New domain name changes could leave your business at risk
From 24 March 2022, anyone with a local connection to Australia (including businesses, associations and individuals) will be able to register a new category of domain name. These shorter simpler domain names will end in .au rather than .com.au, .net.au, .org.au, .gov.au or .edu.au. All Australian businesses will have until 20 September to reserve their .au equivalent domain name, then it becomes available to the general public.
This new category of domain name allows users to register shorter, more memorable online names; however it also creates another avenue for cybercriminals to conduct fraudulent cyber activities. Opportunistic cybercriminals could register your .au domain name in an attempt to impersonate your business.
For example, if you have currently registered yourbusiness.com.au, a cybercriminal could register yourbusiness.au or yourbusinesscom.au and use these domains to conduct fraudulent cyber activities.
How to protect yourself
To help protect your business from opportunistic cybercriminals, the Australian Cyber Security Centre (ACSC) recommends that all Australian businesses with existing domain names register their .au equivalents before 20 September 2022. If a business does not reserve their .au equivalent direct domain name during this six-month period, that name will become available to the public on a first come, first served basis.
You can reserve your .au domain name by visiting an auDA accredited registrar.
Further information on these changes and the registration process is available on auda.org.au/au-domain-names:
Budget 2022-2023
Key initiatives include:
But, it is also a Budget that drives digitisation. Not just to support innovation but to streamline compliance, create transparency and more readily identify anomalies. Single touch payroll was the first step, the PAYG instalment system, trust compliance, and payments to contractors are next.
Beyond compliance, there is an opportunity capitalise on the benefits of the Government’s push towards innovation and investment in new technology. Not just the $120 tax deduction for every $100 spent on training employees and digital adoption, but also the expansion of the patent box tax concessions. There are opportunities for those pushing boundaries.
Please click on the below image to access our full client guide.
If we can assist you to take advantage of any of the Budget measures, or to risk protect your position, please let us know.
As always, we’re here if you need us!
Taxation of Trusts
Time to review the operation of your family discretionary trusts.
The Australian Taxation Office has recently released guidance explaining their attitude to the use of trusts including the non-payment of accrued loan accounts in trusts and the use of income distributed for tax purposes to children over 18years.
These are important announcements and must be considered by all trustees of discretionary or family trusts.
It is common for trust income to be “distributed” by book entry making beneficiaries making presently entitled to trust income.
Sometimes (though much less commonly), a beneficiary's present entitlement to a share of trust income arises out of, or in connection with, an arrangement:
In these cases, section 100A of the Income Tax Assessment Act 1936 generally applies to make the trustee, rather than the presently entitled beneficiary, liable to tax at the top marginal rate.
In simple terms it is important that income distributed to beneficiaries is paid to or applied for the purposes of those beneficiaries.
A more common example occurs when children reaching the age of 18 years are used to share trust income of the parents after paying tax at their generally lower marginal tax rate. The Tax Office is concerned that taxpayers are entering into arrangements to avoid tax on the net income of the trust by utilising the lower marginal tax rate applying to the children in circumstances where the benefit from these arrangements is, in substance, enjoyed by the parents by:
A review of these arrangements by the Tax Office considers that the following consequences may arise:
While the Tax Office alert specifically considers arrangements involving the children of controlling individuals, they are also concerned about similar arrangements involving other family members of controlling individuals that would have lower marginal tax rates than those of the controlling individuals.
Our team will review the application of these announcements to client family trusts and it is strongly recommended that trustees or directors of trustee companies clearly understand their obligations in regards to these new requirements in particular.
Please contact your MVAB Team person if you would like to discuss the application of these announcements to your particular circumstances.
Real Estate
Planning for the consequences of increasing property values
Rising property values might seemingly fulfil the aspirations of many. However, there are unintended consequences which are worthy of thought and advice to optimise the situations.
Taxation
Governments of all persuasions love to tax property – what use to be restricted to a minority is now applying to many.
Council rates are prorated to municipal residents based on individual property values.
Council valuations are used by the State Government to levy Land Tax. Objections to valuations for Land Tax purposes need to be aimed at the Council who may determine the value at a time when the Land Tax assessment is not current and thereby missing the opportunity to object to the valuation within required timeframes.
The principal place of residence is generally exempt from Land Taxes and Capital Gains Tax. However, when is a house a Principal Residence – can a holiday house gain exemption – can a couple have more than one Principal Residence – what happens if the Principal Residence is rented out for part of the year?
As an example, if the holiday home land value was $500,000, the land tax would be c $ 775. At $1,000,000 the land tax is $2,975 and at $2,000,000 the land tax is $12,475. These amounts can be even higher if there is more than one property that is not a Principal Residence, or if the land is owned in a trust. The land tax increases exponentially compared to increases in the land value.
So what to do:
· Subdivide the land subject to Council rules?
· Rent out the house to recoup some monies and to make some or all of the taxes tax deductible
· Sell up and suffer the capital gains tax
Succession
Succession is inevitable and in a previous generation was generally caused by a death in the family. Nowadays, with generally longer life spans, succession is starting to happen while two or more generations are alive and hopefully well.
Transfers of properties outside a Will attract stamp duty which tends to discourage dealing with inter-generational transfers and puts off the inevitable. Putting off the inevitable can create differences of equity between beneficiaries by virtue of property prices rising faster than other asset classes.
A common example is with farming families. More than one child but only one child is the farmer. Can the farm be passed to the farmer without causing a rift from unequal values? Should future tax liabilities (or lack thereof) attaching to land be considered at the time of division of assets?
The Relative Values of Assets
The real issue is the reassessment of life’s purposes.
· Does farming land become too expensive to farm?
· Is the beach house worth more than the family home?
Some farming land is realising monies beyond reasonable dreams and as such may enable opportunities to do other things that may never have been contemplated.
There are tax concessions for selling so called “small businesses” – so planning to come within these rules is highly recommended before the thresholds are exceeded.
The MVABennett Approach
We invite the conversation with our clients about relative values and the timing of asset sales.
In addition, the periodic review of Wills and estate planning is key.
Please contact your MVABennett team person if any of these matters resonate for you.
AICD Governance Study Released
The Australian Institute of Company Directors has released its annual not-for-profit governance and performance study, which reveals that, while COVID-19’s effects on the sector were not so damaging as predicted, many organisations could take years to recover.
The institute’s NFP Governance and Performance Study is in its 12th year and remains the biggest governance report in the NFP sector. More than 1900 responded this year.
Last year’s study highlighted that, in many areas, the pandemic had intensified financial pressures that had existed before the pandemic, some of them caused by the bushfires of 2019-20.
This year’s study paints a more optimistic picture. Eighty-four per cent of respondents reported making a profit or breaking even in the 2020-21 financial year.
But 40 per cent said it would take at least two years to recover fully from the pandemic’s effects.
Eighty-one per cent of NFP directors worried about the strength of the Australian economy, and 95 per cent of organisations changed their business models to deliver services.
Other key findings were:
Manage Your Fraud Risk
The Australian Charities and Not-for-profits Commission’s governance toolkit includes resources to help charities manage risks, including financial abuse, cybersecurity, and working with partners.
Many charities develop working relationships with partners, which might be other charities and not- for-profits, businesses, commercial enterprises, and suppliers. Charities should ensure that their partner relationships are well-planned, supported by a solid written agreement, and pursue the agreed charitable purposes.
Charities should be aware of partnership risks and be confident that they have the right processes to manage one.
The toolkit includes a comprehensive guide and accompanying assessment, a template document for monitoring a partnership, and a list of important partnership considerations.
Since 1 January, some charities have been required to have a whistleblower policy.
The mandate applies to charities structured as public companies limited by guarantee with annual consolidated revenue of $1 million.
The Australian Securities & Investments Commission recently reviewed more than 100 whistleblower policies, including those of charitable companies, and found that most failed to include all the information required under the Corporations Act.
ASIC is concerned that whistleblowers will fail to get information about their legal rights and protections and how they can report misconduct. It is calling on companies, including charitable companies, to ensure that their policies comply with legal requirements and has published a guide explaining how to do it.
The commission recommends that all charities consider having a publicly-available whistleblower policy, even if they are not legally required to have one.
ACNC Urges use of Self-Audit Tool
Self-audits are among compliance initiatives introduced by the ACNC. By implementing a new program of self-audits, the ACNC says it is helping charities find and fix governance issues.
Along with other new compliance initiatives, self- audits allowed the ACNC to engage this year on compliance matters with 50 per cent more charities.
In an initial roll-out, 28 charities were involved. Seventy-five per cent of them provided a satisfactory response – 25 per cent of the charities were not up to standard.
Five of the 28 charities reported a plan to improve governance.
Of the charities that needed to improve, one found issues that came from rapid growth over 12 months. The charity had grown from small to large but had failed to upgrade governance to suit the more complex requirements for a larger charity. The charity acknowledged that addressing the gaps would ensure donor confidence and build broader community trust and confidence.
Your charity may download from the ACNC website a
The self- evaluation also includes a template for an action
plan.
Charity leaders need to get involved
Charity leaders should be active in their charities’ lives, the ACNC says.
An engaged board or committee is vital for a well- governed charity, so its leaders should be part of the approval and submission of an annual information statement.
The ACNC expects that a charity’s responsible people – directors, trustees, board and committee members – are fully aware of the content of their organisation’s AIS.
Charity leaders who take their duties and obligations seriously are critical in maintaining and building the confidence upon which the entire sector relies.
To ensure high standards of integrity and common sense, the responsibilities of charity leaders are set out in the ACNC’s governance standard 5. The standard requires that responsible people act honestly and fairly in the best interests of their charity and for its charitable purposes. They need to act with reasonable care and diligence, disclose conflicts of interest, and ensure that finances are well-managed. It also requires that responsible people don’t misuse their position or allow their charity to operate while it is insolvent.
To support sector transparency and accountability, the commission publishes on the register the names and positions of charities’ responsible people.
Charities must notify the commission of leadership changes, including new responsible people and those who have stepped down from their posts. Any role changes of responsible persons need to be reported.
New search features connect donors to charities
The ACNC’s charity register has new search features connecting more effectively donors with charities.
The register can be searched for charities based on type of programs they deliver, by beneficiary group, and program location.
Information on the register is based on details charities submit in their annual information statements.
Charities are encouraged to include as much program detail as possible. Providing a specific location or catchment area for where each program is delivered in the AIS will best take advantage of the new functionality, help programs to be found, and possibly boost support.
ACNC urges charities to comply
The ACNC urges charity leaders and their accountants to ensure that they comply with amended reporting regulations.
The amendments affect charity-size thresholds based on revenue, disclosure of remuneration for key management personnel, and disclosure of related-party transactions.
A charity’s ACNC financial-reporting obligations relate to size based on annual revenue. Medium and large charities must submit an annual financial report, while small charities are required only to submit an annual information statement.
From the 2022 AIS reporting period, revenue thresholds will rise for all three categories as follows:
The amendments will also require large charities to disclose in special-purpose financial reports remuneration of key management personnel. Key management personnel are senior managers and charity leaders such as directors, CEOs, and board members. The rule applies from the 2022 AIS reporting period.
For medium and large charities, there will be increased requirements to disclose related-party transactions in special-purpose financial statements. The change applies from the 2023 AIS reporting period.
The commission will exercise discretion for charities preparing special-purpose financial statements for the first time.
Charities preparing special-purpose financial statements for the first time under amended regulations will not have to provide comparative information for the preceding period in applying the relevant Australian accounting standard. They will need to provide disclosures for the reporting period only in the first year of adoption.
Helping NFP’s with best-practice reporting
Enhancing Not-for-Profit and Charity Reporting
by Chartered Accountants Australia and New Zealand guides not-for-profits and charities in how to prepare top-quality annual, financial, and performance reports.
The guide is in two parts.
Part A – Enhancing performance reporting is designed for charity and NFP organisations in Australia and New Zealand and draws on learnings from sector regulators and leaders in each country given the commonalities in annual and performance reporting.
It aims to help NFPs to identify and define their strategic objectives and then track, monitor, and report on their performance. It’s designed for organisations doing this kind of reporting for the first time, but others can benefit from information most relevant to them.
Part A contains these sections: setting the context for reporting, performance reporting, output and outcome reporting, governance reporting, sustainability and ESG reporting and collective impact, best-practice checklist, optional reporting frameworks, Australian and NZ councils for international development, codes of conduct, enhancing assurance, legislative frameworks, and useful resources.
Part B – Enhancing financial reporting consists of two separately published editions for each country, focusing on financial-reporting frameworks.
Part B (Aust) contains these sections: 20 recommendations to enhance NFP financial reporting, guidance when producing a financial report, frequently asked questions, and an example financial report.
Part B (NZ) contains these sections: on overview of New Zealand NFP and charity reporting requirements, recommendations to enhance NFP and charity financial reporting, guidance when producing a financial report, frequently asked questions, and future development.
ACNC Activities
The Australian Charities and Not-for-profits Commission is urging charities to check that they are maintaining their entitlement to registration.
They must ensure that they are still not-for-profit, their purposes are charitable, their activities lawful, that they are operating for the public benefit, and have an ABN.
ACNC commissioner Gary Johns said charities must maintain their entitlement to registration to avoid revocation. He said the ACNC recommended that charities build in a way of regularly checking their entitlement to registration. The ACNC had a tool to help charities make that assessment, he added.
Each registered charity has a record on the ACNC charity register and is obliged to have a governing document attached as well as a list of current responsible people.
Dr Johns said, ‘Common lapses include charities not keeping their records of responsible people up-to-date, or not having enough responsible people listed as required, and not having a governing document attached to their record [...].’
Charities must also ensure that their purposes and activities are aligned with their registered- charity subtype.
The seventh Australian Charities Report published in May showed that, on average, registered charities had been operating for 32 years.
Dr Johns said, ‘Over the long life-cycle of a charity many things can change, including boards and staff, so it’s crucial charities have an established process for [...] entitlement checks.
‘Our [...] register provides key information about Australian charities to the public. It is critical that this information is up to date because that demonstrates the integrity of the sector and its willingness to be transparent.
‘It is always of public interest to know how charities are run and by whom, how their funds are accrued and spent. Keeping those details accurate is therefore an important [...] task.’
The ACNC has information about maintaining charity registration and a checklist.
Go to https://www.acnc.gov.au/for- charities/manage-your-charity/obligations- acnc/keep-charity-status.
MVA Bennett can provide assurance to those charged with governance of compliance with the ACNC rules.
Hundreds of charities struck off
The ACNC has revoked the registrations of 420 Australian charities that have failed to submit two or more annual information statements.
ACNC assistant commissioner Anna Longley said the organisations were no longer eligible for certain Commonwealth tax concessions.
‘It is important that we keep the ACNC [...] register up-to-date and accurate,’ Ms Longley said.
The commission notified in August more than 600 charities that they risked being struck off the register.
‘We take steps to allow charities that are still active to have every opportunity to maintain registration,’ Ms Longley said.
‘Some charities have since submitted their overdue statements, [...] retained registration, and will continue to access generous commonwealth [...] tax concessions.’
Solvency Essentials
The ACNC’s governance requires a charity’s responsible persons to ensure that their charity is not operating while insolvent.
Charities must take reasonable steps to ensure its responsible persons fulfil duties set out in the standard.
For a charity that is a company, in addition to standard 5, duties set out in the Corporations Act 2001 apply to responsible persons (directors), including the duty to prevent insolvent trading. If a charity that is a company continues to operate while insolvent, its directors may be subject to legal action.
Charities incorporated as associations might also have responsibilities to their state and territory regulators.
The ACNC wants charities to be aware of warning signs that might indicate a charity is facing financial trouble.
The commission nominates:
Annual Information Statement
The ACNC’s 2021 Annual Information Statement Guide aims to help charities complete their annual information statements.
The commission recommends that you use the AIS checklist before filing your statement.
Unlawful behaviour
The federal government has tabled regulations in Parliament that strengthen governance standards, ensuring that registered charities do not engage in or actively promote unlawful activity.
The regulations reaffirm that compliance with Australian laws sets a minimum benchmark by which registered charities should govern themselves.
The changes will empower the ACNC commissioner to investigate registered charities engaging in or actively promoting theft, vandalism, trespass, and assault and threatening behaviour, and to take appropriate enforcement action if warranted.
Registered charities that act lawfully and do not use their resources to promote others to engage in unlawful activities already comply with the amended standards.
Charities will not be deregistered for inadvertent or unintentional non-compliance. Education underpins the ACNC’s regulatory approach, and revoking registration is reserved for serious and deliberate contraventions.
The ACNC will provide guidance to registered charities once the amended standard comes into effect to help them to understand and comply.
Director Identification Numbers
Australian directors have a year to apply for their unique director identification numbers before fines of more than $1.1 million kick in.
Company directors must apply for a DIN by 30 November next year, and directors of Indigenous corporations that are governed by the Corporations (Aboriginal and Torres Strait Islander) Act 2006 must apply for the unique identifier by 30 November 2023.
The deadline was confirmed in Corporations (Director Identification Numbers—Transitional Application Period) Instrument 2021 made by the Minister for Superannuation, Financial Services and the Digital Economy Jane Hume.
DIN applications are free and will open next month on the newly established Australian Business Registry Service, a single platform administered by the taxation commissioner that brings together ASIC’s 31 business registers and the Australian Business Register.
Directors must personally apply for DINs and will be required to produce myGov IDs, and two identity documents from a list that includes bank-account details, super-account details, ATO notices of assessment, dividend statements, Centrelink payment summaries, and PAYG summaries.
Directors appointed between 1 November and 4 April next year will have just 28 days after appointment to apply for DINs. Directors appointed from 5 April 2022 will be required to apply for DINs before being appointed.
Directors who fail to apply for DINs within the stipulated deadlines can face criminal and civil penalties of 5000 units, which at the moment amounts to $1.11 million. Directors of a CATSI organisation can face penalties of up to $200,000.
Penalties will also apply for conduct that undermines the new requirements, including providing false identity information and intentionally applying for several DINs.
More than 2.5 million directors will need DINs. They will be permanent, even if holders cease to be directors, change their names, or move interstate or overseas.
More information can be found at https:/www.abrs.gov.au/director-identification-number.
Fines for late Lodgement of Tax Returns
After many years of not being punitive, the tax office are now imposing fines for late lodgement of income tax returns.
Due dates for lodgement of tax returns are set by the tax office and vary from 31st October 2021 and May 2022 depending on lodgement history and likely tax payable.
Landholder Duties
The Victorian State Revenue office has issued a Ruling in relation to obligations in relation to a new premium rate of duty that took effect from 1st July 2021 for transactions with a dutiable value of more than $2m.
The rate of duty on the acquisition is $110,000 plus 6.5% of the excess over $2m.
Where fixtures are held separately from the land on which they are located then the fixtures became dutiable after 19th June 2019. However, duty will not be calculated with reference to the value of the interest in the fixtures unless the total value of the fixtures exceeds $2m.
Primary production land continues to be exempt provided the relevant rules regarding exemption are satisfied.
State Revenue office duties and land Taxes continue to grow as a significant impost to the ownership of land and regular review of the relevant regimes are recommended
Construction grants now open
Applications for the Business Costs Assistance Program Round Four – Construction are now open. The program provides one-off payments to eligible employing and non-employing businesses in the construction sector more detailed list link is here.
Grant amount is Once off payments up to $8400 further details can be found in this link.
You can apply for a grant yourself with this link, Please feel free to contact our office should you wish us to assist you with the application and we will get application underway. Cost of application is $300.
Eligibility criteria for grant is as follows:
If you would like to discuss anything raised in the newsletter, please contact our Team.
Unwinding COVID-19 Relief
COVID-19 support will roll back as states and territories reach vaccination targets.
The National Plan, the road map out of COVID-19, does more than provide greater freedoms at 70% and 80% full vaccination rates, it withdraws the steady stream of Commonwealth financial support to individuals and business impacted by COVID-19 lockdowns and border closures. We look at the impact and the support that remains in place.
For individuals
The COVID-19 Disaster payment offered a lifeline to those who lost work because of lockdowns, particularly in the ACT, New South Wales, and Victoria where the Delta strain of the virus and long-term lockdowns had the greatest impact.
In late September, the Treasurer announced that the Disaster Payment will roll back as states and territories reach vaccination hurdles on the National Plan. Over $9 billion has been paid out to date on Disaster Payments and at 70% and 80% full adult vaccination, the disaster, apparently, is over.
At 70% full vaccination in your state or territory
In the first week a state or territory reaches 70% full adult vaccination, the automatic renewal that has been in place will end and individuals will need to reapply each week that a Commonwealth Hotspot remains in place to confirm their eligibility. The COVID-19 Disaster payment will not necessarily end, but anyone currently receiving the payment will need to reconfirm that they meet the eligibility criteria, including living or working in a Commonwealth declared hotspot.
Given that the time gap between 70% and 80% full vaccination might be as little as two weeks in some regions, the impact of the 70% restrictions might be a moot point.
At 80% full vaccination in your state or territory
In the first week a State or Territory reaches 80% full adult vaccination, the COVID-19 Disaster Payment will phase out over a two week period before ending completely.
| Trigger | Disaster payment per week |
| <70% vaccination* | $750 - lost 20 hours or more for that week
$450 - lost at least 8 hours of work $200 - on income support and have lost at least 8 hours of work |
| 70% vaccination* | Automatic renewal ends |
| 80% vaccination | Payment reduced from first week |
| Week 1 | $450 - lost at least 8 hours of work
$100 - for those on income support who have lost at least 8 hours of work |
| Week 2 | $320 - lost at least 8 hours of work |
*First week population +16 years of age reaches vaccination target
Those needing financial support will no longer be eligible for the disaster payment, regardless of whether a Commonwealth hotspot is in place, and instead will need to apply for another form of income support such as JobSeeker. Unlike the disaster payments, JobSeeker and most other income support payments are subject to income and assets tests.
The Pandemic Leave Disaster Payment, for those who cannot work because they need to self-isolate or care or quarantine, or care for someone with COVID-19, will remain in place until 30 June 2022.
Support for business
Each State and Territory manages in different ways the lockdown and financial support provided to businesses impacted by COVID-19 lockdowns and border closures. The way in which support is withdrawn will depend on how support has been provided and the extent of Commonwealth support. In this newsletter we focus on Victoria. Detail on support in other States is available from your MVAB client service staff person.
The Victorian Government has distributed grants to business jointly funded with the Commonwealth. For many of these grants, funding has been topped up in line with lockdown extensions.
The Small Business Hardship Fund has provided one-off grants of $20,000 for businesses that have suffered a 70% or more decline in turnover and were not eligible for other grants or funding, will reopen (see the BusinessVictoria website for details).
The Business Costs Assistance Program will provide automatic top-ups to existing recipients across October and into the first half of November (two fortnightly payments between 1-29 October on a rising scale). Businesses that remain closed or severely restricted between 70% and 80% double dose will receive an automatic payment for the period from 29 October to 13 November.
Licensed hospitality venue fund recipients will also receive weekly top-ups in October of between $5,000 and $20,000, stepped according to venue capacity. Between 70% and 80% double dose, payments for licensed premises in metropolitan Melbourne will be reduced by 25%, and in regional Victoria by 50%.
For Borrowers
While an economic rebound is expected by some when restrictions ease across the country, for many, a funding gap will remain between the assistance provided by Government grants and viable trading conditions.
The expanded SME recovery loan scheme took effect on 1 October 2021. Under the scheme, the Government will guarantee 80% of loan amounts to businesses that have been adversely impacted by COVID-19.
The lending terms, repayment, and interest rates are set by the lenders but cannot be backed by residential property, that is, if the Government is underwriting the loan, lenders cannot ask business owners to use their home as security. However, Directors guarantees are likely to be required.
Under the scheme, lenders can provide:
The recovery loans can be used to refinance existing loans, purchase commercial property, purchase another business, or working capital. But, cannot be used to purchase residential property, financial products, lend to associated entities, or lease, rent, hire or hire purchase existing assets that are more than half way into their effective life.
The loan scheme is generally available to solvent businesses with a turnover of up to $250m, have an ABN, and a tax resident of Australia. Loans remain subject to lending conditions and generally the lenders will look to lend to viable businesses where it is clear that they can trade their way out of the impact of COVID-19 or the assets of the business make the break-up value attractive.
If you default on your loan, you cannot simply walk away from it. The Government is guaranteeing 80% of the lender’s risk not your debt. Director guarantees are still likely to be required and for many loans, it will be secured against a business asset. On the plus side, interest rates are very attractive right now and many of the lenders are providing a repayment holiday of up to 24 months and in some cases,existing debt can be bundled into the loan arrangements.
Capital Gains Tax – subdividing the Main Residence
Subdivision of the main residence is a popular activity in Melbourne suburbs. Excising the unused and maybe oversize back yard is an example or more we are seeing houses demolished and the land split in two with two adjoining houses on the former single block.
The main residence exemption applies only to the “dwelling” when the land remains immediately under the accommodation.
If the accommodation is removed from the land and the land is sold (or half of it sold), the land does not come within the definition of dwelling and the main residence exemption does not apply.
Land under the accommodation qualifies for the main residence exemption for capital gains tax only if the land and the accommodation are sold together.
If you are contemplating changing the use of your main residence then taxes are complex and the proposition should be planned in advance for the likely tax consequences.
Cryptocurrency
The use of cryptocurrency is growing and there are taxation ramifications.
The term cryptocurrency is generally used to describe a digital asset in which encryption techniques are used to regulate the generation of additional units and verify transactions on a blockchain. Cryptocurrency generally operates independently of a central bank, central authority or government.
If you are involved in acquiring or disposing of cryptocurrency, you need to be aware of the tax consequences. These vary depending on the nature of your circumstances. The default position is to tax the crypto currency transaction as a capital gain.
Everybody involved in acquiring or disposing of cryptocurrency needs to keep records in relation to their cryptocurrency transactions.
If you have dealt with a foreign exchange or cryptocurrency there may also be taxation consequences for your transactions in the foreign country.
Residency
Many of our family clients have a next generation living outside Australia.
Australia seeks to tax the world-wide income of its residents for tax purposes and the Australian taxable assets of its non-residents.
Like all tax matters there are shares of grey, complexities and unintended consequences.
If non residency or a likely change in residency applies in your family, you should be reviewing the implications of:
If you have parents who reside outside Australia where assets maybe inherited into Australia, again planning is recommended well in advance.
Superannuation and Contractors
We continue to see business confused by the compliance rules of Superannuation Guarantee Charge obligations for service providers of business who might invoice rather than being on the payroll.
The definition of employee for SGC purposes is narrow and is not cross referenced to other definitions of generally accepted concepts of employment. If your business pays for labour to suppliers then you should be reviewing your compliance obligations to pay 10% superannuation in accordance with the Superannuation Guarantee Charge rules.
Superannuation - Rule changes for new employees
When your business hires a new employee, the Choice of Fund form is used to identify where they want their superannuation to be directed. If the employee does not identify a fund, generally the employer directs their superannuation into a default fund.
From 1 November 2021, where an employee does not identify a fund, the employer is required to contact the ATO and request details of the employee’s existing superannuation fund or ‘stapled’ fund (the fund stapled to them). The request is made through the ATO’s online services through the ‘Employee Commencement Form’.
If the ATO confirms no other fund exists for the employee, contributions can be directed to the employer’s default fund or a fund specified under a workplace determination or an enterprise agreement (if the determination was made before 1 January 2021).
Superannuation Funds - payments made on death
Superannuation is not like other assets as it is held in trust by the trustee of the superannuation fund. When you die, it does not automatically form part of your estate but instead can be paid to your eligible beneficiaries by the fund trustee according to the rules of fund, superannuation law, and the death nomination you made.
Fund members have a death nomination in place to direct their superannuation to their nominated beneficiaries on their death. There are four types of death benefit nominations:
Binding death benefit nomination - Putting in place a binding death nomination will direct your superannuation to whoever you nominate. As long as that person is an eligible beneficiary, the trustee is bound by law to pay your superannuation to that person as soon as practicable after your death. Generally, death benefit nominations lapse after 3 years unless it is a non-lapsing binding death nomination.
Non-lapsing binding death benefit nomination - Non-lapsing binding death nominations, if permitted by your trust deed, remain in place unless the member cancels or replaces them. When you die, your super is directed to the person you nominate.
Non-binding death nomination - A non-binding death nomination is a guide for trustees as to who should receive your superannuation when you die but the trustee retains control over who the benefits are paid to. This might be the person you nominate but the trustees can use their discretion to pay the superannuation to someone else or to your estate.
Reversionary beneficiary – if you are taking an income stream from your superannuation at the time of your death (pension), the payments can revert to your nominated beneficiary at the time of your death and the pension will be automatically paid to that person. Only certain dependants can receive reversionary pensions, generally a spouse or child under 18 years. If a reversionary pension is in place the benefit is not directed by the BDBN. Therefor direct two binding outcomes could be effected - one via BDBN of an accumulation account or no reversionary pensions, and on via reversionary pension account.
If no death benefit nomination is in place - If you have not made a death benefit nomination, the trustees will decide who to pay your superannuation to according to state or territory laws. This will often be a financial dependant to the legal representative of your estate to then be distributed according to your Will.
Is your death benefit valid?
There have been a number of court cases over the years that have successfully contested the validity of death nominations, particularly within self managed superannuation funds. For a death nomination to be valid it must be in writing, signed and dated by you, and witnessed. The wording of your nomination also needs to be clear and legally binding. If you nominate a person, ensure you use their legal name and if the superannuation is to be directed to your estate, ensure the wording uses the correct legal terminology.
Who can receive your superannuation?
Your superannuation can be paid to a SIS dependant, your legal representative (for example, the executor of your will), or someone who has an interdependency relationship with you.
A dependant is defined in superannuation law as ‘the spouse of the person, any child of the person and any person with whom the person has an interdependency relationship’. An interdependency relationship is where someone depends on you for financial support or care.
Do beneficiaries pay tax on you superannuation?
Whether or not the beneficiaries of your superannuation pay tax depends on who the superannuation was paid to and how. If your superannuation is paid as a lump sum to a tax dependant, the superannuation is tax-free. The tax laws have a different definition of who is a dependant to the superannuation laws. A tax dependant for tax purposes is your spouse or former spouse, your child under the age of 18, or someone you have an interdependency relationship with. Special rules exist if you are a police officer, member of the defence force or protective service officer who died in the line of duty.
If your superannuation is paid to your estate, the tax laws use a ‘look through’ approach when superannuation death benefits are distributed to the deceased’s legal representative. This involves determining whether the final recipient of the superannuation is a dependant or a non-dependant of the deceased.
If the person is not a dependant for tax purposes, for example an adult child, then there might be tax to pay.
Should you have any questions regarding the above, please do not hesitate to contact our office on 03 9642 8000, or email us on info@mvabennett.com.au
MVA Bennett is pleased to announce that the accounting and advisory practice known as Aberdeen Advisory merged with MVA Bennett on 1st October 2021.
Chris Hall, Chartered Accountant, established Aberdeen Advisory some 10 years ago to enable him to serve clients with his particular passion and professional expertise. The practice has grown steadily, and the time is right to broaden the base so that the depth and capacity needed to service clients can continue at the expected standards.
We welcome Chris and his team into our La Trobe Street offices. Chris has joined our partnership as one of eight equity partners in the combined business and, as both businesses have aligned values, culture, and software, we expect that you will notice very little difference in the day-to-day support of your needs as a valued client. Further information is included on our website at www.mvabennett.com.au
We welcome all the valued clients of Aberdeen Advisory and look forward to supporting their professional services needs into the future. In particular, MVA Bennett looks forward the having the expertise of Chris Hall and his team to further develop their passion and skills in respect to advising on complex taxation issues.
If you have any questions kindly contact our Managing Partner Andrew Ellem on 9642 8000 orandrew@mvabennett.com.au
What’s happening across our client base
Lockdown continues and this one seems to be tougher than those that we have endued before. Our client service with telephone and online continues albeit with the office being physically closed. Our conversations with clients cover wide ranging topics and here are just a few.
Hardship Grants from Government have been available and procured for many eligible clients with our guidance.
The booming share and property markets have been extraordinarily good for investors at a time when interest rates have not much more to fall and inflation is low.
However, there are shortages of supply particularly in steel and timber. Labour is also in short supply and salaries are rising. Other countries of the world are receiving high demand for their locally manufactured product reducing the availability of their exports to our importers.
If interest rates cannot go down then presumably they can stay the same or go up. Rising interest rates generally have a negative influence on capital markets.
Good businesses have used these times to innovate with new ways of doing business. The use of the “zoom“ meeting has significantly reduced internal costs of travel and maybe improved overall communication. The use of on-line ordering with home delivery is becoming a common method of shopping. Strategic reviews of business models continue.
Tax rules to encourage investment and 100% write-offs continue. Corporate tax rates are reducing to 25% this year which sounds great for the reinvestment of after-tax profits but may not be as good for recipients of fully franked dividends.
New rules surrounding tax residency will start to affect our clients. Many families find themselves with a next generation member living in another country and no longer being a resident for Australian Tax purposes. Non residency affects income tax rates on Australian assets and can even extend to State Land taxes. Leaving certain assets in a Will to non-residents can be a taxable event. Changes in residency can be a Capital Gains Tax event.
Compulsory employer superannuation contributions (SGC) are now at 10%. Grey areas exist in relation to sub-contractors and whether SGC contributions are required because of fitting within the SGC definition of employee when they are not an employee for any other purpose.
We look forward to a return to the post COVID world – suspecting life will be different to what it was.
Mental Health Support for Business Owners
Running a business can be an isolating experience. And, with COVID-19 lockdowns and disruptions to trade, the pressure can be intense.
NewAccess for Small Business Owners is a free and confidential mental health program developed by Beyond Blue to give small business owners the support they need. Whether you’re just feeling stressed, or completely overwhelmed about everyday life issues, they can help.
Understandably, a lot of small business owners are reporting that COVID-19 has negatively affected their mental health.
NewAccess is designed to appeal to people who might not otherwise seek support for their mental health and to provide support early, preventing symptoms from potentially getting worse.
Coaches of the NewAccess for Small Business Owners program all have a small business background and are trained in Low-intensity Cognitive Behavioural Therapy - a structured, evidence based psychological treatment. Put simply, it allows us to recognise the way we think, act and feel.
The program is open to small business owners (under 20 employees) who are not currently seeing a psychologist or psychiatrist. The program starts with an initial assessment, then works with you over five sessions to tackle unhelpful thoughts and behaviours, using an individual plan that you develop with your coach. Together you will develop an understanding of what is causing distress and then work on practical tools and strategies that can be used in day-to-day life.
For more visit:
https://www.beyondblue.org.au/get-support/newaccess/newaccess-for-small-business-owners
COVID-19 business grants and programs
| The COVID-19 Disaster Payment has been expanded and increased on 28 July 2021. Eligible Victorian workers and sole trader business owners in lockdown in a Commonwealth hotspot from 6 August who lose work and do not qualify for Victorian Government support programs will be able to access:Payments of $750 pw (up from $600 pw) to individuals who lose 20 or more hours of work a week during the period of the lockdown
Payments of $450 pw (up from $375 pw) to individuals who lose between 8 and 20 hours of work, or a full day of work, during the period of the lockdown There is no liquid assets test to receive these payments. The payment will be available from day one of any lockdown, with claims made from day eight in arrears, with a weekly payment then made for the duration of the Commonwealth hotspot declaration. The vast majority of Victorian microbusinesses not registered for GST will also be eligible for the COVID-19 Disaster Payment. Micro-businesses and sole trader business owners can obtain assistance with their application by making an appointment with the Business Victoria Concierge Service on 13 22 15. The Victorian Government has assumed responsibility to fund payments in areas that are not declared a Commonwealth hotspot. The COVID-19 Disaster Payment is non assessable income and non exempt income for tax purposes. This applies to assessments for the 2020-21 income year onwards. In addition, the Business Continuity Fund provides $5,000 grants to businesses that remain impacted by capacity limits due to public health restrictions. Businesses located in the CBD will receive an additional $2,000 ($7,000 in total). All recipients must have received or been eligible for previous Business Cost Assistance Program Round Two (or extension), and no application is necessary (i.e. eligible recipients receive the payments automatically). |
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Divorce and Superannuation
New legislation will help prevent superannuation assets from being hidden during divorce proceedings.
From 1 April 2022, the Australian Taxation Office (ATO) will be able to release details of an individual’s superannuation information to a family law court.
The recently enacted laws are designed to ensure that there is procedural and economic fairness in divorce proceedings to prevent the under-reporting of superannuation assets. While a spouse’s superannuation information can be obtained now through legal action, if it is not provided willingly, it is often expensive and time consuming to obtain factual information through subpoenas or court orders.
From April 2022, when a couple have entered into divorce proceedings, if one of the parties believes the other is not being forthcoming about the value of assets held in superannuation, they can apply to a family law court registry to request their former partner’s superannuation information held by the ATO. They will then be able to seek up-to-date superannuation information from their former partner’s superannuation fund.
What happens to superannuation in a divorce?
In a divorce, superannuation is treated like any other asset and included in the division of assets in a property settlement or financial agreement. Depending on how the total assets of the couple are split, the superannuation balances of each individual may remain intact with each party taking their respective entitlement from the asset pool, or split between the couple.
For superannuation to be split, there must be:
If a superannuation account is split, it does not convert into cash unless the receiving spouse is aged 65 or over, or has reached preservation age and has retired. In most cases, the superannuation is immediately rolled over into the receiving spouse’s superannuation account and remains there until they are legally able to access it.
The tax-free and taxable components of the super payment to a receiving spouse will be calculated immediately before the payment is made with the relevant payment retaining the tax components of the account the funds are being transferred from.
For self-managed superannuation funds (SMSFs), generally SMSF cannot acquire assets such as residential property from a related party but there is an exemption when the acquisition is a result of marriage breakdown. Where a property like a residential rental property is involved, the superannuation rules allow an in-specie rollover under a court order or financial agreement rather than forcing the former couple to sell the property. For example, where a couple have an SMSF together, it’s common for one member to step down when they divorce (until that point it’s important to remember that the trustees are legally obliged to act in the best interests of all members). This same member might then set up their own SMSF and utilise the exemption to receive the residential rental property as an in-species rollover.
Capital gains tax relief is also available where property is transferred to a spouse’s superannuation fund as a result of divorce proceedings so that any potential capital gains tax does not apply on transfer. Instead, the spouse or former spouse who receives the asset will effectively ‘inherit’ the transferor’s cost base of the asset for CGT purposes. That is, when the property is transferred, the tax implications are generally the same as if the receiving spouse or their superannuation fund owned the property from the time it was acquired.
The superannuation divide
On average, women earn 14.2% less than men based on full time earnings. If you take overtime into account, the gap is 16.8%. When part-time work is taken into account, this figure blows out to 31.3%. And, the COVID-19 pandemic has only worsened the pay gap.
Given that 93% of all primary carer leave is taken by women, it’s not surprising that there is a divide between the superannuation balances of men and women on retirement. While the gap is diminishing over time reflecting the positive shifts in work participation and the earning potential of women, it is currently estimated to be around 42%. That is, when a woman retires, she retires with around 42% less superannuation than a man.
While the situation is much better in SMSFs, a gap remains. Over the five years to June 2019, the average member balances of women increased by 28% to $654,000, however the average balance of a male was $784,000.
The Federal Budget proposal to remove the $450 threshold on superannuation guarantee payments (the minimum amount someone needs to earn in a month before an employer is required to pay superannuation guarantee) will help reduce the superannuation divide, but this is not intended to commence until 1 July 2022.
Superannuation equalisation
Where couples have significantly different superannuation account values but are of a similar age, there are practical reasons why they might look at evening out any gap.
Where one spouse is close to or likely to reach their transfer balance cap (between $1.6m and $1.7m), redirecting superannuation contributions to the spouse with the lower balance means that together, they maximise their tax-free income in retirement. Together, the couple can accumulate between $3.2 and $3.4 million tax-free.
You can make a contribution to your spouse’s superannuation fund up to their non-concessional cap (currently up to $110,000 depending on their superannuation balance). If they are under 67 years of age, you might also be able to use the bring-forward rule and contribute up to 3 years’ worth of non-concessional contributions in one year (up to $330,000 depending on their superannuation balance).
If your spouse is not working or a low income earner (assessable income less than $40,000), there is also a tax offset of up to $540 available on contributions you make on their behalf.
If your spouse is under 65 and not retired, you can split your superannuation with them. Up to 85% of your concessional superannuation contributions from your employer or salary sacrifice each year, can be directed to your spouse’s fund.
Actively addressing the value of each spouse’s superannuation account might also help to manage some of the issues that can occur when a spouse dies. While superannuation will pass to the beneficiary nominated in the death benefit nomination or estate, this does not always occur in the most practical or tax effective way. The superannuation rules in this area are complex, particularly when there have been family breakdowns in the past. It’s important to seek advice to ensure your superannuation is managed in a way that delivers the best possible outcome for your beneficiaries.