Reduced super concessions under Division 293 tax

A tax may apply to individuals with high incomes to reduce the amount of concession paid on their super contributions. This tax is known as Division 293 tax.

Division 293 tax was introduced to reduce the concession on superannuation contributions for individuals with income greater than $300,000 per annum.

Under Division 293 of the Income Tax Assessment Act 1997 tax will be payable on certain contributions made from 1 July 2012.

If an individual’s income for surcharge purposes, plus their low-tax contributions are greater than $300,000, they may be liable to pay an extra 15 per cent tax on their taxable contributions.

For individuals who are members of a defined benefit fund Division 293 tax may be calculated on notional contributions, which are not capped.

There are also modifications to the contribution calculation for constitutionally protected state higher level office holders or Commonwealth justice.

To calculate whether an individual has income and low-tax contributions greater than $300,000 the ATO will be looking at:

• income reported on the individual’s income tax return, including:

-taxable income

-total reportable fringe benefit amounts

-net financial investment loss

-net rental property loss

-amounts on which family trust distribution tax has been paid

-super lump sum taxed elements with a zero tax rate.

• contributions reported in their member contribution statement
• self managed super fund annual return.

The ATO will begin issuing Division 293 tax notices of assessment for the 2012-13 financial year to affected individuals from early February 2014.

A guide to warnings in the workplace

Warnings are an important workplace tool in helping to ensure that employees understand their employer’s expectations.

They also serve as evidence of a fair performance management process and provide supporting evidence should the employee be terminated.

A workplace warning is defined as a communication, be it verbal, or written, to an employee about their performance or conduct at work. Warnings are a tool used to communicate an identified area where an employee needs improvement, or where their conduct does not meet the required standard.

The aim of delivering a workplace warning is to give the employee an opportunity to improve their workplace performance or conduct.

A written warning should be issued after a warning meeting has taken place. At the conclusion of the meeting, the employee is advised that they will be receiving a written warning in the following couple of days.

Generally, most written warnings will comprise of the following:

-record who was present at the warning meeting

-record the fact that the employee was invited to have a support person present

-outline the conduct or performance which is the reason for the warning

-where appropriate refer to a relevant policy or the employment contract

-refer to previous warnings that were issued

-record the employee’s responses to the matters in issue

-clearly state that the employee needs to improve, including an explanation of the consequences for failure to improve

-where relevant, provide support the employee to improve such as training

-preferably be countersigned by the employee as evidence of their understanding of the warning

Personal insolvency agreements

A personal insolvency agreement (PIA) is a formal way to deal with unmanageable debt without having to declare bankruptcy. It provides a flexible way for individuals to come to an agreement with their creditors to settle debts.

A PIA is a legally binding agreement in which an individual agrees to pay creditors in full or in part by instalments, or a lump sum.

For an individual to propose a PIA certain conditions must be met, they:

-must be insolvent

-must be present in Australia, or otherwise have an Australian connection

-must not have proposed another PIA in the previous six months

For a PIA to work, the insolvent individual must first appoint a controlling trustee to take control of their property. The controlling trustee examines the proposal, makes enquiries into the individuals financial affairs and reports to creditors.

A creditors’ meeting is then held within 25 working days of the trustee’s appointment, at which the creditors consider the proposal. If the proposal is accepted the creditors are then bound by the terms of the agreement if it is rejected the creditors will either vote in favor of bankruptcy or leave the decision to the individual.

The appointment of a controlling trustee:

-automatically disqualifies the individual from managing a business until the terms of the PIA have been complied with

-prohibits the individual from dealing with their property without the consent of the controlling trustee

Cash flow strategies for small businesses

Without profits and positive cash flow, a business is going to struggle to survive. This is why cash flow strategies should be taken seriously.

Aim for long term financial stability

When setting finance and cash flow goals for the business it is important to aim for long term stability.  Businesses should realistically assess how and when it wants to reach its long term goals.

Don’t forget to consider customers who allow purchases on credit as it will help in forecasting how much cash is coming into the business and whether it will be enough to cover expenses.

Profit first and growth later

Businesses should aim to increase profits in the present and use them to grow the business in the future. Approaching it the other way around isn’t always a good idea, especially for start-up companies.

Be aware of timing

Businesses need to be aware of exactly when money is coming in and when it is going out. Although owners may not be directly responsible for the accounting side of the business, they should at least be aware

It is also important to have a plan in place to ensure that clients pay promptly so that the business can know when to expect a payment.

Refund policies in business

Businesses have specific obligations under Australian Consumer Law (ACL) when it relates to refunds, returns, guarantees and warranties.

Here are some basic tips when constructing a refund policy:

-it is illegal to put up a ‘no refund’ sign in store, or online

-if the product has a major failure the businesses must give a refund, replacement or compensation

-if a product has a minor failure the business must offer to repair, replace or refund

-it is the businesses choice whether to provide a refund if the customer changes their mind

Refund obligations can be placed into two categories; minor and major faults. According to ACL, a major failure is when a product or service fails to meet a consumer guarantee, whereas a minor fault occurs when a problem with the product can be fixed easily and in a reasonable time.

The remedy a business is obligated to provide will depend on whether the fault was major or minor.

When a business receives a refund the first step they should take is to find out, preferably in writing, what the reason is for the refund request. This is valuable information that can be used to improve the businesses products and services.

To prevent there from being issues with refunds businesses should ensure that the refund and return policy is easily accessible by customers. If some goods are unable to be refunded, such as swimwear or perishable products, this must be clearly outlined in the refund policy. It is important that customers be able to access and understand the policy before making a purchase.

It is also important that the businesses refund policy complies with Australian Consumer Law. For example, it is illegal to not offer a refund if the goods are faulty.

Social media trade promotions

A popular way to promote a business’s goods and services is via their social media pages.

However, before businesses begin planning their social media campaigns they need to consider their legal obligations.

Misleading or deceptive conduct

Consumer Laws outlines prohibitions against misleading and deceptive conduct within social media trade promotions.

Content posted onto social media should be checked and cleared similarly to traditional media.

Advertising industry codes

Social media advertisements are regulated under various advertising codes, such as the Code of Ethics in Australia.

Businesses need to ensure that their social media campaign complies with the relevant codes to prevent incurring any penalties.  Each country also has its own set of regulations on how trade promotions should be conducted, so businesses will also need to comply with them.

Social media terms and conditions

When a business registers for a social media platform they enter into a contract with the social media provider. The businesses use of the platform is governed by this contract.

Also, by registering with the site the business has agreed to follow a set of terms and conditions.

The company’s trade promotions must comply with both the contract and the outlined terms and conditions, or the company risks being removed from the platform.

Division 7A

The ATO is continually monitoring Division 7A as it has been recognised as a high risk area of tax.

Division 7A tax applies to all loans, advances, and other credits made by private companies to shareholders, or their associates.

It is important to consider any tax consequences under Division 7A. For example, if:

-shareholders or associates have extracted profits from a private company during the year other than by dividend

-a shareholder or associate uses an asset of the private company and does not pay the company for its use or pays less than an arm’s length amount

-intra group loans have been made by a private company

Record keeping requirements for SMSF

Poor and inadequate record keeping are often recognised as a major problem for self managed super funds (SMSF).

One responsibility of being a trustee of a SMSF is to keep proper and accurate tax and super records.

It is important to keep updated records so that they can be made available to the fund’s auditor when they audit the fund each year.  Accurate records must also be provided when requested by the ATO

Accurate records can also help trustees to manage the fund efficiently.

Attention needs to be given to record keeping as it can pose a compliance risk. Trustees of a SMSF should ensure that they remain compliant as penalties do apply for those who fail to keep accurate and accessible records for the required timeframe.

The following records must be kept for a minimum of five years:

-accurate and accessible accounting records that explain the transactions and financial position of the SMSF

-an annual operating statement and an annual statement of the SMSF’s financial position

-copies of all the SMSF annual returns lodged

-copies of any statements that are required to be lodged to the ATO or other super funds

The following records must be kept for a minimum of ten years:

-records of all changes of trustees

-trustee declarations recognising the obligations and responsibilities for any trustee, or directors of a corporate trustee, appointed after 30 June 2007

-member’s written consent to be appointed as trustees

-copies of all reports given to members

-documented decisions about storage of collectables and personal-use assets

-minutes of trustee meetings and decisions, if matters affecting the fund were discussed

Budget 2013:Medicare Levy increase affects small business

The increase in the Medicare levy from 1.5 per cent to 2 per cent, will effectively bring the top marginal tax rate to 47 per cent. This will not only impact on individual taxpayers but will have a flow on effect to small businesses. A number of tax laws that businesses regularly comply with apply the top marginal income rate as a penalty rate of tax.

As a result, the following common tax items will be subject to tax of 47 per cent, up from the previous 46.5 per cent:

–          Fringe Benefits Tax (FBT)

–          TFN and ABN Withholding Tax

–          Family Trust Distributions Tax

–          Trusts, where Section 99A applies to retained income

–          Excess non-concessional contributions to super (with tax on excess concessional contributions to increase to 32%)

Budget 2013: Personal income tax rates

The 2013 Federal Budget, released on Tuesday contained a number of significant taxation changes that will impact on individual taxpayers.

Personal Income Tax Rates

Although individual income tax rates have remained unchanged, changes that were due to apply from 1 July 2015 have been deferred. Initially, the tax free threshold was set to increase from $18,200 to $19,400. The current legislated rates applicable for the 2013/14 income year are set to remain in place until 2017/18.

Tax rates for non-residents

For the 2013/14 income year, non residents will pay a flat rate of 32.5 per cent on all taxable income up to $80,000. For taxable income exceeding $80,000, the marginal tax rate for non-residents are the same as those for resident individuals. Proposed legislation to remove the capital gains tax discount for non-residents seems to be on schedule to be introduced in the final few weeks of Parliament.  Finally, non-residents will be subject to a non-final withholding tax of 10 per cent of the proceeds from the sale of certain taxable Australian property with effect from 1 July 2016.