Superannuation What you can do before & after 30 June SuperStream

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1 NEWS Winter 2014 P (03) F (03) E W griffithsacc.com Page 2 Federal Budget Emerging tax & superannuation issues Page 3 Superannuation What you can do before & after 30 June 2014 Page 4 Deductions Home Office & Rental Property advice In this issue 1 SuperStream Submitting data and payments electronically 2 Top tax & superannuation issues emerging from the Federal Budget Issues that everyone needs to take note of 3 Superannuation year end planning for 2014 Understanding what you could do before and after 30 June Things to check prior to 30 June 2014 Your important check list Home office deductions Understanding the ATO s interest deductability test Rental property deductions Are you claiming your full entitlements? 5 EOFY Strategies using Income Protection Income Protection policies taken out before June 30 may come with a hnady tax reduction SuperStream To create greater efficiencies in the superannuation system, the government has introduced a new reform called SuperStream. Under SuperStream, employers must make super contributions by submitting data and payments electronically in accordance with the SuperStream standard. Equally, all superannuation funds, including self managed super funds (SMSFs), must receive contributions electronically in accordance with this standard. From 1 July 2014: employers with 20 or more employees must use SuperStream to send contribution data and payments electronically all super funds (including SMSFs) must receive any employer contributions sent to their fund in accordance with the SuperStream standard. From 1 July 2015, employers with 19 or fewer employees will also be required to send contributions data and payment electronically. These employers have the option to implement SuperStream sooner than this date. All SMSF trustees need to determine when employers intend to start implementing SuperStream. It is important to note that contributions sent to an SMSF from a related-party employer are exempt from the SuperStream system. The fund can continue to make contributions using their existing processes. The government concedes that businesses will need to make changes to accommodate the new system. These may include: Upgrading your payroll system Using an outsourced payroll function or service provider Using a commercial clearing house or the free Small Business Superannuation Clearing House for organisations with 19 or fewer employees. The government expects that once the SuperStream system is bedded down, the ongoing efficiencies it generates will outweigh its implementation costs. Client Information Bulletin Winter 2014 Page 1

2 Top tax and superannuation issues emerging from the Federal Budget While the spending cuts announced in the government s recent Federal Budget have received much of the publicity, there are several tax and superannuation issues that everyone must also heed. Personal Taxation The government announced several changes to personal taxation. In order to determine the impact of this change the following recommendations are made: The Budget Repair Levy Quantify the impact of the levy on your after-tax income for the three years to come Review your salary packaging arrangements to determine the impact of the higher FBT rate which also reflects the levy. Talk to our office and assess the different outcomes which may result from legitimate tax planning ideas, such as bringing forward the timing of income, maximizing deductions, salary sacrifice and income splitting. Changes to Family Tax Benefit The current Family Tax Benefit payment rates will be frozen for two years from 1 July Under this measure, indexation of the maximum and base rates of Family Tax Benefits Part A and the rate of Family Tax Benefit Part B will also be paused until 1 July From 1 July 2015, Family Tax Benefit Part B will be reduced when the primary earner s income exceeds $100,000 per year (currently $150,000 per year). Talk to our office to quantify the impact of these changes to your after-tax income. Company Taxation The federal government announced several changes to the company taxation rates. A lower company tax rate (for some) from 1 July 2015 A 28.5% tax rate for companies is expected to apply from 1 July 2015 At a company level, consider the impact of the tax cut on after-tax profits and franking capability. Changes in the tax rate warrants an examination of business tax planning ideas. At a shareholder level, consider the impact on future franked dividends and the associated tax offset for resident shareholders. The Paid Parental Leave levy on large companies with taxable incomes exceeding $5 million The benefit of the 28.5% company tax rate will be offset for large companies by the imposition of the Paid Parental Leave levy of 1.5% on that part of their taxable income exceeding $5 million. At a company level, the design and implementation of the levy should be the focus of tax implementation teams who will also need to communicate the impact of the levy to shareholders At a shareholder level, consider the impact on future franked dividends and the associated tax offset for resident shareholders. Loss Carry Backs The loss carry back was implemented by the previous Labour government, with effect from the income year. It provides a refundable tax offset for the current year that is a proxy for the tax the entity would save if it deducted the loss in the income year to which the loss is carried back. The offset is capped at the lesser of $300,000 or the entity s franking account balance. The Coalition government wants to repeal this measure from the start of the income year, but the necessary legislation is contained in the MRRT Repeal Bill, blocked in the Senate. Small Business Measures The Coalition has introduced legislation to lower the small business instant asset write-off from $6,500 to $1,000, and withdraw special rules for vehicle depreciation (which allow a deduction for the first $5,000 of the cost). Both measures are meant to apply from 1 January 2014 but the government has been unable to pass the legislation through the Senate. Until they are repealed, these concessions are still available under the law. Superannuation Guarantee In response to uncertainty surrounding the rate at which the Superannuation Guarantee would apply from 1 July 2014, the government has confirmed that the 9.5% rate will apply and remain in place until 1 July This is essentially a re-phasing of the eventual rate increase to 12%. Employers should talk to our office about how to manage their Super Guarantee obligations and provide assistance designing workplace communications explaining the impact on employer - employee remuneration arrangements. Superannuation Excess Contributions Tax Excess non-concessional contributions to superannuation funds are currently taxed at penalty rates, up to as much as 93%. In a win for common sense, the government has announced that individuals who make excess contributions after 1 July 2013 can simply withdraw the excess component (and associated earnings). No excess tax will apply, and the related earnings will be taxed at the individual s marginal rate. Client Information Bulletin Winter 2014 Page 2

3 Superannuation year end planning for 2014 The end of the financial year always seems to crop up faster than it should. Understanding what you could do before and after 30 June 2014 can provide the icing on the cake for employees, investors and those in small business. Such things as bringing forward tax deductions or delaying the receipt of income within the rules can mean less tax this year. When it comes to superannuation, make sure you maximise the tax deduction this year or salary sacrifice the right amount so you get the best possible outcome and don t end up with tax penalties. Increased tax deductible contributions cap for anyone 60 and above For anyone who is under age 60 this financial year the maximum amount of tax deductible contributions that can be made to superannuation without penalty is $25,000. However, for anyone age 60 and above the maximum amount is $35,000. These contributions include amounts you may make as salary sacrifice, Superannuation Guarantee or personal deductible contributions, if you qualify. If you wish to maximise your contributions before June 30 make sure you talk to your professional adviser so that your salary sacrifice agreement with your employer allows the maximum to be salary sacrificed. If you are older than 65 you will need to meet a work test to contribute to super in most cases. You will need to work for at least 40 hours during 30 consecutive days at any time during the financial year to make tax deductible and non-deductible contributions to super. Claiming a tax deduction for personal superannuation contributions If you are self-employed, an investor, in receipt of a pension and receive less than 10% of your income, fringe benefits and other related payments from employment you may qualify for a personal tax deduction to superannuation. If you intend to claim a tax deduction make sure you are eligible to claim a tax deduction and seek advice if you are unsure. You need to notify the fund of the amount you wish to claim as a deduction before the end of the next financial year, that is, before 30 June Make sure you keep all relevant paperwork to save stress when the time comes to see your accountant or tax agent. Making after tax contributions to super You can make after tax contributions to super which could come from your personal savings, transferring personal investments, an inheritance or from the sale of investments. This financial year the maximum personal after tax contribution is $150,000, however, if you are under 65 you can contribute up to $450,000 over a three year period. This allows you to make substantial contributions to super and build up your retirement savings. The way it works is that if you are under 65 and make total after tax contributions of more than $150,000 in a financial year the bring forward rule is triggered. This allows you to make non-deductible contributions of up to $450,000 in total over a fixed three year period commencing in the year in which you contributed more than $150,000. This may sound like a real bonus, however you need to make sure you don t exceed the after tax contribution caps because there may be penalty tax payable. This could be as high as 46.5%. From 1 July 2014 the after tax contributions cap increases to $180,000 which means if you trigger the bring forward rule that a total of $540,000 can be contributed over the fixed three year period. One trap that may occur is if you trigger the bring forward rule before 30 June, the maximum amount will be $450,000 for the fixed three year period. Your professional adviser will be able to help you if you find yourself in this position. Beware of excess contributions tax Anyone making large superannuation contributions should exercise extreme care for any type of contributions to avoid excess contributions penalties. This can apply to any tax deductible and non-tax deductible contributions made to super. The maximum amount of tax payable can be up to the maximum tax rate of 46.5% plus Government co-contribution If your adjusted income is less than $48,516 you may like to take advantage of the Government co-contribution. You can do this by making after tax (non-concessional) super contributions before the end of the financial year. For every dollar of contributions that are eligible, the Government contributes 50 cents to your superannuation up to a maximum government co-contribution of $500. For 2013/14, the maximum government co-contribution is payable for individuals on incomes at or below $33,516 and reduces by 3.33 cents for each dollar above this, cutting out completely once an individual s total income for the year exceeds $48,516. Drawing superannuation pensions If you are in pension phase make sure the minimum pension has been paid to you for this financial year. By not receiving the required minimum pension any income earned on your pension investments in your superannuation fund will be taxed at 15% rather than being tax free if the pension rules are met by the fund. Drawing superannuation lump sums Once you reach 60 all lump sums from superannuation are tax free. However, before age 60 any lump sums that include a taxable component can be taxable. The taxable component includes the tax deductible contributions plus any income that has accumulated on your superannuation benefit. No tax is payable on taxable amounts of up to $180,000, in total, you receive prior to age 60. This amount is indexed annually. If you are eligible to draw amounts from superannuation you may like to defer receiving the amount until after reaching age 60 or until a later financial year when you may end up paying a lower rate of tax. SMSF fund expenses For SMSF members in the accumulation phase, tax deductions for expenses are usually not significant, but it s important to ensure expenses are actually incurred or paid before 30 June to be deductible in the current financial year. How can we help? If you need assistance with any aspect of your end of year superannuation tax planning, please feel to give the office a call to arrange a time to meet so that we can discuss your particular requirements in more detail. additional penalties. Client Information Bulletin Winter 2014 Page 3

4 This is a reminder that, prior to 30 June 2014, everyone should check: You have not breached the $25,000 employer contributions limit (or $35,000 if you are over 60 years of age) if you have been salary sacrificing into super; and If you have a pension from a super fund, make sure you take at least the minimum pension amount required by 30 June 2014 otherwise the pension will be treated as lump sum withdrawals and the super fund will not receive the pension tax exemption on the income derived within the super fund. It is also worth noting that 30 June 2014 is a Monday this year. This means you will need to make your super contributions by Friday 27 June 2014, or preferably beforehand, as the fund must have received the contribution by this date. Be wary of relying on internet transactions made on Monday 30 June 2014 as they will most likely not be counted for the current year as the transaction receipt may be dated 1 July 2014, not 30 June Deductions for occupancy expenses (home office) Occupancy expenses are those expenses you pay to own, rent or use your home, even if you are not conducting a home-based business. Occupancy expenses typically include: Rent, or mortgage interest Council Rates Water Rates Land Taxes House insurance premiums. You must pass what the ATO calls an interest deductibility test before you can claim occupancy expenses. This generally means the ATO expects you will have an area of your home set aside exclusively for business activities, such as an office or workshop, and this area has the character of a place of business rather than simply being an office you use incidentally for income producing purposes. You can generally claim the same percentage of occupancy expenses as the percentage area of your home that is used to make income. One common way to work this out is to use the floor area put aside for work. This is calculated as a proportion of the floor area of your home as a whole If, for example, your home office is 10% of the total area, then you may be able to claim 10% expenses. In some situations it may be necessary to adopt a basis other than floor area. For example a large workshop attached to the home may take up a great amount of floor space but contribute much less to the value of the overall property. Please note, the family home is generally exempt from capital gains tax, but if you have carried on a home business as described above, that portion of the home attributable to the business activity will be subject to CGT. Rental property deductions are you claiming your full entitlements? A survey undertaken by BMT Tax Depreciation found approximately 80% of property investors were failing to take full advantage of tax depreciation. This figure only included those investors for whom the savings afforded by a tax depreciation schedule would have outweighed the cost of ordering one. Many property investors mistakenly believe themselves ineligible to claim depreciation. This may be due to a belief that their property is too old to qualify for such deductions. Capital works deductions are unavailable to owners of residential property where construction commenced prior to 18 July 1985; likewise owners of commercial properties miss out where construction began prior to 20 July However these same restrictions do not apply to the depreciation of plant and equipment assets as limitations here do not relate to age, rather the condition and quality of each depreciable item. If you own an investment property and are not claiming any depreciation, a free calculator is available that will give you an estimate of standard deprecation claims. The calculator can be found at: Client Information Bulletin Winter 2014 Page 4

5 EOFY Strategies using Income Protection Still looking for deductions for 2014 EOFY? These strategies using Income Protection may help! Whether you're a young single, or have a family to look after, your income is one of your most important assets. If you were suddenly injured or became ill and couldn't earn an income, how would you meet your living expenses? Income Protection provides an income stream that can help protect your lifestyle, so you can focus on getting well without additional financial strain. NEWS FROM THE OFFICE We welcome Julie Witte in the role of office administration, Julie comes to us from New St Medical Centre and from many years running her own book keeping business. She lives locally and is enjoying working so close to home four days a week. We also welcome Narelle Davidson as a part time tax accountant. Narelle will be with us 2 days a week and comes to us all the way from Narre Warren. Leo has recently enjoyed a much earned break overseas and has many travel stories to tell. He will be returning to work 2 to 3 days a week in the next couple of weeks. Merryn has also enjoyed a European break and would like to shout out Hola to all her Spanish Friends. Considering Income Protection? If you are considering taking out Income Protection insurance, then the end of the financial year is a good time to bite the bullet. Not only have Income Protection products improved in recent years but policies taken out before June 30 may come with a handy tax deduction. For Income Protection outside super, the premium payments are tax deductible. This means you can pre-pay 12 months' premiums before June 30 and bring forward the tax deduction to the financial year the payment is made. Individuals can't claim a tax deduction for income protection held inside super, however your SMSF can. If you already have Income Protection, how are you paying? For those with Income Protection already in place paying on a monthly basis, if cash flow allows you may wish to consider altering to annual payment in June. The insurer would charge the difference between the annual premiums and the monthly benefits paid since renewal. For example, Bill Smith has made the following payments for an Income Protection policy which renews in February each year: Months: Premium: Total: July 2013 January Months x $69.95 : $ February 2014 May Months x $73.80: $ June 2014 Difference to annual premium: $ TOTAL PREMIUM FY2014: $1, This has increased the total deductible premium for FY2014 by $ Disclaimer This information is of a general nature only and does not take into account your particular objectives, financial situation or needs. Accordingly the information should not be used, relied upon or treated as a substitute for specific financial advice. Whilst all care has been taken in the preparation of this material, no warranty is given in respect of the information provided and accordingly neither Professional Investment Services nor its employees or agents shall be liable on any ground whatsoever with respect to decisions or actions taken as a result of you acting upon such information. Authorised Representative of Professional Investment Services Pty Ltd ABN Australian Financial Services Licence Number DISCLAIMER: The contents of this publication are general in nature and we accept no responsibility for persons acting on information contained herein. Newsletter design by Peloton Design, pelotondesign.com.au Griffiths Partners Certified Practicing Accountants 151 Park Road Cheltenham VIC 3192 P (03) F (03) E W griffithsacc.com ABN Client Information Bulletin Winter 2014 Page 5

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