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Recent tax changes for property owners and investors

2017 November 23 by

Budget blows for residential property investors become law

 

The 2016/17 Federal Budget included measures intended to address housing affordability. Strangely two of these measures attempt to do so by making the cost of housing more expensive by denying owners of residential rental properties deductions for travel to inspect their property, and denying depreciation deductions on second-hand assets. These measures were passed by Parliament on Wednesday and are now law applying retrospectively from 1 July 2017.

 

From 1 July 2017, investors can no longer claim deductions for travel expenses to inspect or maintain their residential investments properties, which Assistant Treasurer Michael Sukkar said would stop investors from taking holidays at taxpayers’ expense. Further, these travel costs will not form part of the property’s cost base for capital gains tax purposes. This unfortunate measure has removed the ability to claim otherwise legitimate travel costs for many of our clients.

 

Residential landlords have also had their depreciation deductions curtailed from 1 July 2017; they can no longer claim depreciation deductions for second hand assets, i.e. those acquired with a property that had previously been lived in. Plant and equipment depreciation deductions are now limited to new assets only, such as air conditioners, carpets or dishwashers. Note: this will impact both purchasers of ‘used’ homes which are rented to tenants, and also home owners who live in their home and later decide to rent it out. The depreciation restrictions will only apply to properties purchased after 9 May 2017, when the measures were announced in the Budget. The denial of deductions does not extend to capital works claims (i.e. the annual 2.5% deduction claimed on the write down of construction costs).

 

property

 

Tax introduced on vacant properties

 

The government has passed legislation that allows foreign owners to be charged an annual fee if they leave their properties vacant for six months or longer. Owners will face a ‘vacancy fee’ of $5,500 a year if their home is worth up to $1 million, unoccupied and not available for rent for at least six months of the year. For more valuable properties, the vacancy fee will be broadly in line with the application fee the buyer paid to the Foreign Investment Review Board to gain approval to buy the home. As such, vacancy fees will be higher for more expensive homes, for example, the FIRB approval fee for a $9m house is $100,400.

 

The government hopes the vacancy tax will encourage owners to make their homes available for private rental and increase the housing supply.

 

Enforcement of the vacancy tax could prove challenging given the issue of proving whether a home is vacant or occupied, although foreign owners will be required to keep records (such as leases) and submit a vacancy fee return to the Australian Taxation Office each year. Short-term letting through sites such as Airbnb will not be sufficient to avoid the charge. You can read more about this via The Australian, here.

 

Please contact us if you have any questions on the above.

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Some tax considerations before hosting your brilliant Christmas party this year

2017 November 23 by

The festive season is upon us and many of our clients will soon be hosting Christmas parties. As we plan for our own, we thought it would be timely to look at the tax consequences of staff parties and entertaining clients.

 

party

 

Christmas Party

If you’re planning on holding a party at your premises on a working day, the costs (food and drink) are an exempt property benefit to current employees for Fringe Benefits Tax purposes and, as such, there is no upper limit to what you can spend.

However, if you hold the party elsewhere – such as a restaurant or, for the bigger players, a function centre – then the party may still fall into the ATO’s minor benefits exemption provided the cost per employee is less than $300.

One should also consider associated benefits, e.g. providing a gift to employees in addition to the cost of the function. The ATO will consider each item separately when looking at the $300 minor and infrequent limit. So, you could provide a party of up to $300 per head as well as a gift to that limit also (i.e. $600 in total per employee).

 

Tax Deductibility of Christmas Party

Also bear in mind that, unless the party is subject to Fringe Benefits Tax, it is not tax deductible and you cannot claim GST on the costs.

 

Associates of Employees

When looking at the in-house function, remember that associates of employees (such as a spouse or partner) are not part of the exemption but, if the minor and infrequent rules are met, they could be exempt under those rules.

 

Clients

The costs of entertaining clients are not subject to Fringe Benefits Tax, however, they are also not deductible for income tax purposes and you cannot claim the GST.

 

Hopefully these rules don’t put a dampener on your festive season, they won’t for us! Please contact us if you have any questions in relation to the above.

 

Best wishes from the team at Allworths!

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Getting started with Estate Planning: a practical approach

2017 November 23 by

In this, the third article in our 3-part series on estate planning, we look at some practical tips on where to start. The previous two articles have only scratched the surface of this highly complex area and, once again, it is essential you speak to your accountant and engage a suitably qualified estate planning lawyer.

 

So, where do we start?

 

Children

If you have young children, you need to give careful consideration as to who will take care of them should something happen to you and your partner. Giving the guardianship of your children is probably the most important (and often-overlooked) thing you will do as part of your estate planning. Think about the age, values, lifestyle and financial resources of the people you would trust with this most important decision.

Personally, I am a huge advocate of life insurance here and my belief is that, if you have young children, you must have life insurance in place to ensure their future financial security. It is not that expensive and insurance companies do pay out on the policies despite the stories you may have heard.

 

family

 

Assets and Liabilities

Start by making a list of all your assets and liabilities and assigning a market value to each where you can. Also include specific items you may want to bequest to certain family members, e.g. that watch Joe always had his eye on or that necklace Lisa always admired.

Don’t forget to consider any life insurance policies you may have in place!

For the more complex items; e.g. shares you own in the family business or assets held within companies, superannuation or family trusts; you really need to speak with your accountant. This area often causes a lot of confusion among clients and their lawyers.

I find a good place to start here is listing the assets on a spreadsheet and then putting names against the assets of who you think should get them. However, you need to ensure this spit is done fairly to avoid future challenges to the Will.

Note: property, e.g. real estate and bank accounts held jointly with a spouse, will automatically pass to your spouse and fall outside the terms of your Will.

 

Appointing an Executor

The executor or executors is the person(s) responsible for managing your affairs after you pass away.

Again, this needs serious consideration as the role – depending on the complexity of the Estate – can be quite demanding. From experience, if you are going to appoint more than one executor, have them in close geographical proximity if possible. Often documents require signing by all executors and having to mail them all around the country (in some cases the world) can be time-consuming and delay the administration of the Estate.

 

Beneficiaries

Basically: who gets what. In many cases this may be straightforward, e.g. everything goes to my spouse or everything is split equally between my children, etc.

However, in more complex situations, careful consideration is required from a practical point of view as well as a taxation standpoint.

The largest issue we see is in the rural sector where the main asset is often the family farm. Splitting this asset between three or four children is not practical from a commercial point of view. However, a huge financial burden can be left with the beneficiary of the farm (in having to pay out their siblings) and render the commercial operation unviable. For younger parents, this can be managed through life insurance but the ability to obtain life insurance in one’s twilight years is not available.

 

farm

 

In the globalised world in which we live, many families are spread out around the world and more and more hold assets abroad. Each country has different inheritance tax laws and consideration of these needs to be made to ensure beneficiaries are not subject unnecessarily to inheritance tax issues. Allworths, through our Leading Edge Alliance affiliation of worldwide accountants, can assist in this regard.

Family business succession planning should also be considered in conjunction with estate planning. This is often left to the last minute when it is too late and early consideration should be made; whether it be to pass the business to a family member, or look at selling the business.

As mentioned in an earlier article, superannuation does not automatically fall under your Will and this needs to be considered.

If you have young children, you should also consider having a Testamentary Trust built into your Will.

 

Your Funeral

Give consideration to your funeral arrangements to assist your executor to plan your Will in line with your wishes. For example, consider whether you wish to be buried or cremated.

 

Enduring Powers of Attorney

An enduring power of attorney allows you to appoint another person to make decisions for you when you are unable to make decisions yourself. It allocates the responsibility to another person to make decisions on your behalf. This can include managing your financial affairs, making decisions about the way you live, or making decisions about your health care and medical treatment. Like guardianship and executorship, choosing the right person bears careful consideration.

 

Before Signing your Will

Let your accountant review it to ensure it includes all your assets and has been drafted in the most tax-effective way.

 

And finally… Pay for Proper Advice

As we’ve said in all these articles: pay for proper advice. Estate planning is a very complex area and you should have your Will prepared by an appropriately qualified and experienced professional. Over the years, I have seen plenty of poorly drafted Wills which simply do not achieve what was desired.

At Allworths, we work together with a number of great lawyers who can provide the proper advice. Contact us if you would like any more information on estate planning.

 


 

The advice in this newsletter is intended to be general in nature and does not take into account your personal circumstances. Before implementing any of the strategies discussed, we recommend you speak to your licenced financial advisor or solicitor.

Allworths Wealth Management Pty Limited (AFSL 457155) is the Wealth Management arm of Allworths Chartered Accountants. For further information please contact us on (02) 9264 6733 or email growth@allworths.com.au.

 

Further Reading on Estate Planning

See Part 2 here

See Part 1 here

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Superannuation, Death and Special Disability Trusts

2017 October 22 by

Superannuation

A common misconception is that a deceased member’s superannuation benefits automatically form part of their estate, which is transferred under their Will.

A deceased individual’s superannuation benefits can only be paid to his or her dependants or their estate. If neither of these exist, then another person may receive the benefits.

In superannuation legislation, dependants are defined to include the spouse of the person, any child of the person and any person with whom the person has an interdependency relationship.

Depending on which individuals receive the superannuation benefit, either through the superannuation fund as a dependant or via the estate, it is necessary to understand how they will be taxed in order to minimise tax on the benefits.

For taxation purposes, a death benefit dependant is entitled to a receive a lump sum benefit from superannuation funds entirely tax free. Depending on the age of the deceased, and the age of the recipient of a pension from the deceased’s superannuation fund, there are various tax concessions and – in some cases – benefits may be entirely tax free.

Death benefit dependants of the deceased for taxation purposes generally include the deceased’s spouse or former spouse, children aged less than 18, or any other person who was a dependant or in an interdependency relationship just before they died.

As a result, most adult children who are not in an interdependency relationship with the deceased would be taxed on the death benefits they receive, unless they are paid out as a lump sum from the tax free component.

Recent legislation changes to pension balance caps also adds a new layer of complication and therefore advice should be sought in relation to your Estate Planning and Superannuation.

 

super

 

Reversionary pensions

These are pensions that automatically continue to be paid to another individual on the death of the original pensioner. At the commencement of a pension, a reversionary beneficiary can be elected depending on the rules of the fund and there can be several tiers of beneficiaries, e.g. benefits first revert to a spouse and then revert to children.

Due to recent changes in the superannuation and tax legislation, the main reasons for using reversionary pensions have reduced in relevance. They may still be an option where there are complex circumstances, or the effective control of the superannuation does not rest with the reversionary pensioner and – as a result – the trustee of the superannuation fund can make decisions that are not in accordance with the original pensioner’s wishes. Another case for using reversionary pensions would be where there is a risk the original pensioner’s estate will be challenged or the original pensioner’s estate is in debt.

In the above circumstances, the reversionary pension would direct the funds to the nominated beneficiary prior to the estate of the deceased or the trustees of the superannuation fund making alternative arrangements.

The introduction of the $1.6 million pension cap rules as of 1 July 2017 has added an additional layer of complexity when determining the appropriateness of utilising reversionary pensions in succession planning. In situations where the surviving spouse may breach the $1.6 million pension cap on the death of their partner, a reversionary pension could prove to be a poor estate planning decision.

Not having a reversionary pension gives flexibility within the family group to achieve the optimum outcome for the family and it gives the trustee the ability to pay a benefit to the estate if that is desirable.

 

Binding death benefit nominations

Your superannuation benefits DO NOT automatically pass under your Will. A valid binding death benefit nomination is a direction to the trustee of the superannuation fund to pay the death benefit to a particular beneficiary. To be valid, the amount of the benefit payable must be: ascertainable, made in the form prescribed by the trust deed of the fund, and, the nomination must be in effect. A nomination will lapse the earlier of: the date fixed by the governing rules of the fund or 3 years. Without a binding death benefits nomination in place, it is up to the trustees of the superannuation fund to determine who receives superannuation death benefits.

A binding death benefit nomination is useful:

  • If the member wants to ensure their bequests to nominated beneficiaries are upheld (particularly in cases of blended families, where there may be some doubt that the member’s wishes will be upheld)
  • To specifically exclude a potential beneficiary or to protect a particular beneficiary
  • To protect the capital in the fund by having the benefit paid to the estate where the Will could provide additional protection, for example, through a testamentary trust

However, the main disadvantage with a binding death nomination is that it does not consider the situation of the beneficiaries after death and the trustees are locked into a predetermined outcome without flexibility. In uncomplicated circumstances, such as where the member’s spouse is the only other member of the fund, they have control of the fund as trustee and they are likely to abide by your wishes and as such a binding death benefit nomination may not be required.

There have been a number of cases recently involving inappropriately completed binding death benefit nominations and proper legal advice is required before they are put in place.

 

Re-contribution strategy

With the new contribution caps that came into effect on 1 July 2017, this strategy has reduced in benefit, however, there are still planning opportunities to reduce tax on non-dependant beneficiaries on the death of the member. For those who have mainly adult non-dependant children, one of the options to reduce tax would be an effective re-contribution strategy where most of the superannuation components are taxed components.

Tax free components generally consist of contributions that have not been included in the taxable income of the fund (e.g. non-deductible contributions). Taxable components consist of the balance of the fund.

Tax free components are distributed to non-dependants and not subject to tax. The taxable component paid to non-dependants is taxed at either 17% or 32% (including the Medicare Levy), depending on circumstances.

It is not possible to choose the components that must be drawn from a superannuation interest. Essentially the strategy involves withdrawing benefits that include the taxable portion and re-contributing them as non-deductible contributions. As a result, the re-contribution strategy can increase the tax free components.

This strategy is only possible if: you have met a condition of release to access retirement benefits, are still able to meet the conditions for making contributions and there is sufficient cash to effect this strategy.

Generally, this planning option is beneficial, depending on your circumstances, mainly during the ages of 60 to 75 years of age as there is no tax on superannuation benefits paid to those over the age of 60.

An additional consideration from 1 July is that, if your superannuation balance exceeds $1.6 million, you may not be able to re-contribute the amounts.

Before embarking on this strategy, you need to speak to a licenced financial advisor, such as Allworths Wealth Management.

 

Special Disability Trusts

A Special Disability Trust is a unique type of trust that allows parents and immediate family members to plan for current and future needs of a person with a severe disability. The trust can pay for reasonable care, accommodation and other discretionary needs of the beneficiary during their lifetime. The trust may be given concessional treatment under the Social Security Act 1991 and the Veterans Entitlement Act 1986.

Special Disability Trusts can have assets worth up to $657,250 (indexed annually) without these assets impacting on the beneficiary’s income support payments such as the Disability Support Pension. This amount is in addition to their residential home.

These trusts can be set up during the lifetime of a parent or can be willed in their estate. The latter would result in a testamentary special disability trust and would be subject to the same requirements.

There are strict conditions to be met in respect of setting up and maintaining these trusts and care needs to be taken.

Setting up a Special Disability Trust would be most beneficial if either you or the person with the severe disability rely on income support and you have sufficient funds to contribute to the trust.

However, a normal testamentary trust may be beneficial if you want to provide a larger pool of funds or to make the funds more broadly available than for just care and accommodation.

 

Pay for proper advice

As I said in last month’s article, one of my biggest issues in this area is a reluctance to pay for proper advice. Estate planning is a very complex area and you should have your Will prepared by an appropriately qualified and experienced professional. Over the years, I have seen plenty of poorly drafted Wills which simply do not achieve what was desired. At Allworths, we work together with a number of great solicitors who can provide the proper advice.

____________________________________________________________________________________

The advice in this newsletter is intended to be general in nature and does not take into account your personal circumstances. Before implementing any of the strategies discussed, we recommend you speak to your licenced financial advisor or solicitor.

Allworths Wealth Management Pty Limited (AFSL 457155) is the Wealth Management arm of Allworths Chartered Accountants. For further information please contact us on (02) 9264 6733 or email growth@allworths.com.au.

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Reigniting inner passion: keeping your business passion alive

2017 September 17 by

Keeping your business passion alive

With thanks to our guest contributor: Jo Hanlon of  Mind Your Ps, our go-to HR experts


 

You may have inherited a business, started one, bought or fallen into one by chance. Regardless of whether you’re the CEO, or serving coffee to your regular customers, one thing is for sure, most of you will experience the loss of passion for your business or work from time to time.

So what gets in the way? A plethora of reasons I’ve heard include:

  • DOING the work yourself & working IN not ON the business
  • Not having enough time to do things well
  • The uncertain and changing economy
  • The Government red tape
  • Ongoing staff/manager issues distracting progress
  • Others or your own negativity
  • Not having enough money
  • Plain old fatigue from trying to be everything to everyone
  • Personal changes
  • Hating what you do… the list goes on!

So how can you uncover, clarify further, regain and rejuvenate your passion for your business or job? Here are my top 3 tips.

 

Untitled design

 

Tip #1: Know your PURPOSE, the WHAT for and WHY you do what you do in the first place. Your Purpose gives access to sustainable Passion, Inspiration and Energy. The strategies, day to day tactics & values driven behaviour are HOW you and the team upholds Purpose.

Take a moment to reflect on what your Purpose is. Is it to make a difference to your client’s life; send your kids to the best school; save the planet; make lives easier and more workable; provide jobs for others; fundraise to support medical research to change lives? Whatever it is, it must be REAL enough for you to remain Passionate about it against all odds. If you don’t know it, there are plenty of resources available to help you uncover what it is.

 

 

Tip #2: Ensure your PURPOSE is BIGGER than just you. Being involved in a game bigger than just our own personal gain really does feed our dreams and Passions by keeping them alive and relevant. When your Purpose is aligned to your innate human nature, involves your own values and is in the interests of your communities, it can only draw bigger and better performances from you and inspire and engage others.

Consider the passion and drive of national sportsmen and women who do their best for their country as well as achieve their own personal bests. Nic Marchesi and Lucas Patchett’s venture, ‘Orange Sky’ of providing mobile showers for the homeless is one fantastic example. Think also of the continuous efforts of scientists and fundraisers dedicated to years of research and fundraising to find new cures for various ailments. You can’t help but be inspired by these people who have a clear Purpose that benefits many.

 

Tip #3: SHARE it with others. When you Passionately articulate and communicate your Purpose, you engage the hearts and minds of others including your staff; giving you support in the doing and the dreaming.

Think Fred Hollows, Glen McGrath, Bill & Melinda Gates, Professor Alan Mackay Sim and Sister Anne Gardiner.

Sharing your Purpose also keeps you on track and accountable on a much wider scale than just living in your own head and that goes for SME business owners and leaders as well as large philanthropic organisations.

My belief is that many of the reported 75% of businesses that fail within their first 5 years, have missed being clear on their Purpose for existing in the first place. Providing a product or service just because you like it, may not be enough to push you past the first few barriers to success. Being clear on your business Purpose, having it be bigger than you and sharing it gets others engaged in the process and assists to build resilience; giving you the Power and synergies needed to push through barriers to find workable solutions.

So to your homework: I strongly recommend you take some time out and reflect, ask for help if needed, to rediscover your Purpose and revitalise your Passion. If you have tried to do your best but nothing is bringing it back, maybe it’s simply time to get real with yourself, make a change to follow your heart’s Purpose and kick that real Passion into gear now, after all, life is too short to have no Passion for your business!

 

 

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The Elephant In The Room: Is Your Will Up To Date?

2017 September 17 by

Estate Planning

Mark Copsey – Partner

I’ve found one simple question causes relief and yet so much stress at the same time with clients: is your will up to date? Possibly the most overlooked issue in managing personal financial affairs is that of Estate Planning. Whilst clients are desperate to talk about it, it usually requires some prompting.

Why is Estate Planning important? 

Having a valid will is important as it ensures your assets are inherited by the people you would want to see receive them, instead of the distribution of your assets being governed by a legislated formula based on your family relationships and assets.

Estate planning includes: asset protection both for yourself and your beneficiaries, tax minimisation, consideration of beneficiaries, insurance policies and superannuation entitlements, and your requirements in relation to family and other relationships.

This article, the first in a 3-part series on estate planning, is an update from a 2009 article and will cover some, but not all, aspects of estate planning that we believe you should consider.

 

sign

 

Testamentary trusts

A testamentary trust is created by a will, and does not come into existence until the death of the will maker. The trust is established when a person(s) (the trustee(s)) holds assets for the benefit of another person or persons (the beneficiaries). Usually the will specifies a date on which the trust must be wound up (the ‘vesting day’).

Whenever children are left assets from an estate, a testamentary trust results. Where no specific age for transfer of the assets to the child is stated, they will receive the asset (i.e. trust must vest) at age 18.  It is important to ensure that the will allows for the income to be applied for the minor’s benefit before age 18, or else no present entitlement will arise.

Advantages of a testamentary trust include flexibility, asset protection and scope for tax planning.

 

Asset Protection

Assets are preserved for the benefit of beneficiaries in a protected environment, in that they cannot be attacked by external parties, such as creditors, family court and bankruptcy court.  As the beneficiaries do not have a say over the management of the assets, the trustee has some control over the spending habits of young beneficiaries.

For a beneficiary, that may be a child who is intellectually impaired, suffering marital breakdown or financial difficulties, it may be preferable for them to inherit the assets through a testamentary trust rather than personally.

 

Tax planning

All estate beneficiaries and beneficiaries of trusts resulting from a Will, including minors under 18, are taxed at their ordinary marginal tax rates, provided the transfer to the testamentary trust occurred within three years of the date of death of the deceased.  The concessions apply, even if no capital is ever paid to the beneficiary.

 

Examples of tax advantages

Assume $1 million assets of deceased estate (e.g. the proceeds of a life insurance policy). The deceased leaves behind spouse and two children. Say investment yields annual investment income of 6% on this investment: $60,000.

If the proceeds went to the deceased spouse, the income of $60,000 would be taxable at the spouse’s marginal tax rate, assuming they have other income, say in this case 38.5% (this could of course be as high as 49%) or tax payable of $23,100.

Had a testamentary trust been established, and the income split between the two children, the tax payable would be $7,200. This results in an annual tax saving of $15,900 which can be contributed to the children’s education, holidays and living expenses. Imagine the tax saved over the period before your child turns 18 or even commences employment, it could be hundreds of thousands of dollars.

 

  • Flexibility of the testamentary trust

The trustee has absolute discretion to decide to which beneficiary income and capital distributions will be made in any year. This means that different beneficiaries may benefit from the testamentary trust in different years, considering the will maker’s original intentions, taxation implications and asset protection aspects relating to the particular beneficiary. There is no requirement that the beneficiaries of a testamentary trust acquire the trust property when the trust ends.  The testamentary trust can make provisions for an extended family.

 

  • Capital protected testamentary trust

The terms of the trust can include the right to income for one class of beneficiary and right to capital for another class (e.g.  spouse has right to income, with capital protected for the benefit of the children). A capital protected trust can be ‘absolute’ (i.e. access to income only, and not capital), or it can have some ‘residual capital’ reserved (i.e. access to income, and access to part of the capital at the discretion of the trustee).

 

  • Can a testamentary trust be established after the date of death?

Assume the deceased left all the assets under the will directly to his or her spouse. In this situation, the spouse could establish a trust (within three years from the date of death of the deceased) and transfer all or part of the estate into the trust. The children, as beneficiaries, would be able to take advantage of the “normal adult” tax rates.

The disadvantage of creating the trust after the date of death is that any remaining capital of the trust must actually pass to the children when they attain, age 18, whereas if the testamentary trust is established under the will of the deceased directly, then the capital does not need to pass to the children.

 

Capital Gains Tax: gifts under will

During their lifetime, individuals, whether resident or non-resident of Australia, are entitled to a deduction from assessable income for gifts or money or property of $2 or more to approved bodies, as specified by the Commissioner.  However, if assets are gifted under a will to a tax-advantaged entity, a CGT event is triggered to give rise to a capital gain, being the market value of the asset at death, less its cost base.

Some exemptions apply: “a capital gain or capital loss made from a testamentary gift of property under the Cultural Bequests Program, or that would have been deductible if it had not been a testamentary gift, is disregarded.”

Generally, it may be better to gift cash and leave assets to other beneficiaries, or gift the asset during the lifetime of the deceased. Stamp duty should be considered when assets are transferred.

 

Pay for proper advice

One of my biggest issues in this area is a reluctance to pay for proper advice. Estate Planning is a very complex area and you should have your will prepared by appropriately qualified professionals. Over the years I have seen plenty of poorly drafted wills which simply do not achieve what was desired. Allworths work together with a number of great solicitors and lawyers who can provide the proper advice.

 


 

The advice in this newsletter is intended to be general in nature and does not take into account your personal circumstances. Before completing any of the strategies discussed we recommend you speak to your licenced financial advisor or solicitor.

Allworths Wealth Management Pty Limited (AFSL 457155) is the Wealth Management arm of Allworths Chartered Accountants. For further information please contact us on (02) 9264 6733 or email: allworths@allworths.com.au

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How and when to engage people (part 2) – guest author Jo Hanlon

2017 August 17 by

Eeny, meeny, miny, moe: getting that job done how and when you need it (part 2)

With thanks to our guest contributor: Jo Hanlon of  Mind Your Ps, our go-to HR experts


 

Outsourced workers or labour hire resources – one off or repeat service provision

Outsourced workers are those who are generally employed by another employer and are subcontracted to work for your company to do a particular job or role on a short or longer term basis.

The legal relationship generally exists between the worker’s own employer which may be their own company or a labour hire company and the firm who is subcontracting the services of the worker or groups of workers.

Their direct employer manages the worker’s employment contract terms and conditions and pays them directly. This model is great for companies who need to cover seasonal or cyclical workload peaks and troughs as well as upscale or downscale work teams in a short time frame.

These workers may be subcontracted to work full time, part time or casually and their employer invoices you a pre-agreed hourly rate or set fee under an umbrella contract which covers the terms and conditions to which you agree for accessing their workforce. A buyout fee may apply if you want to take the worker on directly at some point.

A number of firms also outsource their work internationally, which can work well if the jobs are compliance-based and repetitive and can easily be done online using job specific platforms. Be clear on the processes you need to follow to manage any work quality and performance issues however, because if the workers work regularly for you and have been engaged specifically by their employer to do your outsourced work, they may have similar entitlements to locally based employees such as performance management processes, notice periods and even redundancy entitlements.

 

Online labour hire or worker engagement markets

A newer model of engaging workers that is fast gaining popularity is the model that allows you to locate and engage casual or freelance workers to do a one off task or job. This engagement is usually for a set or pre-negotiated fee and is done via an online platform or app such as Airtasker, Workfast, Uber, Guru or elance. These apps or portals allow you to enter the details of what type or work you need done or what type of worker you are looking for. The workers who are registered online via this portal may be prompted or alerted immediately and they apply or bid for the opportunity to complete your job. These platforms cover a wide variety of services, from one-off gardening, a move-in/move-out clean, shopping delivery, furniture assembly, ride-sharing and parcel delivery, to a complete website build, ghost writing, graphic design, completion of a marketing or business plan or a translation task.

 

freelance

 

The terms of engagement, insurance coverage, guarantee and payment transaction is generally managed online depending on the registration process you go through and agree to when engaging with the online marketplace and will differ depending on the platform’s relationship structure. Going through this process generally eliminates the need for any detailed or prolonged interaction between you and the person selling their time or services if not needed, and depending on the service provided are often pre-vetted for security and capability. Being able to rate the quality, timeliness and value of the services provided means the worker’s quality becomes self-managed and, as the ability to give feedback works both ways, so be sure to treat your freelancers well and pay up as agreed too.

One of the limitations in accessing these services, if onsite assistance is needed, may be your location, but as with any economic model, demand will ultimately influence supply, and who knows, maybe it’ll prove to be a way to keep more people working sustainably in regional areas.

Other business resourcing models which are equally as valuable at different levels of the organisation are; consultants, coaches, mentors, advisory and/or governance boards, depending on what assistance or guidance is needed.

So, as you can see, there are many options for you to choose from in getting that job done when and how you need. It may be just a matter of thinking outside your familiar worker model, knowing what skills you need and looking for the best matching solution. Be sure to ask your accountant, IR specialist or other trusted advisor if help and input is needed… Eeny, meeny, miny, moe…

 

Refer back to part 1 of this article here.

Learn more about Jo at her website.

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How and when to engage people (part 1) – guest author Jo Hanlon

2017 August 17 by

Eeny, meeny, miny, moe: getting that job done how and when you need it (part 1)

With thanks to our guest contributor: Jo Hanlon of  Mind Your Ps, our go-to HR experts


 

Many business owners or managers are put off from engaging people to do work for them because they still think they have to employ someone full-time; all they can see are the real or perceived issues and complications that can come with that type of engagement model.

Increasingly, there are a larger variety of models to use in engaging someone to assist you with getting a job, task or project done on a one off, short term, medium term or long(er) term basis which may be a better choice.

A number of options include:

 

Employees

 

  • Full time employee – a person who is appointed (as an employee) to work 38 hours per week or an average of 152 hours per 4 weeks.
  • Part time employee – a person who is appointed (as an employee) to work a pattern of regular hours amounting to less than 38 hours per week or an average of 152 hours per 4-week cycle.
  • Casual employee – a person who is appointed to work only as and when they are needed, possibly in a regular pattern of work, or intermittently (e.g. 38 hours one week and 0 the next), depending on the needs of their employer, which may be in response to one off, cyclical or seasonal demands.

 

employer

 

Be aware that under many modern awards, casual employees or even labour hire workers who work a regular pattern of hours over a 6 (or 12) month period may be required to be offered a permanent role by the employer. The casual worker does not have to accept the offer but, for compliance reasons, it may be required to be offered. In any case, if this is a requirement, it is advisable to document and file the offer and acceptance (or refusal) in writing. Also, most awards state a minimum shift length or payment  amount in lieu of work for casual workers performing a shift of 2, 3 or 4 hours.

All Australian-based employees have a number of rights and entitlements, including: minimum pay rates by classification level and/or age, a set amount of paid or unpaid leave, various allowances, a superannuation payment guarantee, penalty rates and termination or redundancy notice period. These entitlements are set according to Fair Work, federal or state-based employment legislation and/or the appropriate industrial instrument or enterprise agreement if they are covered by one. Please refer to the appropriate legislation, award, agreement, Fair Work Information Statement or Fair Work Act 2009 for further details.

Increasingly, ignorance of an employee’s rights by their employer is proving to be no defence in a court of law. For those that read such media releases, if, when an audit is done by the ATO or other compliance agency and shortfalls in payments of rights and entitlements to staff are discovered, you will be aware that substantial back payments plus substantial fines may apply.

 

Contractors

Contractors are not generally considered employees but are workers or specialists who are contracted by an entity to work for a period of time and/or to complete a specific project or piece of work.

There are a number of conditions which need to be met before a contractor can be considered a true contractor, as determined by the ATO, which include: use of their own equipment to undertake the job, being legally responsible for the commercial risk of their own work and footing the cost of rectifying any errors, freedom over how the job is completed subject to the terms of the contract, being able to sub-contract the work, basis of how the job is paid, and being independent of your business, i.e.: being able to take on other clients.

A number of employers have tried to use this type of worker engagement model as a way of avoiding fulfilling the legal obligations they normally have towards an employee, so be clear you are meeting the requirements of engaging a true contractor or you also may be up for additional fines and costs.

Different types of contractors include:

 

  • Fixed term contractor – this type of worker is normally contracted to undertake work for a set period of time which may be a number of days, weeks or months.
  • Maximum term contractor –the contractor is contracted for a maximum term i.e. for up to a maximum of X months from the date of signing or commencing the contract.

 

The longer the term of any contract relationship is in play, and the more full time hours the contractor works for an entity, especially if the contract is extended for a further term or there is scope creep, the more likely it is that a court would have a view the contractor will be entitled to all the rights and entitlements of an employee in relation to conditions such as: unfair dismissal, paid leave, superannuation payments and parental leave entitlements, especially if the contractor does not stick to the conditions listed above. To avoid these pitfalls, it is highly recommended you check with your accountant, employment lawyer or an IR expert if you are not sure what type of worker you need…

 

See part 2 of this article here.

Learn more about Jo at her website.

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News wrap-up: taxing trusts as companies; new tax rules from July 1

2017 August 16 by

New rules in force from 1 July 2017

 

  • From 1 July 2017, there has been an effective reduction in the top marginal rate of tax for those with taxable incomes over $180,000, from 49% to 47%, with the removal of the 2% Temporary Budget Repair Levy.
  • The 27.5% tax rate for companies carrying on small businesses is now available to companies within groups with an annual turnover of less than $25M. Eligible companies are those conducting an active trading business (i.e. not investment companies). This turnover threshold has been increased from the $10M limit applicable for the 2017 financial year. Note: access to the small business capital gains tax concessions is still limited to a $2M turnover threshold where applicable. The tax rate remains at 30% for other companies. The maximum franking credits that can be attached to dividends for companies carrying on small businesses is only 27.5%.
  • Small businesses with a group turnover of less than $10M continue to have access to the concessional tax depreciation rules, including immediate deductions for eligible assets costing less than $20K up to 30 June 2018.
  • Superannuation concessional contribution caps (maximum annual deductible amounts) have been reduced to $25,000 for all taxpayers regardless of age. This cap will be indexed periodically going forward.
  • The 10% assessable income test has been abolished from 1 July 2017. This means that employees no longer need to have salary sacrifice arrangements in place to make additional deductible superannuation contributions in excess of their 9.5% compulsory employer super contributions. From 1 July, employees can make personal tax deductible super contributions at any time they like during the financial year. The $25,000 cap on deductible contributions still applies however, so the total of both personal and employer deductible contributions is limited to $25,000 for each financial year. The work test will continue to apply to require those over 65 to work at least 40 hours in a 3- day period during the financial year to be eligible to make personal super contributions. Finally, if you are aged 75 years or older, you cannot make personal super contributions.

Please contact us if you have any questions in relation to the above changes and how they may affect you.

 

tax

 

Labor proposal to tax trusts as companies

 

Opposition leader Bill Shorten recently announced plans to tax distributions from family trusts at 30%.

As usual, the argument of ‘fairness’ has been put forward to justify the proposal to restrict the splitting of business and investment income to beneficiaries with a low tax rate. Leaving aside the question of fairness, there are many potential issues in relation to this proposal, which have not yet been addressed by Labor, including the following:

 

  • The fact that income splitting of business and investment income is currently possible not only using trusts but also using companies with different classes of shares with distinct rights to dividends;
  • Under the dividend imputation system, if a trust was to pay tax at 30%, then the franking credit would be expected to be passed on to the beneficiaries receiving the distribution. If their personal overall tax rate was less than 30%, under the imputation rules, they would be entitled to a refund of tax credits. As a result, their effective tax rate would be no different to that applicable if they had received a trust distribution under the current rules.

In summary, it is difficult to see how the proposal will achieve its desired objective of an increased tax burden on family trust beneficiaries without significant changes to the dividend imputation rules. Perhaps the devil will be in the detail if this proposal is ever passed into law.

 

budget

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Our New Financial Year Resolutions

2017 July 20 by

The new financial year is well and truly here. Bleary-eyed accountants everywhere have emerged from their cubicles to a sunny Sydney winter. It’s a great time to think about what the year ahead will bring. Although new year resolutions are usually made around January, and usually focus on kale consumption or yoga attendance, we’ve taken this opportunity to think about our own priorities over the coming 12 months…

goals

Having given this some thought over the past couple of weeks, we’ve come up with a short list of resolutions that we are actively addressing this year:

 

New Premises

After 17 years at 31 Market Street, we have been on the lookout for new office premises in Sydney. By the end of this year, we hope to be up and running in our new home. Watch this space.

 

Brand

A new space requires a new look. We’re working on a refreshed brand and website to better represent what we do and stand for. By the time we open the doors to our new office, we’ll have some brand-new letterheads and cards to hand out.

 

Communication

Of course, in 2017, it’s not so much about letterheads and cards anymore. We will be keeping up our new monthly digital newsletters and upping our social media game to better communicate with clients and followers. We even tried our hand at video production recently and might be gracing your screens with our awkward performances before too long.

 

Upskilling

Although we’ve held our own Australian Financial Services Licence (AFSL) for a while now, we’ve been upskilling in key areas of wealth advisory, including investment and retirement planning, to better assist our clients who have been making more money than plans! We’ve always enjoyed helping others create and protect wealth and this year plan on doing much more in this area.

 

Towards Paperless

We’re continuing to reduce our reliance on paper, not just for the environmental benefit, but also for the convenience of our clients. Our increased use of Xero and the electronic signature tool DocuSign (both of which offer our clients significant benefits) are two recent examples of our ongoing progress towards a paperless business.

 

In short, things are looking up. We’re actually very excited about some of the major changes we have on the cards over the next twelve months! Unlike many a weight-loss plan of years gone by, we are determined to see them through and build a stronger business for our team and clients.

 

Let us know if you have any FY2018 resolutions of your own, especially if we can assist you in their achievement!

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