A tax deduction is something you claim in your tax return that reduces your assessable income, meaning you pay less income tax and therefore get a bigger tax refund (or reduce your tax bill).

For a donation to be tax deductible, it must be for $2 or more and made to an organisation that is ‘endorsed’ by the Australian Tax Office (ATO) as a Deductible Gift Recipient (DGR). It must also be a genuine gift, you cannot receive any benefit from the donation. If you receive something in exchange for the donation (e.g. a raffle ticket, items, entertainment or food) then it doesn’t qualify as a tax deduction. The Tax Office defines this as a transaction where you receive a good or service in return for the money donated.

Organisations have to apply to the ATO to get DGR status, and there are a majority of registered charities that don’t have DGR endorsement. Not being able to offer a tax deduction for a donation as a DGR is not an indication that the charity is illegitimate or that its cause isn’t valuable. DGR endorsement is just a tax concession that some charities have applied for and are entitled to.

For some people, being able to claim the donation back on their personal tax return is important in making a decision to donate, but for others it isn’t. To determine if a charity has DGR status, you can visit the ACNC Charity Register.

Author: Natasha Woodvine

Email: natasha@faj.com.au    

The amount you might need in super to retire depends on the type of lifestyle you plan to live post retirement.

As per studies conducted by the Australian Institute of Health and Welfare, the average life expectancy of males and females born in Australia have increased over the years to an average life expectancy of 80 years for males, and 85 years for females. The growing trend of increases in life expectancy means that more savings is likely to be required at retirement in the future, therefore highlighting the importance of sound financial planning.

Although there is no direct answer on how much savings is required at retirement, the Australian Financial Security Authority (AFSA) provides a benchmark of how much singles and couples need to save to support their chosen lifestyle.

 

Households Modest Lifestyle Comfortable Lifestyle
Single $27,902 a year $43,687 a year
Couple $40,380 a year $61,909 a year

A modest retirement lifestyle is considered as only being able to afford fairly basic activities. A comfortable retirement lifestyle considers the retiree to be involved in a broad range of leisure and recreational activities and to have a good standard of living through the purchase of such things such as; household goods, private health insurance, a reasonable car, good clothes, a range of electronic equipment, and occasionally holiday travel.

ASFA estimates that $545,000 ($640,000 for couples) in super at retirement will provide enough for a comfortable lifestyle, and $70,000 will provide for a moderate lifestyle. Both calculations assume that retirees will also receive a full or part pension to supplement their super.  

It is also important to remember that for most people, their home is their biggest asset and so they can always use this to downsize in the future for income needs as well.

Related blogs:

Super contributions from downsizing your home 
How can you access your super?

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

Trend analysis uses past data in order to predict the future of your business and the environment in which it operates. It’s a simple tool you can use to assist you in planning and setting strategy for your business.

It involves the examination of business data over time to identify trends and develop strategies that are in line with your business goals and objectives. A very simple example might be to plot your sales of various product categories over the last 5 years. Which product groups are trending up, and which are trending down? Once you know that you might make some business decisions about your product lines based on the results.

Trend analysis helps to highlight the strengths and weaknesses of your business, aiding in improving areas of underperformance and maintaining those that are successful. It can also assist in industry comparisons by benchmarking against competitors, maintaining adequate cash flow and profitability levels.

The main form of measurement is known as a Key Performance Indicator (KPI’s). As the name suggests, KPI’s are performance measures aligned with the strategic goals of your organisation. To assist in developing effective KPI’s it is recommend they reflect the balance scorecard of the business, covering the following four factors; Financial, Customer, Internal Business Processes and Learning & Growth. Examples of KPI’s that achieve each quadrant of the balanced scorecard include;

  • Financial
    • Ratios measuring profitability (gross profit margin), cost effectiveness (net profit margin) and cash flow (quick asset ratio)
  • Customer
    • Customer satisfaction (surveys) and customer retention (number of repeat purchases)
  • Internal Business Processes
    • Quality control, inventory turnover and safety record
  • Learning & Growth
    • Employee training, turnover and skills

Once your business has identified which trends to measure, you can establish thresholds to trigger further investigation (e.g. an increase/decrease of over 15% in KPI). The business will then need to consider causation of the trend (internal or external factors) and how to manage this trend in line with the strategic business goals.

To optimise the benefits of trend analysis for your business you’ll need accurate and timely records, full employee participation and clarity of data. It’s also important to recognise that trend analysis only involves the analysis of past data and thus, is limited by its historical nature.

Other related blogs:

What is a SWOT analysis and why do I need it for mu business?
Why small business should be using monthly budgeting
You need a business roadmap

Author: Georgia Burgess
Email: georgia@faj.com.au

As the threat of a second wave of coronavirus looms in Western Australia it’s never been more crucial for businesses to ensure they have strategies in place to best cope with any potential changes in trading environments.

A SWOT analysis is a simple yet powerful means of reviewing aspects of an organisation that need to be addressed to ensure profitability and survival into the foreseeable future.

SWOT stands for Strengths, Weaknesses, Opportunities, and Threats, and your business may undertake a SWOT analysis as a method for assessing and evaluating these four aspects.

By collating information relating to each category an organisation can integrate findings into its own business strategy to build on the existing strengths of the organisation, minimise weaknesses, seize opportunities and mitigate threats.

How do you prepare a SWOT analysis?

A SWOT analysis should be a collaboration between multiple people with varying perspectives of an organisation. A brain storm is a great forum for this. Here’s some things you might consider;

Strengths
– Things your company does well
– Qualities that separate you from your competitors
– Internal resources such as knowledgeable staff
– Intangible assets such as intellectual property, capital proprietary technologies etc.

Weaknesses
– Things your company lacks
– Things your competitors do better than you
– Resource limitations

Opportunities
– Underserved markets for specific products
– Social or regulatory changes creating a market for a new product or service
– Media coverage of your company

Threats
– Emerging competitors
– Negative press/ media coverage
– Social or regulatory changes eliminating markets you currently service

Once you’ve examined all four aspects of SWOT you will have a long list of potential actions your organisation can take.

The biggest limitation of a SWOT analysis is that it provides no actionable tasks for your organisation, this places the responsibility on business owners to implement an actionable strategy based upon significant findings uncovered by the SWOT analysis.

At Francis A Jones we are here to help with more than just tax returns. If you need assistance with creating a SWOT analysis or a strategic plan get in contact with one of our specialists.

Related blogs:

Ready for COVID recovery
You need a business roadmap

Author: Nick Vincent
Email: nick@faj.com.au

Monthly budgeting is an essential tool to help you make strategic business decisions that will result in a success. It gives you a better understanding of your business and where you stand going forward, and has never been as important as it is in the current economic environment.

Budgeting identifies current available capital, provides an estimate of expenditure and anticipates incoming revenue. By referring to the budget businesses can measure performance against expenditure and ensure that resources are available for initiatives that support business growth and development. It enables the business owner to concentrate on cash flow, reducing costs, improving profits and increasing returns on investment.

Setting up your budget:

Nearly all accounting software providers will provide you with some sort of budgeting feature. It will set out a format where you can provide your business inflows and outflows and show you where your business money is going on one document. You can then test out different scenarios for your business. E.g what if sales go up by 10%, what if I lose a big client or can I afford to hire more staff.

It is important to review your budget constantly and monthly is generally a good time frame. As future events become more known you should update the budget accordingly. Since a budget applies a lot of estimating and forecasting for future events it’s important to update these figures to make sure the budget is as accurate as possible, especially in rapidly changing conditions.. This will give you better information to make informed business decisions.

But most of all, a budget gives you more certainty and confidence. You get a clearer picture of the state of your business and you know where you stand. You’ll be able to see the obstacles and find your way around them.

Preparing a budget is one of FAJ’s Planning and Growth services. If you would like any assistance please contact us.

Other related blogs:

Ready for COVID recovery
You need a business roadmap
Cash is king

Author: Rhys Frewin
Email: rhys@faj.com.au

 

GST recently reached the ripe old age of twenty. Hip-hip hooray.

I remember its birth well. First of July 2000. Actually, the recent COVID-19 stimulus measures reminded me of the introduction of GST, albeit that GST was implemented in a more controlled and measured fashion. As accountants we had no experience to draw on, and spent hours reading and interpreting draft legislation that came with very little practical explanation and certainly no legal precedents to follow.

Much like the situation during COVID, accountants were heavily relied on to steer our clients through the uncertainty. It was a stressful and busy time. We’d just mitigated an imaginary millennial bug and were distracted by dot com developments. Google hardly existed and dialling up Jeeves was less than helpful.

The original GST concept was simple. Scrap the complicated sales tax system, put 10% GST on everything and distribute the proceeds to the states. Truly a broad based tax. But to gain senate approval and get it over the line, the Government was forced to make last minute concessions around food, healthcare, education and childcare.

These carve-outs meant the new tax system didn’t raise the revenue it was expected to, and made the GST system incredibly complex. It’s been troubled ever since – there are currently 45 separate rulings regarding cakes and decorations. No wonder John Hewson struggled.

Although more recent changes have brought overseas companies like Netflix into the mix, GST revenue in Australia represents only 3.4% of GDP, compared with the OECD average of 6.8%.

There’s been many calls to increase the GST rate to 12.5% or 15% over recent years. I would much rather see an increase to the base – back to how it was designed in the first place. 10% on everything, no exceptions, nice and simple. It’s been estimated that making those excluded items taxable would increase GST revenues by $22 billion, which would increase our total take by about one third.

This increase could fund the reduction of state based payroll tax systems that currently stymy employment growth.

The counter argument for extending the base is that it will increase the cost of living for those most vulnerable in our society. This is true and the challenge for our politicians is to carefully construct alternate ways to compensate those impacted, most likely through our welfare system. It’s estimated that it would cost around a third of the extra revenue raised to achieve this.

The GST system needs an overhaul to future-proof it. Spending today is not what it was twenty years ago.  We now spend proportionately more on education and health, both GST exempt under the current system.

Related blog:
Do I need to register for GST?

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

An employer is obligated to pay super guarantee (currently at 9.5%) for their employees by the designated due dates. Harsh penalties exist in order to discourage late payment and protect the retirement funds of employees.

With Single Touch Payroll now mandatory, the ATO’s ability to identify those employers who do not pay their super obligation has never been greater. It is therefore imperative that employers understand how they could be penalised for late payments of super and the options available to minimise the consequences. Employers who do not pay super guarantee on time will be liable for the superannuation guarantee charge (SGC). The charge is equal to the sum of:

  • the superannuation guarantee shortfall (i.e. the super not paid)
  • an interest charge of 10% per annum
  • an administration charge of $20 per employee per quarter where there is a shortfall

A tax deduction is not available for the superannuation guarantee charge. Where an employer has missed super guarantee payments by the due date, they must complete a Super Guarantee Charge Statement. The due dates for lodgement and payment are set out in the table below.  

Quarter Period Due date for SG payment Due date for lodgement of SGC Statement
1 1 July – 30 September 28 October 28 November
2 1 October – 31 December 28 January 28 February
3 1 January – 31 March 28 April 28 May
4 1 April – 30 June 28 July 28 August

If an employer fails to lodge the SGC statement on time, they may be subject to an additional penalty of up to 200% of the amount of SGC.

Be upfront and avoid penalties

For a limited time only, the ATO have introduced a super guarantee amnesty period. This is a one-off opportunity until 7th September 2020 to disclose any unpaid super and avoid administration charges during the amnesty period. A deduction for the SGC can also still be claimed for late super paid during this period. Time is quickly running out, so speak to an FAJ accountant now to take advantage of this amnesty.

Other related blogs:

Super Guarantee Amnesty

Author: Georgia Burgess
Email: georgia@faj.com.au
 

As part of the stimulus package to deal with the economic impacts of COVID-19, the Federal Government created a scheme to access your super early.

The scheme allowed people who have suffered financially to access their super in two hits – one of up to $10,000 by 30 June 2020, and another of up to $10,000 between 1 July and 31 December 2020. Eligibility factors include loss of earnings, unemployment, redundancy and access to welfare.

APRA have recently released figures showing that 2.3 million applications have been approved so far and around $17.1 billion has been withdrawn.

The scheme is intended for those under real financial stress, and in my view should be accessed as a very last resort. There’s two reasons:

Firstly, the long-term cost of the withdrawal will be huge. The younger you are, the bigger that cost will be by the time you get to retirement. At a 5% future earnings rate, a 30 year old that withdraws $10,000 now will forego around $63,000 at retirement. Those withdrawing the entire balance of their super fund may also lose valuable life insurance cover. If you’re considering the second tranche, please give it some serious thought first.

Secondly, the Tax Office is keeping a very close eye on this scheme. They are looking hard at eligibility and warning of penalties of up to $12,000 for making false and misleading statements.

They are also convinced that nobody should intentionally get a tax benefit out of this.

As long as you’re eligible, it’s ok to apply for the early access whether you truly need the money or not. Not a great idea, but legal. And in theory, if you withdraw money under the early access scheme, have a change of circumstances and no longer need it, you could re-contribute some or all of that money back into super.

The problem is that for most people that will create a tax benefit, because the money will have come out tax-free under the scheme, and will likely create a tax deduction when it goes back in. There’s a nasty little provision in the Tax Act known as Part IVA (part four A). It’s a complex section, so my more simplistic interpretation is “if the main reason for doing something is to get a tax benefit then don’t do it, or else”. Part IVA comes with big penalties, and it’s one of those guilty until proven innocent type rules.

The Tax Office are making a lot of noise about this scheme, so tread carefully if you need access to your super, but think hard about whether you really do.

Related blog:
How can you access your super?

 

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

 

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 because 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