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Super pensions: Reviewing the merits of keeping a TRIP

Gone are the days when all Australians work to a certain age, and then the next day, they retire from the workforce. The end of work and the beginning of retirement is more fluid in recent times, and the rules that apply to accessing superannuation benefits reflect this blurring of what retirement means.

 In 2005, a special type of super pension was introduced, known as a transition-to-retirement pension. By starting a transition-to-retirement pension (what we call a 'TRIP'), you don't have to retire to withdraw your super benefits. You can work part-time or full-time or even casually, and withdraw a portion of your super benefits each year.

Until 30 June 2017, the major selling point in starting a TRIP is that you can access the tax advantages associated with super pensions while you're still working. Tax advantages include tax-exempt earnings on assets financing the pension (this exemption will be removed from 1 July 2017); and tax-free pension income for over 60s (which continues beyond 30 June 2017). If you start a TRIP when you're under the age of 60, then you can take advantage of the 15% pension offset on assessable pension income, and this 15% pension offset will remain in place beyond 30 June 2017.

15% pension tax offset remains in place

According to an ATO spokesperson: "From 1 July 2017, the earnings from assets supporting a transition to retirement income stream (TRIS)[TRIP] will no longer be subject to an earnings tax exemption, i.e. will no longer be exempt current pension income. The change is only in relation to the tax treatment at the super fund level – there has been no change to the tax treatment of a TRIS benefit paid to an individual member. Therefore there are no changes to the way tax offsets operate for the individual receiving the TRIS payment. A TRIS [TRIP] will continue to meet the definition of a superannuation income stream in the Income Tax Assessment Act 1997 (ITAA), however it will not be a superannuation income stream in the retirement phase under the new section 307-80(3)(a) of the ITAA."

Important: At the risk of repeating this key change to the TRIP rules, note that from 1 July 2017, the government is removing the tax exemption on earnings from assets financing a TRIP, that is, a TRIP will not be considered a superannuation income stream in the retirement phase (although minimum pension payments must still be withdrawn each year).

Depending on the strategies an individual chooses to use, it is possible to reduce the amount of income tax that a person pays while boosting the super benefit. For example, one of the more popular TRIP strategies is to salary sacrifice into your super fund up to your concessional (before-tax) contributions cap, and replace that income with tax-free (if over 60), or concessionally taxed pension payments (if under 60).

Until 30 June 2017, the right combination of salary and super will depend on your salary level, your age, your tax position, the size of your super benefit and your income needs.

Note that from 1 July 2017, the tax-effectiveness of such a strategy has been lessened due to the cut in the concessional contributions cap from $35,000 to $25,000, and the removal of tax-exempt earnings on TRIP assets.

Before I take a TRIP, what's the catch?

If you're considering starting a TRIP, note that you must have reached your preservation age – anyone born before 1 July 1960 has a preservation age of 55, and anyone born after 30 June 1960, has a preservation age of at least 56 years, and anyone born after 30 June 1961 has a preservation age of at least 57 years. If you were born after 30 June 1964, your preservation age is 60 years.

A TRIP is like any other account-based pension (although from 1 July 2017, a TRIP will no longer be considered a superannuation income stream), except for two important requirements:

  • You can withdraw no more than 10% of your TRIP's account balance each year as pension income, and
  • In nearly all circumstances, you cannot withdraw lump sums from your TRIP until you retire, or until you satisfy another condition of release, such as reaching the age of 65. The one exception to the non-commutable rule (not being able to convert to a lump sum) is when the fund member has unrestricted non-preserved benefits in the TRIP account. You may have this type of benefit if you were a fund member before July 1999. If so, this category of benefits are not preserved and can be accessed as a lump sum without breaking the TRIP rules (until 30 June 2017). If you do withdraw these benefits as a lump sum, the lump sum counts towards the minimum pension payment amount required to be paid each year, but does not count towards the 10% maximum payment limit. Note that treatment of a lump sum as pension payment is only possible until 30 June 2017.

Important: From 1 July 2017, TRIPs will no longer be eligible for the tax exemption on pension asset earnings (15% earnings tax will apply), although pension benefit payments on or after the age of 60 will continue to be tax-free, and minimum payments must continue to be withdrawn from the TRIP.

Note: If an individual runs a self-managed super fund (SMSF) and chooses to salary sacrifice while taking a TRIP, then the SMSF trustees must either segregate the fund's assets, or obtain an actuarial certificate. If a fund does not segregate pension assets from assets representing accumulation phase, then the SMSF trustees must then obtain an actuarial certificate each year to identify the tax-exempt income derived from pension assets.

What happens to my TRIP from 1 July 2017?

If you currently have a TRIP, then you will need to review your circumstances before 1 July 2017, to determine the impact of your TRIP no longer being considered a superannuation income stream in the retirement phase. The most significant implication is losing the tax exemption on the fund earnings from assets financing the TRIP. Moving assets back to accumulation phase, may also mean that assets previously exempt from capital gains tax, will now become assessable.

Capital Gains Tax relief in your Fund

For SMSF trustees in particular, if a pension asset becomes an asset in accumulation phase, then a line will need to be drawn on the value at the time of transfer to ensure previously tax-exempt capital gains are not taxed in the future.

If you are seeking to make changes prior to the end of the financial year, contact us to discuss your options.

#superannuation   #earlyretirement   #TRIPS    #TTR

 

Keeping your details up to date

With the day-to-day demands of running a business it can be easy to overlook small things like the accuracy of your company and business records, but it's important. 

Directors have a responsibility under the Corporations Act to advise the Australian Securities & Investments Commission of certain changes within a set time-frame.

By keeping your details up to date, not only are you doing the right thing as a responsible business owner, you also stand a better chance of hearing about government activities that could directly benefit your business.

Your ABN details are also used by government agencies to plan for future community and infrastructure developments that you need to know about that may benefit your business.

If you need assistance to update your ABN  or company details within 28 days of change, including your address, email, phone numbers, entity type, or any other details contact us now.

ASIC Fee Indexation

ASIC will be increasing some fees based on the Consumer Price Index (CPI) from 1 July 2017.

 

Fee from 1 July 2017

Late payment penalties

Annual review fee for a proprietary company *

$254

Late payment fee applies if not paid within 2 months after review date

Annual review fee for a special purpose company *

$48

Late payment fee applies if not paid within 2 months after review date

Late payment fee for up to 1 month late

 

$78

Late payment fee for more than 1 month late

           

$316

*For further information and advice about fees contact us .

 

Simpler BAS is coming your way

Good news for small business owners is that from 1 July 2017 the ATO is reducing the amount of information needed for the business activity statement (BAS) to simplify your GST reporting.

From 1 July 2017, Simpler BAS will be the default GST reporting method for small businesses with a GST turnover of less than $10 million. Simpler BAS is a partnership between the ATO, software developers, tax professionals and small business associations.

Eligible businesses will only need to report their (1) Total sales (2) GST on sales and (3) GST on purchases.

This will not change the reporting cycle, record keeping requirements, or how you report other taxes on the BAS.

Simpler BAS will make it easier to classify transactions and lodge activity statements and reduce the time small business owners need to spend on paperwork and form-filling without  making changes that would impact the final GST amount. 

Simpler BAS will not affect how other taxes are reported such as your PAYG income tax instalments or PAYG tax withheld, or how often you submit your BAS.

You still need to keep records, such as invoices, as proof of any claims you make in your BAS and income tax return lodgements.

What's next?

The ATO will be automatically transitioning eligible small business' GST reporting methods to Simpler BAS from 1 July 2017. To help the transition, the ATO will email Clarke McEwan to advise whether clients are affected and how they can benefit from Simpler BAS.

Small business owners can choose whether to change their GST bookkeeping software settings to reduce the number of GST tax classification codes.

Before making any adjustments please talk to us at Clarke McEwan about whether reduced or detailed GST tax code settings are best for your business.

First home super saver scheme

Personal Tax Tips  - First home super saver scheme

From 1 July 2017 individuals will be able to make voluntary contributions to superannuation of up to $15,000 per year and $30,000 in total, to be withdrawn for the purpose of purchasing a first home. Both voluntary concessional and non-concessional contributions will qualify.

These contributions (less tax on concessional contributions) along with deemed earnings can be withdrawn for a deposit from 1 July 2018. When withdrawn, the taxable portion will be included in assessable income and will receive a 30 per cent offset.

Features associated with this measure include:

  • contributions will count towards existing concessional and non-concessional contribution caps
  • earnings will be calculated based on the 90 day Bank Bill rate plus three percentage points
  • the ATO will administer this scheme, calculate the amount that can be released and provide release instructions to superannuation funds.

To discuss this or any property investment matter contact us now.

Tax planning strategies for 2017

End of year planning is not just about minimising your tax bill.  These last months of the financial year are a great time to forecast how your 2016/17 financial year will wrap up and implement some strategies to support your objectives and minimise your tax liability by taking advantage of opportunities that will disappear from 1 July 2017.

The fact that many legislative changes will come into effect post 30 June 2017 means now it is time for early planning.  Here are some of the reasons to sit down now with Clarke McEwan and have that year-end planning discussion.

Clarke McEwan will look at your "whole of business", the way it operates, and its likely future needs. 

  • Use your end of year planning as a means of understanding your financial results to determine what improvements you can influence over the next 12 months and what profit result is achievable.  We can help quantify the benefits of future opportunities by using "what-if" scenarios such as investing in more staff, equipment or marketing.
  • The small business $20,000 immediate asset write-off currently available to businesses with <$2 million turnover will cease on 30 June 2017. With Company Tax Reform legislation to pass in May which will expand the definition of a Small Business to a <$10 mil turnover this is a window of opportunity for those businesses to bring forward asset purchases to pre 30 June.
  • With the Tax Reform looming and changes to the Small Business definition, companies with <$10 million dollars turnover will benefit from a lower 27.5% company tax rate in 2016/17.  It is anticipated that companies with <$25 million turnover will be entitled to a tax rate of 27.5% in the 2017/18 financial year. With this in mind it is worth exploring strategies to defer profit until the lower tax rate year.
  • Super Reforms come into effect 1 July 2017, including options available for a limited time. Consider this window of opportunity to increase your retirement savings and save tax by taking advantage of higher tax deductible concessional contribution limits of $30,000 for fund member under 50 years of age, and $35,000 for fund member in the 50 years plus age category.
  • Income streaming to lower income family members, already important in this financial year will be increasingly important in 2017/18 when new double contributions tax legislation applies to income from $250,000.  This division 293 tax result in super contributions being taxed at 30% rather than the 15% once "income" exceeds the limit.

As a guideline, your discussion with us should give you :-

1) an estimate of tax payable for the year ended 2017, the amounts of any tax instalments and the timing of due dates;

(2) a summary of options for the mix of salary, dividends if appropriate, and superannuation contributions to be paid this year;

(3) tax planning initiatives that might be undertaken prior to 30 June 2017; and

(4) determining how family trust income may be distributed so resolutions of trustees may be prepared before the end of June 2017.

This information is intended as a guideline only. Professional advice related to your personal situation is crucial. Request an appointment now 



 

Property investors to lose out from proposed budget changes

 

 The 2017 Federal Budget, handed down by Treasurer Scott Morrison on Tuesday night, 9th May at 7:30pm AEST includes proposed changes which will affect residential property investors Australia-wide.

The Australian Tax Office (ATO) allows owners of income producing property to claim depreciation deductions for the wear and tear that occurs to a building's structure and the plant and equipment assets within.

The proposed changes relate to the depreciation of plant and equipment assets and the eligibility to claim this deduction. Currently, investors are eligible to claim qualifying plant and equipment depreciation on assets found in an investment property they purchase, even if they were installed by a previous owner.

"Under the new rules which are yet to be legislated by Parliament, investors will be able to depreciate new plant and equipment assets and items they add to their property, however subsequent owners will not be able to claim depreciation on existing plant and equipment assets," said the Chief Executive Officer of BMT Tax Depreciation, Bradley Beer.

"This change will have a major impact on investors, essentially reducing the annual deductions they can claim therefore reducing their cash return each year. This could lead to investors being in a tighter financial position and may discourage future investors from purchasing a second hand residential property," said Mr Beer.

"It is our understanding at this stage that if the property is new, they will be able to continue to depreciate plant and equipment as they were previously. We are seeking further clarification on this," said Mr Beer.

Investors will still be able to claim capital works deductions also known as building write off, including any additional capital works carried out by a previous owner.

The budget notes were clear that existing investments will be grandfathered. This means that anyone who has purchased a property up until the 9th of May 2017 will be able to claim depreciation as per normal.

If a property investor exchanges contracts to purchase a second hand property after 7:30pm on the 9th May, there could be different depreciation rules applicable to their scenario.

"We are currently speaking with government to further understand the intricacies relating to the budget notes and the proposed changes to depreciation of plant and equipment assets," said Mr Beer.

This article was originally published as a media release at www.bmtqs.com.au/news-media/media-releases/property-investors-lose-out-budget-changes

Income Protection - A Valuable Asset

In most cases, your home is not your most valuable asset; it's your ability to earn an income

With escalating property prices continuing to make headline news, it's no surprise that many people consider the family home as their most valuable asset. It's certainly one they fully insure. But have you considered that, over your lifetime, your earning capacity could amount to millions of dollars - putting the value of your family home well and truly in the shade.

The math on annual income

For instance, let's imagine you're currently aged 40 and are married with two kids, earning $150,000 a year as a logistics manager. Now, let's say that you plan to work until you're at least 65 years of age, and you can expect annual increases of a modest two per cent each year.

Over the next 25 years, your accumulated earnings will amount to more than $4.8 million to cover you and your family's lifestyle and living expenses – everything from the mortgage, to family holidays, your car, school fees, and more. Yet only one in three Australians has income protection insurance, putting many families at risk.

Peace of mind

While injury or illness may stop your income, it certainly won't stop the bills. Indeed, Australian cities are among the most expensive in the world. This high cost of living, coupled with the fact that Australians have a one in three chance of being disabled for three months or more before the age of 65 provide compelling reasons to insure your income.3

Affordability

These days, you can tailor income protection insurance to suit your circumstances and budget. If cash flow is a struggle and finances are tight, you might prefer to get income protection insurance through your super fund.

These days, you can tailor income protection insurance to suit your circumstances and budget.

Being insured through super is generally an easy and more cost-effective option although the amount of cover available is limited compared to holding income protection separately. So if you're an established professional with a high income, or if you want to maximise your retirement savings rather than dip into them for insurance premiums, holding income protection insurance outside your super will probably be more beneficial.

It's also good to know that, unlike other types of personal insurance, income protection premiums are tax deductible.

Two other factors influence the cost of income protection:

1. Waiting period

Policies typically come with a waiting period – and the shorter this is, the more expensive the premiums will be. So if you have enough savings to manage expenses for three or six months, it's worth extending this waiting period.

2. Length of benefit period

You can cover your lost salary for a specific length. The greater your benefit period the more expensive your premiums will be.

To find the most appropriate way to protect your most valuable asset, it's a good idea to talk with your financial adviser.

 

Why 90000 more businessss can now access the $20000 instant asset write off

 

 

 

 

The popular $20,000 instant asset write-off for small business ends on 30 June 2017.  This concession enables small businesses to immediately write-off depreciable assets which cost less than $20,000.

Until recently, this instant write-off was only accessible to businesses with an aggregated turnover of less that $2 million.  But, a last minute deal struck between the government and Senator Nick Xenophon to pass the enterprise tax Bill - containing amongst other things the tax cuts for business and a change in the small business threshold – will see up to 90,000 more businesses access the instant write-off.

While the Bill containing these changes is not yet law, we expect that it will be passed when Parliament next sits.

For those businesses that have not accessed this concession previously, it's important to understand how you can take advantage of it before 30 June 2017.

What is the $20,000 instant asset write-off?

A deduction is generally available for purchases your business makes.  The instant asset write-off however changes the speed at which you can claim a deduction.  Since 7.30pm, 12 May 2015, small businesses have been able to immediately deduct business assets costing less than $20,000. On 30 June 2017, this $20,000 deduction limit reduces back to $1,000.   When we say "immediately deductible" we mean that your business can claim a tax deduction for the asset in the same income year that the asset was purchased and used (or installed ready for use).  The deduction is claimed on the business's tax return. 

If your business is registered for GST, the cost of the asset needs to be less than $20,000 exclusive of GST.  If your business is not registered for GST, it is $20,000 including GST.

Assets costing $20,000 or more can be allocated to a pool and depreciated at a rate of 15% in the first year and 30% for each year thereafter.

The instant asset write-off only applies to certain depreciable assets.  There are some assets, like horticultural plants, capital works (building construction costs etc.), assets leased to another party on a depreciating asset lease, etc., that don't qualify - check with us first if you are uncertain.

Also, you need to be sure that there is a relationship between the asset purchased by the business and how the business generates income. You can't for example just go and purchase multiple television sets if they have no relevance to your business.

How can you access the $20,000 instant asset write-off

There are a few issues to be aware of if you want to utilise the instant asset write-off:

Does your business qualify?

To access the instant asset write-off, your business needs to be a trading business (the entity buying the assets needs to carry on a business in its own right).  It also needs to have an aggregated turnover under $10 million.  Aggregated turnover is the annual turnover of the business plus the annual turnover of any "affiliates" or "connected entities". The aggregation rules are there to prevent businesses splitting their activities to access the concessions.  Another entity is connected with you if:

·         You control or are controlled by that entity; or

·         Both you and that entity are controlled by the same third entity. 

Should you spend the money now?

If there are purchases and equipment that your business needs, that equipment has an immediate benefit to the business, and your cashflow supports the purchase, then in many cases it will make sense to go ahead and spend the money – you have until 30 June 2017 before the deduction threshold drops back to $1,000.

The $20,000 immediate deduction applies as many times as you like so you can use it for multiple individual purchases. But, your business still needs to fund the purchase for a period of time until you can claim the tax deduction and then, the deduction is only a portion of the purchase price.

Assets must be ready to use

If you want to access the $20,000 immediate deduction, you have to start using the asset in the financial year you purchased it (or have it installed ready for use).  This prevents business operators from stockpiling purchases and claiming tax deductions for goods they have no intention of using in the short term.  So, if your business purchases an asset on 20 May 2017, it needs to be used or installed and ready to use by 30 June 2017 to qualify for the immediate deduction.

Second hand goods qualify

The instant asset write-off does not distinguish between new or second hand goods.  For example, second hand machinery may qualify if it meets the other requirements.

The immediate deduction can be used more than once

Assuming all the other conditions are met, an immediate deduction should be available for each individual item costing less than $20,000.  Just be careful of cashflow. 

Be careful of contracts

You need to ensure that any contract you sign makes your business the owner of the asset and that the asset can be used or installed and ready to use by the business on or before 30 June.  The rules require you to "acquire" the asset before 30 June so the wording of the contract will be important.

Assets for business and pleasure

Where you use an asset for mixed business and personal use, the tax deduction can only be claimed on the business percentage.  If you buy an $18,000 second hand car and use it 80% for business and 20% for personal use, only $14,400 of the $18,000 is deductible.

You don't get $20,000 back on tax as a refund

The instant asset write off is a tax deduction that reduces the amount of tax your business has to pay. It enables your business to claim a deduction for depreciating assets in the year the asset was purchased and used (or installed ready to use).  For example, if your business is in a company structure the most you will 'get back' is 27.5% (in 2016-17). If your business is likely to make a tax loss for the year then the bigger deduction might not provide any short-term benefit to you.

The material and contents provided in this publication are informative in nature only.  It is not intended to be advice and you should not act specifically on the basis of this information alone.  If expert assistance is required, professional advice should be obtained.

 

Businesses are advised to make sure their tax records are in order, with one expert warning the Australian Tax Office is beefing up its data tracking methods.

Chartered accountant with Pilot Partners Murray Howlett says the ATO has more than just the tax status of salads on its mind at the moment: SME owners' social media accounts could also be under scrutiny, Howlett told SmartCompany.

"The ATO is very concerned about tax avoidance and making sure people are doing the right thing, so they're trying to get better at looking at what's publicly available," Howlett says.

"They're looking for inconsistencies in what people are reporting, and what their social media reveals their lifestyle to be like."

Howlett uses the example of a citizen who reported low income to the ATO but had multiple photos of "flashy cars and boats" on his social media.

In a statement to SmartCompany, the ATO revealed it has been "investing in data collection analysis to find cases of people's declared income not matching their lifestyles".

"It's a reality of the age we live in that there is more and more information publicly available, particularly through social media platforms. We never go looking for this information where people are doing the right thing and are open with us," an ATO spokesperson said in a statement.

"We only go looking when something doesn't add up. We continue to support those who do the right thing, and identify and take action against those who choose not to."

The ATO's policies surrounding the use of social media for tax compliance outline mean that ATO staff may only access social media sites found through a search with a "search provider", such as Google.


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