What does the Federal Budget mean for SMSF advice?

Author: Jason Roccasalvo, Partner, TAG Financial Services

Although the Federal Budget was subdued in terms of superannuation announcements, the references to super will create change within the industry.

The announcements centred around responding to the Hayne Royal Commission’s recommendations of improving fund performance and transparency.

How are funds likely to react?

Funds operating a MySuper option (generally industry super funds) will be under pressure to not underperform. This may mean fund Trustees:

  • Take extra investment risk to try to outperform
  • Take a more conservative investment approach so they reduce the chances of a really poor return
  • Ensure their portfolios align with market indexes to ensure they never appear to underperform, but will most certainly never outperform

Some items of note from our vantage point:

  • Industry super funds already hold direct property and infrastructure assets that are not valued by the market – rather by the Trustees, there by distorting real returns
  • Industry super funds may spend less on advertising and political donations once the extent of these expenses is disclosed. These expenses are after-all deducted from the returns of members

Most MySuper options are the standard “balanced” investment option, but what one fund calls “balanced” is different to another.  Industry funds may adjust how they invest within the “balanced” option, which may mean super members end up taking on more or less risk than they intended. We discussed this is our recent Industry Funds blog.

So be careful which fund and investment option you select.  It may be a wolf in sheep’s clothing. 

What does it mean for Self-Managed Super? 

These budget announcements, although insignificant in terms of complex client strategy, will ensure Trustees (including SMSF Trustees) are more accountable for the long-term interest of the members.

The ATO have already been making significant noise about “lazy” Self-Managed Super Funds, i.e. that are inactive, retain large amounts of cash, or hold investments that are underperforming. Expect this to ramp up over coming years.

One of the most common reasons people choose a SMSF is to provide investment control. Taking control and actively managing your retirement wealth means different things to different people. There is no one size fits all in terms of appropriate investment.

Trustees must:

  • Understand their retirement goals – and how they will attempt to achieve them.
  • Be able to articulate and show a plan, to achieve the desired outcome
  • As advisers, we need to ensure trustees treat their investment strategy as more than an “obligation” to satisfy an auditor.

SMSF Trustees have the control – so make sure they take advantage.

As always, if you have any questions, please contact us on 03 9886 0800 or via email.

Disclaimer: The information contained is general in nature. Professional advice should be sought before acting on any aspect on this page. Financial planning services provided by TAG Financial Advisors Pty Ltd (ABN 77 154 205 017 AFSL 415632), a wholly owned subsidiary of TAG Financial Services Pty Ltd (ABN 67 075 374 686).

Superannuation Guarantee Amnesty finishes 7 Sept 2020

Author: Emma Partenza, Manager, TAG Financial Services

Employers wishing to participate in the superannuation guarantee amnesty have until 7th September 2020 to apply to participate. So you need to act now!

As addressed in our earlier blog back in March, this one-off amnesty provides employers an opportunity to disclose and pay all previously unpaid super guarantee charges owing to their employees for any quarters from 1 July 1992 to 31 March 2018.

Superannuation Guarantee Charge (SGC) payments made before the deadline will be tax deductible to your business.

Business already having disclosed unpaid SGC to the ATO have no further requirement to apply again before 7 September 2020. However, business who have yet to come forward to disclose outstanding superannuation guarantee amounts need to do so and must register for the amnesty by 7 September 2020 with the ATO.

Employers taking advantage of the amnesty will benefit from not incurring the administration or penalty components of the SGC shortfall amount for its employees. A huge incentive to ensure superannuation obligations are up to date before the deadline.

The ATO will continue to conduct reviews and audits to identify employers not paying their employees SG. If they identify those employers before they came forward, those businesses would not be eligible for the benefits of the SG amnesty.

Impacted by COVID19?

For businesses impacted by COVID19 and wishing to apply for the SGC amnesty but may be concerned of their ability to pay the outstanding SGC liability are urged to still apply to participate in the amnesty by 7 September 2020.

The ATO have stated they are willing to work with businesses and enter into arrangements to establish flexible payment plans for the business to continue making payments. They could also consider extend payment of SGC liabilities beyond the deadline of 7 September.

Payments of SGC after the deadline will not be tax deductible to the business.

If you have any questions, please contact us on 03 9886 0800 or via email.

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Disclaimer: The information contained is general in nature. Professional advice should be sought before acting on any aspect on this page. Financial planning services provided by TAG Financial Advisors Pty Ltd (ABN 77 154 205 017 AFSL 415632), a wholly owned subsidiary of TAG Financial Services Pty Ltd (ABN 67 075 374 686).

Blog Updated: JobKeeper and Super Strategy Opportunities

Author: Jason Roccosalvo, Partner, TAG Financial Services

Last updated: 24th July 2020

The Federal Government must of read our TAG Super Update because yesterday afternoon they announced an extension of the early release of super program to 31 December 2020. There was no adjustment to the qualifying criteria for this program. Read our updated article below:

Following on from this week’s Federal Government update, let’s consider how COVID 19 continues to impact our super clients.

With JobKeeper here for a while longer, the Federal Government also announced on 23 July the extension of the early release of super program to 31 December 2020. There was no adjustment to the qualifying criteria for this program.

Unsurprisingly, the ATO will use various data matching methods to ensure your clients were actually eligible for the program. As advisers, we should ensure our clients are aware of this criteria.

Whilst times have been tough for many, there are opportunities you can help your clients take advantage of. 

For example, you should consider those of your clients who have reached preservation age. COVID 19 has resulted in many individuals either having their hours reduced, lost their jobs, or been made redundant. For Individuals that have reached their preservation age – early release is a nice temporary measure.  However, a client may be unwittingly triggering conditions of release which could allow for either:

  • Access to some/all of their super as lump sums, or
  • Ability to commence retirement phase income streams.

For  many, this event will be more important in their financial future than the early release jolt of cash, with access to greater amounts of their super, more easily (and frequently) accessible, without the fear of repercussions from “big brother”.

These events may also allow advisers to implement withdrawal and re-contribution strategies as well with clients.

For those with clients who access (or are looking to access) the early release provisions, we should ensure sufficient documentation is retained to provide to the auditor to verify this authority has been given, to maintain the integrity in the system. No doubt, ATO data matching capabilities will be on the lookout for those flaunting these opportunities.

Rent Relief
Again while no extension or changes have been made, it is clear (particularly in Victoria) we will be impacted for a significant period of time. The JobKeeper extension reflects these difficult conditions. Being able to justify/display how any rental relief decision was arrived, particularly with related party tenants, is vital to ensure SIS compliance – as well as business/tenant survival!

Income streams
Consider the impact on the above for clients with large property holdings. While pension minimums are reduced for the 2020/21 year– what will the medium to longer term impact be on asset values (particularly as they are the driver for pension minimums) and also on rental yields.

Loan relief
It is important to remember as well, for those funds with related party loans, that loan terms must be either:

  • Consistent with PCG2016/5, or
  • Document how it is commercial.

With an extension by many banks of loan relief into 2021 – SMSFs should document the agreed relief with the lender (related party), and maintain this documentary evidence for audit purposes.

For more information, call us 03 9886 0800 or email us at super@tagfinancial.com.au.

Learn the latest super strategies and register for our TAG Online Super Seminar SMSF Masterclass. Find out more.

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Disclaimer: The information contained is general in nature. Professional advice should be sought before acting on any aspect on this page. Financial planning services provided by TAG Financial Advisors Pty Ltd (ABN 77 154 205 017 AFSL 415632), a wholly owned subsidiary of TAG Financial Services Pty Ltd (ABN 67 075 374 686). Copyright 2020. Please do not reproduce without the expressed written consent of the author.

Increase in SMSF member numbers – government update

Author: Brenda Hutchinson, Partner, TAG Financial Services

It’s good news that the Federal Government has now announced they are still committed to expanding the allowable members in SMSFs from 4 to 6 members. This change was originally announced in the 2018/2019 Federal Budget with a projected start date of 1 July 2019. The change to the start date is a result of the shortened parliamentary sitting period in 2020 due to COVID-19.

Once this change is legislated, it will provide greater flexibility for large families and enable them to jointly manage their retirement savings

Younger family members will be able to contribute and assist SMSF’s where the majority / largest assets are illiquid (i.e. property) in meeting their ongoing obligations such as pension minimums needed for retired members, and potentially assist in retaining these illiquid assets in superannuation on a member’s death.

Trustees will need to ensure that concerns over control and investment preferences / timeframe are considered and managed. For example, where “mum and dad” are retired, and are suddenly outnumbered as trustees by their 4 children.


For more information, call us 03 9886 0800 or email us at super@tagfinancial.com.au.

Learn the latest super strategies and register for our TAG Online Super Seminar SMSF Masterclass. Find out more.

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Disclaimer: The information contained is general in nature. Professional advice should be sought before acting on any aspect on this page. Financial planning services provided by TAG Financial Advisors Pty Ltd (ABN 77 154 205 017 AFSL 415632), a wholly owned subsidiary of TAG Financial Services Pty Ltd (ABN 67 075 374 686). Copyright 2020. Please do not reproduce without the expressed written consent of the author.

ATO changes interest rates for LRBAs

Author: Jason Roccasalvo, Partner, TAG Financial Services

The ATO has recently updated their interest rates for Limited Recourse Borrowing Arrangements for 2020/21.

These interest rates are for related party loans to an SMSF, for either real property or listed shares/units. The rates are relevant as they form part of the “safe harbour” provisions as advised by the ATO via PCG 2016/5.

 New Rate – 2020/21Old Rate – 2019/20
Real Property5.1%5.94%
Listed Shares/Units7.1%7.94%

What do these updates mean for our clients?

Well, to ensure the loan remains within safe harbour terms, related party loan repayments should now be adjusted to factor the change in interest rate.


Example

The ABC Super Fund has a related party loan with the XYZ Family Trust. On 1 July 2018, the Fund borrowed $700,000, on terms consistent with those outlined in the PCG.

The monthly loan repayments, of principal and interest, would therefore be as follows:

  • For the 2018/19 financial year – $5,831.63 per month (based on the 5.8% rate applicable)
  • For the 2019/20 financial year – $5,904.03 per month (based on the 5.94% rate that was applicable)
  • For the 2020/21 financial year – $5,649.70 per month (based on the new rate of 5.1%)

As the monthly amount has now decreased, clients will not be at risk of failing to meet their obligations by forgetting to make this change. However, for clients who wish to adjust their monthly repayments, we would suggest a loan refinance to ensure it remains compliant with the PCG 2016/5 terms.

Refinance of loans are available, however the amount borrowed and remaining term cannot be altered.

As a reminder, the PCG 2016/5 terms are only for direct property, or listed shares/units. It does not provide safe harbour for unlisted trusts or other investments, irrespective of the underlying assets which exist. In these circumstances, the ATO would expect the SMSF to demonstrate how the loan is commercial (arm’s length) – typically by providing some evidence of a loan offer to the SMSF from an independent body (e.g. bank or lending institution).


For more information, call us on 03 9886 0800 or email us at super@tagfinancial.com.au.

Learn the latest super strategies and more and register for our TAG Online Super Seminar SMSF Masterclass. Find out more.


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Disclaimer: The information contained is general in nature. Professional advice should be sought before acting on any aspect on this page. Financial planning services provided by TAG Financial Advisors Pty Ltd (ABN 77 154 205 017 AFSL 415632), a wholly owned subsidiary of TAG Financial Services Pty Ltd (ABN 67 075 374 686). Copyright 2020. Please do not reproduce without the expressed written consent of the author.

Super Strategy Series Part 5: Contributions – it’s all in the timing!

Author: Brenda Hutchinson, Partner, TAG Financial Services

As 30 June approaches, one of the items that we generally discuss with our clients, is making superannuation contributions.  It not only helps your clients to build their superannuation wealth, but in many instances, can be a strategy to reduce tax payable.

It is important for you to consider the different strategies, and which are best to help your clients achieve their goals.  In addition, there are also some contribution timing strategies that we need to take into account this year.

Strategies

1 – Concessional Contributions – first year of catch up contributions

This is the first  year your clients will potentially be able to utilise the “catch-up” contribution provisions, that became effective from 1 July 2018.  Where a member’s total superannuation balance (TSB) is less than $500,000, a member will be able to make additional concessional contributions, by applying previously unused concessional contributions cap amounts from last year.

For example, in the 2018-19 financial year, Layla’s employer made concessional superannuation guarantee contributions of $10,000 on her behalf to her superannuation fund.  Layla did not make any deductible personal superannuation contributions to her fund.

The concessional contributions cap for the 2018-19 financial year is $25,000.

Layla’s unused concessional contributions cap amount for the 2018-19 financial year is therefore $15,000.

As a result, for the 2019-20 financial year, Layla could contribute up to $40,000 of concessional contributions.

2 – Non-Concessional Contributions – be careful of timing with regards to reduced total superannuation balances

Due to the effects of COVID-19 on the markets, many superannuation fund members would have seen a reduction in their fund balances.  For some, this may even have meant their TSB fell below $1.6 million.  However, when considering whether you can make a non-concessional contribution due to your TSB being over $1.6 million, you must consider the TSB at 30 June of the previous year.  

So if your balance was over $1.6 million at 30 June 2019, but has fallen below $1.6 million with recent market volatility, you will not be able to make a non-concessional contribution before 30 June 2020.  If you did, it would be treated as excess contributions.

If the balance has fallen below $1.6 million due to recent market volatility, then it may be worth considering whether a non-concessional contribution can be made in July 2020.

3 – Concessional Contributions – using reserves to “double” dip on the contribution deduction

Under the Superannuation Industry (Supervision) Regulations (SIS Regs.), there is provision to allocate contributions 28 days after the end of the month in which the contribution was made.  As a result, this provides the ability to claim a tax deduction for the contribution made, without exceeding the contribution caps.

In order for your clients to be able to avail themselves of this strategy, the contribution amount to be “reserved” must be made in June (to meet the 28 day allocation rule) and must be a separate contribution which can be allocated.

For example, say John wanted to utilise the reserving strategy to claim a total tax deduction of $50,000. 

If the $50,000 contribution was made in May, then he would not be able to reserve the $25,000, as allocating within 28 days would be in the same financial year (therefore resulting in excess contributions).

If the $50,000 was contributed in June, but in one payment, then you would also not be able to reserve this.  Again, you would have an excess contribution issue.

In order to be able to utilise the reserving strategy, the contribution to be reserved must be made in June and a separate payment.

And finally, do not forget that in order for the contribution to be counted this year, you must make sure the contribution is actually received by the fund, by 30 June.  For some clearing houses, this date will be before 30 June, so make sure your clients are organised with their payments.


Consulting Project
We can provide advice in this area. If you would like to discuss a project, contact us on the above information. Our advice is quoted upfront for your approval before commencement.

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If you have any questions, please contact us on 03 9886 0800 or via email.

Disclaimer: The information contained is general in nature. Professional advice should be sought before acting on any aspect on this page. Financial planning services provided by TAG Financial Advisors Pty Ltd (ABN 77 154 205 017 AFSL 415632), a wholly owned subsidiary of TAG Financial Services Pty Ltd (ABN 67 075 374 686). Copyright 2020. Please do not reproduce without the expressed written consent of the author.

Super Strategy Series Part 4: Retirement Income Strategies for SMSFs – what to look out for

Author: Jason Roccasalvo, Partner, TAG Financial Services

The Government announced in their 2018 Budget that it intends to amend the trustee covenants under section 52B of the SIS Act, to include a requirement that all superannuation fund trustees must formulate, review regularly and give effect to a retirement income strategy for the fund’s members.

The ATO recently updated their guidelines around what constitutes a satisfactory investment strategy. Self-managed superannuation fund trustees are required to formulate, review regularly and give effect to an investment strategy, that considers the whole circumstance of the fund. The investment strategy should consider:

  • The risk vs return profile of the asset classes
  • Diversification
  • Liquidity needs (how easily and quickly the assets can be converted to cash)
  • Ability to discharge liabilities as they fall due
  • Insurance needs of the members

A Fund’s ability to discharge liabilities as they fall due includes its liabilities to the Fund members – and so it is clear that be improving the quality of investment strategies runs together with a retirement income strategy.

Simply providing investment ranges of 0 – 100% on various asset classes is not appropriate in the ATO eyes. The reality is that it implies the trustees have not given any consideration to how the strategy will help achieve retirement goals for the fund’s members. As auditors or advisers, we should not accept this.

BewareIf a fund has a large portion of its investments held in cash or term deposits – beware!  Unless you can justify this is for a strategic short term purpose, the fund is likely to attract the attention of the tax office.  The ATO will be assessing whether the fund is actively managing the investments of the fund with the objective of providing for the long term interests of members and their beneficiaries.

How should we engage our SMSF clients?

As advisers, we should ensure that, among other items, our clients can clearly identify:

  • Their retirement goals?
  • How much of a role super will play and how will it help achieve their goals?
  • What needs to be considered now to provide the best chance of meeting your clients retirement objectives?

If your clients can’t articulate the answers to the above questions to you, then they have not given it enough thought. Advisers should be engaging their clients around their investment strategy so that the trustees can show a considered and formed strategy, designed to reach to retirement needs of the fund’s members.

If you have any questions, please contact us on 03 9886 0800 or via email.

Consulting Project
We can provide advice in this area. Our advice is quote upfront for your approval before commencement. If you would like to discuss a project contact us on the above information.

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Disclaimer: The information contained is general in nature. Professional advice should be sought before acting on any aspect on this page. Financial planning services provided by TAG Financial Advisors Pty Ltd (ABN 77 154 205 017 AFSL 415632), a wholly owned subsidiary of TAG Financial Services Pty Ltd (ABN 67 075 374 686). Copyright 2020. Please do not reproduce without the expressed written consent of the author.

Super Strategy Series Part 3 – SMSF and property development – growing trends with growing dilemmas

Author: Jason Roccasalvo, Partner, TAG Financial Services

Of recent times, we have seen an uptake in SMSF trustees enquiring about using their super to participate in property development.

The ATO have recently clarified their stance on SMSF and property development in their bulletin SMSFRB 2020/1.

The ATO have reinforced the position that they are concerned that an SMSF may not be acting on arms length in relation to:

  • The land purchase;
  • Complying with related party acquisition rules;
  • Valuation of any services provided by related parties;
  • Terms of a borrowing (if any borrowing is needed) and the compliance with SIS;
  • Returns and capital requirements.

Further, the ATO are concerned where the circumstances may transpire to create an arrangement to help the members circumvent contribution caps or transfer balance accounts. Additionally the ATO are concerned with compliance with SIS in the following areas:

  • In house asset rules;
  • LRBA’s and SIS compliance;
  • Non arms length income and expenditure;
  • Ungeared unit trusts (13.22 trusts);
  • Financial assistance to members
  • Sole purpose test

Specifically, the ATO re-confirm their approach in relation to Joint Venture Arrangements in that the return to an SMSF must reflect fairly the Fund’s input (ie concern there is circumvention of contribution/investment rules).

However, of particular note is the ATO statements regarding an SMSF contribution of cash to a joint venture.  From the bulletin:

“where the SMSF has only provided a capital outlay for the arrangement, and has no rights other than a contractual right to a return on the final investment, we would be concerned that they may instead hold an investment in or loan to the other party, depending on the terms of the joint venture agreement.”

It is therefore imperative that Trustees engage advisers before entering into such arrangements. Untangling complicated transactions are timely, difficult and costly exercises.

Time and money spent in the planning or “idea” stage pays itself forward ensuring compliance down the road.


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We can provide advice in this area. Our advice is quoted upfront for your authorisation before commencement. If you would like to discuss a project contact us on 03 9886 0800 or email super@tagfinancial.com.au.

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Disclaimer: The information contained is general in nature. Professional advice should be sought before acting on any aspect on this page. Financial planning services provided by TAG Financial Advisors Pty Ltd (ABN 77 154 205 017 AFSL 415632), a wholly owned subsidiary of TAG Financial Services Pty Ltd (ABN 67 075 374 686). Copyright 2020. Please do not reproduce without the expressed written consent of the author.

Super Strategy Series Part 2 – Superannuation Tax Loophole: right or wrong?

Author: Jason Roccasalvo, Partner, TAG Financial Services

Our clients engage us to uncover strategies to help them grow their wealth, mitigate their tax liability and provide greater levels of certainty, simplicity and asset protection, amongst others. Part of our obligation as advisers is to present options, and outline the advantages and disadvantages, therefore allowing a client to make an informed decision.

By now I’m sure you have heard about the double dip and tax savings available using the COVID-19 “early release” access.

These are essentially two strategies:

Firstly, making a superannuation contribution (and claiming a personal tax deduction). This strategy has become more widely available since the abolishment of the 10% (substantially self-employed) rule a few years ago and provides greater flexibility for individuals to claim a tax deduction. Individuals cannot claim a deduction where it creates a tax loss. Further, individuals should determine the value of the deduction by weighing the personal tax deduction against the 15% contribution tax.

Secondly, the COVID-19 early release is designed to assist those who need access to cash given their employment situation has changed dramatically.

It is accessible under limited circumstances such as:

  • You are unemployed
  • You are eligible for JobSeeker, youth allowance for job seekers and other allowances
  • Since 1 January 2020;
    – You have been made redundant
    – Your hours have been cut by 20% or more
    – Your business was suspended or had turnover reduced by at least 20%

The ATO have provided some guidance of how this can be applied for via CRT Alert 004/2020

In combination, these strategies allow individuals to get a tax deduction for a contribution made personally, then access that cash under the early release rules that exist until 24 September.

In their own right, each strategy is perfectly legal (of course, assuming the eligibility criteria are satisfied).  However, in combining these strategies, it appears to work in contrast to the purpose of the early release scheme, which was designed to provide access to money for those most vulnerable during these times.

As part of the application process, the individual will need to authorise the ATO to provide to the superannuation fund, the ability to release the money and deposit it into the nominated bank account.  The ATO guidelines make it very clear that the member applying for the early release needs to certify that they are eligible, and it highlights there are consequences for making a false application.

Note of Caution: Where an individual is salary sacrificing to superannuation, and also accesses the COVID-19 early release from their superannuation fund, the claim may come under the scrutiny of the ATO who may check the claim of reduced hours and reduction in their income, as reported in their personal tax return.

Advisers should consider their obligation to their client as well as the greater social obligation we are all being asked to contribute to in these times when considering the appropriateness of such a combination of strategies.

View part 1 of the Super Strategies Series

If you have any questions, please contact us on 03 9886 0800 or via email.

Disclaimer: The information contained is general in nature. Professional advice should be sought before acting on any aspect on this page. Financial planning services provided by TAG Financial Advisors Pty Ltd (ABN 77 154 205 017 AFSL 415632), a wholly owned subsidiary of TAG Financial Services Pty Ltd (ABN 67 075 374 686).

Super Client Strategies Part 1 – Pension Changes Strategy

Author: Jason Roccasalvo, Partner, TAG Financial Services

Our 5 Part – Super Client Strategies, are designed to be used with your clients straight away. In Part 1, we focus on pension changes and how this can be used effectively and successfully.

The markets have seen a significant reduction in capital, and no one has been spared.

For those with clients in pension mode, the reduction in the annual minimum through until 30 June 2021 is a welcome relief. However, many clients may still be concerned more deeply about their savings. For these, what can we as advisers look towards?

For those with clients who have utilised all of their Transfer Balance Cap, with amounts also in accumulation mode, a timely commutation given the extent of uncertainty in society will reduce the current “strain” on their cash, and allow clients to draw only what they need, and not be forced to take an amount which may be greater.

Timing this commutation could mean that for many clients their Transfer Balance Account would become negative, potentially allowing members in time to re-commence when a pension with greater certainty about their futures and cash flows, and again with timing may actually allow members to increase the proportion of their super in pension mode, and provide long term benefits such as:

  • Larger ECPI %
  • Increased tax-free income within the Fund.

However, not every case is the same and before ceasing a pension you must consider items such as:

  • Pro rata minimums – have these been taken,
  • Consider the taxable/tax-free split of member balances and the mixing of these, as everything will form part of the same member account,
  • Consider the impact on a death benefit and the suitability of the BDBN,
  • TBAR reporting will need to be completed (on both the commutation and commencement),
  • Impact on Centrelink/other government benefits e.g. a new pension may not be grandfathered, and
  • The impact a ‘non pension’ period of time will have on the client’s tax position in the current financial year.

Yes, there are more things to consider and be aware of before commuting a pension, however for suitable clients, this strategy implemented in a timely manner, can provide significant longer term benefits.

If you have any questions, please contact us on 03 9886 0800 or via email.

 

Disclaimer: The information contained is general in nature. Professional advice should be sought before acting on any aspect on this page. Financial planning services provided by TAG Financial Advisors Pty Ltd (ABN 77 154 205 017 AFSL 415632), a wholly owned subsidiary of TAG Financial Services Pty Ltd (ABN 67 075 374 686).

Summary of Announcements for Businesses: COVID-19

by Tony Rule, Partner, TAG Financial Services

There have been a number of announcements made by various government departments and industry over the last two weeks, but particularly on Friday and the weekend.  The following summary brings together the main points from those announcements to the extent that they affect small and medium sized businesses.

The key message from all stakeholders is that they want businesses wherever possible to continue to employ people and to continue to operate “as normal” as much as can be done.  This must be achieved in a new reality for most businesses where income will be significantly disrupted or eliminated.  They are trying to build an environment where money continues to flow through the economy whilst trying to limit the movement of COVID-19.

Business owners need to act now to determine what their current cash balances are, which of the initiatives are available to them and then budget their expenditures to cover an extended period of business disruption.

Australian Federal Government Announcements

The Federal Government have released two stimulus packages (one on 12 March 2020 and the second on 22 March 2020) with measures for both businesses and individuals.  We have set out below the key points for businesses under cash initiatives, tax initiatives and other initiatives.

Reduced Obligations & Cash Initiatives

Reduced Obligations – “Cash Flow Boost”

The second stimulus package announced that small and medium sized enterprises (SME’s) with turnover less than $50m will receive a tax free credit to their ATO Account of between $20k and $100k split equally over the March and June BAS’s to retain staff and continue to operate.  The first credit will be based on 100% of PAYG withholding on the March 2020 BAS to a maximum of $50,000 and the second credit will be based on 100% of the PAYG withholding on the June 2020 and September 2020 BAS’s to a maximum of $50,000.

This announcement supersedes the credit of between $2k and $25k to their ATO account that was to be based on 50% of the PAYG withholding amounts on the March 2020 BAS (in the first stimulus package).

Australian Taxation Office deferrals

In conjunction with the first stimulus package, the Australian Taxation Office announced that “we will work shoulder-to-shoulder with businesses to assist them through this difficult period and do what we can to ease the pressure”.

Options available to assist businesses impacted by COVID-19 include:

  • Deferring the payment date of amounts due on BAS’s (including PAYG instalments), income tax assessments, fringe benefits tax and excise by up to 6 months,
  • Allowing businesses to move from quarterly to monthly lodgement of GST reporting to access GST refunds quicker,
  • Allowing businesses to vary PAYG instalment amounts to zero for the March 2020, December 2019 and September 2019 quarters creating a refund of these payments,
  • Remitting any interest and penalties incurred on or after 23 January 2020 relating to tax liabilities, and
  • Allowing businesses to enter into low interest payment plans.

Employers will still need to meet their ongoing super guarantee obligations for their employees.

Loans

The second stimulus package also announced the Coronavirus SME Guarantee Scheme where the Government will guarantee 50% of new loans issued by eligible lenders to SME’s to get access to working capital to help them get through the impact of the Coronavirus.

Some parameters to be provided to these lenders are:

  • Maximum total size of loans of $250,000 per borrower,
  • Loans will be up to 3 years, with initial 6 months repayment holiday, and
  • Loans will be unsecured.

Lenders still need to go through their normal credit assessment processes.

Apprentices

SME’s with fewer than 20 full time employees with one or more apprentices or trainees will be eligible to a wage subsidy equal to 50% of the wage for each apprentice or trainee for the 9 months to 30 September 2020 (first stimulus package).  The subsidy will be up to a maximum of $21,000 per apprentice/trainee ($7,000 per quarter).

Tax Initiatives

Instant Asset Write-off

The instant asset write-off is immediately increased from assets acquired for less than $30k to assets less than $150k for SME’s with a turnover of less than $500m (up from a turnover of less than $50m) for assets bought and installed by 30 June 2020 – (first stimulus package).

Accelerated Depreciation

Provide accelerated depreciation for SME’s with turnover less than $500m to deduct an additional 50% of the asset cost as depreciation in the year of purchase (where is not eligible for the Instant Asset Write-off) where the assets are purchased and installed by 30 June 2021 (first stimulus package).

Other Initiatives

Distressed Businesses & Insolvency

The Government will introduce amendments to temporarily relieve financially distressed businesses by increasing the threshold at which creditors can issue a statutory demand and the time a company has to respond to that demand.  They will also provide temporary relief for directors from any personal liability for trading while insolvent (to help companies deal with unforeseen events arising from COVID-19). This is from the second stimulus package.

Victorian State Government

On 21 March 2020, the Victorian Premier Daniel Andrews and the Treasurer Tim Pallas announced a $1.7b economic survival and jobs package.

The Victorian Government will provide full payroll tax refunds for the 2019-20 financial year to SME’s with annual payroll less than $3m.  Payments will commence in April 2020 with the maximum refund equating to $113,975.

Those businesses will also be able to defer any payroll tax payable for the months of July, August and September 2020 to 1 January 2021.

Other initiatives include:

  • Commercial tenants in Government buildings can apply for rent relief,
  • 2020 land tax payments will be deferred for eligible small business,
  • The Victorian Government will pay all outstanding supplier invoices within five business days,
  • Liquor licensing fees for affected venues and small businesses will be waived,
  • Establishing a $500m Business Support Fund to help businesses in hospitality, tourism, accommodation, arts and entertainment, and retail survive and keep people in work,
  • Establish a $500m Working for Victoria fund to help workers that have lost their jobs find new opportunities and facilitate job matching to help Victorians find short-term or casual roles.

Reserve Bank

On 19 March 2020 the Reserve Bank announced initiatives to support the Australian economy during the disruption caused by COVID-19 including:

  • The official cash rate has been dropped to 0.25% and will not be increased until progress is made towards full employment and inflation is in the 2-3% band.
  • Provide a term funding facility to the banking system at 0.25% designed to encourage lending to SME’s over the next 3 years totaling $90b.

Australian Banking Association

On 20 March 2020 Anna Bligh, the CEO of the Australian Banking Association announced that “Australian Banks will defer loan repayments for small businesses affected by COVID-19 for 6 months”.

She also advised that “banks are putting in place a fast track approval process to ensure customers receive support as soon as possible”.

No information was provided about whether a loan to a business owner (such as borrowing on a home to help finance a business) would be counted as a loan repayments relating to small business or not.

If you have any questions, please contact us on 03 9886 0800 or via email.

Disclaimer: The information contained is general in nature. Professional advice should be sought before acting on any aspect on this page. Financial planning services provided by TAG Financial Advisors Pty Ltd (ABN 77 154 205 017 AFSL 415632), a wholly owned subsidiary of TAG Financial Services Pty Ltd (ABN 67 075 374 686).

We note that at the time of writing there is little detail associated with announcements by the various Government and Industry Bodies relating to bracing for the impact of Covid-19 on the economy.  These announcements have not yet been legislated, and our inclusion of details in this document is purely based on media releases associated with these announcements.  Accordingly, we take no responsibility for any difference between the comments made above and the final legislation associated with these announcements.