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    Different retirement income streams

    Mature couple with bills sitting at dining table in houseWhen you start thinking about retirement, one of the first questions you should ask yourself is, ‘How much money will I need?

    Once you know that answer, you can start looking at different retirement income streams and determine which will best suit your needs.

    Here at North Advisory, we can work with you to help assess the viability of each option and find the most appropriate for your personal circumstances. Whether it’s a single income stream or a combination of two or more, we’ll make sure it fits your lifestyle… so you can live your dream retirement.

    How do you determine income needs?Closeup hand fill a coin into a savings bottle on the table

    There are many variables that will impact your income needs in retirement. And it will greatly depend on the type of lifestyle you want to live. But it is important to have a clear understanding of your financial requirements before the security of a regular salary is gone.

    An easy place to start is with all your standard expenses… things like your utilities – power bills, phone and internet, council and water rates. The bills that will always be there. Plus, you want to include other regular costs like vehicle registration or insurance premiums.

    Calculate everything that you can already identify, then you can move onto the wish list.

    Next up you can start thinking about your ideal retirement expenditure. All the ‘nice to haves’ – eating out, holidays, looking after grandchildren, any new hobbies. These expenses combined with your essential spending will give you a solid indication of your income needs.

    You also need to think about how often you would like to receive payments; do you prefer to have a lump sum and spend from that, or would regular payments – almost like a salary – be more suitable? Different income streams offer different benefits, so you need to choose the one that works best for you.

    Account-based pension

    An account-based pension is the most common type of retirement income stream. It draws directly from your superannuation and is tax free.

    In order to access the funds in your superannuation and start your pension, you need to meet a condition of release. Most often, this is reaching your preservation age and preparing for retirement.

    While there is a minimum amount that you have to withdraw from your super each year, there is no maximum. This means you have flexibility to access as much as you need. Plus, not only does it provide a regular income payment, it also offers the additional flexibility of withdrawing a lump sum. For example, if you needed to make some repairs to your home, you could immediately access a larger single amount.

    You should also note that because an account-based pension relies on invested assets within superannuation, the balance can go up and down with investment market fluctuations.

    AnnuitiesA man using a calculator

    Annuities are another regularly chosen income stream. You purchase an annuity, and it provides you with a regular, guaranteed income payment.

    To buy an annuity you can use money from your superannuation or any other savings, and you select a set period of time or even the rest of your life… it all depends on the provider you purchase the annuity from.

    People select annuities because they are very stable. You know exactly how much you are going to receive over the term, and it gives sound peace of mind that you will always have that steady income. But unfortunately, you don’t have the ability to access any lump sums.

    Unlike superannuation account-based pensions, the balance of your annuity is fixed. It is not connected to investments and therefore will not fluctuate.

    Senior couple viewing the beachInvestments and other assets

    In addition to account-based pensions and annuities, you might also have other investments or assets and it’s important to consider how they will support you in retirement.

    During your working life, it’s possible that you haven’t had to access your regular dividend payments; you might have simply re-invested… but once you retire you will probably start to include them as part of your regular income.

    The easiest option is to keep them in your bank account and use them as day to day funds, but it’s important to understand potential tax implications. We recommend discussing how to minimise your tax obligations with a professional. We can help determine the best way to effectively manage these funds.

    Age pensionA women taking out her money from her wallet

    There is also the Federal Government’s age pension. This is provided through Centrelink and is means tested. How much you receive from other retirement income streams and the total value of your assets impact your eligibility and the amount you might receive through this payment.

    The more wealth you have, the lower your age pension payments… or you might not receive anything. It is common for retirees to receive an account-based pension from their superannuation and a part age-pension from the Government. Again, it’s worthwhile discussing your situation with a financial advisor to make sure you are maximising your income options.

    We are here to help

    Finding the right balance of retirement income can be difficult, but our team is here to help! We can work with you to determine how much income you will require and then find a tailored solution to meet your needs.

    If you want to find out more about our wealth management services and retirement planning, contact us today.

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    Businessman sitting at office desk with a laptopDid you know that there are significant capital gains tax (CGT) concessions available to business owners?

    The Australian Government offers substantial financial benefits depending on your personal circumstances and how long you’ve owned your business.

    Here at North Advisory, our team of Chartered Accountants and business advisors knows how to determine your eligibility and help you access any concessions available to you. Plus, we can provide guidance on the most tax effective strategy when you want to sell your business… including making additional super contributions.

    Understanding eligibility criteria

    Eligibility is central to gaining access to the range of CGT concessions. And the concessions you may be able to utilise will depend on some key personal factors – such as your age and stage of life.

    The ATO website outlines a detailed list of eligibility criteria but some of the initial points are:

    “You must be one of the following:

    • Busy business people at the officea small business entity with an aggregated turnover of less than $2 million
    • not carrying on a business (other than as a partner) but your asset is used in a closely connected small business (passively-held assets)
    • a partner in a partnership that is a small business entity, and the asset is either
      • an interest in a partnership asset (partnership assets)
      • an asset you own that is not an interest in a partnership asset (partner’s assets) but is used in the business of the partnership
    • you satisfy the maximum net asset value test.

    The asset satisfies the active asset test.”

    We understand that this is complex, but we have the experience to be able to assess your current situation and determine whether you meet the requirements.

    Business Executives discussing sales performance in a modern office.Four CGT concessions

    After determining your eligibility, we need to work out which of the four different CGT concessions is applicable to you when you want to sell your business.

    It’s an important process to go through because you want to make sure you minimise your tax obligations. Selling a business can create a hefty capital gain, so finding ways to reduce your liability is pertinent. Plus, as some of the concessions provide the opportunity to make lump sum contributions to your super, it’s a good idea to review all your options.

    Again, the ATO’s website lists all the information about each concession, but here is a brief summary:

    “Small business 15-year exemption
    You will not pay CGT when you dispose of an active asset if you meet both of the following additional requirements:

    • you are aged 55 years or older and retiring, or are permanently incapacitated
    • you have continuously owned the asset for at least 15 years.

    Small business 50% active asset reduction
    You will only pay tax on 50% of the capital gain when you dispose of an active asset.
    The small business 50% active asset reduction applies if you meet the basic eligibility conditions.

    Small business retirement exemption
    Capital gains from the disposal of active assets are exempt from CGT up to a lifetime limit of $500,000. If you are under 55, the exempt amount from the proceeds on disposal of the asset must be paid into a complying superannuation fund or a retirement savings account.

    Small business rollover
    The small business rollover allows you to defer all or part of a capital gain made from a CGT event happening to an active asset. For example, you can defer your capital gain until a later year if you buy a replacement asset or improve an existing active asset.”

    Pink Piggy bank money concept on dark blue background, stuffed with Australian cashBoost your super balance

    Out of these four concessions there are two that offer you the opportunity to boost your super balance and further reduce your tax liability.

    The 15-year exemption and the small business retirement exemption enable you to make lump sum contributions into your super without impacting your other super contribution caps.

    This is where we can work with you to make sure all the right boxes are ticked. You can achieve different outcomes depending on the way you apply the concessions, so we look at the best way to order them to achieve the optimal result.

    For example, if you sold your business for $1 million, you may be able to contribute the full amount tax free into your super without affecting your standard concessional and non-concessional contribution caps, as long as you have owned your business for more than 15 years and are transitioning to retirement.

    Professional accountant advice

    There’s no doubt that these CGT concessions can be extremely beneficial if you are a business owner nearing retirement. But they can be difficult to navigate on your own.

    Our professional accountant advice can save you the headache of trying to work it out yourself! We have the knowledge and expertise to help you assess your eligibility and implement tax effective strategies. If you’d like to find out more about our services, please contact us today.

    Read more Superannuation articles.

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    Senior couple planning their investments with financial advisor in living roomNobody likes to think about the inevitable. Talking to family and friends about your own death is not high on your conversation list.

    Like everyone, your day-to-day life is filled with busy activities and it’s not unusual for the task of getting your affairs in order to sit at the very bottom of your to-do list.

    But estate planning is important. Taking the time to make clear arrangements and to keep them updated will provide both you and your loved ones valuable peace of mind.

    There is a lot more to estate planning than just writing your will and putting it in your files for someone to find in years to come. It is a complete strategy that outlines how your assets will be distributed to your beneficiaries after you die.

    This isn’t an easy task and is best done with the support and guidance of a professional accountant or financial advisor. They can help you determine exactly what you want and advise on the best way to achieve your wishes.

    Charming little girl and her beautiful young parents are talking and smiling while sitting on sofa at homeStart now

    While you might think that estate planning is something to do when you are nearing retirement, you should actually start thinking about it now.

    Your estate is made up of all your assets, and you begin accumulating wealth as soon as you start earning an income… so even if you are only in your 20s, it’s worthwhile considering how you want your assets distributed.

    If you are a newly employed young person, the first stage of estate planning may be writing a simple will and making sure your superannuation beneficiaries are set up correctly. Then as your circumstances change and your wealth grows, you can speak with an expert about complex estate planning processes and modify your plans accordingly.

    It’s vital that you understand your legal rights and responsibilities, so we recommend seeking professional advice. An advisor can also give you guidance on the most tax effective strategies when it comes to the transfer of your assets.

    Male hand signing business document, senior man putting signature on legal paperReview your will

    When was the last time that you checked your will? Making sure that you have a current, valid will is fundamental to your estate plan.

    It is a legally binding document that not only describes how you want your assets distributed, but it also helps to minimise the potential for disputes once you are gone.

    Your will also saves your family and other loved ones from the stress and worry that can accompany complex legal matters.

    Here in Australia, if someone dies without a will in place, their assets are distributed according to the inheritance laws of the state they live in. If this happens, it could have a significant tax implication for your beneficiaries.

    The last thing you want is someone you love being burdened with an additional tax bill while they are grieving your loss.

    Think about tax

    Estate planning does have complex tax considerations that you need to think about. Your individual circumstances will dictate the complexity of your strategy, which is another reason why you should seek professional guidance.

    You want to make sure that you set up an effective transfer of assets. For example, a testamentary trust is a simple, tax effective way to make sure your assets reach their intended beneficiaries. They tend to provide protection from legal action and attract better marginal tax rates when trust income is distributed to children or minors.

    Child and parent hands holding money jarSuperannuation

    It’s important to note that your superannuation is not included in your estate. It is distributed as a superannuation death benefit, not as part of your will. Your binding death nomination determines who will receive the distributed funds, so you want to make sure you have that information up to date at all times.

    Under super law, how the benefit is paid – either as a lump sum or an income – and who it is paid to depends on who you nominate as your beneficiary.

    You can only nominate the executor of your estate if they are classified as a dependant.

    These super regulations are difficult to navigate, and we recommend having an advisor review your nominations to make sure they are valid.

    Accountant showing paper with points of project to colleagueSeek professional advice

    You want to make sure that when you are gone, the structures you have in place will work effectively for your beneficiaries.

    This is especially important if you own a business, have been married more than once or have a blended family. These situations can demand a more complex estate plan to ensure your assets are properly distributed.

    We understand that estate planning can be challenging, so here at North Advisory our aim is to make those conversations as easy as possible. If you’d like to find out more about how we can help you, please contact us today.

    Read more Personal Wealth Management articles.

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    The Treasurer, Josh Frydenberg, delivered the Federal Budget on Tuesday 29 March 2022. We have outlined information that is relevant to you, your superannuation and business and employers.

    Hand Man Refill and filling Oil Gas Fuel at station

    FOR YOU

    Temporary reduction in fuel excise

    As widely predicted, the Government will temporarily reduce the excise and excise-equivalent customs duty rate that applies to petrol and diesel by 50% for 6 months from Budget night.

    That is, the current 44.2 cents per litre excise rate will reduce to 22.1 cents per litre from Budget night. However, the measure is subject to the passage of the enabling legislation so don’t expect to see a change right away.

    The reduction extends to all other fuel and petroleum based products except  aviation fuels. At the conclusion of the 6 months on 28 September 2022, the excise and excise-equivalent customs duty rates revert to previous rates including any indexation that would have applied during the 6 month period.

    The Australian Competition and Consumer Commission (ACCC) will monitor the price behaviour of retailers to ensure that the lower excise rate is passed on to consumers.

    The measure comes at a cost of $5.6bn.

    Low and middle income cost of living tax offset increase

    The low and middle income tax offset (LMITO) currently provides a reduction in tax of up to $1,080 for individuals with a taxable income of up to $126,000.

    The tax offset is triggered when a taxpayer lodges their 2021-22 tax return.

    For the 2021-22, the LMITO will be increased by $420 which means that the proposed new rates for individuals are as follows:

     

    Taxable income  Offset
    $37,000 or less $675
    Between $37,001 and $48,000 $675 plus 7.5 cents for every dollar above $37,000, up to a maximum of $1,500
    Between $48,001 and $90,000 $1,500
    Between $90,001 and $126,000 $1,500 minus 3 cents for every dollar of the amount above $90,000

    $250 cost of living payment

    A one-off $250 ‘cost of living payment’ will be provided to Australian resident recipients of the following payments and concession card holders:

    • Age Pensionhands of a senior woman holding australian banknotes and a pen
    • Disability Support Pension
    • Parenting Payment
    • Carer Payment
    • Carer Allowance (if not in receipt of a primary income support payment)
    • Jobseeker Payment
    • Youth Allowance
    • Austudy and Abstudy Living Allowance
    • Double Orphan Pension
    • Special Benefit
    • Farm Household Allowance
    • Pensioner Concession Card (PCC) holders
    • Commonwealth Seniors Health Card holders
    • Eligible Veterans’ Affairs payment recipients and Veteran Gold card holders.

    The payments are exempt from taxation and will not count as income support for the purposes of any income support payment. An individual can only receive one payment.

    Medicare levy low-income threshold increased

    The Medicare levy low income thresholds for seniors and pensioners, families and singles will increase from 1 July 2021.

      2020-21 2021-22
    Singles  $23,226  $23,365
    Family threshold  $39,167  $39,402
    Single seniors and pensioners  $36,705  $36,925
    Family threshold for seniors and pensioners  $51,094  $51,401

    For each dependent child or student, the family income thresholds increase by a further $3,619 instead of the previous amount of $3,597.

    Home Guarantee Scheme extended

    The Home Guarantee Scheme guarantees part of an eligible buyer’s home loan, enabling people to buy a home with a smaller deposit and without the need for lenders mortgage insurance. The Government has extended two existing guarantees and introduced a new regional scheme.

    Just prior to the Budget, the Government announced:

    • First Home Guarantee – from 1 July 2022, an increase from 10,000 to 35,000 guarantees to support eligible first homebuyers purchase a new or existing home.
    • Single parent Family Home Guarantee – 5,000 guarantees each year from 1 July 2022 to 30 June 2025. The family home guarantee supports eligible single parents with children to buy their first home or to re-enter the housing market with a deposit of as little as 2%.
    • Introduction of a Regional Home Guarantee. This guarantee will support eligible citizens and permanent residents who have not owed a home for 5 years (including non-first home buyers) to purchase or construct a new home in regional areas with a minimum 5% deposit areas (subject to the passage of enabling legislation).

    YOUR SUPERANNUATION

    Reduction in minimum superannuation drawdown rates extended again

    The temporary 50% reduction in superannuation minimum drawdown requirements for account-based pensions and similar products has been extended to 30 June 2023.

    Minimum superannuation drawdown rates 2019-2023

    Age  Default minimum drawdown rates (%)  Reduced rates by 50% for the 2019-20 to 2022-23 income years (%) 
    Under 65 
    65-74  2.5 
    75-79 
    80-84  3.5 
    85-89  4.5 
    90-94  11  5.5 
    95 or more  14 

    australian dollar with graph, home budget laptop and calculatorBUSINESS AND EMPLOYERS

    $120 deduction for every $100 spent on technology

    The Government intends to provide a 120% tax deduction for expenditure incurred by small businesses on business expenses and depreciating assets that support their digital adoption, such as portable payment devices, cyber security systems or subscriptions to cloud based services.

    The technology boost will be available to small business with an aggregated annual turnover of less than $50 million.

    An annual expenditure cap of $100,000 will apply to the boost.

    The boost for eligible expenditure incurred by 30 June 2022 will be claimed in tax returns for the following income year. The boost for eligible expenditure incurred between 1 July 2022 and 30 June 2023 will be included in the income year in which the expenditure is incurred. That is, the additional deduction available under this measure is expected to be claimed in the 2023 tax return.

    Lowering tax instalments for small business

    Normally, GST and PAYG instalment amounts are adjusted using a GDP adjustment or uplift. For the 2022-23 income year, the Government is setting this uplift factor at 2% instead of the 10% that would have applied.

    The 2% uplift rate will apply to small to medium enterprises eligible to use the relevant instalment methods for instalments for the 2022-23 income year and are due after the amending legislation comes into effect:

    • Up to $10 million annual aggregated turnover for GST instalments and
    • $50 million annual aggregated turnover for PAYG instalments

    Two diverse coworker employees sharing laptop, discussing paper report at workplace

    Expanding access to employee share schemes

    In broad terms, an Employee Share Scheme (ESS) is a scheme under which shares in a company, or rights to acquire shares in a company, are issued to an employee or their associate in respect of their employment.

    At a commercial level, ESS arrangements are often used to better align the interests of employers and employees, as employees are provided with an opportunity to share in the profitability and growth of the business.

    The arrangements can also be useful in situations where a business is in start-up mode and does not have significant cash flow or reserves to attract top quality employees with high salaries.

    The Government has flagged changes to the ESS rules to expand access to schemes so that employees at all levels can directly share in the growth of the business.

    Where employers make larger offers in connection with employee share schemes in unlisted companies, participants can invest up to:

    • $30,000 per participant per year, accruable for unexercised options for up to 5 years, plus 70 per cent of dividends and cash bonuses; or
    • Any amount, if it would allow them to immediately take advantage of a planned sale or listing of the company to sell their purchased interests at a profit.

    The Government will also remove regulatory requirements for offers to independent contractors, where they do not have to pay for interests.

    While these changes might expand access to employee share schemes, it is important to consider the tax implications that can arise for employee when they receive shares or options at a discount to their market value. There are a number of different ways that employees can be taxed in this area and the treatment will often depend on how the ESS arrangement has been structured by the company.

    ‘Patent Box’ tax regime extended to agriculture and emissions

    The Patent Box tax regime was announced in the 2021-22 Budget for the medical and biotech industries and provides a concessional effective corporate tax rate of 17% on income derived from patents, to the extent that the taxpayer undertakes the R&D of that patent in Australia.

    The Government has announced an extension of the regime to:

    • Technology focused innovations to reduce emissions in line with the Government’s target to achieve net zero emissions by 2050, and
    • Practical, technology focused innovations in the Australian agricultural sector.

    Note that the legislation enabling the original 2021-22 Budget measure has not been enacted and is currently before Parliament – see Treasury Laws Amendment (Tax Concession for Australian Medical Innovations) Bill 2022. Young man working at warehouse in brewery

    Streamlining fuel and alcohol excise compliance

    From 1 July 2023, fuel and alcohol businesses with an annual turnover of less than $50 million will be able to lodge and pay excise and excise equivalent customs duty on a quarterly basis, rather than weekly or monthly. These businesses will lodge returns and pay excise by the 28th day of the month after the end of each quarter.

    In addition, businesses that import fuel and alcohol products for further manufacture or distribution, and want to defer payment of excise or excise-equivalent customs duty, will be able to transfer the fuel or alcohol straight into a warehouse administered by the ATO once the products have gone through Australian Border Force (ABF) customs clearance.
    The ABF will still collect tax on direct imports.

    Licensing requirements across the excise system will also be streamlined by:

    • removing all renewal requirements for excise and excise equivalent customs goods licences; removing licence fees; enabling the ATO and ABF to issue entity level licences in addition to site level licences; and providing blanket permission to move goods between sites controlled by licensed businesses
    • removing onshore producers of crude oil and condensate from the excise system until and unless they exceed the relevant production threshold to be liable for excise payments
    • extending the time limit to apply for a refund of excise overpayments from 12 months to 4 years after payment, to align with refunds of customs duty
    • creating a public register of excise and excise equivalent customs goods licences administered by the ATO.

    And, the excise and excise-equivalent customs duty regime for fuel will be amended by:

    • introducing a refund provision, similar to that in the excise law, for excise equivalent customs duty on petroleum based oils used in the further manufacture of petroleum lubricants, ending double taxation of these oils
    • removing the requirement to pay and then claim Fuel Tax Credits in respect of excise or excise equivalent customs duty on fuels used in domestic commercial shipping (‘bunker fuels’), aligning their treatment with the duty-free treatment of bunker fuels for international voyages
    • setting a single rate for businesses to calculate and claim Vapour Recovery Unit refunds.

    The excise law will be amended to provide a targeted exemption from excise licensing requirements, up to a threshold of 10,000 litres per year, for licensed hospitality venues to fill beer from kegs into sealed, non-pressurised containers of no more than 2 litres capacity and not designed for medium to long term storage (‘growlers’).

    Linking PAYG instalments to financial performance

    As announced prior to the Budget, companies will be able to choose to have their pay as you go (PAYG) instalments calculated using current financial performance, extracted from business accounting software, with some tax adjustments.

    The move is intended to ensure that instalment liabilities are aligned to the businesses cashflow. In addition, the digitisation of PAYG instalments will improve transparency and provide more accurate data on performance.

    Digitising taxable payments reporting system

    As announced prior to the Budget, businesses will be able to report Taxable Payments Reporting System data via their accounting software on the same lodgment cycle as their activity statements.

    The measure is expected to reduce the costs of complying with the system and increase transparency.

    Sharing of Single Touch Payroll data

    As announced prior to the Budget, the Government will commit $6.6 million for the development of IT infrastructure that will enable the ATO to share Single Touch Payroll (STP) data with State and Territory Revenue Offices on an ongoing basis.

    The funding will be deployed following further consideration of which states and territories are able and willing to make investments in their own systems and administrative processes to pre-fill payroll tax returns with STP data in order to reduce compliance costs for businesses.

    ABN integrity measure delayed

    Back in the 2019-20 Budget, the Government announced that Australian Business Number (ABN) holders would be stripped of their ABNs if they failed to lodge their income tax return. In addition, ABN holders would be required to annually confirm the accuracy of their details on the Australian Business Register.

    This measure has been deferred for 12 months, which means that the tax return lodgement obligation is due to commence from 1 July 2022 with the annual confirmation of ABN details to commence from 1 July 2023.

    Tax deductibility of COVID-19 test expensePositive SARS‑CoV‑2

    As previously announced, work‑related COVID‑19 test expenses incurred by individuals will be made tax deductible.

    Changes will also be made to ensure that FBT will not be payable by employers if they provide fringe benefits relating to COVID‑19 testing to their employees for work‑related purposes.

    The changes for deductions will be effective from 1 July 2021, with the FBT changes to apply from 1 April 2021.

    At this stage it is not entirely clear whether the deduction rules will cover expenses incurred where the employee is able to work from home. The initial media release indicates that the measure will cover situations where the individual has the option of working remotely, while the Budget only refers to costs of taking a COVID-19 test to attend a place of work but doesn’t specifically refer to employees who can work from home.

    If you have any questions about how any of these announcements affect you, please contact our team today. Read more Financial Industry articles.

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    Restaurant owner checking monthly reports on a tabletBusiness tax audit… three words that have the ability to strike fear into the hearts of business owners everywhere.

    Having the ATO go through your accounts is a daunting thought, and even if you have been operating your business for decades, it can still make you nervous.

    “What will they find?

    Will I be hit with additional bills?

    I hope I’ve done everything right!”

    We understand that the prospect of an audit can be overwhelming, but it doesn’t need to be. If you have robust systems in place and keep your accounting records up to date, it can actually be a smooth and easy process. By following some of our tips, we are sure that you can stress-less and be prepared for anything!

    Futuristic stock exchange with chart, numbers and BUY and SELL options What is ATO’s audit focus?

    To help alleviate some of the anxiety around a business tax audit, you can start by considering what the ATO will be looking for. Every year there can be slight changes to the ATO’s focus, depending on what is happening across the country. For example, in FY20/21 there was a lot of attention paid to how businesses rolled out JobKeeper payments, as this was a key financial stimulus from the government.

    This year, it is predicted that the ATO will be looking at employer obligations such as the Superannuation Guarantee (SG). Data they collect from Single Touch Payroll (STP) reporting provides them the information they need to determine who they might target.

    In addition to employer obligations, it’s likely that the ATO will also be focusing on cryptocurrency and share transactions. In 2021, they contacted ‘around 100,000 taxpayers who had traded in cryptocurrency and prompted 140,000 taxpayers at lodgment.’ So, it’s important that you understand the capital gains tax implications of crypto and trading.

    Businessman analyzing reports while working on paperwork in a restaurantAccurate records

    Knowing what the ATO is focusing on is helpful, but the best way to be prepared for a business tax audit is to make sure your accounting records are top notch.

    There’s nothing worse than being told you will be audited and realising you need to fix a year’s worth of accounting!

    Ideally, you want to use a cloud-based system, as it will make your day-to-day financial management much easier.

    Cloud accounting software, such as Xero, is always up to date with Australian tax regulations and will help you manage transactions and keep you on top of compliance.

    Implementing good accounting practices such as regular reconciliations, scheduled payroll, superannuation payments and other processes will make sure you are already in good shape should your business be selected for audit.

    Accountant calculating financesRemember to archive

    Most ATO audits focus on the most recent tax return, but an auditor might go back previous years if they think there’s a possibility of understated income. So, it’s essential that you remember to maintain your archive.

    Keep all relevant business finance documentation for at least five financial years so that you can support any claims. This is again where a cloud accounting system can be beneficial, because you will be able to keep digitised versions of the documents and reduce your office paper consumption.

    Australian annual corporate tax return conceptFix your mistakes

    Sometimes mathematical mistakes are made in business tax returns… especially if you are manually completing them. Applying the incorrect percentage, adding figures from different columns… it’s possible to end up with inaccurate calculations, so it’s wise to go over your numbers before you submit your documentation.

    But if you do identify an error, make sure you fix your mistake quickly. If you can highlight the issue at the beginning of your audit, it could help save you from being penalised.

    Specialised business accountant

    Here at North Advisory, we understand that a business tax audit might feel ominous, but our team of specialised accountants is here to help.

    We can support you by implementing processes that streamline your accounting and reduce your stress. If you’d like to find out more about our business accounting services, please contact us today.

    Read more Business Tax articles.

     

    Man separating a block house with icons of people, car, animal and moneyBreak-ups are hard. When a relationship ends it can be filled with turmoil, and the separation process is often messy. If you have been together for a long time, it’s likely that you have to sort through a lot of things to determine who keeps what… not to mention coming to an agreement about parenting arrangements.

    While it can be a highly emotional time, it’s crucial that you don’t relinquish your own financial security. Seeking suitable legal and financial advice can help make sure you walk away with your fair share of entitlements.

    Today, we look at how to protect your finances during separation.

    Exhausted couple sit rest on sofa in living room near cardboard boxesWhat to think about first…?

    It can be hard to think straight when your mind is on a rollercoaster… but when you and your partner first start discussing separation, it’s most likely that you’ll need to come to an agreement about living arrangements.

    Every situation is different and this is why having appropriate legal advice right from the start can help make sure you understand the implications of packing your bags and leaving.

    Often, if there are children, one parent will stay in the home with them and the other will find alternative accommodation. But it’s important to note that moving out could impact your future options, should you want to take ownership of the property at a later stage.

    Judge gavel deciding on marriage divorceDo I really need a lawyer?

    It’s not unusual for separating couples to remain amicable and for them to believe they can go through the process without needing a lawyer. And in some instances, this is the case… it really depends on your personal circumstances and how well you and your ex still get along.

    But enlisting professional legal services will guarantee that legally binding agreements are just that – legal. Verbal agreements or handwritten notes are not going to be sufficient if your partner changes their mind in a few months and decides they want something more.

    Making sure there is formal documentation of your asset division – such as a consent order or a financial agreement – helps to protect you from any future attempts to take a larger portion of the divided wealth.

    Plus, there are potential financial implications, such as stamp duty advantages on any investment properties. Normally, a transfer of ownership would attract capital gains tax, but when the transfer occurs due to an order or agreement, the CGT is not applicable until you eventually sell the property. It is this type of complex financial matter that warrants seeking professional advice.

    Sorting out the financesCouple signing a document

    Most couples who have been together for a while are likely to have joint accounts and bills in both names. This is where you need to make prompt changes to ensure you remain financially protected.

    Is your salary paid into a joint account? If it is, you might consider changing it. Alternatively, you could put a freeze on the joint account or adjust the account so that it requires both signatories to sign off on transactions… this way you both need to approve any money movements.

    Negotiating with your partner about how to divide the finances is of course the preferred outcome, but keep in mind how it would impact you directly if they cleaned out the account. Would this immediately impact your financial security? Taking early steps to minimise the fallout is always a good decision.

    We are here to help

    Here at North Advisory, we understand that going through a separation can be a difficult time. Our team is always here to help support you with professional accounting advice. We can also assist with your personal wealth management to make sure your financial future is secure.

    Contact us to find out more about how we can help you today.

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    Woman checking the bills at the kitchenHave you heard of the super bring-forward rule? There was a lot of discussion about it last year because from 1 July 2021 more Australians became eligible to access its benefits.

    The rule applies to non-concessional contributions and is a great way for you to be able to increase your super balance before you retire. If you sell an asset of considerable value or receive a significant financial windfall, it could give you the opportunity to deposit that money into your super without the constraints of the usual annual contribution caps.

    Today, we take a closer look at the rule and how you might be able to utilise it in your superannuation strategy.

    What are non-concessional contributions?

    The ATO outlines non-concessional contributions as:

    • from your after-tax income
    • not taxed in your super fund.

    You make these contributions voluntarily and you don’t claim a tax deduction. From 1 July 2021 the annual non-concessional contribution cap increased to $110,000. Normally, if you contribute more than this amount in a single year you may have to pay extra tax.

    What is the bring-forward rule?Hand holding money bags

    The super bring-forward rule allows you to make up to three years’ worth of non-concessional contributions in one financial year. There are certain eligibility criteria that you need to meet, but it does mean you might be able to boost your super balance by up to $330,000 without paying any additional tax.

    There are some specific guidelines that you need to follow, but it can be a helpful strategy if you find yourself with a lump sum of money that you want to utilise for your retirement.

    How do bring-forward arrangements work?

    The amount you already have in super will determine whether you can use the bring-forward arrangements. If your balance is nearing $1.7million there could be restrictions on how much you can contribute.

    The ATO says:

    “From 1 July 2021
    The amount of the non-concessional contributions cap you can bring forward is either:

    • three times the annual non-concessional contributions cap over three years (that is, $330,000) if your total super balance on 30 June of the previous financial year is less than $1.48 million
    • two times the annual cap over two years (that is, $220,000) if your total super balance on 30 June of the previous financial year is above $1.48 million and less than $1.59 million
    • nil ($0) if your total super balance is $1.59 million or above. These limits are based on the:
    • non-concessional contribution cap of $110,000
    • total super balance in relation to the general transfer balance cap of $1.7 million.”

    If you make a non-concessional contribution that is over the $110,000 cap, the bring-forward rule will automatically apply – as long as you are eligible.

    For example, if you make a $150,000 non-concessional contribution during this current financial year (2021-22), this is $40,000 over the normal annual cap and initiates the bring-forward rule. This means you can make further non-concessional contributions up to $180,000 across the next two financial years – 2022-23 and 2023-24.

    Are you eligible?

    There are two separate factors that impact your eligibility. As noted above your super balance determines how much you can contribute, but your age also influences how you can use the bring-forward rule.

    When it comes to eligibility, the ATO says:

    “If you are under 67 years of age at any time in a financial year, you may be able to make non-concessional contributions of up to three times the annual non-concessional contributions cap in that financial year.

    If you are 67 years old or older on 1 July, you cannot access the bring-forward arrangement in that financial year. You need to meet conditions for certain types of contributions to be accepted by your super fund, including satisfying the work test or work test exemption.”

    Speak to our friendly team

    We understand that managing your superannuation can be time-consuming and at times complex. Here at North Advisory, our team can help you navigate some of the more complicated strategies and support you as you build your wealth in preparation for retirement.

    If you’d like to find out more about how we can help you grow your super, please contact us today.

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    Cars parked in a rowEvery business owner will reach a time when they have to think about buying business assets. Perhaps they need a fleet of laptops for their sales team, or maybe new company vehicles… or it could even be purchasing a commercial property.

    The more significant the asset, the more carefully you should consider your options.

    If you just need a few desks and chairs because you’ve hired some new team members, that’s not too complicated a purchase… but if you are looking at investing in a factory because your manufacturing business is rapidly expanding, then it would be prudent to seek professional accounting services to help guide you through the process.

    We look at some of the basic considerations you should think about when making high-value commercial purchases.

    Should you buy or lease?Business People discussing financial document data charts and graph

    The first question you should ask yourself is whether you should buy or lease.

    Purchase costs can often make a huge dent in a company’s budget, especially if you want to buy your asset outright.

    There are financing options available, but it’s worth crunching the numbers to determine the most financially viable choice.

    Depending on your agreement, a lease sometimes allows you to upgrade your asset at the end of each lease term. This is often popular if the asset is subject to technological advancements… upgrading to a newer model might suit your business needs.

    Within the lease period, you pay regular instalments for the asset and this can most likely be treated in the same manner as an asset purchase for accounting purposes.

    Yellow excavator machines parked in a compoundBut purchasing your asset might be a more economical option in the long term. For example, if a construction grapple costs $8,000 and you lease it for $300 a month over a three-year term, you end up paying $10,800… and at the end of the lease the machinery isn’t even yours to keep.

    Another example for a construction company is large industrial vehicles. If you can own your excavator – rather than hire a different one for each project – it means your operators can become highly proficient with your specific machine.

    This can improve their work efficiency because they don’t have to spend time on every job becoming familiar with a different vehicle.

    Do you need financing?Man wearing eyeglasses looking at the laptop screen calculating bills

    Every business asset you purchase can impact your company’s working capital, so it’s important to consider whether you need financing.

    You need to forecast the financial effect it will have on your cash flow should you decide to hand over a lump sum.

    This can then guide your decision about whether taking out a business loan is a more appropriate solution.

    If you do decide to take out a loan, then it could even allow you to buy a larger asset. Regular loan repayments could help you pay off a higher capital purchase that may have been impossible to afford with cash.

    Woman preparing financial reportTax implications

    There are a variety of tax implications around business asset ownership and this is certainly where a professional business accountant can help – especially with the current extensions in place for instant asset write-offs.

    Essentially, business assets could accrue tax benefits if you purchase them outright. According to the ATO, “You generally can’t deduct spending on capital assets immediately. Instead, you claim the cost over time, reflecting the asset’s depreciation (or decline in value).”

    But there is a temporary full expensing measure that allows businesses, “with an aggregated turnover of less than $5 billion to immediately deduct the business portion of the cost of eligible new depreciating assets.”

    Make sure you protect your assets

    Finally, whether you are buying or leasing, it’s essential that you protect your assets. You need to make sure you have the correct insurance that covers loss, theft or equipment breakdown and also covers lost income should the issue impact your business’s ability to continue running. And if your asset is a commercial property, you want to be covered against any destructive events.

    Our team can helpColleagues happily and busy working inside an office

    Here at North Advisory, we understand that purchasing assets can be stressful when you have to assess the financial risks to your business.

    Our team of accountants can help guide you through the commercial consequences and provide you with insight drawn from your critical financial data.

    If you’d like to find out more about how we can help you and your business, please contact us today.

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    Two businessmen are shaking hands with each other standing against panoramic windowsDid you know that the maximum number of members allowed in a self-managed super fund (SMSF) recently increased from four to six?

    The Treasury Laws Amendment (Self Managed Superannuation Funds) Bill 2020 came into effect on 1 July 2021 and while it’s not expected that there will be a sudden increase in the number of SMSFs, it does provide new opportunities and more flexibility.

    If you have more people in a self-managed fund it can mean more investment capital, and this could open the door to some uniquely tailored options.

    One of these includes SMSF commercial property investment. Today, we take a look at this strategy and highlight some of the benefits… especially for business owners.

    SMSF investment options

    Most standard super funds – such as retail or industry funds, have specific investment strategies that they implement on your behalf… but with an SMSF you have the ability to select exactly what you invest in across a wide range of asset classes.

    These asset classes include:Pieces Australian fifty dollar banknote

    • shares – both Australian and international
    • property – residential or commercial
    • physical commodities – such as metals and minerals, agricultural or energy
    • cash and fixed income products – such as term deposits or bonds
    • collectables – such as artwork, antiques or jewellery.

    When you invest in property through your SMSF there are some rules that must you must follow. The Government’s Moneysmart website states:

    “You can only buy property through your SMSF if you comply with the rules.

    The property must:

    • meet the ‘sole purpose test’ of solely providing retirement benefits to fund members
    • not be acquired from a related party of a member
    • not be lived in by a fund member or any fund members’ related parties
    • not be rented by a fund member or any fund members’ related parties

    If your SMSF purchases a commercial premises, it can be leased to a fund member for their business. However, it must be leased at the market rate and follow specific rules.”

    Interior of empty warehouse with a cartInvesting in commercial property

    Choosing to invest in a commercial premises presents an array of benefits… especially if your business becomes the tenant of the SMSF investment property. If you execute this correctly, it can help to reduce your business overheads and boost your long-term cash flow.

    Knowing that your SMSF owns the property gives you confidence that your landlord won’t terminate your commercial lease or unfairly inflate rental prices above market value.

    Plus, when your business pays rent… it will be paying the money directly to your SMSF, which can help your retirement fund grow.

    While this sounds straightforward, it can be a complex process so it’s important that you engage a professional to guide you through the creation of your SMSF and through the purchase of your commercial property investment.

    Tax implications Close-up Of

    As with any property investment, there are tax implications you need to be aware of… but within the SMSF environment you can can considerably reduce these tax liabilities.

    Firstly, the commercial rent your SMSF receives – the investment earnings – is subject to a 15% tax rate as opposed to your marginal tax rate if you held the property outside of super. The capital gains tax is also lower as it drops to just 10% if you hold the property for more than 12 months.

    Plus, once the SMSF members enter their pension phase or they meet a condition of release, you can potentially sell the property without incurring any capital gains tax.

    Seek professional advice

    Purchasing commercial property through your SMSF can offer many benefits to your fund members but can be a daunting task. We always recommend seeking professional advice to make sure it is an appropriate superannuation strategy for your personal circumstances.

    Here at North Advisory, we believe the smart way to successfully administer your SMSF is to use one trusted advisor. Contact us today to learn more about our complete SMSF management solution.

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    Smiling happy woman shaking hand of confident businessmanIt’s great to have a growing business. Increasing sales or new clients requesting your services – these are the things that make you feel confident that your venture is on an upward trajectory.

    But what happens when you have grown so much that you realise you can’t do it all on your own? There comes a time when you might have to think about hiring employees. And when that happens, do you know where to start?

    It’s important that you understand various aspects of being an employer and the obligations involved. Here, we look at what you need to consider when you hire someone.

    Man hands using laptop and calculatorCosts involved

    First and foremost, it’s critical that you understand the costs associated with hiring employees. It’s not just making sure that you can cover an extra wage… there are many other costs incurred when you take on staff.

    When you are calculating the true cost of employment, you also need to think about…

    • Recruitment costs – will you place a job ad or use a recruitment agency?
    • Training costs – what time and resources will they need for training?
    • PAYG Withholding – as an employer, you are responsible for withholding amounts from payments in order for your employee to meet their tax liabilities.
    • Superannuation – you need to pay compulsory employer superannuation contributions.
    • Workers compensation insurance – in NSW, it is compulsory to have a workers compensation policy if you employ workers or contractors.

    Plus, depending on your business, you might need new tools and equipment, office furniture, upgrades to software to allow additional user profiles… or maybe even a larger space to run your business. Not to mention the cost of your time involved in finding the right person to join you.

    Unemployed professional business people candidatesSkills and experience

    Another crucial element is the type of skills and experience you want your new employee to have. What are you missing from your business? Are you looking for someone with knowledge similar to your own or do you need someone with a complementary set of skills who can do some of the tasks you want to hand over?

    If you create a list of your potential employee’s ideal criteria, this can help you determine exactly what you need and gives you a head start when it comes time to write the job description. Outline the duties you want them to perform and the necessary skills they will need to complete them.

    This information will also help you assess whether you need a full time, part-time or casual employee. There’s no point taking on a full-timer when you only have 20 hours of work for them to do. It’s important to note that the type of employment will also have implications for your employee’s entitlements.

    Diverse colleagues working on online project togetherCompliance and responsibilities

    As an employer, you will have a significant amount of responsibility and you will need to make sure you abide by Australian laws. The Government’s Business website has extensive information that will support and guide you through the process, but some of the key aspects you need to be aware of include:

    • Adhering to minimum pay rates, terms and conditions
    • Providing minimum entitlements in line with the National Employment Standards
    • Knowing your tax and superannuation obligations
    • Making sure your potential employee has the correct working rights
    • Checking that their licence or qualifications meet your industry standards.

    While the ideal outcome is that your new employee becomes an integral part of your business, it’s also worthwhile knowing the rules around ending employment, as there are specific guidelines you must follow relating to dismissal, notice and final pay.

    Accounting processes

    Another area of your business that will be impacted by hiring an employee is your accounting. You will need to run regular payroll and, as previously mentioned, process super contributions and PAYG withholding.

    If you currently utilise cloud-based accounting software such as Xero, you will be able to complete many of these processes quickly and easily, but it’s worthwhile discussing this with a professional accountant to make sure you set up your system correctly from the outset.

    Man sitting at his desk with laptop in modern officeTalk to your accountant

    There are many different considerations you need to take into account before employing people in your business.

    Here at North Advisory, we are committed to your success. We can provide you insight into the financial aspects of employing staff and can help you determine whether you have the cash flow and budget projections to meet the costs involved. If you’d like to discuss your situation with one of our team, please feel free to contact us today.

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