting, or more convenient, to roll the dice and not look to resolve super liabilities for your employees. However, the ATO now has a greater ability to identify wrong doings, as a result of greater reporting requirements, and this significantly increases the chances of employers getting caught and being exposed to large penalties. 

Pro tip: Stay ahead of potential penalties by checking your super guarantee clearing account and ensuring the payments are being cleared monthly. 

Other related blogs:

When do I need to pay super for contractors

Making sense of Superstream for Employers

Author: Lachlan Hunn

Email: lachlan@faj.com.au    

Self-managed super funds must comply with Australian superannuation legislation which requires a compliance audit each financial year to avoid a range of penalties imposed by the ATO for failing to meet compliance obligations.

Three common SMSF audit issues consistently arising when reviewing Self-Managed Super Fund’s include:

  • Deed Upgrades

The trust deed for a SMSF stipulates all the rules which govern the operation of a SMSF.

As there are constant changes to superannuation laws, we recommend trustees upgrade their deed whenever there are significant changes and at least every 5 years to ensure it is consistent with current legislation, and does not restrict options for members.

  • Valuation of Assets

The SIS Act requires that all assets be shown at market value in the annual financial statements. This is so that the super fund value can be readily determined if a member wants to enter or leave the fund. 

Valuation is easy for listed securities like shares, but for non-listed assets such as property, artwork and other collectibles, this may pose as a complicated task to determine.

It is recommended by the ATO that all assets held in the superannuation fund are revalued regularly and carried at market value provided that the valuation is based on objective and supportable data. For more stable assets like property or collectibles, it may not be necessary to review values every year, unless there is a significant change to circumstances – for example a wide spread property downturn.

  • Assets held in the wrong name

Fund assets must be held in the name of the fund and must be clearly distinguishable from other assets held by the trustee. Where an SMSF has a corporate trustee (that acts solely as trustee for the fund), this trustee name must be displayed for all assets owned by the SMSF. However where a SMSF has a number of individual trustees, it is a common error for the SMSF to display only one individual trustee name rather than showing all individual trustee names, and to not show the name of the super fund. If the super fund name is not included, it’s not possible to determine whether the individual trustees hold the asset on behalf of the fund, or for themselves. This is particularly challenging for property as in WA you can only include trustee names on a title. In this case trustees must hold other evidence such as a declaration of trust to prove ownership.

Related blogs:

Corporate or natural SMSF trustee?
Can you hold artwork in your super fund?

 

Author: Jesper Lim
Email: jesper@faj.com.au

A recently released index saw business confidence in April rebound from its record low base in March.

Although confidence is still down, the uptick is a sure reflection of the effectiveness of the JobKeeper and other stimulus announcements in giving businesses the best chance of their COVID recovery and ultimate survival.

With our current health position being better than expected, and restrictions being lifted, it’s time for business owners to make plans for their recovery.

Firstly, it will not be business as usual. Growth will be gradual. The world is a very different place. On the positive, we will have learned new things, become more inventive with our offerings, and adopted new technologies.

If you managed to stay open, or have since re-opened, that’s great. If you’re still closed, but you’re receiving JobKeeper payments, you should now have your whole team working (at least part-time, so it comes at little or no cost) and take the opportunity to teach new skills, create new products, assess technologies, identify new markets and improve processes.

Hopefully consumers will now appreciate the benefit of buying local and businesses should make the most of this.

On the negative side, unemployment will be high, consumer spending will be restrained, and you’ll be on a tight budget. So you’re going to have to be amongst the best in your industry to get a decent share of business.

Customers will reset their choices and you can’t assume their immediate loyalty. You will need to once again build interest and awareness in your brand and products. Marketing will be crucial.

It all starts with planning, and now is the time. Not a complicated in-depth plan, but a one-page business plan that outlines how you’ll navigate through the awakening of the economy. Perhaps start at the beginning, because it sort of is. If you were a new business entering the market, how would you go about it?

Do a SWOT analysis as part of your planning. How can you use your JobKeeper subsidised resources to eliminate your weaknesses and prepare for your opportunities?

Think about what you’ve learned since restrictions have been in place. Do you still need all of that office space? Are Zoom meetings more efficient? Is your online platform as good as it could be? How can you better satisfy your customers’ needs?

Finish with an action plan. Who will do what by when? Give some responsibility to key team members and let them run with parts of it. You might be surprised.

Over the last couple of months we’ve had to think differently and learn to be agile. We now need to build on that to strengthen and perfect our adaptability, ready for whatever the world throws at us next.

Contact us if you need assistance with any aspect of planning for your COVID recovery.

Related blogs:

You need a business roadmap
Cash is king

Author: Mark Douglas
Email: mark@faj.com.au

Federal Government announces $27M in targeted relief funding for arts

Australia’s Art and Music sector was one of the first to be hit by restrictions from the result of COVID19. Australia- wide we have seen venues close, various performances and shows cancelled and an unbelievable number of performers and support crews out of work.

On the same night the $130billion JobKeeper legislation was passed, the Federal Government also made the announcement of $27 million in targeted support for Indigenous Arts, Regional Arts and arts charity Support Act.

The targeted support will be distributed as follows:

•$10 million to help regional artists and organisations develop new work and explore new delivery models. The funding will be delivered through Regional Arts Australia’s Regional Arts Fund, which had already been struggling following this year’s bushfire crisis.

•To support Indigenous artists and arts centres, the Government is providing $7 million in additional funding. The funding will be delivered under the Indigenous Visual Arts Industry Support program.

•The Government is providing $10 million to Support Act, the national music sector charity, which helps the most vulnerable music industry workers. The funding will allow Support Act to recruit new counsellors and expand counselling services, and provide critical resources to music and performing arts artists and workers.

Australia’s live performance industry is estimated to be worth over $4 million. Live Performance Australia (LPA) firmly believe the Federal Government has not grasped the scale of devastation that has shaken the industry. While the additional funds are a relief to some, much more is needed, especially if the industry is to have any prospect of surviving after COVID-19.

Related blog – New audit rules for clubs and associations 

Author: Natasha Woodvine
Email: natasha@faj.com.au

The State Government has introduced a number of payroll tax concessions to support businesses affected by COVID-19 including the following:

  • Payroll tax waiver
  • Grant payment
  • Threshold increase
  • JobKeeper payments

Payroll tax waiver

If your Australian taxable wages were less than $5 million at 29 February 2020, your payroll tax will be waived for the March to June 2020 payroll tax returns. You will still need to complete your March to June payroll tax returns as normal. Then record your WA taxable wages in the ‘exempt (other) wages’ field to apply the waiver.

If your Australian taxable wages are more than $5 million at 29 February 2020 but you expect they will be less than $7.5 million at 30 June 2020 or you register for payroll tax after 1 March 2020 you must apply to defer lodging and paying your March to June payroll tax returns until July. If your wages are less than $7.5 million for the year then your payroll tax liability for March to June will be waived

Grant Payment

Employers, or a group of employers, whose Australian taxable wages were between $1 million and $4 million in 2018-19 will receive a one-off grant of $17,500. You do not need to apply for this grant, if you meet the criteria you will receive a cheque from July 2020.

If you recently registered for payroll tax then your 2019-20 Australian taxable wages will be used to determine your eligibility for the grant. The grant payment will be made once you have completed your 2019-20 annual reconciliation.

Threshold Increase

The payroll tax threshold will increase to $1 million on 1 July 2020.

JobKeeper payments Wages paid by employers that are subsidised by the Australian Government’s JobKeeper payment are exempt from payroll tax. The exemption does not apply to any part of wages that are not subsidised

Contact our office if you’d like some assistance or advice around these payroll tax concessions.

Other related blogs:
Jobkeeper stimulus is the best yet
Cash Flow Boost

Author: Jessica Russell
Email: jessica@faj.com.au

During the week the Government announced the JobKeeper stimulus targeted at keeping employers and their employees connected through this current crisis.

The intention is that businesses impacted by the Coronavirus will have wage costs subsidised so they can continue to pay their employees, whether they’re currently working or not.

Businesses can register their interest with the ATO now (almost 500,000 businesses did this within 48 hours of the announcement), but won’t be able to apply until the legislation is passed, hopefully within a week or so. 

Here’s how it will work.

If your business has a turnover of less than $1 billion and has suffered a 30% or more drop in turnover compared to the same month last year, you can register with the ATO. The turnover reduction is self-assessed, and the ATO has some discretion for those that don’t quite meet the criteria.

You then pay your existing workers. If they earn more than $1,500 (before tax) per fortnight, you pay them their normal pay. If they earn less than $1,500 per fortnight, you pay them $1,500 (yes, they get a pay rise).

At the end of the month, the government will reimburse you $1,500 per eligible employee. This will be effective from 30 March 2020 for a maximum period of six months, so your first Government payment will be received in the first week of May.

Eligible employees are your staff that have been employed since at least 1 March 2020 and are full-timers or part-timers. The package also extends to casual workers that have been with you for at least 12 months. Employees must be at least 16 years old and Australian citizens or relevant visa holders.

The subsidy is also available to employees that have been stood down (but not those made redundant, unless re-hired). So you are effectively able to re-engage your team at no cost, regardless of whether you ask them to show up for work or not. The aim is that you can continue to employ them, pay them, and maintain connection with them through this crisis, so hopefully when it’s all over you can hit the ground running. 

The JobKeeker subsidy is also accessible by self-employed people who have suffered a drop in income, regardless of whether they employ any staff. However there is little detail yet as to who might qualify as “self-employed” and how those rules will apply..

Not for Profit entities are eligible under the stimulus package too.

You will still need to pay super based on your staff’s normal earnings, but it’s up to you whether you pay the extra super for employees who were previously on less than $1,500.

A quick note for employees – you can only get the JobKeeker payment through one employer, and it may affect your entitlement to other Centrelink benefits.

The JobKeeper stimulus is a great initiative. It keeps workers employed, keeps people away from Centrelink queues, and gives businesses a fighting chance.

Other related blogs:
Cash Flow Boost

Author: Mark Douglas
Email: mark@faj.com.au

The federal government has been rolling out a series of measures to support businesses and the economy during the current Coronavirus crisis. One such measure is a cash flow boost for businesses that pay wages.

If you currently withhold tax from salary and wages you may be eligible to participate in the stimulus package. The cash flow boost provides businesses with a minimum $20,000 boost up to a maximum of $100,000.

To be eligible for this payment you need to be a small or medium business who held an ABN at 12 March 2020 with an aggregated turnover under $50 million. To determine if your turnover is under the threshold the tax office will either refer to your 2019 tax return if lodged by the 12 March 2020 or if you have not lodged your return then tax office will refer to your business activity statements lodged from 1 July 2018 to 12 March 2020.

As well as meeting the above conditions you also need to have made one or more of the following eligible payments during the period:

  • Salary and wages
  • Director fees
  • Eligible retirement or termination payments
  • Compensation payments
  • Voluntary withholding from payment to contactors

The cash flow boost will be delivered as credits on your business activity statements and if resulting in a refund will be refunded to your account within 14 days. Note for the March BAS the credit will not be applied until at least 28 April 2020.

The cash flow boost will be paid in two “boosts.” The first boost paid will be dependent on if you are a quarterly or monthly lodger. If you are a quarterly lodger, your boost paid will be 100% of PAYG withheld as reported on your March 2020 BAS and June 2020 BAS with a minimum credit of $10,000 and a maximum of $50,000. For monthly lodgers the boost paid will be 300% of the March 2020 BAS and then 100% of the April 2020, May 2020 and June 2020 BASs with a minimum credit of $10,000 and a maximum of $50,000.

The second boost paid will be equal to whatever amount you got from the first boost. It will be split between your BASs lodged from June 2020 to September 2020. Quarterly BAS lodgers will receive 50% of the total initial cash flow boosts on lodgement of each of the June 2020 and September 2020 BASs. Monthly BAS lodgers will receive 25% of the total initial cash flow boosts on lodgement of each of the June 2020, July 2020, August 2020 and September 2020 BASs.

For further details regarding the boost or to calculate your possible entitlement please contact FAJ on 9335 5211 or contact Jess on the email below.

Author: Jessica Russell
Email: jessica@faj.com.au

Accounting software is constantly taking advantage of new and improved technologies including automation and artificial intelligence. But these are features that need to be understood and activated before they can be of use. To optimize your time and obtain the best results from your accounting software it’s best to aim for as much automation as possible.

Bank feeds have revolutionised the way we now reconcile our bank and credit card accounts. A bank feed just means that your bank or financial institution uploads your bank transactions into your software on a regular basis (usually daily). Even transactions from other applications like PayPal and Stripe can be set up to feed into your software. Having your transactions fed into your software removes the need for laborious data entry. The ability to quickly match transactions based on machine learning and on rules you set up, assists in speedier reconciliations of your data and more up to date information for your reporting. Some software allows for cash coding so even small businesses are not weighed down with intricate coding.

Creating bank rules that allow you to automatically match bank transactions is another way of speeding up the process. For example you might set up a rule that every time a description includes the term “Officeworks”, the expense is automatically coded to the stationery expense. Being mindful of using meaningful and identifiable bank references through internet banking can assist in getting the most out of your bank rules. There can also be an advantage in having a business credit card as these tend to highlight suppliers names in the transaction listing. Even recording transfers between your bank accounts and credit cards can be automated with bank rules. Regular loan payments, wages and drawings can all be set up using bank rules.

So utilizing these features in your online software enables up to date information hence more control over your time and your cash. But automation comes with a downside. When using rules or relying on machine learning there’s always a larger margin for error of mis-coding, and once an error is made it tends to repeat. So importantly, you should invest a little bit of the time you save into a quick review of your general ledger and profit and loss statements to identify and correct any errors. The rest of the time saved is all yours.

Other related blogs:

What are bank feeds?
Choosing the right accounting software

Author: Kay Giles
Email: kay@faj.com.au

We hear everywhere that it’s a great idea to put as much as we can afford into our superannuation funds to set ourselves up for retirement. This money is invested by the fund with the underlying idea that it will result in significant returns that will support us upon reaching retirement until death.

Concessional vs Non-Concessional

What you may not realise is that all super contributions fall under one of the above categories. Concessional contributions are all contributions made to super with your before-tax income, meaning either you or your employer will receive a tax-deduction for the contribution. This is usually super paid by your employer under super guarantee laws, being 9.5% of your ordinary income, but can also include personal contributions you make (see below). Non-concessional contributions are contributions made with income that has either already being taxed in your own name or will be at the end of the financial year when you lodge a tax return. You don’t get a tax deduction for non-concessional super contributions. A potential advantage of concessional contributions is that they are tax deductible at your marginal tax rate (i.e. up to 45%) whereas the super fund generally pays 15% tax on receipt of the contribution. The difference is a real saving towards your retirement and provides opportunities for those wanting to contribute more to super.

Claiming a tax deduction for personal super contributions

It is possible to claim a tax deduction for any personal super contributions made during the year so they can be treated as concessional rather than non-concessional. This will result in the potential tax savings outlined above.

Too good to be true?

We need to keep in mind that there is a concessional contribution cap of $25,000 annually for all taxpayers. This cap includes both employer contributions and personal contributions. Employers only need to pay the 9.5% super guarantee up to a maximum limit on an employee’s earnings each quarter of $55,270. This would result in super paid of $5,250.65 each quarter and $21,002.60 annually, which we find is below the cap. Nevertheless, employers can pay more super to their employees if they wish, at any income level. This may put them over the contributions cap, even if they earn less than the maximum earnings limit.

What next?

If you happen to go over the $25,000 concessional contributions cap, the ATO will send to you an Amended Notice of Assessment for that financial year, increasing your taxable income by the amount you were over the cap. This is done to re-allocate the contributions as non-concessional and to charge at your marginal tax rate. There is also a small excess concessional contributions (ECC) charge which has the intent of acknowledging that the tax is collected later than it would have been if you didn;t have excess contributions. The ECC is calculated from the start of the income year until the day before the tax is due to be paid and uses a compounding interest formula.

Pro tips:

  • When you get your amended assessment you can elect to release the excess contributions from your super fund which can help in paying any additional tax and the ECC.
  • To obtain a tax deduction for personal contributions you must give your super fund a notice of intention to claim a deduction before you lodge your tax return – this is a standard ATO form.
  • If you have made any personal super contributions during the year, bring your annual superfund statement in when you come to complete your annual tax return so an accountant can work out if you can claim a deduction, and if so, how much

Other related blogs:

Allowing catch up concessional contributions
Super Concessional Contribution Cap
Contributing to super – options for employees

Author: Jake Solomon
Email: jake@faj.com.au