Budget 2019

This year’s federal budget has a few sweeteners, which was to be expected with the next federal election only about a month away and the Coalition Government trying to make up ground in the polls. The welcome news is the forecast return to surplus for the 2019-20 fiscal year.

Also note that proposed changes to Division 7A will be deferred from 1 July 2019 to 1 July 2020, and that there are some useful changes to superannuation that will benefit older pre-retirees.

Please contact us for clarification, or further advice, regarding any of the topics covered in this newsletter.

Your Knowledge News – March 2019

In this edition, we look at single touch payroll reporting requirements. We discuss a number of Federal budget changes that are still in limbo such as extensions to the $20k instant write-off and removal of CGT exemption on your main residence for non-residents. Also discuss are benefits provided during environmental emergencies and exemption from FBT.

We hope you find this edition of Your Knowledge informative, and invite you to contact your CMS Advisor to discuss any of the content and how it may have an impact on you.

Your Knowledge News – February 2019

In this edition, we look at estate planning, tax warnings on overseas income and tax changes that came in force on 1st Jan 2019. We also take a look at cyber scams and breaches.

We hope you find this edition of Your Knowledge informative, and invite you to contact your CMS Advisor to discuss any of the content and how it may have an impact on you.

Newsletter – Summer 2018

In this edition, we look at some recent tax changes and have a follow up to our Winter newsletter article on the Single Touch Payroll system, which will impact small business employers from 1 July 2019.

In the lead-up to the Federal Election next year, we take a look at one of the Labor Party’s planned tax policies in relation to franking credits. With Christmas just around the corner, we also take a brief look at Fringe Benefts Tax consequences of providing gifts and benefts to staff, with the ATO being ‘The Grinch’.

Lodgement Rates & Thresholds | 2018-19 Issue

To save you having to laboriously search for the right tax rate or relevant threshold, the essential information is right here in one place.

This guide includes tax rates, offset limits
and benchmarks, rebate levels, allowances, and essential super as well as FBT rates and thresholds (including current gross-up factors) and student loan repayment rates.

Immediate write off for assets that cost less than $20,000 extended for 12 months

In the 2017-18 Budget, the Government announced that they were extending the immediate write off for assets that cost less than $20,000 for an additional 12 months, until 30 June 2019, for small businesses (i.e. aggregated turnover threshold of $10 million). This change is not yet law.

 

  • Immediate deductions for most depreciating assets that cost less than $20,000 that are acquired and installed ready for use, up to and including, 30 June 2019. These accelerated depreciation rules apply to both new and second hand assets. Excluded assets are horticultural plants including grapevines, in-house software allocated to a software development pool and capital works.

 

  • The depreciating assets acquired and installed ready for use, up to and including, 30 June 2019 for $20,000 or more must be pooled and depreciated at 15% in the first year and 30% each year thereafter.

 

  • Write off the balance of your small business pool at the end of a financial year if the balance, before applying the depreciation deduction, is less than $20,000.

 

The current $2 million turnover threshold will be retained for access to the small business capital gains tax concessions.

 

In addition to the extension of the immediate write off, primary producers are eligible for the following concessions:

 

  • Primary producers can claim immediate deductions for capital expenditure on water facilities including dams, tanks, bores, irrigation channels, pumps, water towers and windmills; and fencing assets.

 

  • Primary producers can also claim fodder storage assets such as silos and tanks used to store grain and other animal feed assets over 3 income years.

FARM MANAGEMENT DEPOSITS & OFFSET ACCOUNTS

Farm Management Deposits (FMD) are a useful tax smoothing tool for Primary producers. They allow an individual who earns primary production income to deposit funds into a FMD in a good year and get a tax deduction equal to the greater of the deposit or their primary production income for that year if held for at least twelve months. When the money is withdrawn from the FMD it is assessable income to the tax payer. FMDs earn interest income assessable to the tax payer each year.

From July 2016 the Australian Taxation Office (ATO) have allowed for FMDs to offset loans which have been used to invest in primary production assets.

There a few restrictions to using the offset, being:

  1. The FMD & Business loan have to be held by the same financial institution
  2. The provision is only available to sole traders and individual partners in partnerships
  3. Loans have to be 100% related to primary production business (not a mixed loan)

For example; a farmer has a $100,000 in a FMD and a $500,000 primary production business loan. The $100,000 could be used to offset the loan so that interest is only charged on $400,000.

Currently there are only a few banks that allow this feature being; Rural Bank, Rabobank, Elders, NAB & CBA.

Transfer Balance Cap and Transitional CGT Relief

For fund members with existing benefits in retirement phase (RP) as at 30 June 2017, the maximum amount allowed to remain in RP at that date, also known as the transfer balance cap, is $1,600,000.   Any excess is required to be returned to accumulation phase.

Earnings on fund benefits in RP are exempt from tax, whereas earnings on fund benefits in accumulation are not.  Transitional capital gains tax (CGT) relief allows a fund to reset the cost base of the fund’s investment to its market value so that the previous RP tax exemption is protected.  Any increase in value whilst supporting a RP benefit remains exempt.  This cost base resetting process requires a notional sale and immediate repurchase of the assets held by the fund. This process is on a per asset basis so you will need to carefully choose which assets you notionally sell and buy back.

In electing for CGT relief to apply, a fund also needs to consider if, as at 9 November 2016, it is using the segregated method or the proportionate method to determine which assets support the RP benefit.

Segregated Method

A fund in 100% pension mode is using the segregated method.   If it remained segregated until 30 June 2017 the fund should sell and repurchase only those assets with unrealised capital gains on that date.  The gain is realised but is not taxable.  This resets the cost base of the asset to its current market value and ensures only future increases in market value will be taxable.

It is important to note that no CGT relief is required on assets with unrealised losses.    Applying relief to a loss would mean the loss is disregarded and lost to the fund forever.

If the fund became unsegregated between 9 November 2016 and 30 June 2017, it can employ the same strategy on the earlier date that it became unsegregated.

Proportionate Method

A fund with mixed benefits, i.e. RP and accumulation cannot be a segregated fund.  However, the fund can still elect to notionally sell and repurchase the fund’s assets as at 30 June 2017.   The cost base of each asset is then reset to its current market value as at that date.

All unrealised capital gains and losses to 30 June 2017 are now realised and assessable (to the proportion that they support an accumulation balance) to the fund.

However a further transitional provision allows the fund to defer any taxable capital gains to the date of its future sale.  Capital losses are carried forward for future offset against future capital gains.

If your fund has not carefully considered its options regarding the transfer balance cap and transitional CGT relief you may wish to double check these have all been dealt with in the most appropriate manner.

 

 

Transfer Balance Recap – Strategy Update

Substantial changes to the superannuation rules took effect from 1 July 2017 and one of them is the introduction of a $1.6 million transfer balance cap. Effective since 1 July 2017, a $1.6 million superannuation transfer balance cap has been imposed on the lifetime amount of superannuation that an individual can transfer into retirement phase. The question that must be asked is there any rule of thumb when adopting a strategy to commute the pension amounts that are over $1.6m for rolling back into accumulation.

The method DBA Lawyers special counsel Bryce Figot suggested involves a comparison between the amount an SMSF member has to draw down and the level of investment return generated by the supporting assets. Though this may sound relatively simple there are a few other key elements to consider such as the taxable and tax free components of the pension when there are more than one pension interest in the fund, who are the dependent beneficiaries etc.

Make sure you have everything covered off correctly – the following articles cover some general rules, guidelines and strategies to look at when deciding which pension to commute first.

https://www.dbalawyers.com.au/pensions/guide-choosing-pension-commute/ 

https://superconcepts.com.au/news-insights/blog/smsf-insider/2017/04/03/getting-under-the-$1.6-million-pension-balance-cap-which-pensions-should-i-choose