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For individuals who have retired and met a condition of release, or who have turned 65 and are still working, you can receive your superannuation as a super income stream, as a lump sum, or a combination of both. This third option is quite popular for those who have yet to pay out their house, for example – a lump sum is withdrawn to pay off the remainder of the mortgage, and the balance used to commence a super income stream.

1. Lump sum

If your super fund allows it, you may be able to withdraw some or all of your super in a single payment. This payment is called a lump sum.

You may be able to withdraw your super in several lump sums. However, if you ask your provider to make regular payments from your super it may be classed as an income stream.

The downside to lump sums from a tax perspective is that once you take a lump sum out of your super, it is no longer considered to be super, and thus no longer enjoys the superannuation tax concessions (15% on earnings and capital gains, and tax-free if you convert your super into an income stream). That is, if you invest the lump sum outside of super, earnings on those investments are not taxed as super and may need to be declared in your tax return.

Further, if you’re over age 60, super money you access from super will generally be tax free, but if you’re under 60, you might have to pay tax on your lump sum.

2. Super income stream

A super income stream is a series of regular payments from your super provider (paid at least annually). The payments must be made over an identifiable period of time and meet the minimum annual payments for super income streams. To find out what will happen if the income stream doesn’t meet the minimum annual payment, see Minimum annual payment not made.

The payments don’t need to be at the same interval, and the amount paid may also vary.

Super income streams are a popular investment choice for retirees because they help you manage your income and spending. Super income streams are sometimes called pensions or annuities.

One of the most common income streams is an account-based income stream. This is an account made up of money you’ve accumulated in super, which allows you to draw a regular income once you retire. An account-based income stream includes market-linked pensions that started on or after 1 July 2017.

Your provider or SMSF normally continues to invest the money in your super account and adds returns from investments to your account. Your account balance fluctuates with market performance.

Each year you can withdraw as much as you like through your account-based super income stream (unless you’re receiving a transition to retirement income stream).

You must withdraw a minimum amount each year – based on your age and account balance. There may be income tax implications if your provider does not pay you the minimum amount each year.

You can continue to receive your super income stream until there is no money in your account.

How long your super income stream lasts depends on how much you take out each year and what investment returns you receive. There is a limit on the amount you can transfer into retirement phase; this is known as the transfer balance cap.

The chief advantage of this type of withdrawal is that earnings on the remainder of your account inside of superannuation are taxed concessionally.

Take-home message

Check with your super provider and adviser to find out what options are available to you, and which are best for your circumstances. n

The ATO has issued a reminder for companies wishing to claim a tax offset for their R&D (research and development) activities. The reminder was issued in the context of the ATO’s success in the Federal Court decision T.D.S. Biz Pty Ltd v FCT. 1

By way of background, the research and development tax incentive (R&DTI) helps companies innovate and grow by offsetting some of the costs of eligible R&D.

The incentive aims to boost competitiveness and improve productivity across the Australian economy by:

• encouraging industry to conduct R&D that they may not otherwise have conducted
• improving the incentive for smaller firms to undertake R&D
• providing business with more predictable, less complex support.

Broadly speaking, your eligibility to claim the tax offsets will depend on whether you:

• are an R&D entity
• incurred notional deductions of at least $20,000 on eligible R&D activities.

You are not eligible for an R&D tax offset if you are either:

• an individual
• a corporate limited partnership
• an exempt entity (where your entire income is exempt from income tax)
• a trust (with the exception of a public trading trust with a corporate trustee).

For income years commencing on or after 1 July 2021, entities engaged in R&D may be entitled to:

• A refundable offset of 18.5% above the company’s tax rate.
• A flat non-refundable offset based on a progressive marginal tiered R&D intensity threshold. Increasing rates of benefit apply for incremental research and development expenditure by intensity:
  • 0 to 2% intensity: an 8.5% premium to the company’s tax rate
  • greater than 2% intensity: a 16.5% premium to the company’s tax rate.

Turning back to the aforementioned case, the ATO successfully contended that the taxpayer conducted significant R&D activities outside Australia by purchasing components designed, developed and fabricated overseas without an Advance Overseas Finding from the Department of Industry, Science and Resources.

The ATO states that, while companies can claim an offset for R&D expenditure incurred by them on R&D activities conducted overseas, there is a requirement to hold an Advance Overseas Finding for those activities.

If your company is conducting R&D, contact us to determine if you are eligible for the offset.

SMSF trustees with limited recourse borrowing arrangements (LRBAs) are now feeling the impact of ten interest rate rises since May 2022 in one hit, from July 2023.

SMSF trustees relying on the ATO’s safe harbour terms to ensure that an LRBA remains, at all times, at arm’s length will face an increase in monthly repayments of interest and principal from 1 July 2023.

The arm’s length annual interest rate for 2023/24, as determined under the ATO’s safe harbour terms is based on the published rate for the month of May 2023 of the Reserve Bank of Australia’s Indicator Lending Rate for banks providing standard variable housing loans for investors.

In accordance with the ATO’s safe harbour interest rate for SMSFs with a related-party LRBA that is funding the purchase of real property, the relevant interest rate for 2023/24 will increase to 8.85%. This is an increase of 3.5% from the former rate of 5.35%.

Where the LRBA is funding the purchase of listed shares or listed units in a unit trust, the safe harbour rules require an additional margin of 2%, meaning the relevant interest rate for 2023/24 has increased to 10.85%. This will make SMSF cashflow more important than ever. Speak to your SMSF advisor around how to maximise cashflow, including making additional contributions to your fund where you have the capacity to do so.

On the flip-side, higher interest rates are resulting in super funds pilling more money into cash and bonds as they look for low risk investments. Funds have been increasing their exposure to cash and cash products from 18% of their savings pools last year to 22% so far this year, a new report shows.1

Their exposure to the share market through direct investment dropped by 5% at the same time, as they funnelled their money into less volatile assets such as term deposits.

A reminder though that such a change in strategy must be consistent with your overall SMSF investment strategy, and may or may not be in the best interests of younger members whose circumstances may call for a higher risk, bolder investment strategy.

Some employers, especially at Christmas time or for birthdays, give small gifts to their employees or the employee’s associates (i.e. spouses). These gifts typically take the form of bottles of wine, movie tickets, gift vouchers etc.

The tax treatment of these gifts from an employer standpoint, depends upon a range of factors including:

• To whom the gifts are provided (e.g. employees or clients?)
• Whether the gifts constitute entertainment
• The dollar value of the gifts, and
• The frequency with which they are provided.

Use the following steps as a guide:

1. Does the gift constitute entertainment?

• If yes…go to 2
• If no…go to 3

(gifts that constitute entertainment include: tickets to the movies/plays/theatre, restaurant meals, holiday airline tickets, admission tickets to amusement parks etc.)

(gifts that do not constitute entertainment include: Christmas hampers, bottles of alcohol, gift vouchers, perfume, flowers, pen sets)

2. Does it cost less than $300 (GST-inclusive) and is provided infrequently?

• If yes…no FBT, no deduction, no GST credit
• If no…FBT applies, is deductible and can claim any GST

3. Does it cost less than $300 (GST-inclusive) and is provided infrequently?

• If yes…no FBT, deduction can be claimed as can any GST credits
• If no…FBT applies, deduction can be claimed as can any GST credits

All told, from a tax standpoint it’s best to buy employees and their associates non-entertainment gifts that cost less than $300. That way, no FBT is payable yet a deduction and GST credits can be claimed. Alternatively, you can put the tax burden back on the employee and pay them a cash bonus, in which case the amount will be assessable to the employee, and deductible to the employer.

Touch base with us if you require further clarification.

For the first time, many Australians are finding themselves in a position where they are being told they owe the ATO money after completing their tax return this year.

A significant number of taxpayers in this position are those that are still paying off their HECS/HELP debts – many of them young Australians. Following are some myths and facts around why this may be the case.

We also tackle the LMITO myth.

1. When PAYGW is deducted from salaries and wages to take account of HELP liabilities, the withheld amount is not applied against the HELP debt until after the end of the income year, when the tax return is lodged. This means that indexation is applied to the debt without taking into account any PAYGW withheld during the year.

Fact or myth?

This is a myth.

Indexation only affects the loan balance, it doesn’t affect the amount of the year-end tax liability.

2. Where an employee has salary sacrificed, the lower salary will reduce the PAYGW withheld, but the reportable fringe benefit is included in the repayment income that is used to determine liability to HELP repayments.

This is not likely to be understood or expected by affected taxpayers.

Fact or myth?

This is a fact.

HELP repayment income is the total sum of the following amounts from a person’s income tax return for the income year:

• taxable income
• total net investment loss
• reportable fringe benefits (as reported on their payment summary)
• total net investment loss (which includes net rental losses)
• reportable super contributions (including salary sacrificed contributions); and
• any exempt foreign employment income amounts

3. Negative gearing amounts are added back and included in HELP repayment income. The rapid rise in interest rates will flow through to negative gearing amounts which increase the repayment income.

This is not likely to be understood by affected taxpayers and will have caught them off-guard.

Fact or myth?

This is a fact.

However, this will only affect those engaged in negative gearing which may not be many young Australians with a HELP debt.

4. The high indexation applied to HELP debts this year of 7.1% compared to prior years (3.9% in 2022 and 0.6% in 2021) has caught taxpayers off-guard. Prior to 2022, over the last 10 years, the rate had not exceeded 2.6% and was often around 2%.

Fact or myth?

This is a myth.

Again, indexation only affects the loan balance, it doesn’t affect the amount of the year-end tax liability.

5. The end of LMITO after 2021/22 is only just being realised by taxpayers now, despite two years of talking about this. The message did not get through, or the impact was not fully understood.

Fact or myth?

This is a myth.

For employees, the PAYGW rates were increased to take the LMITO abolition into account, so yes no refund, but there shouldn’t be tax payable as a result of just the LMITO ending.

The recent ATO crackdown on trusts will no doubt have some business owners (and even some advisors) asking themselves the question: Is this structure for business purposes still worth it?

To recap, trust distributions have been under the ATO microscope in recent years. The latest ATO crackdown was in February 2022 when it updated its guidance around trust distributions especially those made to adult children, corporate beneficiaries and entities that are carrying losses.

Depending on the structure of these arrangements, the ATO may potentially take an unfavourable view on what were previously understood to be legitimate distribution arrangements. The ATO is chiefly targeting arrangements under section 100A of the Tax Act; specifically, where trust distributions are made to a low-rate tax beneficiary but the real benefit of the distribution is transferred or paid to another beneficiary, usually with a higher tax rate. In this regard, the ATO’s Taxpayer Alert (TA 2022/1) illustrates how section 100A can apply to the quite common scenario where a parent benefits from a trust distribution to their adult children.

Despite this new ATO interpretation and the wider crackdown on trusts in recent years, the choice of a trust as a business structure still has a range of benefits including:

• Asset protection – Limited liability is possible if a corporate trustee is appointed. Usually, when a person owes money and cannot meet the repayment requirements, the creditor can access the person’s personal assets to recoup the debt payable. However if a trust is in place, there is no access to beneficiary assets.
• 50% CGT discount – A family trust receives a 50% discount on capital gains tax for profits made from selling any assets the trust has held for more than 12 months. This contrasts with a company structure. Companies cannot access the 50% CGT discount.
• Tax planning – Income that sits in the family trust that is not distributed by year-end is taxed at the highest income tax rate. However, any trust income distributed to the beneficiaries is taxed at the income tax rate of the beneficiary who receives the distribution. The way to definitely get around the ATO’s aforementioned section 100A crackdown is to ensure the distributed money actually goes to the nominated beneficiary and is enjoyed by the beneficiary rather than another taxpayer.
• Carry-forward losses – A trust does not distribute losses to beneficiaries. This means the beneficiaries will not be called upon to contribute money to the trust to meet any loss. Instead, losses from each year can be carried forward to the following year, subject to certain conditions being met.

If you have questions around your trust structure, or your business structure more generally, touch base with us.

The ATO has just announced that the cents per kilometre rate has increased to 85 cents per kilometre for 2023/24.

To recap, there are two methods to claim workrelated car expenses as follows:

1. Cents per kilometre method

This method is easier for record keeping, involves a more simple calculation, and is generally suited to those with less vehicle use.

You simply keep a record of the number of kilometres you’re traveling for work or for business over the duration of the year and you claim these using the set rate.

The drawback of this method is that you are limited to a maximum of 5,000 work-related or business kilometres per year. That gives you a total maximum claim of $4,250. Thus, if you’re using your car a lot for work, you may find that this is method quite limiting.

2. Logbook method

This method can allow for greater claims depending on how much you’re using your car for work or business.

However, there are more recordkeeping requirements – the main one being that you must keep a 12-week logbook that records all of your trips, both business and private, for those 12 weeks.

At the end of the 12 weeks, you calculate your workrelated or business percentage use, and you can claim that percentage for all deductions for your car.

You also need to keep all receipts for fuel, insurance, registration, interest, and servicing throughout the year.

As mentioned, despite the additional effort, it can often lead to a greater claim if you are using your car a lot for work and business.

Comparison

Summary

As you can see, both methods have their downsides and can have their benefits too depending on your situation. Consider which is best for you, taking into account:

• If you have the time or the ability to save all of your car-related records
• The level of your business-related vehicle use

This tax time, the ATO is introducing the ‘super health check’ initiative. This consists of five simple and important things that individuals can do to get on top of their super, including:

1. Check your contact details.
2. Check your superannuation balance and employer contributions.
3. Check for lost and unclaimed super.
4. Check if you have multiple super accounts and consider consolidating, and
5. Check your nominated beneficiaries.

Individuals are encouraged to complete the check on ATO online services, through myGov or the ATO app at least once a year at tax time. Alternatively, you may wish to contact your superannuation fund to perform this check.

Although the super health check can be done at any time, the ATO is suggesting individuals do it when they prepare their tax return.

This reminder from the ATO is timely given the superannuation guarantee increases to 11% on 1 July 2023.

So make sure you start the new financial year strong and get on top of your super savings.

Since Budget night, the ATO has released more information around the small business lodgment amnesty…which can now be taken advantage of from 1 June 2023!

The amnesty was announced in the recent Budget. It applies to tax obligations that were originally due between 1 December 2019 and 28 February 2022 and runs from 1 June 2023 to 31 December 2023.

To be eligible for the amnesty, the small business must be an entity with an aggregated turnover of less than $10 million at the time the original lodgement was due.

During this time, eligible small businesses can lodge their eligible overdue forms and the ATO will then proactively remit any associated failure to lodge (FTL) penalties.

ATO Assistant Commissioner Emma Tobias urged small businesses to take advantage of the amnesty to get back on track with their tax obligations if they have fallen behind.

“The past few years have been tough for many small businesses, with the pandemic and natural disasters having a significant impact. We understand that things like lodging ATO forms may have slipped down the list of priorities. But it is important to get back on track with tax obligations. Lodging these forms are not optional, so we hope our amnesty will make it easier for impacted small businesses to get back on track.

When forms are lodged with the ATO under the amnesty, businesses or their tax professionals will not need to separately request a remission of FTL penalties.

All you need to do is lodge your outstanding tax returns or activity statements and we’ll take care of the FTL penalty remission from our end.

You might see an FTL penalty on your account for a short period of time, but don’t worry, we will remit it.”

Ms Tobias also noted that outstanding lodgements can be an early indicator that a small business is not actively engaged with the tax system, which can be a red flag:

“We encourage all businesses to lodge any overdue forms even if they are outside the eligibility period. Whilst forms outside the amnesty eligibility criteria will attract FTL penalties, the ATO will consider your circumstances and may remit such penalties on a case-by-case basis.

We understand that some small businesses may be worried about paying an amount owing on their overdue lodgment. If you are unable to make full payment of your debt, remember we can work together with you or your registered tax or BAS agent to figure out the right solution for you.

We want to make this process easy and encourage small businesses to do the right thing. If you have a registered tax or BAS agent, now is a good time to reach out to them to make sure you are up to date with your tax affairs.

Taxpayers still have an obligation to lodge overdue forms during the amnesty period and we will continue to work with them to help ensure they meet their obligations,” Ms Tobias said.

The ATO offers a range of support options, including payment plans. Many small businesses are also able to set up their own payment plan online.

Ms Tobias also explained that if a business has ceased trading, they need to advise their registered tax professional, or the ATO directly.

The amnesty applies to income tax returns, business activity statements and fringe benefits tax returns. It does not apply to superannuation obligations and excludes other administrative penalties such as penalties associated with the Taxable Payments Reporting System.

If you are ready to come forward and get your overdue lodgements up to date, we can help you, and hopefully secure the amnesty for you.

Although not related to tax, there are a number of changes on the Fair Work front that employers should be aware of.

MINIMUM WAGE INCREASE

The National Minimum Wage applies to employees who aren’t covered by an award or registered agreement.

From 1 July 2023, the new National Minimum Wage will be $882.80 per week or $23.23 per hour.

The new National Minimum Wage will apply from the first full pay period starting on or after 1 July 2023. This means if your weekly pay period starts on Monday, the new rates will apply from Monday, 3 July 2023.

Note that if a worker is covered by a registered agreement, the minimum wage increase may apply to them. This is because the base pay rate in a registered agreement can’t be less than the base pay rate in the relevant award. Check your agreement by searching for it on the Commission’s website: Find an agreement

AWARD MINIMUM WAGE INCREASE

The Fair Work Commission has also announced that minimum award wages will increase by 5.75%.

Most employees are covered by an award. Awards are legal documents that outline minimum pay rates and conditions of employment in your industry or occupation. If you’re not sure which award applies to a worker, use Find my award.

This increase will apply from the first full pay period starting on or after 1 July 2023. This means if your weekly pay period starts on Monday, the new rates will apply from Monday, 3 July 2023.

SECURE JOBS, BETTER PAY: 6 JUNE CHANGES TO WORKPLACE LAWS

From 6 June 2023, changes also came on stream related to:

• requesting flexible working arrangements
• extending unpaid parental leave
• agreement-making
• bargaining.

For more information, visit, Secure Jobs, Better Pay: Changes to Australian workplace laws.

AGED CARE SECTOR

Direct care and some senior food services employees in the aged care sector will receive a 15% wage increase from 1 July 2023.

For more information, visit, 15% wage increase for aged care sector.

PAID PARENTAL LEAVE SCHEME

From 1 July 2023, the Paid Parental Leave scheme is changing.

From this date the current entitlement to 18 weeks’ paid parental leave pay will be combined with the current Dad and Partner Pay entitlement to two weeks’ pay. This means partnered couples will be able to claim up to 20 weeks’ paid parental leave between them. Parents who are single at the time of their claim can access the full 20 weeks.

These changes affect employees whose baby is born or placed in their care on or after 1 July 2023.

Other changes include:

• allowing partnered employees to claim a maximum of 20 weeks’ pay between them, with each partner taking at least two weeks (except in some circumstances)
• introducing a $350,000 family income limit (indexed annually from 1 July 2024) for claiming paid parental leave pay
• expanding the eligibility rules for fathers or partners to claim paid parental leave pay
• making the whole payment flexible so that eligible employees can claim it in multiple blocks until the child turns two
• removing the requirement to return to work to be eligible for the entitlement.