January 2025 – Accounting and SMSF Roundup

December 2024 Round Up

With recent reports showing Australian business insolvencies up 39% in 2024 and increased ATO collection activity, understanding both your business options and director obligations has never been more important. This month, we break down the practical steps you can take to protect your business interests and meet your responsibilities as a company director:

1. SME Insolvencies: Smart Survival Moves for Your Business in 2025

  Read the full article

2. Director Liability for a company – how does it work? –  Read the full article

SME Insolvencies: Smart Survival Moves for Your Business in 2025

The business headlines tell quite a story lately. With business insolvencies across Australia up 39% in 2024, you might be wondering what’s next. But here’s the good news: there are practical steps you can take right now to keep your business strong and stable.

What’s Really Going On Out There? The ATO has definitely been flexing its muscles lately, sending out nearly 27,000 director penalty notices for $4.4 billion in unpaid taxes. Add in rising costs across the board, and it’s no wonder business owners are feeling the pressure.

Here’s What You Can Do About It

  1. Get Savvy with Your Cash Flow: Forget annual projections – they’re so 2023. Switch to a 13-week rolling cash flow forecast instead. It’s like having a GPS for your business finances, showing you exactly where potential problems might pop up before they become real headaches.
  2. Stay Ahead of the ATO Game: The ATO’s getting pretty serious about collecting debt these days. The smart move? Don’t wait for them to come knocking. With interest charges sitting at 8.77% per annum, it’s worth getting on the front foot with a solid payment plan. Trust us – they’re much more likely to play ball if you approach them first.
  3. Check Your Business Structure’s Still Working For You: With all these director penalty notices flying around, it’s worth making sure your business structure is protecting you properly. We’re seeing great results with dual-entity structures – keeping your trading activities separate from your assets can be a real lifesaver.
  4. Don’t Put All Your Eggs in One Basket: Here’s a scary stat: 25% of SMEs could go under if they lose just one key client. Time to spread those wings a bit! Whether it’s adding new services or branching into related markets, having multiple revenue streams can help you sleep better at night.
  5. Know Your Lifelines: If things do get tough, there’s more help available than you might think. The small business restructuring process has been a game-changer for many businesses, with 89% of companies who’ve used it still going strong. If your business has less than $1 million in liabilities, this could be your ace in the hole.

Ready to Take Action? Book in with us to:

  • See how you stack up against industry benchmarks
  • Check if you’re eligible for government support
  • Put together a solid risk management plan
  • Make sure your business structure is still serving you well
  • Map out your game plan for the next 12 months

Don’t wait until things get tight – the earlier we can help you plan, the more options you’ll have. Give us a call to get started – we’re here to help you make 2025 your business’s best year yet.

Director Liability for a Company – How Does it Work?

As a director, your responsibilities don’t end when your company ceases trading. Even after a business stops operating or is deregistered, you may still be personally liable for certain obligations. This includes situations where the company has debts or becomes insolvent.

If a company is insolvent—meaning it can’t pay its debts as they fall due—directors can be held accountable. Signs of insolvency often include low cash flow, delayed payments, and legal action from creditors. Directors are legally required to assess the company’s financial position regularly to determine if insolvency is a risk. Failing to take timely action can lead to personal liability for unpaid debts.

Directors can also face personal liability for company losses if they breach their duties. This could lead to civil penalties, criminal charges, or even disqualification from managing companies in the future. Breaching director duties includes failing to act in the company’s best interests or not meeting the required financial obligations.

Under the Director Penalty Regime, directors may be held responsible for unpaid taxes, particularly PAYG withholding and the Superannuation Guarantee Charge. This means that even tax debts can fall on directors personally if not addressed by the company.

Additionally, if directors have provided personal guarantees for company loans, they may be liable to repay those loans if the company defaults. Personal assets, such as a home, could be at risk if the company fails to meet its financial obligations.

In cases where the company acts as a trustee, directors may also be liable for any breaches of trust or if the company acts beyond its powers.

Finally, directors involved in illegal phoenix activity—transferring assets to a new company to avoid paying debts of an old one—may face severe legal consequences, including personal liability and criminal charges.

In short, being a director comes with ongoing responsibilities, and personal liability can extend far beyond the active life of a business. Understanding these obligations is crucial to protecting yourself and your assets. If you’re unsure about the extent of your liabilities as a director or need specific advice tailored to your situation, please don’t hesitate to contact us. Our team is here to help ensure you’re well-informed and protected in your role.

 

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. 

December 2024 – Accounting and SMSF Roundup

December 2024 Round Up

T’is the season to be jolly, and this month we’re focusing on a few topics that come up this time of year: 

1. Cash flow health check –  Read the full article

2. Planning for growth in 2025 –  Read the full article

3. Understanding the new wage theft laws –  Read the full article

Cash flow health check for 2025

Running a business often means juggling multiple responsibilities, and one of the most critical tasks is managing cash flow. Cash flow pressures can sneak up on even the most successful businesses, and how you handle them can determine your company’s long-term viability.

Here’s how to manage these pressures effectively to ensure your business remains financially healthy.


Understand Your Cash Flow

The first step in managing cash flow pressures is to clearly understand your cash flow. This means knowing how much money is coming in and going out on a regular basis.

Regularly reviewing your cash flow statements helps you identify patterns and anticipate potential shortfalls. It’s crucial to differentiate between revenue and actual cash available since expenses can often outpace incoming payments.


Tighten Up Your Invoicing Process

Late payments from clients can be a significant source of cash flow pressure. To address this, ensure your invoicing process is as efficient as possible:

  • Send invoices promptly.
  • Consider shortening your payment terms (e.g., from 30 days to 14 days).
  • Offer small discounts for early payments to incentivise clients to pay sooner.

These steps can help keep cash flowing into your business more consistently.


Maintain a Cash Reserve

Just as individuals benefit from an emergency fund, businesses should maintain a cash reserve. This reserve acts as a buffer during lean times, allowing you to cover unexpected expenses or bridge temporary gaps between outflows and inflows.

Building a reserve takes time, but even setting aside a small percentage of profits can make a significant difference in your ability to weather financial storms.


Review and Cut Unnecessary Expenses

When cash flow is tight, take a close look at your expenses. Identify areas where you can cut costs without compromising your operations.

This could include:

  • Renegotiating with suppliers.
  • Exploring more cost-effective marketing strategies.
  • Temporarily reducing non-essential spending.

Regularly reviewing expenses ensures every dollar spent contributes to your business’s growth and stability.


Communicate with Creditors and Suppliers

If you’re facing cash flow challenges, don’t hesitate to communicate openly with your creditors and suppliers. Many businesses have been in similar situations and may be willing to negotiate more manageable payment terms.

Options include:

  • Extending payment deadlines.
  • Setting up a payment plan.

Proactive communication can help you maintain strong relationships while alleviating financial pressure.


Final Thoughts

Managing cash flow is an ongoing challenge for every business. However, with careful planning and proactive strategies, you can navigate these pressures effectively.

By understanding your cash flow, tightening your invoicing, maintaining a cash reserve, reviewing expenses, and communicating openly with creditors, you’ll be better equipped to keep your business financially healthy, even during tough times.

Strategic Planning tips for growth in 2025

As the end of the calendar year approaches, it’s the perfect time to reflect on your business’s progress and set the stage for growth. Strategic planning is essential to ensure your business thrives in the coming year.

Whether you aim to expand your customer base, increase revenue, or streamline operations, here are some key tips to help you get started.


Budgeting for the Year Ahead

A well-structured budget is the foundation of your business’s financial health. Start off by reviewing your current financial statements to understand where your money is going. Look for areas where you can cut costs without compromising quality or efficiency.

Consider forecasting your revenue for the year ahead, considering any anticipated market changes or business developments. This will help you set realistic financial goals and allocate resources effectively.

Don’t forget to create flexibility for unexpected expenses or potential opportunities.


Reviewing and Optimising Operations

Taking a closer look at your day-to-day operations can reveal opportunities for efficiency improvements. Start by evaluating your current processes—are any bottlenecks or outdated practices slowing you down?

Consider investing in technology or tools that can automate routine tasks, freeing up your time to focus on strategic initiatives. Review your supply chain and vendor relationships to ensure you’re getting the best value and service.


Setting Clear and Achievable Goals

Goal setting is crucial for driving your business forward. Begin by assessing what you’ve achieved this year and identifying areas for improvement. Your goals should be specific, measurable, achievable, relevant, and time-bound (also known as SMART goals).

For example, instead of setting a vague goal like “increase sales,” aim for something more precise like “increase sales by 15% in the first quarter by expanding our online presence.” This approach gives you a clear target to work towards and a way to measure success.


Engaging Your Teams

Your team plays a vital role in your business’s success. As you plan for the New Year, involve your employees in goal-setting. This fosters a sense of ownership and ensures that everyone is aligned with the company’s vision.

Provide opportunities for professional development and encourage open communication to keep your team motivated and engaged. A committed and skilled workforce is one of your most valuable assets.


Monitoring Progress and Adjusting Plans

Once your plan is in place, it’s essential to monitor your progress regularly. Set a schedule for reviewing your financials, goals, and operational metrics. If things aren’t going as planned, be prepared to make adjustments.

Flexibility is crucial in navigating the challenges and opportunities that the new calendar year will bring.


The new year is a fresh start and an opportunity to set your business on a path to success.

By budgeting wisely, setting clear goals, optimising operations, engaging your team, and staying flexible, you’ll be well-positioned to achieve your business objectives. Take the time to plan strategically now, and you’ll reap the rewards in the coming months.

Understanding the new wage theft laws

On 1 January 2025, significant changes will come into effect in Australia regarding wage theft, as new criminal laws aim to combat the deliberate and systemic underpayment of employees. These laws not only tighten the screws on businesses that fail to meet wage obligations but also place the onus on employers to ensure compliance. Here, we delve into the details of the new legislation, outline pre-emptive measures businesses can adopt, provide steps to mitigate liability if non-compliance occurs, and explore the penalties for contraventions.


Overview of the Wage Theft Laws

The Fair Work Legislation Amendment (Closing Loopholes) Act 2023 was introduced to address growing concerns about workers being underpaid or denied their lawful wages.

Wage theft refers to situations where employers fail to pay employees correctly, whether through underpayment, unpaid overtime, or denial of entitlements. The offence requires proof of intentional conduct—accidental or unintentional underpayments will not constitute wage theft. Under the new framework, intentional wage theft is categorised as a criminal offence, carrying potential imprisonment and substantial fines for offenders.


Key Features of the Wage Theft Laws

1. Criminalisation of Wage Theft

For the first time, wilful underpayment or failure to pay employees their lawful entitlements may result in criminal charges. Prosecutions can be commenced by the Director of Public Prosecutions or the Australian Federal Police within six years of the offence.

2. Definition of Wage Theft

Wage theft involves intentionally paying employees incorrectly or late. However, the provisions will not apply to payments for:

  • Superannuation contributions
  • Taking long service leave
  • Leave related to being the victim of a crime
  • Jury duty leave
  • Emergency services duties

3. Extended Liability

Liability extends to individuals involved in decision-making processes, such as directors and managers, as imprisonment cannot be ordered against corporate entities. Instead, the “acting mind” of the organisation may face penalties.


Pre-Emptive Measures for Businesses

To avoid non-compliance, businesses should take proactive steps, including:

1. Conduct Regular Audits

  • Regularly audit payroll systems and employee classifications to ensure compliance.
  • Review payroll records against the Fair Work Act, Modern Awards, and Enterprise Agreements.
  • Seek legal advice for understanding complex obligations.

2. Invest in Training and Education

  • Train payroll and HR staff on the new laws and their obligations.
  • Remember, ignorance of the law is not a defence.

3. Implement Robust Payroll Systems

  • Use reliable payroll software to automate wage calculations and updates.
  • Engage legal experts to assist with historical audits under legal privilege.

4. Maintain Detailed Records

  • Keep thorough records of hours worked, wage rates, and entitlements.
  • Proper documentation can be a strong defence during audits or investigations.

5. Create Clear Policies and Codes

  • Establish clear policies for wage payments and entitlements, communicated to all employees.

6. Establish Safe Harbours

  • Self-report suspected wage theft to the Fair Work Ombudsman for cooperation agreements, which shield against criminal liability (though not civil penalties).
  • Small businesses can look to the forthcoming Voluntary Small Business Wage Compliance Code for protection.

7. Seek Legal Advice

  • Consult employment law experts to navigate complex regulations and implement best practices.

Steps to Mitigate Liability

In instances of non-compliance, businesses can take the following actions:

1. Seek Legal Counsel

Engage lawyers early to ensure privileged communications and reduce exposure during investigations.

2. Rectify Underpayment Immediately

Pay owed amounts promptly, including interest and penalties, to demonstrate good faith.

3. Document Corrective Actions

Maintain detailed records of actions taken to rectify underpayments.

4. Engage with Employees

Openly communicate with affected employees about steps being taken to resolve the issue.

5. Review and Revise Practices

Identify the root causes of non-compliance and implement improved processes.


Penalties for Contraventions

1. Criminal Charges

Directors and managers can face imprisonment of up to 10 years for wage theft.

2. Financial Penalties

Fines can reach millions of dollars for corporations or significant sums for individuals. If the value of underpayment is unclear, default penalties of:

  • $7.825 million for companies, or
  • $1.565 million for individuals may apply.

3. Reputational Damage

Wage theft can damage a business’s reputation, leading to loss of customers, reduced employee morale, and difficulty attracting talent.


Conclusion

The new criminal wage theft laws mark a pivotal moment for employee rights in Australia. Businesses must prioritise compliance to avoid harsh penalties and maintain their reputation. By conducting regular audits, investing in training, implementing robust payroll systems, and seeking legal advice, employers can reduce the risk of non-compliance.

Swift corrective actions and transparent communication with employees and regulators can also mitigate liability. With the 2025 deadline fast approaching, businesses must act now to prepare.

Here at Atkins Group we work with great experts in different fields. Henry William lawyers are our go to in the HR / employment space. Contact them here for advice on navigating these new legal requirements and ensuring your business complies with the law.

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. 

November 2024 – Accounting and SMSF Roundup

November 2024 Round Up

This month’s round-up covers key updates on the ATO’s approach to unpaid tax and super as well as options to accessing super between ages 60 and 65. Click to read below: 

1. Changes to ATO Collection of Unpaid Tax and Super: The ATO has ramped up efforts to collect unpaid tax and super. Stay informed on what’s changing and how to avoid penalties.

Read the full article

2. Accessing Super from Age 60 to 65: From age 60 to 65, your options for accessing super change. Understand the nuances and how to make the most of this stage in your retirement planning.

Read the full article

The ATO is changing their approach to collecting unpaid tax and super

Not paying tax affects everyone, and the ATO are taking a stand to help prevent businesses from putting other small businesses and employees at risk.

Businesses that act early are often better placed to get back on track and sustainably manage their finances.

They’re making it fairer for businesses that do the right thing, as they change their approach to collecting unpaid tax and super. They are now focusing on businesses who refuse to engage with us and continue to ignore their SMS and letter reminders.

This means you may see the ATO taking different steps to those you have seen in the past. This is a deliberate and targeted approach, taking into account compliance history:

  • For businesses big and small, that don’t engage with the ATO or set up a payment plan for unpaid GST, pay as you go (PAYG) withholding or employee super, they will move more quickly to firmer actions such as Director Penalty Notices (DPNs) and garnishees.
  • Directors of multiple companies who allow amounts of GST, PAYG withholding and employee super to go unpaid, and do not engage with the ATO, can expect them to look at their debts more holistically. These directors can expect to receive DPNs capturing the total value of these amounts across all related entities. If these directors don’t take action, the ATO can recover these amounts directly from them, putting their assets at risk.

As the ATO changes their approach to collecting unpaid tax and super, they’re making it fairer for compliant businesses that do the right thing and fulfil their tax obligations.

To prevent these firmer actions, businesses should take action now to pay in full or set up a payment plan.

If you are experiencing genuine financial hardship, additional options are available, including deferring payment due dates and interest remissions.

The key message the ATO would like you to remember is, if you can pay, please do and if you need more time to pay, don’t ignore it – act now to check if you can put in place a payment plan online or reach out for help.

You can find out more about what happens if you don’t pay here.

Simplified rules for accessing super from age 60 to 65

From 1 July 2024, the rules for accessing superannuation became somewhat simplified: the preservation age when you can begin to access your benefits is now effectively age 60. However, until you reach age 65, there are still potential restrictions on how you can access your super. You’ll need to “retire” before you can make lump sum withdrawals from your super account or move it into the favourable “retirement phase” when investment earnings within the fund become tax-free.

If you’re aged between 60 and 65 and wish to access some of your super, it’s a good time to re-examine the rules.

For anyone born after 30 June 1964, preservation age is age 60. If you are between 60 and 65 years old but haven’t yet retired, you can commence a transition to retirement income stream (TRIS). This allows you to receive a regular income of between 4% and 10% of your pension account balance each year. If you want to access more of your super, or withdraw it as a lump sum, you’ll need to satisfy a further condition of release. This includes reaching age 65, or “retirement”. Meeting these conditions is also relevant for tax purposes. TRIS payments to a person aged 60 or over are generally tax-free – regardless of whether they are retired or not – but the TRIS itself does not move into the “retirement phase” until a further condition such as retirement (or reaching age 65) is met.

To satisfy the retirement condition, an arrangement under which you were gainfully employed must have come to an end. If you’d already reached age 60 when that position ended, there are no further requirements, and your future work intentions aren’t relevant. If you hadn’t yet reached aged 60 when the position ended, the trustee of your fund must be reasonably satisfied that you intend never to again become gainfully employed, either on a full-time or a part-time basis. “Part-time” means working for at least 10 hours per week, so you could intend to work for less than 10 hours per week and still meet the “retirement” condition.

Any withdrawal strategy should be carefully planned to ensure you understand the implications of accessing your super. There are many factors to consider, such as the ongoing requirement to withdraw minimum pension amounts each year if you start a pension, implications for your transfer balance account, and interactions with the Age Pension.

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. 

October 2024 – Accounting and SMSF Roundup

6 new ways to keep your business profitable and relevant in the AI age

We all know AI is starting to evolve faster and faster with the use of neural networks, generative AI, and autonomous systems in robotics, and yet some experts predict we’re not even at the beginning of the AI age. But, whether we like it or not, soon, AI will be a necessity for businesses, seamlessly integrated into our daily operations to maintain relevance and competitiveness. Here are six ways you can leverage AI to enhance profitability in your business today:

1. Automate Manual Processes using DEAR Inventory

Instead of automating only basic tasks like invoicing, consider automating entire workflows. For instance, with the Xero + DEAR Inventory integration, you can manage inventory in real time. The system can trigger purchase orders when stock runs low, sync data with your accounting software, and alert you to discrepancies automatically. This automation eliminates time-consuming manual tasks and reduces costly errors, freeing up valuable time to focus on growth.

2. Offer Better Customer Service using Zendesk Sunshine Track

Take customer service beyond just answering queries—use AI to predict what your customers will need next. Tools like Zendesk Sunshine track customer behaviour and flag potential issues before they arise. If a customer has repeatedly contacted support, the AI can alert your team to offer proactive solutions. This not only reduces response times but also improves customer satisfaction and loyalty, keeping your business profitable.

3. Better Manage Inventory and Cash Flow Management with Fathom

AI-driven tools like Fathom help manage inventory and forecast cash flow based on real-time data, historical sales trends, and market conditions. For example, during slow sales periods, AI might suggest scaling back inventory purchases to conserve cash. Conversely, during busy times, it can recommend when to reorder stock to avoid running out. This real-time insight helps prevent costly cash flow issues and ensures smooth operations.

4. Attract Younger Talent with Notion and Slack

Younger generations expect businesses to use technology and AI to streamline operations. Tools like Notion for project management to incorporate AI to automate tasks like setting reminders, updating workflows, and managing communication. Offering a tech-savvy workplace demonstrates that you’re forward-thinking, which appeals to younger employees who value efficiency and innovation. This also reduces repetitive tasks, allowing your team to focus on strategic work.

5. Target the Right Leads with Hubspot’s Predictive Lead Scoring

Predictive lead scoring, as offered by HubSpot, helps you focus on leads with the highest potential to convert. AI analyses customer data—such as email opens, page views, and interactions—and ranks leads based on engagement. For example, if a customer interacts with your website multiple times and engages with your chatbot, they receive a higher score. This ensures your sales team prioritises the right leads, speeding up conversions and increasing revenue.

6. Save Time Creating Content with Descript

Descript saves you time and headaches in your content creation by allowing you to easily record your voice and use the Overdub feature to generate speech from text in your voice. With text-based editing, you can modify video and audio by adjusting the transcript, while automated audio cleanup removes filler words like “ums” and “ahs.” It also offers eye direction adjustment, screen recording for tutorials, and the ability to add graphics and text overlays, preventing the need to re-record things multiple times if you make mistakes. This makes it a user-friendly solution for producing professional-quality audio and video without the hassle of traditional editing.

If you’d like to dive down the ai rabbit hole a little further and find more tools specifically relevant for you, have a look at Future Tools. Whether you’d like to try out an AI virtual assistant, play with voice-changing technology for a marketing campaign or training video, or create personalised product recommendations for your customers, Future Tools has a range of fun, clever, and efficient tools to make your business more profitable.

Now, while ai advancements have a range of ways they can create more profits and streamline processes, it’s important to remember that ai is still in its infancy. When using it, always ensure that critical decisions involve human oversight to prevent errors. Keep communication open with your team about how AI is being used, and encourage them to ask questions and share feedback. Regular training sessions can help everyone stay updated on AI best practices and understand its implications. Additionally, establish clear guidelines for when and how to use AI tools, ensuring that employees know the limits of AI and the importance of their judgment in decision-making.

Business Mindset: The difference between winners vs losers

In business, mindset can make all the difference. While it’s easy to fall into the trap of excuses and limitations, true winners see opportunities where others see obstacles. Embracing a winning mentality not only transforms challenges into stepping stones but also fosters a more productive and positive environment. We find this philosophy particularly handy as we navigate our paths to success.

*The winner* – is always a part of the answer. 
*The loser* – is always a part of the problem.

*The winner* – always has a program.
*The loser* – always has an excuse.

*The winner* – says “Let me do it for you.”
*The loser* – says “That’s not my job.”

*The winner* – sees an answer in every problem.
*The loser* – sees a problem in every answer.

*The winner* – sees a green near every sand trap.
*The loser* – sees two or three sand traps near every green.

*The winner* – says “It may be difficult, but it’s possible.”
*The loser* – says “It may be possible, but it’s too difficult.”

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. 

September 2024 – Accounting and SMSF Roundup

September 2024 Round Up - “Aussie share market loses $100bn in bloodbath” Should we worry about our our super?

The short answer is no. But let us give you all the details based on a timely article from Shane Oliver.

Two weeks ago, there were lots of headlines like that after share markets fell sharply in response to US recession fears. But such headlines are nothing new. After such falls, the usual questions are: What caused the fall? What’s the outlook? And what does it mean for superannuation? The correct answer to the latter should be something like: “Nothing really, as super is a long-term investment and share market volatility is normal”.

But that can seem like a marketing spin. However, the reality is that – except for those who are into trading – shares and superannuation are long-term investments. Here’s why.

Super funds, shares & the power of compound interest

Superannuation seeks to provide maximum risk-adjusted funds, within reason, for use in retirement. So typical super funds have a bias towards shares and other growth assets, and some exposure to defensive assets like bonds and cash to avoid excessive short-term volatility. This approach seeks to take advantage of the power of compound interest.

The next chart shows the value of a $100 investment in Australian cash, bonds, shares and residential property from 1926 assuming any interest, dividends and rents are reinvested on the way, and their annual returns. As the return series for commercial property and infrastructure only goes back a few decades I have used residential property as a proxy.

Long-term asset class returns. (Source: ASX, Bloomberg, RBA, REIA, AMP)

Because shares and property provide higher returns over long periods the value of an investment in them compounds to a much higher amount over time. So, it makes sense to have a decent exposure to them. The higher return from shares and other growth assets reflects compensation for their greater risk (seen in volatility and illiquidity) versus cash and bonds.

But investors don’t have 100 years?

Of course, we don’t have one hundred years to save for retirement. Our natural tendency is to think very short term. And this is where the problem starts. On a day-to-day basis, shares are down almost as much as they are up. See the next chart. So, day-to-day, it’s pretty much a coin toss as to whether you will get good news or bad when you tune in for the nightly finance update.

But if you just look monthly and allow for dividends, the historical experience tells us you will only get bad news around a third of the time. And if you only look each year, you will only get negative news 20% of the time for Australian shares and 27% of the time for US shares.

And if you look just once a decade, positive returns have been seen 100% of the time for Australian shares and 82% for US shares. So, while it’s hard given the bombardment of financial news these days it makes sense to look at your returns less because then are you more likely to get positive news and less likely to make rash decisions or end up adopting an investment strategy that is too cautious.

Percentage of positive share market returns. (Source: ASX, Bloomberg, AMP)
This can also be demonstrated in the following charts. On a rolling 12-month ended basis the returns from shares bounce around all over the place versus cash and bonds.
Investment returns over rolling 12-month periods – Australia. (Source: ASX, Bloomberg, RBA, AMP)
However, over rolling ten-year periods, shares have invariably done better, although there have been some periods where returns from bonds and cash have done better, albeit briefly.
Investment returns over rolling 10-year periods – Australia (Source: ASX, Bloomberg, RBA, AMP)

Pushing the horizon out to rolling 20-year periods, returns from shares have almost always done even better, although a surge in cash and bond returns after the very high interest rates of the late 1970s/1980s saw the gap narrow for a while. Over rolling 40-year periods – the working years of a typical person – shares have always done better.

This is consistent with the basic proposition that higher short-term volatility from shares (often around periods of falling profits & a risk that companies go bust) is rewarded over the long term with higher returns.

But why not try and time short-term market moves?

The temptation to do this is immense. With the benefit of hindsight many swings in markets like the tech boom and bust, the GFC and the plunge and rebound in shares around the COVID pandemic look inevitable and hence forecastable so it’s natural to think “Why not give it a go?” by switching between cash and shares within your super to anticipate market moves. Fair enough. But without a tried and tested market timing process, trying to time the market is difficult. A good way to demonstrate this is with a comparison of returns if an investor is fully invested in shares versus missing out on the best (or worst) days.

The next chart shows that if you were fully invested in Australian shares from January 1995, you would have returned 9.5% pa (with dividends but not allowing for franking credits, tax and fees). If, by trying to time the market, you avoided the 10 worst days (yellow bars), you would have boosted your return to 12.2% pa. And if you avoided the 40 worst days, it would have been boosted to 17% pa! But this is hard, and many investors only get out after the bad returns have occurred, just in time to miss some of the best days. For example, if by trying to time the market you miss the 10 best days (blue bars), the return falls to 7.5% pa. If you miss the 40 best days, it drops to just 3.5% pa.

Missing the best days and the worst days, (Source: Bloomberg, AMP)

The following chart shows the difficulties of short-term timing in another way. It shows the cumulative return of two portfolios.

  • A fixed balanced mix of 70% Australian equities, 25% bonds and 5% cash;
  • A “switching portfolio” that starts with the above but moves 100 per cent into cash after any negative calendar year in the balanced portfolio and doesn’t move back until after the balanced portfolio has a calendar year of positive returns. We have assumed a two-month lag.

Comparison of constant strategy versus switching to cash after bad times, (Source: ASX, Bloomberg, RBA, AMP)

Over the long run, the switching portfolio produces an average return of 8.6% pa versus 10% pa for the balanced mix. From a $100 investment in 1928, the switching portfolio would have grown to $279,236, but the constant mix would have ended more than 3 times bigger at $931,940.

Key messages

First, while shares and growth assets have periods of short-term underperformance versus cash & bonds they provide superior long-term returns. So, it makes sense for super to have a high exposure to them. 

Second, switching to cash after a bad patch is not the best strategy for maximising wealth over time. It can just lock in losses. 

Third, the less you look at your investments the less you will be disappointed. This reduces the chance of selling at the wrong time. The best approach is to recognise that super and shares are long-term investments and adopt a long-term strategy to suit your circumstances – in terms of your age, income, wealth and risk tolerance.

Finally, anything that cuts your super balance early on can cut your super at retirement a lot. Eg, a $20,000 withdrawal from super at age 30 – say for a dental expense – can cut your super at age 67 by around $74,000 (in today’s dollars) due to the loss of compounding returns on that amount (using the assumptions in the ASIC MoneySmart Super calculator).  

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. 

August 2024 – Accounting and SMSF Roundup

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.

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. 

July 2024 – Accounting and SMSF Roundup

July 2024 Round Up - Tax time scams, claiming home expenses and Essential Tax reminders

This month we’re covering critical tips and strategies to protect yourself during tax time. Click to read below: 

1. Scams to watch out for at tax time

2. Being informed about what you can claim as ‘working from home expenses’ 

3. Critical reminders for small business

Scams to watch out for at tax time

1. SCAMMERS IMPERSONATING THE ATO 

As tax season approaches, it’s important to beware of multiple scams circulating through websites, email, SMS and social media. Despite efforts by the ATO and the National Anti-Scam Centre (NASC) to eliminate these scams they continue to increase around the taxation period. 

These scammers may contact you to:

  • Offer a refund
  • Help with tax issues
  • Alert you to suspicious activity on your account

What you should do: 

  • Do not respond to these contacts 
  • Verify the authenticity of any communication you receive by checking the ATO’s official contact numbers

What the ATO is doing:

To combat these scams, the ATO is implementing new measures to help you identify legitimate ATO SMS messages. These include:

  • Removing hyperlinks from all unsolicited SMS messages: Scammers often use these links in phishing schemes, directing victims to sophisticated fake websites, like a fraudulent myGov login page, to steal personal information or install malware. 
  • Creating a support team to monitor scams
  • Creating a service to assist victims providing comprehensive information about email, SMS, phone, and social media scams on its website. 
  • Created a service to report ATO impersonation scams.

2. SCAMMERS IMPERSONATING ASIC

ASIC has also issued a warning about an increase in the use of its logo in social media scams. There are 3 key tactics they are using:

  • Promoting fake stock market trading courses. This involves using social media ads to promote a “Stock Trading Master Class” that links to a private WhatsApp group called “Lonton Wealth Management Center,” which ASIC listed on its Investor Alert List in May 2024.
  • Cold calling: Posing as ASIC representatives making repeated cold calls and offering help with investment refunds. ASIC does not engage in cold calling about investments.
  • Fake Telegram accounts: A fraudulent Telegram account is impersonating ASIC, asking investors for money to release funds held in Australia. ASIC does not use Telegram and will never request upfront payments or taxes for releasing investments.

ASIC is also working with the NASC and social media platforms to actively remove this fraudulent content and reminds consumers that it does not endorse or promote investment training or platforms, does not cold call consumers, and is not affiliated with any investment offers.a

Be informed about what you can claim was ‘working from home’ expenses

Claiming work-related expenses is an area where taxpayers frequently make mistakes, and it’s something the ATO is flagging for tax time 2024.

Here are 3 key things to consider :

  • Keeping accurate records: Copying and pasting your working from home claim from last year may be tempting, but it’s something the ATO may flag and ask you to explain. Your claim will be disallowed if you’re not eligible or you don’t keep the right records.
  • Calculating correctly: There are two methods for calculating work from home expenses: the actual cost method and the fixed rate method.  Both methods require keeping detailed records and following the ATO’s three golden rules:
  1. The money must have been spent by the taxpayer without reimbursement
  2. The expense must be directly related to earning their income, and
  3. The taxpayer must have a record to prove the expense. 
  • Be eligible:  To be eligible to claim working from home expenses by either method, when working from home you must be fulfilling employment duties (not just minimal tasks like taking calls or checking emails); incur additional running expenses as a result of working from home (eg increased electricity or gas costs for heating/cooling or lighting)

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. 

June 2024 – Accounting and SMSF Roundup

June 2024 Round Up - End of Financial Year Superannuation and Tax Check List.

With the end of the financial year approaching, here’s our checklist of the Top 10 things you should be focusing on this month for maximum returns. From super contributions and government co-contributions to reviewing asset depreciation and prepaying expenses, this quick checklist will make sure you maximise both your tax benefits and retirement savings.

  • Maximise your super contributions by 25 June 2024 at the latest
    Make sure you have maximised your annual concessional (tax deductible) and non-concessional (undeducted or after-tax) super contributions. Contact us if you’d like more information on concessionals caps and inclusions.
  • Carry-forward your concessional contributions cap
    If you’re on a high taxable income, carrying-forward your concessional contributions can offset your income provided you are eligible. If you have less than $500,000 in superannuation as at 1 July 2023 and have never made any concessional contributions since 2018, you may be eligible to make a concessional contribution of up $157,500 in the 2023-24 year.
  • Spousal contributions and tax offsets
    You can split up to 85% of your concessional contributions (including any unused carry forward concessional contributions) from a prior year with your spouse as long as they’re under their preservation age, or under 65. This may be a appropriate when your spouse has a low super balance (less than $500,000 before the start of the financial year) or is closer to retirement. You may also be entitled to an income tax offset of up to $540 for superannuation contributions for the benefit of a lower income (under $40,000) or non-working spouse who is under age 75.
  • Access the government co-contribution of up to $500
    If you are employed, under 71, and have a total income of less than $58,445, the government will co-contribute 50 cents for every $1 of any non-concessional (undeducted) super contributions that you make, up to a maximum of $500.
  • Draw your minimum pension before year end
    If you are drawing a pension from your super, make sure your fund has paid you the minimum amount by June 30. The minimum pension for the year is based on a percentage of your balance depending on your age. Contact us to find out more about the percentages for each age bracket.
  • Prepare your SMSF requirements
    Make sure you have obtained updated and independent valuations for all assets including unlisted assets and real property (residential and commercial), review your investment strategy and ensure related party transactions are made on arm’s length terms. If you haven’t already, also make sure you appoint an auditor no later than 45 days before the lodgement of your annual return.
  • Hold off on setting up an SMSF if you don't already have one
    If you are thinking of setting up an SMSF, now may not be the time. To avoid the fixed annual SMSF compliance costs, it may beneficial to defer until the new financial year.
  • Review your asset depreciation schedule
    You may be eligible to claim immediate deductions for assets under the instant asset write-off scheme to reduce your taxable income.
  • Prepay expenses and make any new asset purchases
    If possible, prepay expenses such as rent, insurance, and other business costs to claim them as deductions in the current financial year.
  • Review your business structure
    The EOFY is the perfect time to review your business structure for maximum benefits. Does your current structure meet your tax planning goals, does it provide adequate asset protection, and will it support scalability if you’re in a period of growth?

May 2024 – Accounting and SMSF Roundup

May 2024 Round Up - Business Valuation and Protection

In our latest roundup, we’re delving into two questions that, based on our experience, tend to catch business owners off guard:

“Do you know what your business is worth?” 
“Have you taken steps to protect it, and your family?”

It’s funny how we all seem to naturally keep tabs on the value of our homes or superannuation, but when we ask business owners about the value of their business, we’re often met with blank stares.

And that’s understandable. Because the idea of valuing your business has often been associated with something you only do when you want to sell it, or maybe when you’re looking for investors or applying for a loan. But just like keeping tabs on your house and super, your business is one of your most important assets that needs regular valuation, and more importantly, a plan in place to make sure you’re covered if anything unexpected happens.

So, this month, we’re breaking down three simple steps to help you get started:

  1. Value your Business – 5 Valuation Methods

  2. Know your End Game

  3. Protect the value of your business

1. Five methods to value your business 

We know that putting a price on a business can be challenging and there’s no single formula for to calculate it. Which model is best for you depends on the nature of your business, its size and the size and concerned risk factors. Today we’re going to give you a few basic guidelines to get you started. 

A great starting point for valuation is its profitability, balanced by the risks involved, but if you’d like to take it a step further there are several industry rules of thumb that you can consider to give you a more robust estimate. Today we’re covering the five most common methods we see:

1. Capitalised future earnings method:

The most common method for valuing small businesses is capitalized future earnings.. When you buy a business, you’re buying its assets and the right to all future profits it might generate, known as future earnings. The future earnings are capitalised or given an expected value. The capitalisation rate can be an expected return on investment (ROI), shown as a percentage or ratio. A higher ROI is a better result for the buyer. This method lets the buyer compare different businesses to determine which would give them the best ROI.

To calculate value based on the capitalised future earnings method, first, calculate the business’s average net profit for the past three years, considering whether any conditions might make this figure difficult to repeat. Then, divide the business’s average profit by using an expected ROI considering the sector and the business.

For example, if the expected ROI is at least 50% and the average profit is $100,000, the value of the business can be calculated using the formula below.

Value or selling price = (100,000/50) x 100 = $200,000.

2. Multiples of revenue method:

The multiples of revenue method is a simple valuation method for finding a business’s maximum value. Annual revenue can be considered for a set period of time, and then a multiplier can be used to determine value. The multiple varies by industry and other factors; however, it usually varies from less than one to three or four.

Small business valuation often involves finding the lowest price someone would pay for the business, known as the “floor.” This is often the liquidation value of the business’s assets. Then, a ceiling is set. This is the maximum amount that a buyer might pay, such as a multiple of current revenues. However, the growth potential of a specific business can impact the multiplier. For example, the multiplier might be higher if the company or industry is poised for growth and expansion. A high percentage of recurring revenue and good margins can also boost the multiplier. The multiplier might be one if the business is slow-growing or doesn’t show much growth potential. Economic and industrial conditions can also impact the multiplier.

3. Earnings multiple method:

The earnings multiple method is similar to multiples of revenue. This valuation method can be used to value larger businesses. The earnings before interest and tax (EBIT) are multiplied to give a number, the multiplier. The multiplier can be found by dividing the stock price by earnings per share (EPS) to find the P/E ratio.

The simplicity of multiples makes it easy for most to use. However, this simplicity can also be considered a disadvantage because it simplifies complex information into a single value.

4. Asset valuation method:

This method adds assets such as cash, stock, plant, equipment and receivables. Liabilities, like bank debts and payments due, are deducted from this amount, leaving the net asset value. For example, Raymond wants to buy a manufacturing business. It has $300,000 worth of assets and $200,000 of liabilities. With the asset valuation method, its net asset value is $100,000, so this business is worth $100,000.

The asset valuation method may consider the business’s goodwill on top of the net asset value. Goodwill represents features of a business that aren’t easily valued, such as location, reputation and business history. It’s not always transferred when you buy a business since it can come from personal factors like the owner’s reputation or customer relationships. The asset valuation method may not consider goodwill if the business is underperforming.

5. Discount cash flow method:

The discount cash flow (DCF) valuation method does not consider other companies’ results. Instead, it focuses on your company’s projected cash flow. You’ll give your best cash flow forecast for three to five years. Then, using a formula, you will calculate the present value of those cash flows.

Present value is a concept that compares the business’s current value in terms of future cash flows to how much the purchaser would pay now. This method uses a discount rate, which is the likely interest rate the business purchaser could have gotten from saving the money in a bank account. If your company’s present value exceeds the investment amount, it’s a good investment for the business purchaser.

The projection of cash flow sometimes requires assumptions of future business conditions. Hence, it can be complex and prone to error. This valuation method can be used in conjunction with the other methods.s

April 2024 – Accounting and SMSF Roundup

April 2024 Round Up

This month we bring you updates from the senate on the new super tax bill, compliance tips as FBT season kicks off and solvency tips from our team. Click to read below:

1. Support Growing for changes to new super tax bill

2. Common FBT mistakes flagged as FBT season kicks off

3. Never say Never – Accountant and SMSF tips for staying solvent

Support growing for changes to new
super tax bill

There is growing support from the Senate crossbench for the government to rethink its plans to tax unrealised gains in the proposed $3 million super tax.

Last week, the legislation was before the House of Representatives, along with the Objective of Super bill, following which it was reported that a number of Independent MPs spoke out against it highlighting the unintended consequences of taxing unrealised gains and lack of indexation.

SMSF Association CEO, Peter Burgess, said the Teal crossbenchers have always been strong supporters of the association’s position on the taxation of unrealised capital gains and indexation.

“As we have said on many occasions this new tax introduces an unprecedented treatment of assets, and it’s encouraging to see this now being called out,” he said.

“It could have far reaching implications for future tax changes beyond superannuation.”

In parliament last week, North Sydney representative Kylea Tink said the proposed tax was a “moment-in-time cash grab” and asserted it introduces an unprecedented treatment of assets in Australia.

“At the same time it doesn’t seem to be in any way, shape or form future-proofed,” she said, adding it was reasonable to expect asset classes held by super funds, such as property, to fluctuate over time,” she said.

She added that despite submissions from leading industry associations, there had been little change to the bill since it was first proposed.

Moreover, Goldstein MP Zoe Daniel said taxing unrealised gains of large balance super accounts was “out of line with their treatment in other areas of tax policy where capital gains are normally taxed on realisation, not accrual” and added that the “refusal to entertain indexing the cap” was the “superannuation equivalent of bracket creep”.

Meanwhile, Wentworth MP Allegra Spender argued the tax could potentially deter investment from SMSFs in venture capital in early-stage start-ups.

“There’s a real danger that we will basically disincentivise angel and other investors making these early or midsize investments in their super funds,” Spender said.

“Superannuation has a disproportionate sway in the Australian investment space, it’s where people put their discretionary income … so at a time when cash is already going out of that [start up] system, they could lose more.”

Burgess said the government has previously acknowledged that economic growth requires investment and the common ingredient for success in a more challenging economic world is business investment.

“SMSFs have historically been a strong source of venture capital. Taxing unrealised capital gains will discourage investment, particularly investment in technology where it is common for valuations to increase significantly long before the payment of any income,” he said.

By Keeli Cambourne (SMSF Adviser)

Common FBT mistakes flagged as FBT season kicks off

BDO has outlined several areas within fringe benefits tax that employers and accountants should pay close attention to.

Accountants and their business clients should be closely considering their fringe benefits (FBT) tax compliance as they approach the FBT compliance season this year, with employee benefits now much more of a focus in the current labour market, says BDO.

In a recent article, BDO said there is a need for “heightened awareness and diligence among employers” concerning FBT compliance, with many still struggling to understand the law in this area.

“There are several specific areas within FBT that employers should pay particular attention to, with both the ATO and our advisers commonly seeing mistakes in these areas,” the accounting firm said.

One of the key areas where mistakes happen is the misclassification of a vehicle for
either private or business use and not understanding which vehicles are FBT-exempt and which are not.

“This particularly relates to commercial vehicles such as dual cab utes,” said BDO. BDO said it also commonly sees issues with businesses not accurately keeping logbooks.

Other areas where businesses can fall into trouble with FBT compliance are inconsistencies between FBT and income tax returns, where employee contributions are miscategorised during reporting, and incorrect application of employee contributions.

“[Other issues include] employers applying a consolidation approach to filing FBT returns and not lodging a separate FBT return for each employing entity or not submitting a notice of non-lodgement when there is no FBT to declare,” said BDO.

Other problem areas include fringe benefit amounts being incorrectly reported and failing to take prompt action when a mistake has been made.

Recent changes with FBT

“Employers should also be aware of the recent changes to the FBT regime and other areas of tax reform that affect FBT application for FBT compliance season 2024,” said BDO.

Updates have been made to the electric vehicle home-charging rate in PCG 2024/2. “This is the introduction of a safe harbour of 4.2 per cent per kilometre that can be used for calculating electric charging costs of vehicles at home-charging stations in effect from 1 April 2022 for FBT tax and 1 July 2022 for income tax purposes,” the article explained.

“While electric vehicles are exempt from FBT, they are required to be included on individual’s employee’s earnings statement meaning that this safe harbour method provides a practical alternative where employers use the operating cost method to calculate the taxable value.”

Alternative record-keeping measures have also been introduced to reduce and simplify FBT record-keeping requirements for employers while producing similar compliance outcomes with lower compliance costs.

“It allows employers the choice to use existing records in place of travel diaries or
employee declarations for certain types of benefits. This applies to the 2025 FBT year
(1 April 2024 to 31 March 2025) and onwards,” said BDO.

By Miranda Brownlee (Accountants Daily)