Division 293 Tax

The Division 293 Tax is not widely discussed. In fact, most taxpayers do not even realise it exists.

The tax only affects high income earners with an adjusted taxable income of $250,000 or more (At the date of publishing this article) and who have taxable contributions made to their superfunds (e.g. employer superannuation guarantee contributions, salary sacrificing into superannuation etc).

This flowchart explains how the ATO calculates your income and tax liability for the purpose of Division 293 tax.

Some of our clients have started receiving Notice of Assessments for Division 293 tax. The NOA includes a cover letter from ATO and an authority to release funds from the taxpayer's superfund, for the purpose of paying the Div 293 tax. 

To have the tax paid from your superfund, please log into your MyGov account to nominate your superfund to make the payment.

For more information about this tax, please visit the ATO website.

Low and middle income tax offset now law

BREAKING NEWS

From the 2018–19 income year:

  • The low and middle income tax offset increases from a maximum amount of $530 to $1,080 per annum and the base amount increases from $200 to $255 per annum.

  • Taxpayers with a taxable income:

    • of $37,000 or below can now receive a low and middle income tax offset of up to $255

    • above $37,000 and below $48,000 can now receive $255, plus an amount equal to 7.5% to the maximum offset of $1,080

    • above $48,000 and below $90,000 are now eligible for the maximum low and middle income tax offset of $1,080

    • above $90,000 but is no more than $126,000 are now eligible for a low and middle income tax offset of $1,080, less an amount equal to three per cent of the excess.

If your tax return has already been lodged, you will receive an adjustment to your refund if you are eligible for any additional tax offsets.

This increase has been implemented in order to boost growth in the midst of a major economic downturn.

Benefits of a Corporate Trustee for SMSF

This is a question that has come up numerous times, so we thought we would write a blog about it.

The biggest benefit of a corporate trustee has to do with succession and ease of removing/adding a member. If a member/individual trustee dies or exits the fund, the administrative repercussions would be far greater, as the ownership documents of the SMSF assets would have to be changed, and the trust deed would need updating as well. With a corporate trustee, you can easily change the directors of the company.

With a corporate trustee, you can have just 1 member in the SMSF. This means if someone exits the SMSF later down the line, the fund will still comply with legislation. Without a corporate trustee, the fund must have at least 2 members.

It is usually easier to apply for finance with a corporate trustee. Most banks will not lend to a SMSF (through a limited recourse borrowing arrangement) without a corporate trustee.

A corporate trustee is also a separate legal entity to the SMSF so there is a clear separation of assets, and greater level of protection of assets as well. Note that individuals can be personally liable for any legal issues within the trust.

Overall, Corporate Trustees do incur higher set up costs and ongoing management is a little more complicated, but there are numerous benefits that outweigh these negatives.

Here is ATO’s summary of the different SMSF structures:

Member and trustee requirements

Individual trustees

  • Two to four members.

  • Each member of the fund must be a trustee, and each trustee must be a member of the fund.

  • A member cannot be an employee of another member – unless they are relatives.

Corporate trustee

  • One to four members.

  • Each member of the fund must be a director of the corporate trustee, and each director of the corporate trustee must be a member of the fund.

  • A member cannot be an employee of another member – unless they are relatives.

Cost

Individual trustees

Corporate trustee

  • ASIC charges a fee to register a corporate trustee for the first time.

  • There is an annual review fee, which is lower if the corporate trustee acts solely as a super fund trustee, but higher if the corporate trustee also performs another function, such as running a business.

  • A corporate trustee cannot be paid for its services as a trustee, and directors of the corporate trustee cannot be paid for their duties or services as directors in relation to the fund.

Ownership of fund assets

Individual trustees

  • If an individual trustee is removed or another added, you must change the titles of the SMSF's assets. This can be costly and time-consuming.

  • State government authorities may charge a fee for title changes.

  • Most financial institutions also charge a fee for title changes.

Corporate trustee

  • Recording and registering assets can be simpler, particularly for changes in membership.

  • When a person starts or stops being a member of the SMSF, they become, or cease to be, a director of the corporate trustee.

  • You must notify us, and ASIC of any change in director.

  • The corporate trustee doesn't change, so the titles of the SMSF’s assets are unchanged.

Separation of assets

Individual trustees

  • Fund assets must be in the fund's name

  • Fund assets must not be combined with personal assets.

Corporate trustee

  • Fund assets must be in the fund's name.

  • Fund assets must not be combined with director's personal assets.

  • Companies have limited liability, so a corporate trustee offers greater protection if the trustee is sued for damages.

Penalties

Individual trustees

  • If super laws are breached, administrative penalties are levied on each trustee.

  • For example, for failing to prepare financial accounts and statements, each trustee is liable for a $2,100 penalty (10 penalty units). This would amount to $8,400 if there were four trustees.

  • The value of a penalty unit is $210.

Corporate trustee

  • If super laws are breached, administrative penalties are levied on the corporate trustee.

  • For example, for failing to prepare financial accounts and statements, a corporate trustee would be liable for a $2,100 penalty (10 penalty units).

  • The value of a penalty unit is $210.

Succession

Individual trustees

  • Where changes in trustees occur, the fund is not likely to continue to operate as usual unless an appropriate succession plan has been prepared.

Corporate trustee

  • A corporate trustee continues in the event of a member's death.

  • In the event of the death or incapacity of a member, control of an SMSF and its assets by a corporate trustee is more certain.

Instant write-off for assets over $30,000

From 2nd April 2019, the instant asset write-off threshold increased to $30,000 (prior to this, it was $25,000).

This means that if your business purchases an asset that costs less than $30,000 (net of GST), you can claim an immediate deduction for it, instead of depreciating the asset over it’s useful life.

With the end of financial year approaching, now is a good time to have a think about whether your business needs new assets or replacement of old assets. Consider if the timing is right - look at your business profit - is it higher than expected? If you have extraordinary profit this year, it might be a good idea to utilise this tax concession in order to save your business some tax this year.

More information about the instant asset write-off can be found here.


Closely-Held Entities & Available Cash

Closely-Held Entities & Available Cash

Closely-held entities are businesses that only pay salaries to associates of the business. Examples of associates include the directors and shareholders and their relatives. If your business is a closely-held entity, your reporting requirements for STP and PAYG is slightly different to businesses with arms-length employees (or “external employees”).

Single Touch Payroll

Single Touch Payroll

Single Touch Payroll (STP) will be mandatory for all employers from 1st July 2019 (previously it was only applicable to businesses with 20 or more employees).

If you are a business owner, you need to be ready. It is a good idea to get it set up now so that you are compliant by 1st July. However, ATO has confirmed that they will be lenient toward small businesses during the initial transition to STP.

Maximising Your Refund

Maximising Your Refund

For anyone who has lodged a tax return before, whether DIY or through an agent, you know that the best way to maximise your tax refund is to claim as many deductions as possible. And in order to claim a deduction, you need 2 things - Substantiation and Nexus to the income earning activity (unless there is an exemption under a tax ruling, for example, donations or tax return fees).

Digital signature

Digital signature

Are you still printing and scanning documents?

Did you know that in many circumstances, a digital signature is just as valid as a hard copy? In my daily work life, I frequently have to send documents to clients to sign, and this can be a daunting and inconvenient process for individuals who don’t have a printer, scanner or fax machine. Going to the post office is time consuming and costly. The fastest and easiest way to get your document signed (and your returns lodged and processed as soon as possible) is to use a digital signature.