June 2023 Newsletter

Welcome to our June newsletter and, as the winter sets in and the end of the financial year approaches, it’s a good chance to spend some time tidying up and reviewing your finances.

Concerns that the Reserve Bank may lift interest rates this month, along with the drama over the US debt ceiling and the worry that the US Treasury may run out of cash, have affected local markets and the Australian dollar.

The dollar is at its lowest level in six months, at just under US65 cents, while the ASX200 ended the month nearly 3% down thanks also to weaker commodity prices. Energy and mining stocks led the falls. Brent Crude was down 7.5% for the month while iron ore prices hit a six-month low.

Inflation rose 6.8% in the 12 months to April, up from 6.3% in March and the number of housing approvals nosedived in April, down 8.1% after a 1.0% fall in March.

The rising prices have continued to dent consumer confidence. The ANZ-Roy Morgan Consumer Confidence survey has now spent 13 straight weeks at its lowest mark since the 1990-1991 recession. The survey reveals that only 7% of Australians expect good times ahead for the Australian economy in the next 12 months. With less money to go around, retail trade has plateaued over the past six months.

The latest unemployment figures show a slight increase to 3.7% in April and a slight decrease in the participation rate.

Each year the Trustee of a Family Trust (also known as a Discretionary Trust) must make a resolution to distribute the income of the trust before 30 June.
If you are either a Director of a Trustee Company or are an Individual Trustee for a Family Trust (also known as a Discretionary Trust), you need to have prepared a Trustee Resolution and this is to be signed before the 30th June each year.
If a Trustee fails to make a resolution to distribute the income of the Trust before the end of the financial year, the Trustee may be assessed by the Australian Taxation Office (ATO) on the Trust income at the highest marginal tax rate of 47%, rather than the intended beneficiary(s) being taxed at generally much lower rates.
To discuss all matters related to your Trust and the Trustees Resolution, please do not hesitate to contact your trusted advisor at King and Whittle.

For some Internal News at King & Whittle - we wish to acknowledge our Wealth Director Bruce Dyason.
Bruce collaborates and is passionately a part of the Pro Bono Financial Advice Network (PFAN) and assists in helping to help change the lives of those in need.
PFAN is a unique group of advisors committed to making a difference to the financial wellbeing of Australians living with serious illness and/or disability by providing quality pro bono financial advice and to inspire others to do the same.

We also wish to congratulate Robert Barrese ,Director - and now also a Justice of the Peace (JP).

So happy to hear when people pay good fortune forward...
Enjoy the Newsletter.

Tax Alert June 2023

Budget incentives and crackdowns on unpaid tax debts and rental deductions

Although this year’s Federal Budget was short on big changes when it came to tax, there still have still been some important developments in this area. Here are some of the latest developments in the world of tax.

Small business tax incentives and write-offs

The budget ushered in some valuable new tax incentives for small businesses, including halving the increase in quarterly tax instalments from 12 per cent to 6 per cent for both GST and income tax during 2023-24.

The government also introduced a bonus 20 per cent deduction for businesses with turnovers under $50 million when they spend on energy saving upgrades. Up to $100,000 of total expenditure will be eligible, with the maximum bonus tax deduction being $20,000 per business.

Although smaller than the previous year, the instant asset write-off continues in 2023-24 with up to $20,000 available for immediate deduction on eligible assets.

The planned third tranche of personal income tax cuts due to start next financial year also remained in place, while >the low and middle income tax offset was not extended.

Super changes for employers

Another significant tax change announced in the budget will affect employers. From 1 July 2026 employers will be required to pay their Super Guarantee (SG) obligations at the same time they pay employee salary and wages.

The ATO has received additional resources to help it detect unpaid super payments earlier.

Employers also need to remember the SG amount for employee super rises to 11 per cent from 1 July 2023.

Tax debt warnings sent out

The ATO is continuing to write to directors of companies with tax debts warning if the company hasn’t paid the amount owing or contacted it to make other arrangements, a director penalty notice(DPN) may be issued.

DPNs are issued to current directors and anyone who was a director at the time the company failed to pay. They make directors personally liable for failure to meet pay-as-you-go withholding (PAYGW), GST and Super Guarantee Charge obligations.

Directors receiving these letters need to arrange payment of the overdue amount or enter into a payment plan.

Data-matching adds investment properties

Residential investment property loans (RIPL) are the latest target of the ATO’s increasingly wide-ranging data-matching program.

Data will be obtained from financial institutions including all the major banks, regional banks and building societies.

The information is being collected following the ATO’s identification of a tax gap of $1 billion for individuals in the 2020-21 financial year due to incorrect reporting of rental property expenses.

Self-education expenses under spotlight

The ATO is currently developinga new draft taxation ruling covering the deductibility of self-education expenses incurred by an employee or an individual carrying on a business.

The draft ruling will reflect the current rules in this area following repeal of several sections of the Income Tax Assessment Act and some new legal decisions. The new ruling is expected to be completed in late June.

Taxpayers claiming self-education expenses recently had the existing requirement to exclude the first $250 of deductions removed.

GST fraud enforcement continues

Search warrants were executed in three states against individuals suspected of promoting the fraud. This follows previous compliance action against more than 53,000 people, with two individuals sentenced to jail time for their GST fraud activities.

Cyber safety checklist released

The ATO is again emphasising the importance of business cyber safety by releasing a new checklist for small businesses.

The tips include simple ideas for keeping business and client data safe from cybercriminals, such as turning on automatic updates and using multi-factor authentication when possible.

Resources for training staff on preventing, recognising, and reporting cyber incidents are available from the government’s Australian Cyber Security Centre.

Setting yourself up for success in the new financial year

The start of a new financial year is the perfect time to get your financial affairs in order. Whether it's tidying up your paperwork, assessing your portfolio or dealing with outstanding issues, there are plenty of practical actions you can take.

Here are some strategies for starting the new financial year on the right foot.

Tidy up your paperwork

Dealing with the paperwork is the task most of us love to hate. But taking a day to trawl through the ‘To Do’ pile and the growing mountain of filing could be a good investment in yourself. What’s more, you might identify some savings.

Set your budget

A lot can happen in a year, so it makes sense to review your budget to ensure it still works towards your goals in the new year. This will help you track your changing expenses and ensure you're not overspending. And if you haven’t got a working budget, now’s a great time to start. There are plenty of budgeting apps and tools available online that can help you get started.

Assess your portfolio

Another important step to take as you start the new financial year is to assess your investment portfolio.

Some important questions include:

• Why did you start investing and have your circumstances changed? For example, you may have started investing to receive a better return than your term deposits but now that term deposits rates have increased and share markets are challenged, should you revisit that goal?

• What is the investment performance? Is it in line with your expectation and the benchmark?

• Should you consider diversifying into different asset classes?

• Is dividend reinvestment the best option for you or should you take the dividend income into cash?

• Is your risk appetite still the same, or should you be aggressive or more conservative?

Check your insurance

Now is a good time to examine your insurances closely and to consider whether they match your needs and risks. It is also a good reminder to take note of policy renewal dates so that you can shop around to make sure you get the best price.

Understand Federal Budget changes

Keeping up to date with the commentary about Federal Budget initiatives may be useful.

The measures aimed at easing the cost of living will provide a boost to some. They include energy bill relief for concession card holders and energy saving incentives. Meanwhile those with chronic health conditions will benefit from a number of changes announced in the budget.

The Budget also included support for families with cheaper childcare and a more flexible Paid Parental Leave scheme, and incentives for some types of new home building projects.

Review your superannuation

A review – at least annually - of your super account is vital to make sure that:

• Your investments and risk strategy are still right for you

• The fees are reasonable

• Any insurance policies held in your super account are appropriate

• Your employer contributions are being made

• Your death benefit nomination is relevant

• You don’t have multiple accounts incurring unnecessary fees

You might also consider a salary sacrifice strategy, where you ask your employer to make extra super contributions from your pre-tax salary. These additional contributions are taxed at 15 per cent within the super fund, plus an additional 15% if Division 293 tax applies to you (income over $250,000).

Meanwhile, it is not too late to top up your super balance for this financial year using either concessional contributions (from your pre-tax income) or non-concessional contributions (after-tax income). Don’t forget the caps on payments, which are $27,500 for concessional contributions and $110,000 for non-concessional.

It is a good idea to get some expert advice regarding your super contributions, we can assist with the best ways to manage your contributions.

So, set yourself up for a fresh start to the year with some simple strategies to help you achieve your financial goals.

How to get super ready for EOFY

Superannuation has been in the news recently, with a change announced in the Federal Budget impacting those whose total balance exceeds $3 million. While this change applying from 1 July 2025 still needs to be legislated, it’s worthwhile turning our focus to superannuation balances as we approach the end of this financial year.

There are lots of different ways to top up your super, but if you want to take advantage of the opportunity to maximise your contributions, it is important not to wait until the last minute.

One of the simplest ways to boost your retirement savings is to contribute a bit extra into your super account from your before-tax income. When you make a voluntary personal contribution, you may even be able to claim it as a tax deduction.

If you have any unused concessional contribution amounts from previous financial years and your super balance is less than $500,000, you can also make a carry-forward contribution. This can be a great way to offset your income if you have higher-than-usual earnings this year.

Another easy way to boost your super is by making tax-effective super contributions through a salary sacrifice arrangement. Now is a good time to discuss this with your boss, because the Australian Taxation Office requires these arrangements to be documented prior to commencement.

Non-concessional super strategies

If you have some spare cash and have reached your concessional contributions limit, received an inheritance, or have additional personal savings you would like to put into super, voluntary non-concessional contributions can be a good solution.

Non-concessional super contributions are payments you put into your super from your savings or from income you have already paid tax on. They are not taxed when they are received by your super fund.

Although you can’t claim a tax deduction for non-concessional contributions because they aren’t taxed when entering your super account, they can be a great way to get money into the lower taxed super system.

Downsizer contributions are another option if you’re aged 55 and over and plan to sell your home. The rules allow you to contribute up to $300,000 ($600,000 for a couple) from your sale proceeds.

And don’t forget you can make a contribution into your low-income spouse’s super account - it could score you a tax offset of up to $540.

Eligible low-income earners also benefit from the government’s super co-contribution rules. The government will pay 50 cents for every dollar you pay into your super up to a maximum of $500.

Your tax bill can benefit

Making extra contributions before the end of the financial year can give your retirement savings a healthy boost, but it can also potentially reduce your tax bill.

Concessional contributions are taxed at only 15 per cent, which for most people is lower than their marginal tax rate. You benefit by paying less tax compared to receiving the money as normal income.

If you earn over $250,000, however, you may be required to pay additional tax under the Division 293 tax rules.

Some voluntary personal contributions may also provide a handy tax deduction, while the investment returns you earn on your super are only taxed at 15 per cent.

Watch your annual contribution limit

Before rushing off to make a contribution, it’s important to check where you stand with your annual caps. These are the limits on how much you can add to your super account each year. If you exceed them, you will pay extra tax.

For concessional contributions, the current annual cap is $27,500 and this applies to everyone.

When it comes to non-concessional contributions, for most people under age 75 the annual limit is $110,000. Your personal cap may be different, particularly if you already have a large amount in super, so it’s a good idea to talk to us before contributing.

There may even be an opportunity to bring-forward up to three years of your non-concessional caps so you can contribute up to $330,000 before 30 June.

If you would like to discuss EOFY super strategies or your eligibility to make contributions, don’t hesitate to give us a call.

Get your SMSF shipshape for EOFY

If you have an SMSF, it’s essential to get your fund is in good shape and ready for June 30 and the annual audit.

It’s particularly important this year, because the ATO is focussed on fixing a number of issues when it comes to SMSFs. These include high rates of non-lodgment and problematic related party loans by SMSF members operating small businesses.

Check your paperwork is up-to-date

Review all the administrative responsibilities of your SMSF to identify any incomplete ones. These include updating the fund’s minutes to record all decisions and actions taken during the year, lodging any required Transfer Balance Account Reports (TBARs), and documenting decisions about benefit payments and withdrawals.

Although it’s easy to forget, SMSFs are required to keep all contact details, banking details and electronic service address up-to-date with the ATO.

Make contributions and payments early

If you want a super contribution counted in the 2022–23 financial year, ensure the fund’s bank account receives payment by 30 June.

Minimum pension payments to members also need to be made by 30 June to meet the annual payment rules and ensure the income stream doesn't cease for income tax purposes.

Ensure contribution administration is ready

If your SMSF receives tax-effective super contributions for salary sacrifice arrangements, ensure the fund has all the necessary paperwork before the arrangements commences.

Check you have appropriate evidence (and trust deed authority) to verify any downsizer contributions. From 1 January 2023, SMSF members aged 55 and over are eligible to make a downsizer contribution of up to $300,000 ($600,000 for a couple).

Lodge your annual return on time

Non-lodgment of the annual return is a major red flag for the ATO, particularly for new SMSFs.

Ensure your annual return is prepared and lodged on time to avoid coming under the tax man’s microscope for potential illegal early access or non-compliance.

Consider implications of new tax rules

The planned new tax on member balances over $3 million could create significant issues for some SMSF members, so trustees should review the potential implications ahead of EOFY.

Funds with large, lumpy assets such as business real property should consider the implications and liquidity issues of members implementing strategies designed to limit the impact of the new tax.

Value the fund’s assets

SMSF rules require all fund assets to be valued at market value at year-end, including investments in unlisted companies or trusts, cryptocurrency, and collectible assets. The ATO is monitoring this area, so trustees should organise appropriate valuations as soon as possible.

Ensure valuations can be substantiated if there are audit queries and the process is undertaken in line with valuation guidelines.

Reassess your investment strategy

Review the fund’s investment strategy to ensure it covers all relevant areas, including whether investment asset ranges remain relevant to your investment objectives. Deviations from strategic asset ranges must be documented, together with intended actions to address them.

Review your NALE

Non-arm’s length expenses (NALE) and income are key interest areas for the ATO, so check the fund complies with the rules.

Pay particular attention to all SMSF transactions involving related parties and ensure their arm’s length nature can be fully substantiated.

Get your auditor onboard

Trustees are required to appoint their auditor at least 45 days before lodgment due date, so ensure you have this organised.

Prepare for earlier TBAR reporting

From 1 July 2023, SMSFs will be required to report TBARs more frequently. All TBAR events will need to be submitted 28 days after the quarter in which the event occurred, so ensure you have systems in place to meet the new requirement.

All TBAR events occurring in 2022-23 will need to be reported by 28 October 2023.

Ensure trustees have a director ID

SMSF with a corporate structure must ensure all trustees have a director ID number. Although this was a requirement from 1 November 2022, many SMSF trustees are yet to apply.

Holding a director ID is an essential part of the SMSF registration process and directors must apply via the Australian Business Registry Services website.

If you would like to discuss EOFY tasks for your SMSF or your personal super contributions, call our office today.

Illegal early SMSF access on ATO's radar

Since the Albanese Government announced its intention to double the tax on investment earnings for super account balances over $3 million, there has been lots of talk about taking money out of self managed superannuation funds (SMSFs) to avoid the tax hikes.

As SMSF trustees have more control of their super assets compared to those invested in a large superannuation fund, accessing your money, and moving it out of the super system can sound like an attractive idea.

But as good as it might sound, gaining early access to your super savings is illegal and it is an activity the Australian Taxation Office is increasingly keen to stamp out.

Trustee disqualifications rise

According to ATO assistant commissioner Justin Micale, nearly 300 SMSF trustees have been disqualified for illegally accessing their retirement savings in the first half of 2022-23, more than in the entire 2021-22 financial year. The ATO crackdown has seen $2 million in administrative penalties issued and an additional $4 million in tax collected.ⁱ

Illegal early release is one of the major areas of focus for the ATO’s SMSF enforcement team. “We are seeing an increasing number of trustees taking advantage of their direct access to their superannuation bank account and they are using these savings to pay for items such as business debts, holidays, renovations and new cars,” Micale told an SMSF industry conference.ⁱⁱ

In an attempt to stamp out early access, the ATO is checking funds that fail to lodge annual returns, while SMSF auditors are being encouraged to report SMSF loans or breaches of the payment standards – even if the money is repaid to the fund.

Legally accessing your retirement savings

The ATO scrutiny is part of a broader campaign to remind SMSF trustees of their responsibility to ensure if they access their super early, they do it within the super laws.

Generally, you can only access your super when you reach your preservation age and retire, or turn 65 even if you are still working. For anyone born after 30 June 1964, the preservation age is age 60.

To access your super legally, you must satisfy a condition of release. There are only very limited circumstances where you can legally access your super early and the eligibility requirements often relate to specific expenses or terminal illness.

It is illegal to access your super for any reason other than when it is allowed by the superannuation law.

Illegal early access schemes

Currently, a spate of illegal early access schemes are encouraging trustees to withdraw their super early to pay for personal expenses such as credit card debt, holidays, or buying property.

According to the ATO, promoters of these schemes usually charge high fees and commissions and request identity documents. This often leads to identity theft (which involves using your personal details to commit fraud or other crimes) and can take years to clear up. Your super savings could even be stolen.

The best way to protect yourself from illegal access schemes is to halt any involvement with a scheme or the person approaching you. Do not sign any documents or provide your personal details and contact the ATO immediately.

Protecting your SMSF

Keeping your fund details updated with the ATO is one of the best ways to help reduce the risk of fraud and illegal access to your SMSF.

Trustees should ensure their SMSF’s membership details are recorded correctly and the ATO is notified of any changes. This includes details such as the fund's bank account, electronic service address, trustees, members and contact details.

Regular updates ensure that, when someone initiates a rollover request from an SMSF the ATO’s SMSF Verification System (SVS) can verify the fund and member details. If the receiving SMSF does not have a 'registered' or 'complying' status, it won’t be able to receive the rollover.

To further reduce the risk of fraud, the ATO sends trustees emails and text alerts when changes are supplied about key details relating to a fund.

If you need help understanding the super and tax rules governing your SMSF, call our office today.

i https://www.afr.com/policy/tax-and-super/ato-disqualifies-hundreds-over-self-managed-super-scams-20230113-p5ccd4
ii https://www.ato.gov.au/Media-centre/Speeches/Other/SMSF-compliance---What-s-on-the-Regulator-s-radar-/