June, 2017

SALARY SACRIFICING

Salary sacrificing or salary packaging is a common arrangement utilised by a lot of employers and employees whereby the employee agrees to forego part of their future salary in return for a benefit of a similar monetary value provided by the employer.

The most common types of benefits provided by employers are superannuation and cars as they carry a number of benefits.  Salary sacrificed superannuation contributions reduce your taxable income which reduces the tax payable, as well as being tax deductible and exempt from fringe benefits tax (FBT) for your employer.

Below is an example that demonstrates the benefits of salary sacrificing super:

Salary packaged super:

No salary packaging Salary packaging Tax saving
Salary $80,000 $80,000
Less salary sacrificed super $0 $15,000
Taxable income $80,000 $65,000
Less income tax (2016/17 rates) $17,547 $12,672 $4,875
Less Medicare 2% $1,600 $1,300 $300
Net income after tax $60,853 $51,028
Tax saving $5,175

Benefit:

In addition to the tax saving, the outcome in this example is a significant positive contribution of $15,000 into a low tax environment for growth for eventual retirement.

Salary packaging a car (novated lease):

This has its benefits too, if done correctly, but is generally subject to FBT.  Not only does an employee enjoy the private use of a salary sacrificed car, but also the employer can benefit from the arrangement as the concessional valuation rules for FBT are available, and if the employee makes after-tax contributions to the employer for the provision of the car, that can save the latter on FBT costs.  Novated leases are a highly popular method of salary sacrificing cars as the employee can have a work car of their choice as well as increase their net disposable income.

The example below demonstrates the increase to an employee’s disposable income by salary packaging a car and making after-tax contributions towards the running costs of the car to reduce FBT payable by the employer to nil. This arrangement is commonly known as a novated lease.

No salary packaging Salary packaging
Salary $80,000 $80,000
Less salary sacrificed contribution (car)* $0 $4,290
Taxable income $80,000 $75,710
Less income tax (2016/17 rates) $17,547 $16,153
Less Medicare 2% $1,600 $1,514
Less employee after tax contribution* - $6,000
Less annual car running costs** $10,643 -
Net cash salary $50,210 $52,043
Saving to net cash salary per year $1,833
Total saving over 5 year lease $9,165

 

* The part salary sacrifice, part after-tax employee contribution to running costs is as follows:

Salary sacrifice balance      $ 4,290

Net GST employer credit   $     353

After-tax contribution        $ 6,000

$10,643

** The National Tax and Accountants Association estimates the annual running costs of a $30,000 motor vehicle leased over 5 years, travelling up to 15,000kms pa, is $10,643.

 It is important that any salary sacrifice arrangement is proactive to be effective for the benefits to be reaped.  Contact us at BSN & Co to discuss if salary sacrificing is for you.

5 COMMON BOOKKEEPING TRAPS THAT WILL COST YOU MONEY

Although most small business owners and subcontractors recognise the importance of carefully monitoring their finances, few have the time to spend reviewing their numbers.  After all, for subcontractors and small business owners, if you are not actually working, you are not making money.

However, not keeping a close eye on your income and expenses can be very costly for a small business.

Here are five of the most common bookkeeping pitfalls, and some simple tips for getting back on track.

  1. Mixing business and personal

All too often, business owners adopt a “buy now, sort later” approach to expenses, using the same credit card for personal and business purchases.  At the end of the month, they’re left poring over statements, trying to sort things out.  Mixing business and personal expenses costs extra hours of bookkeeping each month, and muddies your overall financial picture.

Avoid this pitfall by using a separate credit card and bank account for your business and being disciplined about keeping those expenses separate.

  1. Neglecting to track reimbursable expenses

Receipt tracking is a necessary part of your business.  You need to keep track of receipts to identify transactions, understand spending patterns and effectively manage your company’s finances.  And, if you want to claim deductions at tax time, you’ll need to retain receipts along with your other tax records.

But far too many business owners take a haphazard approach to collecting and organizing receipts, especially while on the go.  Get the deductions you deserve and simplify your tax prep by using an expense tracking app.  Options like Expensify and BizXpenseTracker can record mileage, billable hours, and other expenses, as well as generate reports.  Plus, many of these apps sync seamlessly with your business bank account and accounting software.

  1. Not taking advantage of technology

Are you still relying on manual accounting methods?  While basic spreadsheet tools can get the job done, they leave the door wide open for human error. What’s more, manual methods simply can’t match the technological benefits offered by accounting software like MYOB, QuickBooks or Xero.  These systems track invoicing, link with your credit card and business bank accounts through ‘bank feeds’, organize expenses and generate informative financial reports.

  1. Not keeping accounts up to date

Let’s be frank.  Most business owners don’t look forward to that weekly appointment with “the books.”  In fact, many business owners cite bookkeeping as their most dreaded responsibility and will find a host of reasons to avoid it.

  1.  Not chasing money owed

Whether it’s a delay in sending invoices out or failing to follow them up when they remain unpaid, the longer they go unpaid the higher the chance of them turning into bad debts.  So ensure that you either make the time to follow up overdue invoices or engage a bookkeeper to do it for you so you can focus on your business.

 

TAX PLANNING FOR 30 JUNE 2017

Traditionally, 30 June each year brings forth a rash of initiatives through which the level of taxation for the current financial year may be reduced.  Consult your tax advisor about the following:

TIMING OF INCOME

Where possible, defer receipt of income until after year end.

TIMING OF EXPENSES

Where possible, incur expenses prior to year end.

BAD DEBTS

Review debtors and, where debts are unrecoverable, physically write off before year end to claim a tax deduction.

TRADING STOCK ON HAND

Scrap any obsolete or damaged stock by year end.

SUPERANNUATION

Ensure payments for employees or by self-employed persons are physically made (and received) on or before year end.

PRE-PAYMENTS

Immediate deductions are available for:

  • Pre-payment of salary;
  • Expenses <$1,000;
  • Individuals, for non business expenses incurred on or before 30 June for the next twelve months – e.g. interest on rental property.

SUPERANNUATION REBATES

Contributions made on behalf of a low or no income spouse of up to $3,000 can attract an 18% rebate – i.e. $540.

SUPERANNUATION CO-CONTRIBUTIONS

The Government will contribute up to a maximum $500 to add to eligible employees’ personal contributions to superannuation funds of up to $1,000, subject to an assessable income (reportable fringe benefits, reportable employer superannuation contributions and salary sacrifice superannuation contributions) limit of $36,021, phasing out at $51,021.

MOTOR VEHICLE EXPENSES

Where significant employment or business use of a personal motor vehicle is claimed, maintain a log book for twelve weeks to maximise the tax deduction and keep records of all expenses.  The log book must be renewed every five years.

Record the financial year end odometer reading.

Small businesses (turnover <$2m) can claim an instant deduction for motor vehicles used for business 100% and costing up to $20,000 (this concession expires on 30 June 2017).

PLANT AND EQUIPMENT

Review your asset schedule to scrap obsolete, worn out, lost or stolen items to maximise your depreciation claim.

Delay the disposal of any plant and equipment likely to be profitable in terms of written down value until 1 July.

Small businesses (turnover <$2m) can claim an immediate deduction for assets acquired, first used or installed ready for use, costing under $20,000 (GST exclusive).

HOME OFFICE EXPENSES

If carrying on a business from your home, pro rata tax deductions for interest or rent, insurance etc are available but impact on the main residence exemption from capital gains tax.

DIRECTORS / EMPLOYEES’ ENTITLEMENTS

Ensure any 2017/2018 salary packaging arrangements are in place before the commencement of the new tax year.

Bonuses and fees for the 2016/2017 year need to be approved at meetings and in place prior to 30 June 2017.

PRIVATE COMPANY LOANS

Any loans to shareholders or associates during 2015/2016 need to be repaid on or before 30 June 2017, unless a formal loan agreement is in place.

SALE OF INVESTMENTS

Delay the sale until after year end where a gain is anticipated to defer tax for a year.

Crystallise any capital losses in the tax year to offset against any gains made in the same year.

Timing of disposal under a contract for capital gains tax purposes is generally the date of making the contract, not settlement.

CAPITAL GAINS TAX CONCESSION

Assets need to be held for at least twelve months to access the 50% discount for individuals and trusts and the 33⅓% discount for superannuation funds.

CEASING BUSINESS / SALE OF BUSINESS ASSETS

Consider redundancy payments for employees.

Plan “golden handshake” payments for after the tax year end.

Small business capital gains tax relief measures may be available for:

  • 15 year exemption
  • 50% reduction
  • Retirement exemption
  • Replacement asset rollover

PAYG PAYMENT SUMMARIES

Summaries and summary statements for employees are required by the ATO by 14 August, otherwise substantial penalties apply.

SUPERANNUATION FUND EXPENSES

All expenses of a fund ought to be paid by the fund in order to claim a tax deduction.

DEPRECIABLE PLANT COSTING $300 OR LESS

Salary and wage earners and rental property owners will be entitled to an immediate deduction if plant for work related purposes costing $300 or less is purchased before 1 July 2017.  Some purchases you may consider include:

  • Books and trade journals;
  • Briefcases/luggage or suitcases;
  • Calculators, electronic organisers;
  • Software;
  • Stationery; and
  • Tools of trade.

CLOTHING EXPENSES

Purchase and pay for work related clothing/expenses prior to the end of the income year, such as:

  • Compulsory, non-compulsory (and registered) occupational specific and protective clothing;
  • Other expenses associated with such work related clothing such as dry cleaning, laundry and repair expenses.

SELF-EDUCATION EXPENSES

Consider pre-paying the following self-education items before the end of the income year:

  • Course fees (but not HELP fees), student union fees and tutorial fees;
  • Interest on borrowings used to pay for any deductible self-education expenses.

Also, bring forward purchases of stationery and text books (i.e. those which are not required to be depreciated).

OTHER WORK RELATED EXPENSES

Employees can pre-pay any of the following expenses prior to 1 July 2017:

  • Union fees;
  • Subscriptions to trade, professional or business associations;
  • Magazine and newspaper subscriptions;
  • Seminars and conferences;
  • Income protection insurance (excluding death and total/permanent disability).

Note:  When pre-paying any of the above expenses before 1 July 2017, ensure that any services are provided within 12 months of the payment and before 1 July 2018.  Otherwise, the deductions must be claimed over the period of the pre-payment.  Any expense under $1,000 is exempt from pre-payment rules.

To ensure you don’t miss out on saving yourself $$$ in tax speak to us today.

SUPERANNUATION CONTRIBUTIONS

CONCESSIONAL / DEDUCTIBLE CONTRIBUTIONS BY EMPLOYERS FOR EMPLOYEES

Maximum contributions for each employee up to 75 years of age, including “salary sacrifice” (needs to be proactive) and superannuation guarantee payments without incurring excess concessional contributions tax:  $30,000*

From 1 July 2017 the concessional limit is $25,000 for all taxpayers.

Condition:

Over 65 years must satisfy the work test, over 70 years work test applies and only contributions received before the 28th day after the end of the month in which member turns 75 are deductible.

CONCESSIONAL / DEDUCTIBLE PERSONAL CONTRIBUTIONS BY INDIVIDUAL TAXPAYERS INCLUDING INVESTORS

Maximum contribution by each individual up to 75 years of age without incurring excess concessional contributions tax:  $30,000*

From 1 July 2017 the concessional limit is $25,000 for all taxpayers.

Conditions:

  • Less than 10% of assessable income including reportable employer superannuation contributions and reportable fringe benefit amounts are attributable to employment.  This condition will be removed from 1 July 2017.
  • The individual must notify the fund of intention to claim a deduction (form NAT 71121) and the fund must acknowledge the notice.
  • Contribution cannot create or increase a loss (deduction cannot exceed taxable income).
  • Over 65 years must satisfy work test.
  • Only contributions received before the 28th day after the end of the month in which member turns 75 are deductible.

*TRANSITIONAL CONCESSIONAL / DEDUCTIBLE EMPLOYER & PERSONAL CONTRIBUTIONS

The concessional limit in 2016/2017 is $35,000, for persons 49 years or over on 30/06/2016.

HIGH INCOME EARNER CONTRIBUTIONS (DIVISION 293)

An additional 15% “contributions tax” is applied to those with adjusted taxable incomes (broad definition) exceeding $300,000.  This threshold will be reduced to $250,000 from 1 July 2017.

NON-CONCESSIONAL / NON-DEDUCTIBLE CONTRIBUTIONS BY INDIVIDUAL TAXPAYERS

Maximum contribution by each individual up to 75 years of age without incurring excess non-concessional contributions tax:  $180,000

From 1 July 2017 the non-concessional limit is $100,000 subject to the individual’s total superannuation balance.*

Note:   Over 65 years the work test will need to be satisfied.

Note:    An individual taxpayer who is under 65 years of age in an income year can bring forward two years’ entitlements and make one contribution of $540,000, subject to the $1.6m transfer balance cap (as at 1 July 2017), without exceeding the non-concessional contributions cap ─ i.e. no further contributions over the three years.

Note:    The annual maximum amount will be indexed in line with the concessional amount.

TRANSFER BALANCE CAP

A transfer balance cap of $1,600,000 will apply from 1 July 2017 which will be indexed in $100,000 increments.  Amounts above the cap cannot be transferred from accumulation to retirement, or pension, phase.  Excess amounts must be withdrawn or transferred to accumulation phase.  Excess transfer balance tax will be calculated on the excess amount until it is withdrawn from retirement phase.

From 1 July 2017 non-concessional contributions can only be accepted by the super fund if the total super balance is less than $1,600,000.

EXCESS CONCESSIONAL / DEDUCTIBLE AND NON-CONCESSIONAL / NON-DEDUCTIBLE CONTRIBUTIONS

An excess contributions tax of 31.5% and 46.5% was previously payable in respect of concessional and non-concessional contributions which exceeded the maximum amount allowed; however, from 1 July 2013 excess concessional (only) contributions will be taxed at the member’s marginal tax rate and an interest charge applied.  The excess may be withdrawn from the fund.

The punitive taxes remain for excess non-concessional contributions.  The tax rate for excess non-concessional contributions increased from 1 July 2014 to 47%.

GOVERNMENT CO-CONTRIBUTIONS

The co-contribution made by the Government of up to $500 is available to employees and the self-employed less than 71 years of age at the end of the income year who make non-concessional/undeducted personal superannuation contributions of up to $1,000 and whose total income (assessable, reportable employer superannuation contributions and reportable fringe benefit amounts) is less than $51,021; the lower threshold of $36,021 allows for the full co-contribution 50c/$1.

Conditions:

  • 10% or more of the person’s total income is attributable to employment or carrying on of a business.
  • Salary sacrifice superannuation contributions are included in assessable income from 1 July 2009.
  • From 1 July 2017 the individual must have a balance of less than $1.6 million in total on 30 June of the previous year and must not have exceeded the non-concessional limit for that relevant year.

GOVERNMENT CONTRIBUTIONS FOR LOW INCOME EARNERS

From 1 July 2012, concessional contributions made by or on behalf of individuals with adjusted taxable incomes of up to $37,000 will be matched by the Government up to an annual maximum amount payable of $500.  This offset will be replaced by the Low Income Super Tax Offset (LISTO) which will operate in a similar manner from 1 July 2017.

CONTRIBUTIONS FOR SPOUSE – TAX OFFSET

A taxpayer making a personal non-concessional/non-deductible contribution for his/her non working or low income spouse is eligible for a tax offset of up to $540 where a contribution of up to $3,000 is made for a spouse whose assessable income, reportable fringe benefit and reportable superannuation contribution amounts do not exceed $10,800.  The offset is phased out at $13,800.

From 1 July 2017 the offset spouse’s income threshold will be increased to $40,000.

Condition:

No work test is applied if the spouse is under age 65, but between 65 and 70 years the spouse must satisfy the work test.  No offset for those over 70 years of age.

FUND ACCEPTANCE OF CONTRIBUTIONS – AGE AND WORK TEST

A regulated superannuation fund may accept contributions as follows:

  • If the member is under 65 – all contributions made, except non-concessional contributions if the member’s total balance is $1,600,00 or more.
  • If the member is 65 or more but under 70 – mandated employer contributions or employer or member contributions provided the work test is satisfied.
  • If the member is 70 or more but under 75 – mandated employer contributions or employer or member contributions up to 28th of the month in which the member turns 75 and the member satisfies the work test.
  • If the member is 75 or more – mandated employer contributions.

A person satisfies the work test if gainfully employed at least 40 hours in a period of not more than 30 consecutive days in that financial year.

SUPERANNUATION GUARANTEE CONTRIBUTION RATE

From 1 July 2014, the contribution rate increased from 9.25% to 9.5% and will remain so until 1 July 2021 when it will increase by 0.5% each year until the rate is 12%.

REPORTABLE EMPLOYER SUPER CONTRIBUTIONS (RESC)

From 1 July 2014, the payment of salary sacrifice superannuation and other additional* superannuation over and above the compulsory superannuation guarantee charge of 9.5%, paid by employers for employees, is to be recorded on employees’ year end PAYG summaries.

*where employee influences the rate or amount of employer contributions.

An employee is considered to have the capacity to influence if he or she can directly negotiate the rate or amount of employer contributions.

As a guideline, the capacity to influence may be shown by:

  1. The employer’s relationship with the employee – e.g. the employee is the employer’s spouse.
  2. The employee’s involvement in negotiations/preparation concerning the terms of any industrial agreement governing super contributions;
  3. The amount contributed for the employee relative to the compulsory contributions the employer is required to make;
  4. The employer’s super contribution arrangements for other employees; and
  5. Any non-arm’s length dealings.

SUPERSTREAM STANDARD FOR CONTRIBUTIONS – AN EMPLOYER’S PERSPECTIVE

The SuperStream standard for contributions (SuperStream for short) is aimed at improving the efficiency of the superannuation system by requiring employers to submit data and make payments for super contributions on behalf of employees electronically.  This will ensure employer contributions are paid into a member’s account in a consistent, timely and efficient manner.

The start date for implementing this standard has been pushed back for employers with fewer than 20 employees to 1 July 2016.

It has been suggested that the ATO will allow a 12 month period from the 1 July 2016 implementation date for employers to “get it right” with respect to the new payment and reporting standard.  After this, the ATO will undertake compliance checks and may issue penalty notices or fines to employers who have failed to take reasonable steps or genuine attempts to meet their SuperStream obligations.

As every business is different, there is no ‘one size fits all’ approach to adopting SuperStream.  The following options are available to assist employers meet their requirements:

  • Upgrade their payroll software
  • Use an outsourced payroll function or other service provider
  • Use a commercial clearing house or the free Small Business Superannuation Clearing House (for employers with 19 or less employees)

To support contributions being made using the SuperStream standard, employers will need to collect the following information from their employees (if not already on hand):

  • Unique superannuation identifier (USI) for APRA-regulated funds
  • ABN for SMSF funds
  • Bank account details
  • Electronic service address

Most employers do not need to understand the technical detail of SuperStream as the data requirements will be sourced from a complying payroll system. However, your payroll officer/staff will need to become familiar with the data and processing requirements of SuperStream.

Please contact your advisor for more information about superannuation contributions.