Donations, Annual Leave, Changes to Superannuation and Written lease agreements

August 2024 Round Up - Donations and gifts, Annual leave, Superannuation changes and written leases for SMSF held properties

Atkins Group has a working relationship with HLB Mann Judd and we often bounce ideas off them for specialised tax planning and other issue that we encounter. This month we’re bringing you some articles that have come across our desk from them that are worth a quick look. They cover how to deduct donations and gifts the right way at tax time, making sure you and your team are on the same page with annual leave entitlements, recent changes to Superannuation laws and why it’s essential to have a written lease agreement for SMSF held properties.

1. How to deduct gifts and donations

2. Making sure you and your team understand annual leave entitlements

3. Recent changes in Superannuation

4. Why a written lease is essential for an SMSF holding a direct property

Deducting gifts and donations: getting it right at tax time.

Have you made charitable gifts or donations in the past financial year? The good news is these items are often deductible, giving many Australians a welcome boost to their tax refund. Make sure you know the rules this tax time.

When gathering your donation receipts, it’s important to understand what can and can’t be claimed as a deduction. The first general rule is that a donation of money of $2 or more may be deducted if the donation was made to a “deductible gift recipient” (DGR). A DGR is an entity that has registered with the ATO as being eligible to receive deductible gifts and donations.

Some charities may not have DGR status, so check if you’re unsure. Many online crowdfunding platforms are also not DGRs, which means you typically won’t be able to claim your donation towards fundraising for individual causes, such as someone’s funeral or medical costs.

The second general rule is that a donation is only deductible if you didn’t receive a benefit in return. This means you can’t make a claim if you received things like raffle tickets or items that have an advertised price, such as toys and food items. However, you may receive a “token” promotional item such as a sticker or lapel pin and still qualify for a deduction. Note that donations to a school’s building fund won’t be deductible if you received benefits such as reduced school fees or a certain placement on a waiting list in return for the donation.

Small cash donations totalling up to $10 don’t require a receipt. However, beyond that you must be able to provide evidence of your claim. You aren’t required to keep an original paper receipt, provided you keep an electronic copy that is a true and clear reproduction. If you don’t have a receipt, you may be able to substantiate the claim with other documentation such as a bank statement evidencing the donation.

If you make donations through a “workplace giving program” operated by your employer, you can simply claim the amount of donations shown in your income statement or payment summary. You can claim this deduction in your tax return regardless of whether your employer has reduced the tax withheld each pay period. In both cases, your gross salary or wages and deductible donations for the year will be the same, but any difference in the tax withheld during the year will factor into your eventual tax refund. Workplace giving programs aren’t the same as salary-sacrifice, as they don’t lower your gross salary or wages.

A business’s guide to annual leave

Annual leave is a key right of part or full-time employment, providing workers with a paid period of rest and recuperation away from work.

However, a lot of terminology, misconceptions and confusion may impact your employees’ understanding of what they may be entitled to or what you should be providing your employees.

Let’s run through this critical employment component and some common misconceptions or terminologies you may encounter in a business.

Who can receive annual leave?

Annual leave is a period of paid time off work granted by employers to employees. It is designed to give workers a break from their regular duties, promoting work-life balance and overall well-being.

Full-time and part-time employees should get 4 weeks of annual leave based on their ordinary hours of work. Some businesses may provide additional annual leave based on individual employment agreements.

Shift workers may get up to 5 weeks of annual leave per year, depending on their industry and award.

When Is annual leave accumulated?

Annual leave accumulates from the first day of employment, even if an employee is on probation. The leave accumulates gradually during the year, and any unused annual leave will roll over from year to year.

Annual leave accumulates when an employee is on paid leave such as paid annual leave, paid sick and carer’s leave, paid family and domestic violence leave, community service leave, including jury duty and/or long service leave.

When does it not accumulate?

Annual leave doesn’t accumulate when the employee is on unpaid annual leave, unpaid sick/carer’s leave or unpaid parental leave.

Due to the Australian Government’s Paid Parental Leave Scheme not being considered paid leave, an employee will not accumulate annual leave while being paid by the Paid Parental Leave Scheme if the person is taking unpaid leave from their employer.

Similarly, leave doesn’t accumulate for a period of annual leave that has been cashed out.

Can a request for annual leave be denied?

While annual leave is a statutory right, employers do have the discretion to deny leave requests under certain circumstances. Some common reasons for denial include:

1. Operational requirements: Employers may deny leave if the absence of the employee would significantly impact business operations. This is particularly relevant during peak periods or when there is a shortage of staff.

2. Notice periods: Employees are usually required to provide advance notice when requesting leave. Failure to comply with these notice periods can be grounds for denial.

3. Insufficient leave balance: Employees who have not accrued sufficient leave or who have already exhausted their leave entitlement may have their requests denied.

4. Scheduling conflicts: If multiple employees request leave simultaneously and granting all requests would hinder operations, the employer may need to deny some of the requests.

5. Performance and compliance issues: In some cases, employers might deny leave if the employee has pending work or compliance issues that need addressing before they can take time off.

Can employees choose to be paid out for their annual leave instead of taking it?

Annual leave can only be cashed out if permitted by a registered agreement. If your employee is covered by a registered agreement, review it to determine if leave can be cashed out.

Certain rules apply when cashing out annual leave:

• The employee must retain at least 4 weeks of annual leave after cashing out.

• A written agreement must be made each time annual leave is cashed out.

• An employer cannot force or pressure an employee to cash out annual leave.

• The payment for cashed out annual leave must be the same as what the employee would have received if they had taken the leave.

What happens to annual leave in the event of termination or resignation

When an employment relationship ends, either through termination by the employer or resignation by the employee, there are specific protocols regarding unused annual leave:

1. Payout of unused leave: Most employment laws require that any accrued but unused annual leave be paid out to the employee upon termination. This payout is typically calculated based on the employee’s standard rate of pay plus any applicable leave loading.

2. Pro-rata entitlements: Employees who have not yet reached their annual leave accrual date but have earned a portion of their leave entitlement (pro-rata) are usually entitled to a payout for this portion.

3. Resignation: Employees who resign are entitled to the same treatment regarding their accrued annual leave as those who are terminated. They will receive a payout for any accrued but unused leave days.

Understanding your entitlements regarding annual leave is crucial for maintaining a healthy work-life balance and ensuring your employee’s rights are protected and complied with.

Time for a superannuation checkup

The new financial year has begun, and with it have come some important changes to superannuation from 1 July 2024. With these changes coming into effect, it’s a good time to give your super a check-up. Your super could be one of the biggest assets you ever have, so getting into the habit of checking in regularly can help you stay on top of it and make better choices for your future.

On 1 July 2024, the superannuation guarantee rate increased from 11% to 11.5%. Employer super contributions are calculated on a worker’s ordinary time earnings, for payments of salary and wages. For employers, the maximum super contribution base increased from $65,070 to $62,270 (the limit on what you can earn each quarter before your employer can stop making super guarantee contributions). The concessional super contributions cap also increased from $27,500 to $30,000 and the non-concessional contributions cap increased from $110,000 to $120,000.

The ATO suggests the following steps as a good place to start in giving your super a check-up:

• Check your contact details: Make sure your contact details and tax file number (TFN) are up to date with the ATO and your super fund.

• Check your super balance and employer contributions: Checking your super balance and keeping track of your employer contributions can be done at any time through ATO online services or your super fund. Your employer should be paying your super at least every three months.

• Check for lost and unclaimed super: If you’ve changed your name, address or your job, you may have lost track of some of your super. Lost super is where your super fund hasn’t been able to contact you, or your account is inactive. Unclaimed super is where your fund has transferred lost super to the ATO.

• Check if you have multiple super accounts and consider consolidating: If you’ve ever moved jobs, you might have more than one super account. Each account will charge fees and may include insurance, so combining your super accounts may reduce fees, help you pay only for the insurance you need and make your super easier to manage.

• Check your nominated beneficiary: Make sure you have a valid death beneficiary nomination with your super fund, as this isn’t covered by your will. Check with your fund if there is an expiry on the nomination – some funds have options where the nominations don’t expire, while most nominations expire every three years. If you don’t have a beneficiary nominated, your fund will follow the law in determining where your super should go.

You should also take a careful look at how your fund is performing and check that you aren’t paying too much in fees. You might also think about evaluating how your super is being invested – does it match your stage in life, how much risk you are willing to bear, or even your ethics and values? If you have insurance cover with your super fund, regularly check that it still meets your needs.

Do you have enough super?

The Association of Superannuation Funds of Australia (ASFA) has developed a “retirement standard” which provides a broad approximation of how much super you need in retirement. As of March 2024, as combined amounts for couples retiring at age 67, ASFA suggests:

• $690,000 for a comfortable retirement (providing an income of $72,663 per year); and

• $100,000 for a modest retirement (providing an income of $47,387).

These figures assume that you will draw down all your super, receive a part Age Pension, own your home outright and are in good health. While useful as a baseline, your personal needs may differ significantly. Many people assume that they will just fall back on the Age Pension if there is not enough in their super. This is definitely a safety net; however, you may not be comfortable on the restrictive budget required to get by on the Age Pension. As at 1 July 2024, Age Pension for a couple is $43,752 per year.

For the most accurate assessment of your superannuation needs, it’s best to seek professional advice. Your adviser can consider factors such as your health and life expectancy, inflation and investment returns, wages growth and taxation, and fees and regular contributions.

Professional advisers have access to sophisticated tools and can provide customised forecasts based on your unique situation.

Why you should have a written lease agreement for an SMSF holding a direct property

In the SMSF sector, some might consider a written lease agreement unnecessary if a verbal agreement has already been made, particularly because there is no legislative requirement from a trustee’s perspective to have a written agreement in place.

For trustees utilising fund-held assets, such as leasing property for business use, a written lease might also seem redundant, as it’s unlikely a trustee would terminate their own agreement.

However, the ATO mandates that auditors must have written lease agreements on file for compliance purposes.

While this requirement alone might not motivate trustees to invest time and resources in drafting a written lease agreement, there is a crucial reason for having one: proving that the agreement is made at arm’s length.

The arm’s length principle dictates that all parties involved in a transaction must act independently and make decisions based on their own self-interest, not personal connections, ensuring an equal footing in negotiations.

This principle is fundamental in SMSF transactions, and failure to adhere to it can result in non-compliance or penalties.

Given these potential risks, a written lease agreement is an effective way to demonstrate that the arrangement is properly structured, clearly defining the rights and obligations of all parties, along with terms, conditions, penalties, and breach procedures where relevant.

Additionally, a commercial property is exempt from in-house asset rules as long as it is used entirely for business purposes.

A written lease agreement will explicitly outline the intended use of the property, such as for an office, medical center, or restaurant, supporting the requirement that the property is used ‘wholly and exclusively’ for business, even when there is minor or incidental non-business use.

Clearly, a written lease agreement is a valuable tool for minimizing non-compliance risks and ensuring transactions are substantively correct.

While some might suggest that a terms sheet could suffice for auditor documentation, it lacks the comprehensive detail necessary to satisfy the arm’s length requirements or the ‘wholly and exclusively’ business use threshold.

The debate over whether a written lease agreement is essential from a trustee’s perspective is ongoing, often discussed at industry conferences and workshops. However, when considering the importance of maintaining arm’s length transactions, it’s prudent for trustees to ensure such a document is prepared and ready.

Important: This is not advice. Clients should not act solely on the basis of the material contained in this article. Items herein are general comments only and do not constitute or convey advice per se. Also changes in legislation may occur quickly. We therefore recommend that our formal advice be sought before acting in any of the areas. This article is issued as a helpful guide to clients and for their private information. Therefore it should be regarded as confidential and not be made available to any person without our prior approval. Liability limited by a scheme approved under Professional Standards Legislation.