Meet Chartered Accountant – Nevan Sinnott

I am a Chartered Accountant with over 20 years experience and I have now been with the South Morang Office of RJ Sanderson and Associates for 10 months.


I am able to assist clients with all their Individual and Business needs and enjoy partnering with business owners to support them in achieving their business and personal goals.

I am available to consult with you wherever is convenient to you, whether that it is at your office or home, at our office, over the phone or via Zoom or Skype.

My contact details are as follows:
E-mail: nevan@rjsanderson.com.au
Phone: 03 9437 6633

Small Business Ventilation Program

The Small Business Ventilation Program is now open. The Victorian Government is providing $60 million for public-facing small businesses to improve ventilation.

This support has been designed to help businesses implement new guidance on building ventilation to reduce the risk of spreading COVID 19 and to keep customers COVIDSafe. The Small Business Ventilation Guide is also available, which provides simple tips to help businesses improve ventilation.

Eligible businesses can now apply for funding to invest in equipment, undertake works or engage professional services to improve ventilation in areas of the workplace that are accessible to customers.
Under the program, 2 types of support are available:

Applications are open until 11:59pm Friday 24 June 2022, or until funds are exhausted.

Get expert advice

There are different support grants from the government to your business that might be eligible for. If you need help with your grant application, we can assist. We can help you confirm your eligibility for assistance, prepare your funding application, or simply give you advice. We’ll take care of you.

We’re here to support you. If you have questions, contact us here to book a catch up with an RJ Sanderson professional.

This article is published by R J Sanderson and Associates Pty Ltd ABN 71 060 299 783. This article contains general information only and is not intended to represent specific personal advice (Accounting, taxation, financial or credit). No individual personal circumstances have been taken into consideration for the preparation of this material. It is recommended that you obtain your own personal professional advice before making any financial or business decision.

Christmas Parties & Gifts – What can I claim?

It’s the time of the year again!

For business owners, this is when you’re starting to think about Christmas parties and office celebrations. It’s also the time to say thank you to your staff for another year of hard work. But it’s also worth knowing what you can claim and what you can’t.

Fringe Benefits Tax

At Christmas time, additional benefits are typically provided to employees and clients in the form of entertainment and gifts. Businesses do not always understand the Fringe Benefits Tax (FBT) implications of providing such benefits. When these implications aren’t understood, it can result in significant and avoidable costs to businesses.

The two examples below illustrate the importance for businesses to understand the FBT implications before providing benefits to employees.

Example 1: Gift cards provided by an employer

Company A and Company B have 100 employees each. Both businesses provide their employees with a gift card at Christmas time. Company A provided gift cards at a value of $250, and Company B provided gift cards at a value of $300. There were no additional administration fees or charges associated with the gift cards.

Company A

On the basis that the value of each gift card is under $300 and it is provided once a year, this benefit qualifies for the minor, irregular and infrequent exemption from FBT. Accordingly, all gift cards provided to employees would be exempt from FBT.

Company B

On the basis that the value of each gift card is equal to $300 (i.e. not under $300), FBT will be payable on the total value of gift cards.

The calculation of the total cost to each business is outlined below.

Company ACompany B
Number of gift cards provided100100
Value of each gift card$250$300
Total$25,000$30,000
FBT$0$26,604*
Total cost to the business$25,000$56,604

*The FBT calculation is as follows: $30,000 * 1.8868 * 47% = $26,604. Generally, gift cards are not subject to GST and therefore, the Type 2 gross up rate is applied.

As detailed in the example above, FBT nearly doubles Company B’s cost of providing the Christmas gifts.

Example 2: Christmas Party

Company A and Company B invited their employees to their respective annual Christmas parties held at reception venues (off business premises). Both Companies used an external event management provider. In both instances, transport to the venue from the office was organised for employees. The respective Christmas parties were attended by 100 employees.

Company A received an invoice from its event management provider with the following  breakdown of costs:

Food and drinks$20,000
Entertainment$5,000
Transport to the venue from the office$2,000
Management fee charged by event manager$4,000
Total$31,000

Company B received an invoice from its event management provider for the total cost of the Christmas Party, being $31,000 (inclusive of GST). No breakdown of costs was provided by the event management company.

Company A

In determining the taxable value of Company A’s Christmas Party for FBT purposes, it needs to consider the cost of all benefits provided to employees, including Food and Drink, Entertainment and Transport. The management fee charged by the event management company is not considered to be a benefit provided to the employees, so it is not included in the taxable value. On this basis, the per head cost of the Christmas Party is $270 (i.e. ($20,000 + $5,000 + $2,000)/100).

Given the cost per person is under $300, and the benefit is provided once a year, Company A’s Christmas party qualifies for the minor, infrequent and irregular exemption, and will not attract FBT.

Company B

As Company B was not provided with a breakdown of costs for the Christmas Party, the total value of the invoice becomes the taxable value for FBT purposes. Accordingly, the cost per person is $310. As the cost per person is greater than $300, the minor benefit exemption does not apply, and the benefit is subject to FBT in full.

The calculation of the total cost to each business is outlined below.

Company ACompany B
Food and drinks*$20,000
Entertainment*$5,000
Transport to the venue*$2,000
Management fee$4,000
Total costs$31,000$31,000
Costs subject to FBT$27,000$31,000
Number of employees attended100100
Cost per person$270$310
FBT$0$30,309**
Total cost to the business$31,000$61,309***
*Costs subject to FBT.
** The FBT calculation is as follows: $31,000 * 2.0802 * 47% = $30,309. Christmas party costs are subject to GST, therefore, the Type 1 gross up rate is applied.
*** The above calculations assume that the Actual Method for valuing meal entertainment is used. In some circumstances it might be more advantageous to use the 50/50 Split method. However, business’ total annual meal entertainment expenditure has to be considered in order to determine which valuation method produces the lowest taxable value.

As demonstrated above, FBT essentially doubles the cost of Company B’s Christmas party, highlighting the importance of understanding the FBT rules and its implications when providing various benefits to employees. With proper planning, costs can be significantly reduced particularly where benefits are exempted from FBT.

To help you identify and analyse your entertainment expenditure, we have provided some notes on the FBT, GST Input Tax Credits (GST ITC) and income tax deductibility implications associated with festive season celebrations.

Giving gifts to clients and employees

The table below summarises the tax treatment of gifts provided to clients and employees (or their associates).

Gifts

RecepientGifts – Not Entertainment
(e.g. hamper, bottle of wine)
Gifts – Entertainment*
(e.g. movie/theatre tickets, restaurant voucher)
ClientNo FBT
Deductible
GST ITC available
No FBT
Not deductible
No GST ITC
Employee or Associate
(e.g. Spouse/ Partner/ Family Member)
<$300 (GST incl)$300 or more
(GST incl)
<$300
(GST incl)
$300 or more
(GST incl)
No FBT
Deductible
GST ITC available
Subject to FBT
Deductible
GST ITC available
No FBT
Not deductible
No GST ITC
Subject to FBT
Deductible
GST ITC available
*This assumes the entertainment is not meal entertainment or if it is meal entertainment, that the actual method is used. If the entertainment constitutes meal entertainment and the 50/50 split method or register method are used, the costs must be included as per the method requirements. Please note that the application of the minor benefits rule is limited for income tax exempt businesses in relation entertainment benefits.

Christmas parties/year-end functions

The correct tax treatment of costs associated with Christmas functions can be confusing as it depends on whether the employer is concessionally taxed for FBT and income tax purposes, and the method chosen by the employer to value meal entertainment for FBT purposes (there are three methods: 50/50 split, actual or register) and whether benefits are provided to employees, associates or clients.

The table below summarises the treatment for an ordinary business taxpayer (i.e. it does not apply to income tax exempt businesses). To allow the calculation to be made accurately and be substantiated in the event of a tax office audit, taxpayers need to keep all necessary documentation on file such as attendance lists and receipts.

Entertainment costs (e.g. Christmas party costs) are only tax deductible, and GST ITC are only available to the extent that the costs are subject to FBT. Where event costs are exempt from FBT, there should be no income tax deduction nor any GST ITC entitlement.

Actual Method50/50 Split MethodRegister Method
Employee or AssociateEmployee, Associate, ClientEmployee, Associate, Client
Under $300

Entertainment Function
< $300 per head (GST inclusive)
on or off business premises
Minor Benefit for employee and associate costs – exempt from FBT.
Not deductible.
No GST ITC.
Include all GST inclusive costs. 50% subject to FBT and 50% exempt. The portion subject to FBT is deductible.
GST ITC available.
Include all GST inclusive costs. Register percentage subject to FBT is deductible.
GST ITC available.
Client
No FBT on client costs.
Not deductible.
No GST ITC.
The portion of costs not subject to FBT is not deductible.
No GST ITC.
The portion of costs not included for FBT is not deductible.
No GST ITC.
EmployeeEmployee, Associate, ClientEmployee, Associate, Client
Over $300

Entertainment Function
< = or > $300 per head (GST inclusive)
on business premises
Exempt Benefit for employee costs, no FBT.
Not deductible.
No GST ITC.
Include all GST inclusive costs.
50% subject to FBT and 50% exempt.
Include all GST inclusive costs.
Associate
FBT is payable on associate costs and is deductible.
GST ITC available.
The portion subject to FBT is deductible.
GST ITC available.
Register percentage subject to FBT is deductible.
GST ITC available.
Client
No FBT on client costs.
Not deductible.
No GST ITC.
The portion of costs not subject to FBT is not deductible.
No GST ITC.
The portion of costs not subject to FBT is not deductible.
No GST ITC.
Employee and AssociateEmployee, Associate, ClientEmployee, Associate, Client
Over $300

Entertainment Function
= or > $300 per head off business premises
Employee and associate costs are subject to FBT.
Deductible.
GST ITC available.
Include all GST inclusive costs.
50% subject to FBT and 50% exempt.
The portion subject to FBT is deductible.
GST ITC available.
Include all GST inclusive costs.
Register percentage subject to FBT is deductible.
Client
No FBT on client costs.
Not deductible.
No GST ITC.
The portion of costs not subject to FBT is not deductible.
No GST ITC.
The portion of costs not subject to FBT is not deductible.
No GST ITC.
*This assumes the entertainment is not meal entertainment or if it is meal entertainment, that the actual method is used. If the entertainment constitutes meal entertainment and the 50/50 split method or register method are used, the costs must be included as per the method requirements. Please note that the application of the minor benefits rule is limited for income tax exempt businesses in relation entertainment benefits.

The tax treatment for income tax exempt employers

The FBT treatment of entertainment costs for income tax exempt employers (who are taxable for FBT purposes) is similar to that of an income tax paying employer where the 50/50 split or register methods are chosen. However, where the actual method is used, FBT is generally payable on costs relating to the employee and any associate(s) regardless of the cost or location of the function (i.e. the minor benefit and food and drink consumed on premises exemptions are not available to income tax exempt employers). Under this method, the costs relating to the entertainment of clients should be exempt from FBT.

RJS recommendations

We recommend businesses take the following steps:

  • Consider the type of entertainment benefits to be provided to employees. Is there any scope to do things differently for a better FBT outcome?
  • Where applicable, ensure that internal communication takes place between various parts of the business (for example, human resources and finance teams) before fringe benefits are provided to employees.
  • Consider the FBT implications of providing benefits and relevant record-keeping requirements; and
  • If you are unsure, please contact a member of our employment taxes team before providing employee benefits to discuss various options and ensure that benefits are provided in the most efficient manner from an FBT perspective.

This article is published by R J Sanderson and Associates Pty Ltd ABN 71 060 299 783. This article contains general information only and is not intended to represent specific personal advice (Accounting, taxation, financial or credit). No individual personal circumstances have been taken into consideration for the preparation of this material. It is recommended that you obtain your own personal professional advice before making any financial or business decision.

More SMEs are seeking business advice from their accountant

Research said more SMEs are now seeking business advice from their accountant and consider them as their most trusted adviser.

The proportion of small and medium enterprises (SMEs) that seek business advice from their accountant is rising, according to the latest SME Growth Index research by ScotPac.

Business owners are still most likely to turn to colleagues, suppliers or trading partners for advice, the research found. Obtaining advice from those unqualified, unfortunately tends to have inherent risk associated with it.

Despite the tendencies for small to medium businesses to seek advice from colleagues, suppliers or trading partners, the number of SMEs who consider their accountant as their most trusted adviser is on the rise. In fact, the demand for accountants has increased by 22% since 2015.

Upward trend ‘reassuring’

“A potential concern,” says the research report, “is that SMEs’ business strategy could be adversely affected by relying on [unqualified advisors].”

“So it’s reassuring that, while starting from a low base…accountants are trending upwards as most trusted advisor.”
In 2015 accountants were listed as key trusted advisor by 9% of SMEs, in 2017 by 9.3%, and in 2021 by 11.2%.

Influence of COVID-19 pandemic

More Australians relying to accountants to seek business advice is partly due to the extra reliance businesses have placed on their accountant during the COVID-19 pandemic, especially with regard to government grants and support.

In a separate question about how SMEs deal with cashflow issues, almost one in five SMEs (18.6%) chose to get on the front foot by applying pandemic recovery advice from their accountant.

“This external advice from accountants, bookkeepers, brokers and the like, has no doubt been crucial to the four out of 10 SMEs who say they have restructured in the past 12 months.

“It is also notable that the key pain points raised by SMEs in this round of research were new taxation imposts (43.7%) and supply chain disruptions (26.7%) — problems that mostly require external professional advice if they are to be successfully navigated.”

Growth vs non-growth businesses

Significantly, ScotPac’s research found growing businesses are almost twice as likely to have an accountant as their main trusted advisor compared to no-growth SMEs (14% versus 8.3%).

Similarly, no-growth SMEs were almost twice as likely to rely on a family member for advice compared to their growing counterparts (7.7% versus 4.3%).

Get expert business advice

One of the common misconceptions about accountants is that they’re just number-crunchers who only do taxes.
We have the qualifications and commercial experience to be your trusted business advisor.

We can help your business overcome its challenges, identify new opportunities, manage risks, and improve its profitability.

We’re here to support you. If you have questions, contact us here to book a catch up with an RJ Sanderson professional.

Debtor finance lender ScotPac’s SME Growth Index is Australia’s longest-running in-depth research on small business growth prospects. The September 2021 round surveyed the owners, CEOs or senior financial staff of 1255 SMEs (turnover of $1 million to $20 million) in a range of industries across Australia.

This article is published by R J Sanderson and Associates Pty Ltd ABN 71 060 299 783. This article contains general information only and is not intended to represent specific personal advice (Accounting, taxation, financial or credit). No individual personal circumstances have been taken into consideration for the preparation of this material. It is recommended that you obtain your own personal professional advice before making any financial or business decision.

Separating couples to get easier access to partner’s super details

New laws to make it easier for divorcing couples to access partner’s super details

Couples going through divorce proceedings will be able to access their partner’s superannuation information more easily in future.

From 1 April 2022 the Australian Taxation Office (ATO) will be able to release this information to a family law court.

If one of the divorcing parties believes the other is not being forthcoming about the value of their super assets, they’ll be able to apply to the court to have the information disclosed.

Previously, unless the information was willingly supplied, it had to be obtained through expensive and time-consuming subpoenas or court orders.

In making it easier to access super information, the new laws will reduce the risk of a partner under-reporting their super and getting away with it.

This is especially important to women who — because they do most of the caring for children and thus work less than men — retire with around 42% less super than men.

What happens to super in a divorce?

In a divorce, super is treated like any other asset and included in the division of assets in a property settlement or financial agreement.

There are generally three ways of dealing with super benefits on separation, namely:

  • Payment split — the spouse who is a member of a fund has part of their super benefit paid to the non-member, ex-spouse.
  • Payment flagging — the super benefit is paid to the non-member, ex-spouse when a future event occurs (e.g. they retire).
  • No split or flag — the super benefit remains untouched, with the non-member, ex-spouse being given non-superannuation assets of the relationship instead.

If a superannuation account is split, the funds are often rolled over or transferred into the receiving spouse’s super account and remain there until they’re legally allowed to access it.

The funds retain the taxable and tax-free components of the account from which the funds are being transferred.

Self-managed super funds

If the super is held in an SMSF, there are extra considerations, especially if, as is often the case, the divorcing couple are trustees of the same two-member SMSF.

Unsurprisingly, it’s common for one member to step down from the SMSF when they divorce.

While an SMSF cannot normally acquire assets such as residential property from a related party, it can when the acquisition stems from a marriage breakdown.

In this case, the rules allow an in-specie rollover under a court order or financial agreement,  saving the former couple from being forced to sell the property.

The spouse to whom the property is transferred does not have to pay any capital gains tax on it.

Get expert advice

If you and your spouse are contemplating divorce and you’d like some advice on your finances, including how best to deal with your super upon separation, we can help.

Contact us for a complimentary consultation at info@rjswm.com.au or on (03) 9794 0010.

For more information on our services, CLICK HERE.

This blog has been prepared by RJS Wealth Management Pty. Ltd. ABN 24 156 207 126. RJS Wealth Management Pty. Ltd. is a Corporate Authorised Representative (No. 438158) of Modoras Pty. Ltd. ABN 86 068 034 908 an Australian Financial Services and Credit Licensee (Number 233209). The information and opinions contained in this blog is general information only and is not intended to represent specific personal advice (Accounting, taxation, financial, insurance or credit). No individual’s personal circumstances have been taken into consideration for the preparation of this material. Any individual making a decision to buy, sell or hold any particular financial product should make their own assessment taking into account their own particular circumstances. The information and opinions herein do not constitute any recommendation to purchase, sell or hold any particular financial product. Modoras Pty Ltd recommends that no financial product or financial service be acquired or disposed of or financial strategy adopted without you first obtaining professional personal financial advice suitable and appropriate to your own personal needs, objectives, goals and circumstances. Information, forecasts and opinions contained in this blog can change without notice. Modoras Pty. Ltd. does not guarantee the accuracy of the information at any particular time. Although care has been exercised in compiling the information contained within, Modoras Pty. Ltd. does not warrant that the articles within are free from errors, inaccuracies or omissions. To the extent permissible by law, neither Modoras Pty. Ltd. nor its employees, representatives or agents (including associated and affiliated companies) accept liability for loss or damages incurred as a result of a person acting in reliance of this publication.

Reprieve extended for SMSFs that give or receive COVID relief

ATO to continue to go easy on SMSFs that provide or accept relief due to COVID-19

The Australian Taxation Office has extended the reprieve for SMSFs who effectively break SMSF laws by giving or receiving COVID-19-related relief.

Due to the virus’s ongoing financial impacts, fund trustees or related parties may still have “to provide or accept certain types of relief, which may give rise to contraventions under the super laws”, the ATO says.

In recognition of this, the ATO says it’ll effectively ignore SMSFs’ failure to comply with those laws in 2021–22.

This compliance relaxation, which applied in 2019–20 and 2020–21, covers the following types of relief:

Rental relief

The rental relief (including rental reductions, waivers and deferrals) must be:

  • offered on commercial terms (having regard to relevant state and territory COVID-19 support measures)
  • properly documented
  • supported by evidence provided to your SMSF’s auditor.

The ATO says a rental deferral offered by the fund or a related party will not cause a loan or investment to be an in-house asset in the current and future financial years.

Loan repayment relief

The loan repayment relief must be:

  • offered on commercial terms (having regard to the terms or relief offered by commercial lenders)
  • properly documented
  • supported by evidence provided to your SMSF’s auditor.

If the SMSF has a limited recourse borrowing arrangement in place with a related party and the lender offers loan-repayment relief, the ATO says it will accept that the parties are dealing with each other at arm’s length.

In other words, the repayments will not be treated as non-arm’s length income (NALI) and taxed at the maximum rate of 45%.

In-house asset relief

Funds that exceeded the 5% in-house asset threshold at 30 June 2021 must prepare a written plan to reduce the market value of the fund’s in-house assets to below 5% by 30 June 2022.

That said, the ATO will not punish any breaches — for example, if markets don’t recover and the plan can’t be executed; or if markets recover and the plan turns out to be unnecessary.

SMSF residency relief

If SMSF members are stranded overseas due to COVID-19 for more than two years, their fund is at risk of breaching the SMSF residency rules.

However, the ATO says it will not investigate any breaches, “provided there are no other changes in the SMSF or your circumstances affecting the other residency conditions”.

Get expert advice

The right investment strategy is one that moves you toward your lifestyle potential without losing sleep at night. Let an RJS Strategic Wealth Panner guide you to a strategy that will meet your goals.

Contact us for a complimentary consultation at info@rjswm.com.au or on (03) 9794 0010.

For more information on our services, CLICK HERE.

This blog has been prepared by RJS Wealth Management Pty. Ltd. ABN 24 156 207 126. RJS Wealth Management Pty. Ltd. is a Corporate Authorised Representative (No. 438158) of Modoras Pty. Ltd. ABN 86 068 034 908 an Australian Financial Services and Credit Licensee (Number 233209). The information and opinions contained in this blog is general information only and is not intended to represent specific personal advice (Accounting, taxation, financial, insurance or credit). No individual’s personal circumstances have been taken into consideration for the preparation of this material. Any individual making a decision to buy, sell or hold any particular financial product should make their own assessment taking into account their own particular circumstances. The information and opinions herein do not constitute any recommendation to purchase, sell or hold any particular financial product. Modoras Pty Ltd recommends that no financial product or financial service be acquired or disposed of or financial strategy adopted without you first obtaining professional personal financial advice suitable and appropriate to your own personal needs, objectives, goals and circumstances. Information, forecasts and opinions contained in this blog can change without notice. Modoras Pty. Ltd. does not guarantee the accuracy of the information at any particular time. Although care has been exercised in compiling the information contained within, Modoras Pty. Ltd. does not warrant that the articles within are free from errors, inaccuracies or omissions. To the extent permissible by law, neither Modoras Pty. Ltd. nor its employees, representatives or agents (including associated and affiliated companies) accept liability for loss or damages incurred as a result of a person acting in reliance of this publication.

SMSF non-arm’s length income (NALI) and expenses clarified

ATO clarifies ‘nexus’ between SMSF non-arm’s length income and expenses

If you are in a qualified profession or trade, it is important that to be aware of the Australian Taxation Office’s Self-Managed Super Fund (SMSF) rules that may impact you.

Under Australian tax law, all Self-Managed Super Fund (SMSF) dealings must be at ‘arm’s length’.

That is, individuals and entities must deal with each other on a commercial, unrelated-party basis.

Arm’s length dealings help ensure the purchase and sale price of SMSF assets, for example, reflect the fair market value of the assets.

SMSF dealings that result in more income than would be expected in an arm’s length transaction or arrangement is deemed to be non-arm’s length income (NALI).

Examples include a trustee loaning money to their SMSF at 0% interest or leasing commercial premises from their SMSF at above market rates.

NALI is used by some individuals to try to increase their superannuation savings in a way that’s not caught by the super contribution caps and to minimise their tax liability.

The federal government penalises it by taxing the non-arm’s length component of a fund’s income, including any capital gains, at the top marginal rate of 45% (rather than the usual concessional rate of 15%).

ATO clarification

Recently, the Australian Taxation Office (ATO) clarified its interpretation of amendments made to the NALI laws on 2 October 2019 (and which were backdated to 1 July 2018).

Those amendments were designed to ensure that where an SMSF incurs non-arm’s length expenses to earn or produce income, that income is considered NALI.

(These expenses include losses, outgoings and expenditure, and can be of a capital or revenue nature.)

Some SMSF trustees, though, remained unsure about whether services they provide to their fund in their individual capacity, for example, are considered arm’s length.

In late-July the ATO clarified that SMSF income (encompassing ordinary or statutory income, private company dividends, and trust distributions) is NALI where:

…the fund incurred expenses in deriving the income that are less than (including nil expenses) those which the SMSF would otherwise have been expected to incur if the parties were dealing on an arm’s length basis.

Depending on the circumstances, these non-arm’s length expenses can end up ‘tainting’ all of an SMSF’s income, including pension income (if applicable).

Examples of NALI

The ATO clarified its position on the ‘nexus’ between non-arm’s length expenditure and income in a law companion ruling (LCR 2021/2).

The ruling provides more than a dozen examples of when SMSF trustees’ dealings are and are not at arm’s length.

Here’s one of them, involving an SMSF trustee carrying out duties in her individual capacity:

Trang is the trustee of her SMSF and a plumber who runs her own business. She undertakes a complete renovation of the bathroom and kitchen of her SMSF’s investment property, which is rented out at a commercial rate. She schedules time in her work calendar to undertake the work and uses the tools of her trade to undertake all the plumbing work. Trang does not charge the SMSF for the work undertaken. Because the fund’s (nil) expenditure on the renovation is not at arm’s length, the rental income from the property is subject to the NALI penalty tax rate. And if Trang disposes of the property, any capital gain will also be taxed at 45%.

Here’s one of them, involving a trustee incurring non-arm’s length expenditure to acquire an asset

Trang is the trustee of her SMSF and a plumber who runs her own business. She undertakes a complete renovation of the bathroom and kitchen of her SMSF’s investment property, which is rented out at a commercial rate. She schedules time in her work calendar to undertake the work and uses the tools of her trade to undertake all the plumbing work. Trang does not charge the SMSF for the work undertaken. Because the fund’s (nil) expenditure on the renovation is not at arm’s length, the rental income from the property is subject to the NALI penalty tax rate. And if Trang disposes of the property, any capital gain will also be taxed at 45%.

See all the ATO’s examples

During the 2019–20 income year, Armin sells commercial property to himself (as trustee of his SMSF) for $200,000 — $600,000 less than its market value. The SMSF leases the property to a third party. Because of the non-arm’s length expenditure the fund incurred in acquiring the property, the rental income from the property is subject to the NALI penalty tax rate. And if Armin disposes of the property, any capital gain will also be taxed at 45%.

Commercial-property leases

If you’re leasing your SMSF’s commercial property to a related party, you need to be careful not to fall foul of the NALI laws.

For example, the rent and/or terms of the lease must be commercially sound, be in writing, and the trustees must ensure the related-party tenant complies with the arrangement.

Overcharging to get around contribution limits and boost your fund’s super balance or — if the tenant is struggling financially — undercharging can land you in trouble with the taxman.

Similarly, trustees need to be wary of bringing forward rent as this may inadvertently create a prohibited borrowing by the fund.

Get expert advice

Clearly, given the financial impact of the non-arm’s length provisions, it is possible that if this issue is not considered by auditors then the financial statements of a super fund could be materially misstated.

SMSF auditors may consider requesting trustees issue a representation letter stating if, and how, they have considered the non-arm’s length tax issues when preparing their fund’s financial accounts.

SMSF auditors might also consider stating in their engagement letter, or other method of reporting to trustees, that they have taken the trustees declaration about this issue into account when auditing the fund.

We’re here to support you. If you have questions, contact us here to book a catch up with an RJ Sanderson professional.

This article is published by R J Sanderson and Associates Pty Ltd ABN 71 060 299 783. This article contains general information only and is not intended to represent specific personal advice (Accounting, taxation, financial or credit). No individual personal circumstances have been taken into consideration for the preparation of this material. It is recommended that you obtain your own personal professional advice before making any financial or business decision.

Peter Thornhill’s My Say – No. 69

This one is good news.

I want to cover a couple of topics here so will curtail my verbosity. Let’s begin with another update, the Listed Property Trust index. I had covered yet again in detail in ‘My Say No 63’ so I merely want to confirm the trend.

The chart below says it all but let me remind you that by ignoring LPT’s as part of your portfolio you can harvest a tidy increase in your performance and income. Keep the lead out of the saddle bag.

Return on Invest of $100,000 Dec 1979-2020

I would like you to pay particular attention to the reduction in industrial dividends in 2020 caused by the impact of Covid and I will ask you to return to this chart again soon.

On a happier note, I thought I would allow you to see what a resilient share market looks like. Below is the S&P 500 from the time the second world war broke out to December 2020, noting that the US economy is not reliant on digging stuff out of the ground with materials representing only 2.64% of their index (versus 18.5% in the ASX!).

As some of you may have idle time; consider all the ‘horrifying’ events that have transpired over the last 80 years and take some comfort from the fact that human endeavour does not grind to a halt.  Also notice the resilience of the dividend stream.

Return on Investment of $10,000

No doubt we are facing unpleasant times at present, so I was looking for a little bit of good news and, hey presto I got great news instead. I foreshadowed in My Say No 67 (July) my optimism regarding the forthcoming dividend season in a suitably low-key manner and I quote.

“The next dividend season for the second half of this year kicks off in Aug – Sept and I am reasonably confident that we will see an improvement again. Same old, same old!”

How was I to know the magnitude of the event until this article appeared in this morning’s SMH (16th Sept) and brought a smile to my face.

“If you thought dividends have caused a bit of market turbulence in recent weeks, hold on to your hat. According to Commsec, distributions to investors is about to hit its peak. The broker says ASX 200 companies paid about $5.5 billion in dividends to investors between mid-August and September 17, but the distributions will reach a peak starting next week with more than $15 billion cash handed to investors.
CommSec estimates that more than $41 billion in dividends will be paid in coming weeks compared to just $25.8 billion for the interim reporting season in February and $21.6 billion during the 2020 reporting season. In the February 2020 season, the last season untainted by COVID concerns, it was $27.5 billion. “Some analysts are forecasting record annual dividend growth of around 17 per cent, more than triple the average annual growth rate,” Commsec’s chief economist Craig James said.”

I hope you are there to enjoy the shower coming our way. The only dampener to my joy was remembering my newsletter No 67 referencing the huge foreign ownership of Australian companies. Since most Australians are totally dazzled by gambling on unproductive residential property, too much of that $41 billion will slip away overseas.

However, if I may show my age, that will have no effect on the dollars about to coming raining down on our heads. Refer back to my first chart and consider the leap in the yellow bar we are about to experience.

I wish all subscribers good health and wealth for the future.

Happy to help

If you have any questions regarding anything in this newsletter, or just investing in general, then please drop us a line anytime. We are always more than happy to have a chat.

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Disclaimer: The views expressed on these articles are those of the authors named, and not those of RJS Wealth Management Pty. Ltd, or any of its employees. Past performance is not an indication or guarantee of future performance. The ideal investment vehicle for an investor is dependent on personal outcomes. It is vital to obtain tailored advice specific to your circumstance before taking action. While we try to ensure that the information we provide is correct, mistakes do occur and we cannot always guarantee the accuracy of the material. All comments posted are the responsibility of the poster. Subsequently, RJS Wealth Management Pty. Ltd does not necessarily agree with or endorse any opinions expressed. However, we do maintain the right not to publish comments or to remove them without notice.

This blog has been prepared by RJS Wealth Management Pty. Ltd. ABN 24 156 207 126. RJS Wealth Management Pty. Ltd. is a Corporate Authorised Representative (No. 438158) of Modoras Pty. Ltd. ABN 86 068 034 908 an Australian Financial Services and Credit Licensee (Number 233209). The information and opinions contained in this blog is general information only and is not intended to represent specific personal advice (Accounting, taxation, financial, insurance or credit). No individual’s personal circumstances have been taken into consideration for the preparation of this material. Any individual making a decision to buy, sell or hold any particular financial product should make their own assessment taking into account their own particular circumstances. The information and opinions herein do not constitute any recommendation to purchase, sell or hold any particular financial product. Modoras Pty Ltd recommends that no financial product or financial service be acquired or disposed of or financial strategy adopted without you first obtaining professional personal financial advice suitable and appropriate to your own personal needs, objectives, goals and circumstances. Information, forecasts and opinions contained in this blog can change without notice. Modoras Pty. Ltd. does not guarantee the accuracy of the information at any particular time. Although care has been exercised in compiling the information contained within, Modoras Pty. Ltd. does not warrant that the articles within are free from errors, inaccuracies or omissions. To the extent permissible by law, neither Modoras Pty. Ltd. nor its employees, representatives or agents (including associated and affiliated companies) accept liability for loss or damages incurred as a result of a person acting in reliance of this publication.

Are you losing out on your super

Earlier this month we came across a report on some research by money educator and expert Vanessa Stoykov showing 10% of Australians don’t trust superannuation funds.

While that figure may seem modest, it’s nonetheless concerning.

After all, super is compulsory for most workers and is the vehicle that will fund retirement in many cases. Australians generally have a keen eye on the value of their home, the value of their bank account and investments and the level of their income. However we often see people with their eye off their superannuation.

Equating to over $2.7 trillion in assets owned by over 15 million members, it is certainly possible that an Australian’s superannuation nest egg will be one of the largest assets in their lifetime. And perhaps worth including on the list of assets to actively keep an eye on.

It is certainly possible that Australians’ distrust of super funds stems from the Productivity Commission’s inquiry into superannuation a few years ago. Focused on products and their return, the findings were alarming.

  • Ending up in an underperforming MySuper (default) product = 10 years’ lost pay

Due to the power of compound interest, a worker who ends up in the median bottom-quartile MySuper product would retire with a balance significantly lower than if they were in the median top-quartile product.

Cost to member at retirement: $502,000 or 45% less

.

Losing out on super

  • Paying for an unsuitable insurance policy = 2.5 years’ lost pay

The premiums that come out of members’ accounts erode their retirement balances.

The effects are worse for members on low incomes or who work intermittently, who continue to have premiums deducted from their accounts while not contributing to their super.

Cost to member at retirement: $85,000 or 14% less

  • Being a member of a high-fee fund = 2 years’ lost pay

Australians pay over $30 billion a year in fees on their super (excluding insurance premiums). An increase in fees of just 0.5% can cost a member tens of thousands of dollars.

Cost to member at retirement: $100,000 or 12% less.

  • Unintentionally holding multiple accounts = 1 year’s lost pay

According to the Australian Taxation Office, as at 30 June 2018, about six million Australians held two or more super accounts.

These accounts are created when workers change jobs or industries and don’t close their old account or roll over their existing balance.

These erode members’ balances by $2.6 billion a year in unnecessary fees and insurance.

Cost to member at retirement: $51,000 or 6% less

Interestingly, the superannuation inquiry did focus on what we believe is most important; the lifetime impact of:

  • a default superannuation and fund selection compared to a recommendation from a financial planner that is ideal for an Australian’s financial circumstances, goals, and possibilities;
  • having a set and forget view on superannuation as opposed to the ideal strategy strategically implemented. Crafted for the individual to make the most of this it, and
  • not considering superannuation as a piece of a far bigger financial puzzle which is ultimately designed to create financial security.

“Many members simply default, and rely on their fund to manage their super for them (whether out of trust, a lack of interest or an inability to compare products themselves).”

As a result, rates of switching between funds and products are modest.

Default arrangements are necessary in a compulsory super system to protect members who do not make their own investment decisions.

The downside is that these policy settings have created an ‘unlucky lottery’ for members by failing to ensure they are placed in the most appropriate funds for them.

When you really look at it, it is no wonder 10% of Australians do not trust their super funds.

Financial security is a journey, not an event. If you have kept your eye off your superannuation, are concerned about its performance, or wonder if you will have enough to live a comfortable retirement, get in touch with one of our Strategic Wealth Planners today for some impartial advice on 1300 27 28 29 or book an appointment here.

 

This blog has been prepared by RJS Wealth Management Pty. Ltd. ABN 24 156 207 126. RJS Wealth Management Pty. Ltd. is a Corporate Authorised Representative (No. 438158) of Modoras Pty. Ltd. ABN 86 068 034 908 an Australian Financial Services and Credit Licensee (Number 233209). The information and opinions contained in this blog is general information only and is not intended to represent specific personal advice (Accounting, taxation, financial, insurance or credit). No individual’s personal circumstances have been taken into consideration for the preparation of this material. Any individual making a decision to buy, sell or hold any particular financial product should make their own assessment taking into account their own particular circumstances. The information and opinions herein do not constitute any recommendation to purchase, sell or hold any particular financial product. Modoras Pty Ltd recommends that no financial product or financial service be acquired or disposed of or financial strategy adopted without you first obtaining professional personal financial advice suitable and appropriate to your own personal needs, objectives, goals and circumstances. Information, forecasts and opinions contained in this blog can change without notice. Modoras Pty. Ltd. does not guarantee the accuracy of the information at any particular time. Although care has been exercised in compiling the information contained within, Modoras Pty. Ltd. does not warrant that the articles within are free from errors, inaccuracies or omissions. To the extent permissible by law, neither Modoras Pty. Ltd. nor its employees, representatives or agents (including associated and affiliated companies) accept liability for loss or damages incurred as a result of a person acting in reliance of this publication.