Overview of the transfer balance cap

The transfer balance cap was introduced as part of the reforms to superannuation in the 2016 Federal Budget and will commence on 1 July 2017.

The cap applies to the total amount of super that has been transferred into the retirement phase. The cap will start at $1.6 million, and will be indexed periodically in $100,000 increments in line with CPI. If, at any time, you meet or exceed your cap, you will not be entitled to indexation.

Each individual with super interests in the retirement phase has a personal transfer balance cap that cannot be shared with anyone else. Individuals will have a transfer balance account which tracks the net amounts transferred to the retirement phase.

Individuals who currently receive a pension or annuity income stream that is close to or in excess of the cap, or start a retirement phase income stream after 1 July 2017 will be affected by the transfer balance cap. Those affected should seek advice as to how to reduce the value of their income stream before 1 July 2017 to ensure there is not an excess.

For those who will commence a retirement phase income stream after 1 July 2017, you must ensure:
– your account based pensions and annuities do not exceed the $1.6 million transfer balance cap
– you include income from certain lifetime pensions (usually paid from a defined benefit fund) in your income tax return if you are over 60, and may need to pay more tax
– if you have a mix of pension types, with a total value exceeding $1.6 million, you reduce any account based pensions to reduce the total value of all your pensions below the transfer balance cap.

Changes to tax rates for working holiday makers

Tax rates for working holiday makers who are in Australia on a 417 or 462 visa have changed.

From 1 January 2017, employers who employ a working holiday maker in Australia on a 417 or 462 visa:
– Must withhold 15 per cent from every dollar earned up to $37,000 with foreign resident tax rates applying from $37,001.
– Must register with the Australian Tax Office by 31 January 2017 to withhold at the working holiday maker tax rate.
– If you do not register, you will need to withhold at the foreign resident tax rate of 32.5 per cent.
– Penalties may apply if you employ holiday makers but do not register.

For employers who already employ working holiday makers, you will need to issue two payment summaries (with different rates) this year – one for the period to 31 December 2016 and a second for any period from 1 January 2017.

Employee or contractor: Know the difference

Employers that incorrectly treat employees as contractors can face hefty penalties and charges as well as claims for entitlements and superannuation contributions.

Sham contracting arrangements, where an employer attempts to disguise an employment relationship as an independent contracting arrangement, are illegal and breach the Fair Work Act 2009.

Under the sham contracting provisions of the Fair Work Act 2009, an employer cannot:

• misrepresent an employment relationship or a proposed employed arrangement as an independent contracting arrangement

• dismiss or threaten to dismiss an employee for the purpose of engaging them as an independent contractor

• make a knowingly false statement to persuade or influence an employee to become an independent contractor

Employers who engage in sham contracting arrangements can face serious penalties for contraventions of these provisions. The courts may impose a maximum penalty of $54,000 per contravention.

These businesses also risk penalties and charges from the Tax Office, including:

• PAYG withholding penalty for failing to deduct tax from worker payments

• Super guarantee charge, made up of super guarantee shortfall amounts, interest charges and an administration fee

• Additional super guarantee charge of up to 200 per cent

The ATO provides guidance to work out if a worker is an employee or contractor for tax and super purposes. Here are the key differences between employees and contractors:

How to build employee trust

Cultivating employee trust is a key principle of effective communication, leadership and teamwork.

A lack of employee trust can be damaging to levels of employee engagement and overall business outcomes. Here are three ways to foster employee trust and boost performance:

Be honest
Open and honest communication helps to create trust as employees are informed of any changes that affect them and what is happening in the business. Creating a transparent culture where business leaders acknowledge their shortcomings as much as their successes helps to gain employee respect and boost confidence.

Recognise efforts
Recognition of good work is a surefire way to promote trust. Acknowledging efforts, especially in public, can help motivate employees to continually strive to do better and also inspires other team members to aim high. Providing frequent recognition helps employees to feel valued and certain about their performance and therefore, more likely to stay with your business.

Encourage autonomy
Show employees they are trusted by providing them with greater autonomy in their work. Autonomy provides employees with a sense of control, responsibility and ownership over their work. High levels of autonomy are associated with higher levels of job satisfaction and motivation.

Strategies to manage investment risk

Exposure to risk is a big part of investing and although individuals cannot eliminate risk completely, they can implement strategies to manage risk and achieve their financial goals.

Managing investment risk is particularly beneficial in times of increased volatility and unfavourable economic conditions as well as ensuring investors meet their long-term investment goals. Here are three ways to manage investment risk:

Asset allocation
Including different asset classes (i.e shares, cash, property) in your portfolio can help to balance risk and return based on an individual’s age, risk tolerance, goals and investment time frame. As different asset classes will perform better at different times depending on the underlying economic conditions at the time, it is important for a fund to invest in a diverse mix of assets.

Diversification
Diversification aims to maximise an individual’s return by investing in different asset classes that react differently to the same event. Although it does not guarantee avoiding a loss, diversification is an important component of reaching long-term financial goals while minimising risk.

Regularly monitor investments
Be sure to regularly monitor each investment in your portfolio. This helps to ensure your investment goals are on track and remain in line with your risk profile. Keep on the lookout for warning signs that your investment might be heading downhill but don’t focus too much on short-term volatility for long-term investments. It is best to revisit your investment plan with your adviser at least once a year.

Tips for hiring entry-level employees

Hiring entry-level employees is a difficult yet unavoidable task for many employers.

Entry-level employees are often essential to fill junior positions in a business and can provide businesses with an opportunity to grow. However, hiring a person with lack of experience and professional referees can often be quite challenging. Here are three tips to consider when assessing entry-level candidates:

Create a clear picture
When creating a job description, it is important to have a clear image of an ideal candidate. Think of specific strengths, skills and traits the applicant must possess. Creating a profile for the ideal applicant not only helps you in the selection process but it also helps to prevent unsuitable or overqualified applicants from applying for the role.

Evaluate involvement outside education
Generally, entry-level candidates do not have a lot of prior professional experience within an industry and are often limited to university education. This lack of real-world experience means employers must find new ways of assessing compatibility. Instead of focusing on marks alone, look at a candidate’s extracurricular activities, volunteer work, leadership roles, awards and internships.

Think long-term
Entry-level candidates can turn into long-term employees if they are given the chance to develop their career. Ask applicants about their long-term career goals and explain ways in which they can achieve these goals through your business. Use examples of other staff members who have advanced their career through your business and make every effort to train employees to demonstrate your commitment to career advancement.

SMSF deadline approaches for limited recourse borrowing arrangements

SMSF trustees have until 31 January 2017 to review their limited recourse borrowing arrangements (LRBAs) to ensure they are consistent with an arm’s length dealing, or alternatively brought to an end if they are not.

The Tax Office recently provided further guidance to SMSF trustees on when the non-arm’s length income (NALI) provisions apply to an SMSF’s LRBA in their Practical Compliance Guideline (PCG 2016/5) and Taxation Determination (TD 2016/16).

When determining whether the NALI provisions apply, SMSF trustees must recognise it is a two-step process. First, it needs to be determined whether:
1. The terms of the LRBA are consistent with the safe harbours in PCG 2016/5
2. The SMSF trustee can otherwise demonstrate that they are arm’s length.

If the borrowing arrangement is on arm’s length then SMSF trustees do not have to consider TD 2016/16 and the ATO will not apply the NALI provisions.

However, trustees with an LRBA on terms that are non-arm’s length will need to consider TD 2016/16. Trustees will need to consider the second limb of the NALI provisions and whether or not the income the fund obtains under the arrangement is greater than it would otherwise have been.

SMSF trustees should be aware that TD 2016/16 is not an alternative to the safe harbours set out in PCG 2016/5 and only applies if borrowing terms of an LRBA are non-arm’s length.

Simpler BAS for small businesses

The ATO have introduced a simpler BAS to take effect from 1 July 2017 to help reduce GST compliance costs for small businesses.

From 1 July 2017, small businesses will only need to report GST on sales (1A); GST on purchases (1B) and Total sales (G1) on their BAS. Businesses will no longer need to report Export sales (G2), other GST free sales (G3), Capital purchases (G10) and Non-capital purchases (G11).

Newly registered small businesses will have the option to report less GST information on a simpler BAS from 19 January 2017.

Small businesses registering from 19 January 2017 will need to do the following:
– If ‘quarterly’ GST reporting cycle is selected when registering for GST, you will need to select ‘Option 2: Calculate GST quarterly and report annually’ on your first BAS.
– If a ‘monthly’ GST reporting cycle was selected at registration, you can insert ‘0’ at G2, G3, G10 and G11 on your BAS.
– If an ‘annual’ GST reporting cycle was selected at registration, you can leave G2, G3, G10 and G11 blank on your Annual GST Return.

Repurposing blog content

Creating new content for your blog or site can be challenging; not only does it involve a lot of time but it can require a great deal of creativity.

Fortunately, businesses do not need to write fresh content all the time – old content can be repurposed to make the most out of each of your ideas.

Repurposing content can help expand your reach to new audiences that might have missed it the first time and helps to reinforce key messages. Here are three ways to repurpose your content:

Create a presentation or video
Blog posts can be transformed into a presentation or video and promoted through various social media channels. A presentation or video can reach those audiences who prefer visual content instead of text. Using video content is especially good for refreshing those ‘how-to’ blog posts, checklists and step-by-step guides.

Turn it into an infographic
Visual images have been shown to generate more traffic and engagement than text alone. Consider turning your blog posts into infographics to help make information eye-catching and potentially shareable.

Reuse on social media
It may seem obvious, but reposting on social media can help to drive your key messages. Change a blog post’s heading or include new quotes or statistics to give the post a new edge. This strategy helps to give old, low performing posts another chance to capture your target audience’s attention.

A guide to performance reviews

When carried out effectively, formalised performance reviews can be beneficial for both you and your employees.

It is an opportunity for you to demonstrate how much you appreciate your employees’ contributions and undertake collaborative reflection on potential business improvements.

However, there are a lot of potential pitfalls that can undermine the effectiveness of performance reviews, sometimes even resulting in negative outcomes. If the review is unfocused it will fail to bring about any tangible results, which can lead to anxiety, confusion and occasionally even job dissatisfaction.

Additionally, unproductive performance reviews can be a waste of valuable resources. Here are some guidelines to help ensure that your performance reviews are as rewarding as possible:

A review is part of an ongoing process
Performance reviews cannot provide the same benefits as having continuous channels of communication between management levels. It is problematic when performance reviews become the designated time in which issues are addressed. If an employee has been underperforming then you should not wait until their scheduled review to address the problem.

Your company will benefit from creating a culture in which there is an ongoing informal review process, with managers and subordinates communicating effectively about expectations, difficulties and outcomes.

Be specific
Every aspect of the performance review should be specific to the individual employee and their responsibilities. Your comments and questions should be targeted, drawing on and requesting examples to back up any claims. The performance indicators you use do not need to be uniform, and should be individualised to staff members.

Turn your findings into actions
The information you collect throughout performance reviews can guide you in many business decisions. For example, you may see the need to make changes to remuneration packages, redefine job descriptions, or pursue further staff training.

Most importantly, the review process is a chance for you and your employees to take some time out from the day to day operations of your business and reflect on the bigger picture.

The ultimate end goal should be to reach a consensus on future aspirations and cement milestones that are both challenging and achievable.