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Now and then, taxpayers may find themselves in a situation where they simply have no records to back up a tax claim. There can be many reasons for this, such as losing documents (either paper or electronic) when moving home, or technology failures that end up with the same result (or worse, destroyed records).

And with a hot summer predicted, let’s not forget the very real danger of natural disasters and the devastation these can have on people’s lives, not just their financial concerns.

It’s true that in these modern times the ATO’s systems are able to pre-fill quite a lot of data, and this is only going to increase over time, which can mean that taxpayers can relax a little more about having to stay on top of record keeping. But there can still be situations where essential back-up documents or other evidence is required that may be unavailable for one reason or another.

If your records are damaged or destroyed or simply missing, there are ways to a remedy, or at least an acceptable outcome. First of all, be assured that we will hold quite a substantial amount of required information, so your first and perhaps best inquiry could be to your friendly tax professional.

But the ATO can also help. It can re-issue or supply copies of tax documents, such as income tax returns, activity statements, or notices of assessment. We can help if you need to request copies of any tax documents.

If you have lost your TFN, we will most likely have that on our records. If for some reason you have not given that to us in the past, it is still possible to interact with the ATO using other information to verify your identity, such as your date of birth, address and bank account details. Your super fund will also have your TFN, but will also require identity verification.

Your employer or payer should have copies of your PAYG payment summaries, and your bank should be able to provide you with any bank records that have been destroyed. Note that if your bank charges a fee for replacing bank records and providing any other service to help you to reconstruct records or provide information due to a disaster, you can claim a deduction in the income year that those fees are charged.

If you are unable to substantiate claims made in your tax returns or activity statements because your records have been lost or destroyed, it is generally the case that the ATO is still able to accept the claim without substantiation — for example, where it is not reasonably possible to obtain the original documents.

If you have a self-managed super fund (SMSF), it is a requirement to maintain compliance as an SMSF to keep certain records. If you have lost these records in a disaster, the ATO will consider a request for additional time to meet your reporting obligations (call 13 10 20). Where possible, the ATO should make available information that was previously reported for your SMSF.

Give yourself the ultimate gift that doesn’t cost a thing – a super to-do list which is a gift that will benefit you now and in the future.

1. Consolidate your super

With over 10 million unintended multiple superannuation accounts, these multiple accounts are costing Australians an extra $690 million in duplicated administration fees and $1.9 billion in insurance premiums per year, which is eroding many Australians’ hard earned superannuation benefits.

If you are one of these individuals with multiple superannuation accounts, there may be benefits to rolling your accounts onto one superannuation fund.

Consolidating your superannuation is now easier than ever, using ATO online services or your myGov account. If you’re not sure whether you might have other superannuation accounts, you can search for lost or unclaimed super via the ATO or by logging into your myGov account linked to the ATO and clicking on Manage my super.

However before you consolidate your funds, there are a few things you should do, such as:

• consider whether you have any insurance cover which may be lost when transferring benefits to a new fund, and
• check on other details such as fees, insurance premiums, variety of investment options available, performance data, and tax implications from consolidating your superannuation to ensure the transfer provides you with better value and meets your needs.

2. Review your investment strategy

Your superannuation fund trustee invests your money for you. Most funds allow you choose from a range of investment options, from conservative to growth. Take the time to check your investment options and decide what’s right for you. The options you choose can make a big difference to how your super grows between now and your retirement.

If you manage your own self-managed superannuation fund (SMSF), the super laws require you to prepare and implement an investment strategy for your SMSF and review the strategy regularly (ie, at least annually). Your investment strategy is effectively your plan for making, holding and realising assets consistent with your investment objectives and retirement goals.

It also needs to set out why and how you’ve chosen to invest your retirement savings to meet the goals outlined in the strategy. Review your investment strategy to ensure it meets each member’s investment and retirement objectives.

3. Make extra contributions

Making small financial sacrifices and contributing to super over the years is key to long-term wealth. This long-term growth is due to the power of compounding interest. Superannuation uses compounding interest to grow your balance which will help you in retirement. If you’re an employee, your employer will pay 11% of your salary/wages into superannuation in 2023/24 that will benefit from compounding interest and grow until you reach retirement.

To boost the amount you’ll have saved at retirement, you may want to consider making additional contributions through salary sacrificing or making personal after-tax contributions to superannuation.

However contribution caps must be considered to avoid exceeding the caps and paying extra tax.

4. Check your insurance

Insurance is another key aspect of your superannuation that you should review.

Superannuation funds generally offer three types of insurance for their members, including life insurance, total and permanent disablement (TPD) insurance and income protection insurance, so it’s important to check whether you have any cover within your fund.

Some funds provide a default level of insurance as a standard inclusion when you open your account, but it’s worthwhile seeking advice to determine whether your current level of cover will adequately protect you and your family in the event of injury, illness or death.

5. Check your beneficiary nominations

Despite what many people may think, superannuation is not an estate asset which means on death it does not automatically flow to your estate. This means that your Will does not typically deal with your superannuation benefits.

To make sure your superannuation is distributed to the right people, you should nominate a valid beneficiary. If you don’t nominate a beneficiary or you have an invalid nomination (ie, because your nominated beneficiary does not meet the definition of a superannuation law dependant at the time of your death), your superannuation fund may decide who receives your superannuation money, regardless of what you have in your Will. For this reason, it is important to regularly review your superannuation death benefit nominations* when your circumstances change to ensure it remains up to date and ends up in the hands of the right person(s).

Sleigh the super way

Superannuation is your money so it pays to take an active interest in your superannuation during your working years. Reviewing your current superannuation and making these simple changes can help boost the amount you have available for retirement over the long term.

There are many types of nominations offered by different funds. Knowing which one suits your circumstances is key to ensure your superannuation ends up in the right hands.

Types of nominations

Individuals can direct or influence their superannuation fund trustee as to how they want their death benefits distributed by completing a death benefit nomination form. Superannuation funds offer a range of death benefit nominations, including:

• Non-binding death benefit nominations
• Binding death benefit nominations
• Non-lapsing binding nominations
• Reversionary pension nominations, and
• In the case of an SMSF, executing a trust deed amendment or using one of the above types of nominations.

However not all funds will provide all options to their members, and completion of these forms is best done by the member in conjunction with their adviser and an estate planning lawyer in the first instance.

Non-binding death benefit nomination

This is the most common type of death benefit nomination and is offered by most superannuation funds. A non-binding nomination is an expression of wishes which is not binding on trustees. The trustee of your superannuation fund will look at the nomination you make, but will exercise discretion to determine which of your beneficiaries receives your superannuation and in what proportions.

Binding death benefit nomination

A binding death benefit nomination is a written direction from a member to their superannuation trustee setting out how they wish some or all of their superannuation death benefits to be distributed. The nomination is generally valid for a maximum of three years and lapses if it is not renewed.

If this nomination is valid at the time of your death, the trustee is bound by law to follow it.

Non-lapsing binding death benefit nomination

This is a written direction by a member to their superannuation trustee establishing how they wish some or all of their superannuation death benefits to be distributed. These nominations generally remain in place forever unless you cancel or replace it with a new nomination. If this nomination is valid at the time of your death, the trustee is bound by law to follow it.

Reversionary pension nomination

If you are in receipt of an income stream, you can nominate a beneficiary (usually your spouse) to whom the payments automatically revert upon your death. With this type of death benefit nomination, the fund trustee is required to continue paying the superannuation pension to your beneficiary if your benefit nomination is valid.

SMSFs and death benefit nominations

If you are an SMSF member and want to make a death benefit nomination, it is important to review your fund’s trust deed requirements to determine the rules regarding death benefit nominations. Although the High Court recently ruled in the case of Hill v Zuda Pty Ltd [2022] that traditional three-year lapsing binding death benefit nominations do not apply to SMSFs, many trust deeds expressly include the traditional requirements. If this is the case, they must be complied with, and the nomination will lapse.

What if there is no nomination or an invalid nomination?

If you have not made a nomination, your superannuation fund will have rules for determining the death benefit recipient(s). In many cases, funds will either exercise discretion and follow the same process as if a member had a non-binding nomination, or pay your benefit to your legal personal representative (LPR). The risk with this option is if you don’t have a Will, your benefit may be distributed under the relevant state laws for dealing with intestacy!

Similarly, if your nominated beneficiary does not meet the definition of a superannuation law dependant at the time of your death, the nomination will be deemed invalid. Again, it will come down to your fund’s rules which may determine that your benefit must be paid to your LPR or alternatively that the trustee exercise their discretion.

Check your nomination

Remember to regularly review your superannuation death benefit nominations when your circumstances change to ensure it remains up to date and ends up in the hands of the right person(s).

A question that often gets asked when dealing with death benefit nominations is whether a person will qualify under the interdependency or financial dependency definitions. This is an important consideration as meeting the dependency criteria will enable potential beneficiaries to qualify as a dependant and therefore allow them to receive a death benefit.

INTERDEPENDENCY RELATIONSHIP

Put simply, an interdependency relationship exists between two people if all of the following conditions are met:

1. They have a close personal relationship
2. They live together
3. One or both provides the other with financial support
4. One or both provides the other with domestic support and personal care.

However, if two people satisfy the close personal relationship requirement but cannot satisfy the other three requirements, they can still satisfy the interdependency relationship if:

• Either or both of them suffer from a physical, intellectual or psychiatric disability, or
• They are temporarily living apart (eg, overseas or in jail).

There is no easy way in determining whether an interdependent relationship exists, however superannuation law provides the following list of considerations to help superannuation fund trustees determine if an interdependency relationship exists (or existed before one of the parties died):

• Duration of relationship
• Whether or not a sexual relationship exists
• Ownership, use and acquisition of property
• Degree of mutual commitment to a shared life
• Care and support of children
• Reputation and public aspects of the relationship
• Degree of emotional support
• Extent to which the relationship is one of mere convenience
• Any evidence suggesting that the parties intend the relationship to be permanent
• A statutory declaration signed by one of the persons to the effect that the person is or was in an interdependency relationship with the other person.

It is not necessary that each of these factors exists in order for an interdependency relationship to exist. Instead, each factor is to be given the appropriate weighting depending on the circumstances.

FINANCIAL DEPENDANT

If a beneficiary fails to meet the interdependency relationship criteria, they may qualify as a financial dependant. Being financially dependent on the deceased generally means you relied on them for necessary financial support. This also applies to children over 18 years old as they must be financially dependent on the deceased to be considered a financial dependant.

That said, the term financial dependant is not expressly defined in superannuation or tax legislation, so it takes on the ordinary meaning of that term. As such, the definition of financial dependant is reliant on case law and comes down to the facts of each case.

In most cases, it is not the value of payments received from the member that establishes financial dependency but the degree of dependency on that payment. This includes the extent the person relies on the financial support provided by another person to meet basic living expenses.

For example, a grandparent who chooses to pay school fees for their grandchild is unlikely to have their grandchild qualify as a financial dependant. This is mainly due to the fact that the payment is seen to be more discretionary in nature than providing for an essential element of life, such as food or shelter.

In summary, superannuation case law provides more flexibility for someone to be partially or wholly dependent, whereas tax dependency takes a stricter approach as a substantial degree of dependency is required.

TIP

If you are uncertain whether an interdependency relationship exists (ie, where adult siblings have been living together, or where an adult child has been living with their parents), you can always request a private ruling from the Australian Taxation Office as the definition for interdependency is the same under both superannuation and tax law.

CONTACT US

The conditions for the existence of an interdependency and financial dependency relationship under the law can be complex. If you require further information on this topic, please contact us for a chat

If you’ve been putting off upgrading the inefficient office air-conditioner, a new 20% bonus deduction might just be the incentive you need to help beat the heat before it arrives with a vengeance!

Whilst the small business Technology Investment Boost has now ceased1 , not only can you still take advantage of the Skills and Training Boost (generally for expenditure on training employees incurred before 30 June 2024), but there is also now a new kid in town – the small business Energy Incentive!

Similar in design to the earlier ‘boosts’, the proposed Energy Incentive provides a bonus tax deduction of 20% of expenditure on improving the energy efficiency of your business. Up to $100,000 of expenditure can be eligible for the incentive, with the maximum bonus tax deduction being $20,000 for the 2023-2024 tax year.

What type of expenses are eligible for the bonus? Where you can show improved energy efficiency, expenditure on electrifying heating and cooling systems, upgrading appliances such as fridges and cooktops, and installing batteries, heat pumps and off-peak electricity monitors can all be eligible. (As always, there are some exclusions, such as expenditure on motor vehicles, building improvements and financing expenses.)

Although this proposed Energy Incentive is not yet law, it is an opportune time to consider whether your business may want to take advantage of the bonus and undertake the preparation and ‘leg work’ needed to ensure you can maximise the bonus.

If you’re interested in finding out more about either the Skills and Training Boost or the proposed new Energy Incentive, feel free to reach out to us and we can provide the information and guidance needed to make sure your business gets the most out of both incentives (before they end on 30 June 2024!).

A person’s residency for tax purposes can be one of the most difficult issues to determine in Australian tax law. And it is not just a question of whether a person is a ‘citizen’ of Australia.

Moreover, it is highly relevant from a tax point of view, as a person who is a resident of Australia for tax purposes is liable for tax in Australia on their income from ‘all sources’ (ie, both from Australia and overseas) – including capital gains. On the other hand, a person who is not a resident of Australia for tax purposes is only liable for tax in Australia on income and capital gains that are considered ‘sourced’ in Australia.

A recent decision of the Administrative Appeals Tribunal (AAT) illustrates some of the issues involved in determining this complex matter (see PQBZ v FCT [2023] AATA 2984). In that case, the AAT found that the taxpayer was a resident of Australia for tax purposes under the ‘ordinarily resides’ test or principle – without having to consider the ‘subsidiary’ tests which involve, for example, questions of the person’s ‘domicile’ and whether they intended to take up residency in Australia.

Significant to the AAT’s decision was that, apart from his business interests in an overseas country and the unit he lived in there to carry on that business, all of the taxpayer’s personal (and other) ‘connections’ were otherwise clearly with Australia.

These Australian connections included his family home, his personal and other business assets, where his wife and children lived, Australian bank accounts and his Australian health insurance. It was also relevant that for the several years in question, the majority of the time he had spent living in Australia.

As a result the taxpayer, as a resident of Australia for tax purposes, was liable to tax in Australia on his overseas business income.

But not all residency issues are apparently as clearcut as this.

In other cases, it is necessary to consider issues such as whether the taxpayer has been in Australia for half the income year or more and whether they intend to take up residency in Australia.

It may also be necessary to consider the complexities of any ‘double tax agreement’ with the country in question.

And suffice to say, if the issue is relevant to you, not only is the advice of your professional adviser invaluable, it is also essential.

Your superannuation death benefits must be paid to someone when you die. That somebody will usually be your estate or your nominated beneficiary (also known as your dependants).

Paying death benefits to your estate

Unlike other assets such as shares and property, your superannuation and any insurance benefits you have in superannuation do not form part of your estate. That’s because your superannuation is not held by you personally, rather it is held in trust for you by the trustee of your superannuation fund.

However, you can direct your superannuation death benefit to your estate by nominating your ‘legal personal representative’ (LPR), who will usually be the executor of your estate.

If you nominate your estate or LPR, you must also specify in your Will who you want to distribute your superannuation money to. This can include eligible beneficiaries (see below) as well as anyone else you wish to leave your death benefits to.

As such, it’s important that the directions stated in your Will are up to date so your LPR pays out your death benefits (as well as your other estate assets) as per your wishes.

Paying death benefits to a beneficiary/dependant

If you want your superannuation death benefits to be paid to a person, that person must be a ‘dependant’ for super purposes.

The meaning of dependant is important as it determines who can receive a death benefit, whether the death benefit will be taxed and in what form your death benefit can be paid out (ie, lump sum, income stream, etc). In particular, superannuation law determines who can receive your super directly from your super fund without having to go through your estate. These people are your superannuation dependants. Tax law on the other hand determines who pays tax on your superannuation death benefit.

These people are considered tax dependants.

The table below summarises the difference between:

• a superannuation dependant and tax law dependant, and
• the types of death benefit that can be paid to each category of dependants.

As can be seen, the key differences between the superannuation and tax dependant definitions are:

• a tax dependant does not include an adult child (whereas a super dependant does), and
• a tax dependant includes a former spouse (whereas a super dependant does not).

Although your financially independent adult children are your superannuation dependants and can receive a death benefit directly from your superannuation fund, they are not tax dependants. This means they will not receive more favourable tax treatment than a tax dependant would receive unless they qualify under an ‘interdependency relationship’ or are financially dependent on you.

A tax dependant will generally not pay any tax on superannuation death benefits. In contrast, a non-tax dependant is taxed on any taxable components of a superannuation death benefit. This could be up to 15% tax plus Medicare levy on any taxable component and potentially up to 30% plus Medicare levy for any taxable untaxed elements within your fund.

TIP

If you would like to leave your super to someone who is not a dependant under superannuation law, you could consider nominating your LPR and then use your Will to determine how you would like superannuation death benefits to be paid. For example, if you wish to nominate your parent or financially-independent sibling, or a cousin or friend, you could make a binding nomination to your LPR and then instruct them on how to divide your superannuation through your Will.

Need help?

Please contact us if you would like further information about who you can nominate to receive your superannuation death benefits.

Personal deductible contributions can allow individuals to claim a tax deduction for contributions they have made to superannuation provided they meet certain requirements. So what are these requirements and what should you look out for?

Eligibility requirements

You will be eligible to claim a deduction for your personal superannuation contributions if:

• You meet the age-based rules
• Your taxable income is more than the amount you want to claim as a deduction (i.e. your deduction can’t give you a tax loss)
• You make the contribution to a complying superannuation fund
• You give a special notice to your fund telling the trustee how much you want to claim
• You give your fund that notice within strict timeframes
• Your fund sends you an acknowledgement confirming your notice has been received and is valid.
  You must meet all of the above criteria otherwise you won’t be eligible to claim a deduction for your contributions.

Meeting the age-based rules

If you are between age 18 and 66 when you make your contribution, there are no age-based rules for you to meet. This means there are no age restrictions in order to make a deductible contribution.

If you are aged 67 to 74 when you make your contribution, you can only claim a deduction if you meet the “work test” or the “work test exemption” in that year.

To meet the work test, you need to work for at least 40 hours in a 30-day consecutive period during the financial year and be paid for that work.

Alternatively, the work test exemption can be used if you satisfy all of the following rules:

• You are aged between 67 to 74
• You satisfied the work test in the previous financial year
• Your total superannuation balance was below $300,000 the previous 30 June (i.e. 30 June 2023)
• You have not made use of the work test exemption in a previous financial year (i.e. it can only be used once).

If you are aged 75 or older at the time you make your contribution, you can only claim a deduction if your contribution was made before the 28th day of the month after your 75th birthday and you met the work test above.

For example, if you turn 75 in September 2023, your contribution must be received by your superannuation fund by 28 October 2023. This is a special rule that applies around an individual’s 75th birthday.

Unfortunately, once a person reaches age 75, you can no longer make any deductible superannuation contributions. The only contributions that can be made are downsizer contributions, superannuation guarantee contributions or contributions your employer is obliged to make for you under an award.

Timeframes to adhere to

You must give your fund the notice form before the earlier of:

• The day you lodge your personal income tax return for the year in which you made your contribution, or
• 30 June of the following year.

However, certain events may occur which mean you must submit your notice and receive acknowledgement from your fund prior to the above timeframes. For example, you must submit and receive acknowledgement from your fund prior to:

• Withdrawing any funds
• Rolling over to another fund
• Splitting contributions with your spouse, or
• Commencing a pension.

If you do not give your notice to your fund before these events occur, you will lose some or all of the deduction amount.

What happens next?

Once you have told your fund that you want to claim a deduction for your personal contribution, it will count towards your concessional contributions cap. Your fund will then deduct contributions tax of 15% from your contribution.

If you change your mind and no longer want to claim the entire amount as a tax deduction, you can vary your notice to reduce the amount you are claiming, provided you are still within the timeframes mentioned above.

It is also important to claim the deduction in your personal income tax return for the year the contribution was made. If you forget to claim the deduction, your contribution will count towards your non-concessional contributions cap and could cause you to exceed that cap.

As you can see, the contribution rules are complex so if you’re thinking about making a personal deductible contribution and not sure if you meet the eligibility requirements, contact us today for a chat.

The CGT small business concessions are invaluable to those who make a capital gain from a small business. They can eliminate a gain entirely; they can reduce a gain; and they can allow for the gain to be CGT-free if paid into a superannuation fund.

But it is often forgotten that the gain can also be rolled over.

And this concession can be very useful depending on your circumstances and business intentions, especially where it may be used in conjunction with the other CGT small business concessions.

Broadly, this roll-over concession allows you to roll-over a capital gain if a “replacement asset” is acquired within the 2-year “replacement asset period”.

However, the rolled over gain will be reinstated if the amount of the capital gain is not expended on acquiring a replacement asset within this time period. In this way, the roll-over offers a 2-year deferral of the assessment and taxation of the capital gain.

But apart from the advantage of the 2-year deferral (which will also give you time to think about what to do with the money and whether to go back into business), the reinstated gain is eligible for the retirement concession – which allows you to take a capital gain of up to $500,000 tax-free if you are 55 or over, or otherwise requires you to pay the gain into your super fund. Moreover, the 2-year deferral may allow you to access this concession in the most advantageous way – namely, when you are aged 55 years or over!

Likewise, a capital gain will be reinstated if a replacement asset is acquired, but after the 2-year period, it ceases to be used as a business asset (eg it is sold or taken for private use).

In this case the reinstated gain is also entitled to the retirement concession. But additionally it is also entitled to be rolled over again, which can be invaluable to a small business owner in a range of circumstances (even to the extent of continually rolling over the gain until retirement).

For example, say you make a capital gain from selling your gym business. This capital gain can be rolled over by acquiring new equipment in other gyms you own. And each time these wear out and are disposed of, the capital gain reinstated can be used to acquire replacement equipment. This can be done continuously until you reach retirement and then finally crystalise the reinstated gain.

Of course, like all areas of tax, it is an area which requires the considered advice of a taxation professional – especially in relation to any tax planning opportunities!