Superannuation Death benefits are an estate planning matter that is a crucial aspect of financial planning.
It is essential to consider what happens to superannuation upon death.
Understanding the intricate system of superannuation death benefits is essential for effective financial planning and ensuring that your loved ones are taken care of.

When a superannuation member dies, the remaining balance in their super fund and any associated insurance payouts are generally paid out as a superannuation death benefit. This benefit is intended to provide financial support to the deceased member’s beneficiaries, including their spouse or partner, children, or other dependents.

However, the distribution of these benefits is subject to various regulations and considerations, making it a complex area of financial management.
It’s important to note that superannuation death benefits are not automatically distributed according to a will.Firt thing to remember is that super funds typically provide a set of criteria for determining who is eligible to receive the benefits.

In some cases, the Fund Trustee may have discretionary power to allocate the benefit to the most appropriate beneficiaries, considering the deceased member’s relationships and financial dependents.
This is an estate planning opportunity or danger for those operating an SMSF.

With this purpose in mind, everyone should familiarise themselves with superannuation death benefits rules and options. The result is to ensure that your wishes are carried out, and their loved ones are well provided. This involves nominating beneficiaries, understanding the tax implications, and integrating superannuation benefits into estate planning strategies.

Who Receives the Superannuation Death Benefit?

A superannuation death benefit distribution is typically prioritised according to specific rules and regulations. A death benefit is first paid to the deceased member’s dependents. These include their spouse or partner, children, and any individuals financially dependent on the dead at the time of their death. If there are no eligible dependents, the benefit may be paid to the deceased member’s estate.

It’s worth noting that the definition of dependents can vary between superannuation funds and may include both financial and interdependency criteria. Understanding these distinctions is crucial for ensuring the benefit is allocated appropriately and by the deceased member’s intentions. Furthermore, the rules governing who can receive a superannuation death benefit may change depending on the specific circumstances, such as the age and marital status of the deceased member.

In cases where the deceased member has not made a binding death benefit nomination, the fund trustee may exercise discretion in determining the benefit distribution. This underscores the importance of proactive planning and communication to ensure the benefit is directed to the intended beneficiaries. By understanding the eligibility criteria and potential beneficiaries, individuals can make informed decisions regarding the nomination of superannuation death benefit recipients.

Taxation of Superannuation Death Benefits

Taxing superannuation death benefits is a critical consideration that can significantly impact the ultimate value of the beneficiaries’ benefits. The tax treatment of these benefits is influenced by several factors, including the relationship of the beneficiary to the deceased member, the components of the superannuation benefit, and the age of the dead at the time of their passing.
Generally, superannuation death benefits paid to a deceased member’s dependents are tax-free.

This includes benefits paid to the deceased member’s spouse, children, and any individuals who were financially dependent on the deceased. However, the tax treatment may differ if the benefit is paid to a non-dependent, such as an adult child who was not financially dependent on the deceased.
In such cases, the tax payable on the superannuation death benefit is influenced by the components of the benefit, which typically include taxable and tax-free elements. The taxable component of the benefit is subject to tax at a beneficiary’s marginal tax rate, while the tax-free component is not subject to tax. Understanding these tax implications is crucial for both the deceased member and their beneficiaries, as it can inform decisions regarding the nomination of beneficiaries and the potential tax consequences of the benefit distribution.

Furthermore, individuals may explore strategies to minimise the tax impact of superannuation death benefits, such as utilising binding death benefit nominations or implementing effective estate planning measures. By considering the tax implications in advance, individuals can optimise the financial outcomes for their beneficiaries and minimise potential tax liabilities.

How to Nominate Beneficiaries for Your Superannuation

Nominating beneficiaries for your superannuation is a fundamental step in ensuring that your superannuation death benefit is distributed according to your wishes. Most superannuation funds offer members the option to make binding or non-binding death benefit nominations, providing a mechanism for specifying who should receive their superannuation benefit in the event of their death.

A binding death benefit nomination legally compels the superannuation fund trustee to distribute the benefit to the nominated beneficiaries, provided they meet the eligibility criteria. This nomination must be kept current and aligned with the fund’s requirements to remain valid. In contrast, a non-binding nomination serves as a guide for the trustee but does not impose a legal obligation to follow the member’s wishes.

Individuals need to review and update their death benefit nominations regularly, particularly in the event of significant life changes such as marriage, divorce, or the birth of children. By keeping these nominations current, individuals can ensure that their superannuation is directed to the intended recipients and aligns with their evolving family and financial circumstances.

Moreover, considering the potential tax implications of superannuation death benefits, individuals may seek professional advice to structure their nominations tax-efficiently and maximise the financial outcomes for their beneficiaries. By proactively nominating beneficiaries and staying informed about the nomination options available, individuals can exercise greater control over the fate of their superannuation benefits and provide for their loved ones according to their wishes.

Claiming the Superannuation Death Benefit

Once a superannuation account holder has passed away, claiming the superannuation death benefit begins.

This involves navigating the administrative procedures outlined by the relevant superannuation fund, which may include submitting necessary documentation and fulfilling specific requirements to facilitate the benefit payment.

Step one involves notifying the deceased member’s superannuation fund of their passing and initiating the process of claiming the death benefit. This may entail providing the fund with a certified copy of the deceased member’s death certificate and completing any required claim forms. Additionally, the fund may request information about the deceased member’s beneficiaries and their relationship to the deceased, mainly if a binding death benefit nomination is in place.

The beneficiaries must engage with the superannuation fund promptly and comply with any documentation requests to expedite the processing of the death benefit claim. Delays in the submission of required information or discrepancies in the provided details could prolong the benefit payment process, potentially impacting the financial stability of the deceased member’s dependents.

During this period, beneficiaries may also seek professional guidance to ensure they understand the steps in claiming the superannuation death benefit and are equipped to navigate any potential complexities. By actively participating in the claiming process and communicating effectively with the superannuation fund, beneficiaries can facilitate the efficient distribution of the benefit and mitigate any administrative hurdles.

Options for Receiving the Superannuation Death Benefit

Upon the approval and processing of a superannuation death benefit claim, beneficiaries are presented with several options for receiving the benefit. The payment method can significantly influence the tax treatment and long-term financial implications for the beneficiaries, making it a critical decision that warrants careful consideration.

One standard option is to receive the death benefit as a lump sum payment. This provides the beneficiaries immediate access to the total benefit amount, allowing them to utilise the funds according to their financial needs and priorities. However, it’s essential to recognise that receiving the benefit as a lump sum may result in tax implications, particularly for non-dependant beneficiaries and the taxable component of the benefit.

Alternatively, beneficiaries may opt to receive the superannuation death benefit as a pension or income stream, providing a regular and potentially tax-effective source of income over an extended period. This can be particularly advantageous for dependant beneficiaries who seek ongoing financial support and prefer to manage the benefit as a long-term income stream.

By evaluating the available options and their associated considerations, beneficiaries can make choices that align with their preferences.

Superannuation Death Benefit and Estate Planning

Integrating superannuation death benefits into estate planning is critical to comprehensive financial management. By strategically aligning superannuation benefits with estate planning strategies, individuals can exert greater control over the distribution of their assets and ensure that their loved ones are well provided for after their passing.

One key consideration in estate planning is the interaction between superannuation death benefits and your will. While superannuation benefits do not automatically form part of an individual’s estate, they can be directed to specific beneficiaries through binding death benefit nominations, bypassing the probate process and providing expedited access to the benefits.
Furthermore, individuals may explore the use of testamentary trusts to manage the distribution of their superannuation death benefits. Testamentary trusts can offer increased flexibility, asset protection, and potential tax advantages for the beneficiaries, making them a valuable tool in structuring the inheritance of superannuation benefits.

In addition, those with self-managed superannuation funds (SMSFs) may consider including a comprehensive succession plan within their fund’s trust deed.

Ultimately, by integrating superannuation death benefits into their broader estate planning framework, individuals can exert more significant influence over the allocation of their assets and provide their beneficiaries with a secure and efficient inheritance process.

Seeking Professional Advice on Superannuation and Death Benefits

In conclusion, the fate of superannuation after death is a crucial aspect of financial planning that warrants careful consideration and proactive management. Understanding the intricacies of superannuation death benefits, including the eligibility criteria, tax implications, and distribution options, is essential for ensuring that the benefits are directed to the intended recipients and aligned with the deceased member’s wishes.
Individuals should prioritise the nomination of beneficiaries for their superannuation, regularly review and update their nominations, and integrate superannuation benefits into their broader estate planning strategies. Seeking professional advice from financial advisors, estate planning experts, and taxation specialists can provide invaluable support in navigating the complexities of superannuation death benefits and optimising the economic outcomes for the beneficiaries.

By proactively engaging with these considerations and seeking professional guidance, individuals can secure the financial well-being of their loved ones and ensure that their superannuation benefits serve as a lasting and impactful legacy. Empowered with the knowledge and resources to navigate the labyrinth of superannuation after death, individuals can approach this critical aspect of financial planning with confidence and clarity, ultimately shaping a secure future for their be

Our Client Newsletter this month includes articles about:

• Property development – recent Federal Court decision
• Small Business skills and training boost
• CGT Small Business concession
• Post-tax personal Super contributions – benefits

Click here to download our October Newsletter

Contact us on 03 9597 9966 if you have any questions relating to matters raised in any of our Client Newsletters.

A tax audit is often a result of business owners not doing something that’s the norm. Doing dumb things that alert the ATO that some things are not quite right.

It is becoming imperative that you prepare your GST records appropriately to avoid unnecessary scrutiny by the Taxation Office which may lead to a tax audit for your Bas. These include:

 Failure to allow for car expenses for vehicles that are used partly for business purposes.
 Claiming all the GST paid on the following expenses: (similar to last year )
o car operating expenses, a log book must be kept
o home electricity, – diary evidence floor area
o home rates,
o internet access and
o home telephone bills,

Partial Business Usage

When these items were only used partly for business purposes claim only part of GST. If you use computerised accounting software be careful with this one, as special procedures are required.
 Claiming GST on non-business items.
 Claiming all GST or not claiming GST when not applicable
o Most bank charges. Merchant fees charged by banks, for retailers to have credit card facilities, do have GST in them. Refer to the monthly merchant statement for the GST amount.

GST amounts are often not shown on normal bank statements.
o Motor Vehicle Registration fees.
o Stamp duty and most government fees.
o Rates on business premises.

Sales and GST

 Not charging GST on all sales – NOT RECORDING ALL GST ON SALES
 Not charging GST on the Sale of equipment

Partial GST

Assuming the GST is exactly one-eleventh of every amount paid. This assumption is not correct in the case of :
o Workers Compensation premiums, (which include GST-free stamp duty)
o Yellow Pages Advertisements paid by instalments, which often require all the GST to be paid “up-front”.
 Failure to put the correct “tax codes” on receipts or payments when using a computerised accounting system

Take some time to understand what the codes are and the types of income/expense which each tax code should be used for. As a small business tax accountant, we can help you get it right.

 Using “Cash accounting” when should be “accrual accounting”.
 Not including “Instalment Income” for PAYG or using the correct rate.

Spending the time to get some of these rights may help you to avoid a tax audit and the ATO snooping around into your affairs

Running my business as a Partnership or as a sole trader you need to tread carefully.

These simple entities are popular, as they are easy to set up. They are also simple to manage and have fewer complications than that of a company or a family trust, making reporting easy to prepare.
However, they are most suited to businesses operated by family members, individuals or those working on a small scale.

It’s worth noting that a partnership can be between people, trusts or companies. A sole trader is just you.
The danger lies in where the partners are individuals. This joins them at the hip, and they have the same legal liability as sole traders. This means that “YOU” can become personally liable for all partnership debts. Yours and your partner’s.

For simple arrangements, there are minimal partners needed to form a partnership. Husbands and wives are easy . They often have no need for a partnership agreement. A bank statement in joint name will be sufficient evidence for the tax office to recognize that a partnership is trading. This is further evidenced by the ABN details recorded.

Friends and unrelated parties often start partnerships. While it is crucial that a partnership agreement is executed, in our experience, it usually isn’t. In fact no one even thinks about the partnserhip rules as they are so keen to make the business happen.

Sometime its not a great idea to be in partnership at all . Take John Dutton from Yellowstone . When you like to make your own decisions, being in partnership wont work. He is a strong willed man and what he says goes. If your a John Dutton then dont go into business with anyone as it wont work.

When a dispute often arises over money, happier times and past friendships go out the door. All handshake agreements are forgotten, and conflict resolution often becomes protracted if no formal agreement exists.

In summary, a partnership agreement should indicate what each partner contributes to the business, either in the form of intellectual, equipment, capital or time. It should also outline how the profits will be split.

How often are partners paid profits, and who does what? There are no wages paid to partners in a partnership; therefore, this often is one reason other entity structures work better.

Does a business as a partnership pay tax?

Partnerships as an entity and therefore do not pay tax.
The profits the business makes are distributed to the partners.
The partners pay tax at their applicable tax rate. The good thing is that losses get distributed directly to the partner and, in many cases, can be offset against other income.

Likewise, the amount of loss that can be offset against a partner’s other sources of income is their share of the partnership loss and not the amount of money they contributed to the Partnership. The ability to distribute losses can be a tax benefit in the set-up stage of a business. Likewise for those who act a sole trader.

Joint debts – DANGER

Like a marriage, Under partnership law, each partner is jointly liable for the Partnership’s debts.

This is where danger can strike as if one partner is financially unable to pay their share of the partnership debt; then creditors look to the other partners to make good. In the event of the business failing or a claim for damages against the business not being covered by the business’s assets, each partner’s personal assets are available to meet the debts.

There are no disadvantages to a partnership relating to Capital Gains Tax. Partners can claim small business tax relief on the sale of a business.CGT tax liability. This can be split when a partnership with more than two owners is involved in a business.

What are my business structure options

Most business owners are conscious of putting a fence around their business and protecting themselves from legal action for negligence, debt and the ATO. It is why acting as a sole trader or in a partnership has personal exposure and could be likened to walking on a tip rope over a high cliff.

For some starting out as a sole trader or Partnership is a cheap and easy option to put a toe in the water. However, if the business is successful, it is beneficial to stop and reconsider. I am using the most tax-effective and protective structure for me moving forward.

Reach out if we can help you further help on 95979966

Defaulting on  ATO payment plans

If you have an ATO debt you can’t pay upfront, you can arrange an ATO payment plan. This is an agreement between you and the ATO where you agree to pay off your tax debt over time in instalments. In return, the ATO agrees not to use its debt collection powers against you.

Getting into a payment arrangement with the ATO is one thing. Keeping the payment arrangement on track is a different story. We have listed just some of the ways your payment plan can default.

Payment not being received on time

This might seem very obvious, but payment arrangements often default because of late payment. Usually, the payment is made on the due date and time isn’t allowed for the payment to clear into the ATO’s system.

It’s important to remember that the due date for payment is when the payment should be received by the ATO. This keeps your ATO payment plan in check

Make sure to check how long your payment type takes to clear to know your payment will be processed on time.

Paying into the wrong account

If you’re running a business, you will usually have more than one account with the ATO.

You will usually have an income tax account and an integrated client account (which is for your GST, pay-as-you-go withholding, etc.). You might also have other accounts, such as:

• A legal action account – you will have this if the ATO has initiated debt recovery proceedings against you for unpaid tax.
• A superannuation guarantee account – you will have this if you have missed payments for your employees’ superannuation.
  
• It can be challenging to keep track of all these accounts. But it is essential that you do – especially when you’re in a ato payment plan or arrangement.
• Let’s say you have two tax debts (for different types of tax). These debts might be owed on your integrated client and income tax accounts. When you enter into a payment arrangement with the ATO for these accounts, the ATO views these as two separate arrangements that require separate monthly payments.
• So, you may have a payment arrangement of $1,000 per month in your integrated client account and $400 per month in your income tax account. The payment details for each of these accounts will be different. This means you must be careful when making your monthly payments. Make sure that each payment goes into the correct account. If you accidentally make both payments to the same account, one of your ATO payment plan arrangements will default.
• Unfortunately, the ATO doesn’t monitor your accounts to ensure your payments are going into the right place – this is up to you! So be careful – you don’t want a simple mistake to trigger a default.
• Your ignore the payment all together

Your ato payment is less than expected!

The ATO’s system looks at each payment it receives and matches it up against what it expects. If one payment is less than expected, it will flag a default. For example, a default happens if the ATO expects $1,000 per month, and you pay $1,200 monthly and $800 the next month. Your agreement with the ATO is to pay $1,000 monthly; anything less means a default.

Your extra $200 payment from the month before is voluntary. It doesn’t apply as a pre-payment toward next month’s payment.

Similarly, getting a tax credit or refund (for example, a GST credit) does not affect your payment plan. However, it won’t replace your regular required instalment payment, so you must keep paying your usual monthly amount.

• Not keeping up with all future obligations

If you’re in a payment arrangement, you must ensure you meet all your future tax obligations. This means that you must submit all your future lodgements on time and pay any new tax debts by the due date. These new debts aren’t part of the payment arrangement – if you don’t pay them, you will default.

What to do if you think you’re going to default

If you can’t pay your instalment by the due date, the best thing to do is contact the ATO. You should do this as soon as you realise you have a problem. You may be able to renegotiate the arrangement so that it doesn’t default. It’s much better to do this than wait until a default has happened.

Your payment and default history influence the ATO’s decision about whether you can enter into a new arrangement and what the terms of that arrangement should be. For example, if you have a terrible compliance history, the ATO may ask you to pay a large upfront payment or pay by direct debit.

A poor compliance history can also mean that the ATO will only agree to a temporary payment arrangement – e.g. 6 months instead of a year.

Because your payment history influences the terms of future payment arrangements, it’s best to keep in contact with the ATO. Try to renegotiate your payment arrangement before a default happens.

What happens if you default

If you are on an Australian Taxation Office ATO payment plan and you default on your payments, there are several steps that may be taken by the ATO:

Payment Default Notice: The ATO will typically send you a payment default notice if you miss a payment on your payment plan. This notice will inform you that you are in default and will usually provide instructions on what you need to do to rectify the situation.

Contact from ATO: The ATO may contact you via phone, email, or mail to discuss the default and try to work out a solution. They may be willing to modify your payment plan or negotiate a new arrangement based on your financial circumstances.

Additional Penalties and Interest: When you default on your payment plan, the ATO may impose additional penalties and interest charges on the outstanding amount. These can increase the total amount you owe.

Debt Collection: If you continue to default on your payments and do not respond to the ATO’s attempts to contact you or make arrangements, the ATO may escalate the matter to a debt collection agency.

Legal Action: In extreme cases, if you consistently fail to make payments and do not respond to the ATO’s attempts to resolve the issue, the ATO may take legal action to recover the debt. This could include obtaining a court judgment against you.

To avoid defaulting on your ATO payment plan, it’s essential to communicate with the ATO as soon as you encounter financial difficulties.

If your payment arrangement defaults, the ATO can use one of its many debt collection powers against you. This can include issuing a garnishee notice to your bank or serving you with papers to try to wind up your company or make you bankrupt.

You should make every effort to ensure you don’t default as it is getting more difficult to renegotiate with the ATO. The ATO is getting tougher to deal with and can ask for lots more information about your finances and assets to ensure you won’t default again.

Contact us for assistance and allow us to negotiate on your behalf . Contact Michelle at our Office on 95979966

A Share trader is regarded by the ATO as conducting a share trading business when it comes to reporting your tax, based on factors around how you and how often you invest. An investor is looking long term and will not frequently undertake a systematic approach.

Tax law regards Share trading is assessed as income on a Revenue Account, and no Capital Gains Discount can be claimed.

Share traders and tax

However good news for share traders is, share losses are allowed as a tax deduction un S8-1 of the ITA997. A share trader can recognize unrealized losses and gains as the change value in the share process can be reflected. Whereas a Share Investor will only recognize losses and gains when they are realized. An investor can access the cgt 50% tax discount concession if shares are held for 12 months.

Your shares held as a share trader are considered trading stock and must be included as part of your year-end income statement. Your share stock can be valued at either cost, market, or replacement value, enabling you to determine the best tax result for you. If your records are in order, you can choose which suits your taxation circumstances for each parcel of shares

Factors that may classify you as a share trader

A share trader is considered in business if

• There is a system
• Operating to a plan
• Maintains regular trading in a systematic way
• Record system to track transactions and revenue earned
• The volume of the equity trading
• The reliance on share trading to earn a regular income

Determining if you are a trader will always be a matter of fact, and based on the above, your actions will determine whether the ATO would consider you a trader. Repetition – the frequency of transactions or the number of similar transactions – is a crucial characteristic of business activities as a share trader.

The higher the volume of your share transactions, the more likely it is that you are carrying on a business.

Changing from trader to investor

If your activities change from trader to investor, your shares are no longer trading stock.

At the time of the change, you treat your shares as if:

1. just before they stopped being trading stock, you sold them to someone else (at arm’s length and in the ordinary course of business) for their cost
2. you immediately bought the shares back for the same amount.

Take the time to consider your position. Look at your facts and consider what has been outlined above.

The information provided above is of general nature and not specific to circumstances. Please contact us if you would like to discuss your specific situation.

An Initial repair occurs when you acquire a new rental property with existing known repairs. The old house might need fixing before it can be rented. Initial repairs may include such things as plumbing, painting, new carpet or appliance repairs, to name a few.

Initial Repair must be capitalised!

Though Initial repair cannot be claimed outright in the first tax year, there is some tax relief. These repairs should be treated as a capital expense. Treating them as a capital expense will add them to the property’s cost base.

We are often asked what the tax treatment of an initial property repair is. Can you claim a tax deduction for repairs to a newly acquired rental property investment? Will the ATO allow it!

Why won’t the ATO treat all repair claims as an expense?

What is the Government thinking about initial repairs legislation? Why did they decide you can’t claim the repair outright when you buy the property?

In looking at the intent of the legislation, the lawmakers said if you haven’t yet rented the property out there is no right to claim an expense on revenue account. Furthermore, the ability for some taxpayers to buy a rundown property and then claim all the expenses in fixing that property up would mean the ATO would be inundated with excessive claims. Hence, the initial repairs must be capitalized.

A repair claim should be evaluated on merits. You may find it may not be classified as an” initial repair” simply because it’s the first repair made after you acquired a rental property. The ATO has designed a tool kit, which can be accessed here. Also, you can refer to taxation ruling TR 93/23 where you can read more. The ruling outlines a repair is not an ‘initial repair’ simply because it is the first repair made after the property is acquired. The ATO has numerous examples within these two resources.

Examples of an initial repair

Here are some initial repair examples:

Fixing a Damaged Roof: If the rental property’s roof was damaged or leaking at the time of purchase.

Replacing Broken Windows: If any windows were broken or dysfunctional when the property was bought, their replacement is categorized as an initial repair.

Repairing Electrical Systems: If the electrical systems, like wiring or electrical appliances, were not functioning correctly at the time of purchase. Therefore, any repairs to make them operational would be considered initial.

Plumbing Repairs: Fixing any pre-existing issues with the plumbing system, such as leaking pipes or faulty plumbing fixtures, is classified as an initial repair.

Restoring Damaged Flooring: This includes repairing or replacing floorboards, tiles, or carpets that were in poor condition when the property was acquired.

Repairs that are regarded as initial cannot be claimed outright and must be capitalized. The capitalized repairs are added to the cost base of the Asset. This will assist when calculating the capital gain upon sale as a cost. This means you can reduce your capital gain at the sale of the property but not claim it against your tax when you acquire the property in the first year.

Here is an example of an ongoing repair that is tax-deductible!

If the dishwasher worked perfectly when you started renting the property but needed repairing a couple of months thereafter. This would be considered an ongoing repair and tax-deductible.

Repair vs Improvement need help?

Gartly Advisory looks after many happy clients who own rental properties. Plan carefully and do your homework. The ATO is looking closely at rental property claims as more Australians love to acquire property for investment purposes.

Unsure what can be claimed upon purchasing your new rental property, reach out to us, and we can assist!

You must only claim motor vehicle expenses relating to work travel and we recommend a logbook will substantiate your claim. To substantiate car expenses the ATO requires that you keep a car logbook or use the 20% statutory method. The car logbook is used to justify your motor vehicle claim.

Types of expenses Common types of motor vehicle expenses you can claim include:

• fuel
• repairs and servicing
• interest on HP,
• lease payments,
• insurances or  VIC roads registration
• and depreciation of your vehicle

Per ATO here is what you must do for the operating or logbook method

Logbook method You can claim the business-use percentage of each car expense, based on logbook records. You must record:

• When the logbook period begins and ends
• The car’s odometer reading at the start and end of the logbook period
• Details of each journey including start date and finishing date. I.e odometer readings at the start and end, kilometres travelled, and reason for the journey.

You must keep the logbook for a period (at least 12 continuous weeks) . This must be a normal representative of your travel throughout the year.

You can then use this representative period to calculate your claim for five years if no change in use .

The Statutory Method

The other method is the Statutory method. The statutory method for car benefit FBT calculations is used when the operating cost method is not selected. Or if a car logbook hasn’t been kept . The other reason is if the formula provides a more favourable result.

The FBT benefit value is determined by multiplying the car’s cost by 20%. Then apportioning the amount for days of private use.

The Statutory Formula method applies a statutory fraction, currently, 20% regardless of kilometres travelled. Applied to the base value of a car to determine the FBT-taxable value of the car benefit.

Therefore you need to do a logbook. If you, don’t you may find in an ATO review or Audit they may not accept your motor vehicle claim a

Business % of expenses is claimed based on your logbook records once you keep it for 12 weeks. You don’t need to do it beyond this or do another logbook until your travel circumstances change. By change, this means your use of the vehicle changes from the previous usage. i.e you are no longer required to do lots of business travel

Don’t forget you can also only claim the business usage of the GST as well and must adjust for private %

What can I claim for my car expenses

So as a small business what can I claim?

• Your car is used for business trips to visit customers pick up supplies and other business activities such as business travel etc document in your car logbook.
• I work from home can I claim my car 100% – no you need to still justify your travel and ensure your home is your real base to start the travel
• I drive to work and then take the company car so its 100% usage. Providing the logbook states that and its garaged at work then it may be claimable 100%
• I drive to and from my place of business – this is considered private and not claimable
• I pick up the mail around the corner after this is the rest of the trip to my business claimable – no there is a famous case about this.

Commercial vans and Utes above one tonne generally don’t need to have a logbook but check with us.  However, say you are a hairdresser and buy a one-tonne pickup, will this exempt me from the logbook requirements? Probably not as the car isn’t being used for the purposes of trade but rather for you to get to the salon

If you have a sedan and need to carry heavy tools you can sometimes justify a greater business use from home to work

Car in a Trust or Company

So my Trust or Company provides me with a car to use who pays the FBT

In this case, you must work out a private usage of the car and declare this as a contribution by the Trust. This offsets the private usage and ensures the Trust only claims the business usage

I am in a Company with joint shareholders. The Company pays my petrol can I claim the car expenses in my own name?  Again as a shareholder, you need to either reimburse the Company or the Company needs to pay FBT. You can offset the petrol costs against the employee FB contribution.

If you are reimbursed for car expenses the expenses cannot be claimed again.

It pays to keep a logbook and determine the right business usage and thereby ensuring you can claim the right amount for tax and keep the taxman happy.

The implications of your home business and cgt needs to be considered if your home is regarded as a place of business.

Typically many small businesses operate their business out of the home. Especially since the onset of covid.

Occupancy expenses you can claim

In this case, then you are entitled to claim home occupancy expenses if you are running a business.

If you use some or all of your business from your home, you may be able to claim tax deductions for home-based business expenses in the following categories:

• occupancy expenses (such as mortgage interest or rent, council rates, land taxes, house insurance premiums)
• running expenses (such as electricity, phone, the decline in value of plant and equipment, furniture and furnishing repairs, cleaning)
• the expenses of motor vehicle trip between your home and other locations, if the travel is for business purposes.

A home-based business is one where your home is also your principal place of business. That is, you run your business at or from home and have a room or space set aside exclusively for business activities.

Where you are renting a home, then there are no cgt implications

Where you are operating as a Trust or a Company, you cant directly claim the interest etc., on the house. However, you are entitled to charge your business rent.

Your claim is based on % of occupancy of your home. Make sure you do a mud map and work out the area allocated. Please don’t include your toilet or kitchen as the ATO considers this material and need it for private purposes.

However, your home will be subject to CGT on the proportion of use and time.

CGT implications upon sale of home if used for business

Selling your home from which you have run your business will make it subject to capital gains tax on the percentage set aside for business multiplied by the period. However, as a small business, you will be able to claim the small business capital gains concession. These concessions may considerably reduce or eliminate the gain.

Please discuss your options with us and keep adequate documentation if the ATO decides to review your claim.

Franked Dividends are recognising tax paid by the Company and transferring the tax as a credit when the Company pays Profit to shareholders.

Running your own Company will mean that as a shareholder you will want to access these profits. This is done as a Dividend. In simple terms your company is a money box and the only way to get it out as a shareholder is to pay profits as a Dividend. This will either be paid to you as a Franked or unfranked Dividend.

Profits to shareholders can be paid from the Company retained profits as a dividend.

A company pays distributions to its members. Shareholder members may be individuals or other entities such as your family trust. The amount of a dividend allocated will depend upon a number of shares you hold and the percentage of ownership.

What is a Franked Dividend and a Franking Credit?

Your Company, after paying a paid tax payment, either in the form of a company tax instalment or year-end company tax, will record these amounts as franking credits in the Company Franking Account.

Presently the Company Tax rate is set at 26%

When the Company issues a dividend, it will issue a distribution or dividend statement to each shareholder member.

The dividend statement is then given to each shareholder who receives a distribution outlining their entitlement.

Dividends paid by your company can be either Franked Dividend or an un-franked Dividend. The franking amount will depend upon the availability of tax paid by the company in the company’s franking account. When no company tax has been paid by the company a franked dividend may not be paid. Therefore, the Company may choose to issue a dividend, as un-franked.

The Dividend statement will show the amount of franking credit attached to the distribution. The statement will also show the extent to which it’s franked. Only resident taxpayers of Australia can claim a tax offset for a franking credit attached to a dividend.

Non-resident taxpayers, receiving a franked distribution are exempt from withholding tax in Australia. This is to the extent that it’s franked. Therefore, if it is 100% franked there is no final tax to pay or declare as a non-resident.

We recommend reviewing your Company’s Retained Profits regularly. Leaving large profits in retained earnings can lead to tax problems down the track when you decide you need to access these profits. Regular Dividends can eliminate the problem of tax implications being paid out in large Dividends.

Grossing up your Dividend in your tax return.

An individual shareholder in your Company will pay you a dividend. The franked dividend from the Company must include the amount together with any franking credit as declared taxable income. This is known as Grossing up your Dividend.

Receiving a franked divided also entitles you to a tax offset equal to the” franking credit amount. For tax purposes, this effectively means any tax up to 26% on the income will result in a neutral result.

A tax offset can result in a refund or excess tax payable. The tax may result in the need to pay additional tax liability on the distribution. When this happens, it is known as ‘top-up’ tax.

Taxpayers with lower taxable incomes can receive a refund of all or almost all the franking credits. This will be dependent on their income position.

As your accountant, we try and work with you to obtain the best result for your tax position. Managing how you declare your declared Frank Dividends using the right tax opportune time. The aim is to help smooth out your tax position and reduce your retained earnings in the Company.

Contact us for help 03 9597 9966

Gifting Assets to your Family Trust or transferring property to a trust protects your investments and assets by placing them in a Trust Environment!

Let’s explore why you would transfer a property into a Trust or just give money to your Trust!

There are many opportunities for this. For a start a Family Trust is great for tax planning. Many of us establish a Family Trust for asset protection and to ensure our assets are correctly passed on to the next generation.

Your Family Trust should be the hub of your investments allowing for flexibility and control of your family assets!

Having now established your Trust, you may now ask how do I get money into the Trust and what can i use it for?

Fundamentals of a family trust

Let’s explore the basics of a family trust first. The Trust has a couple of fundamental elements that you should be aware of, but in simple terms these are:

• Trust Deed – the rule book of how you run your Trust
• Settlor – establishes the family’s trust.
• Trustee – runs the Trust on behalf of the beneficiaries
• Appointor – appoints the Trustee.
• Beneficiary – family who benefits from the Trust.

How do I get money into my family trust?

There are two main ways to add money into your trust :

1. Gifting assets from your funds to the trust.

2. A Loan from you to trust – repayable defined or non-defined

Either method works but gifting assets to your Trust is better for estate planning.

In transferring your Asset to the Trust make sure you have ticked all the legal boxes. This will mean that the Trust Assets are secure and recognised as owned by the family trust. The Trustee should for all property and loan transfers document the transfer. Minutes should explain why and how the it is a gift to teh Trust. Assets that are transferred to your Trust these will then be allocated to the Corpus of the Trust

A Trust is a legal entity. However, some registries won’t recognise the Trust but require the Trustee to be the registered owner on behalf of the Trust.

Beware Gifting means not easy to get it back

There are 2 points here you should consider

Transferring the Asset or loan to the Trust as a gift achieves your estate planning needs . The asset or money is gifted it forms part of the capital or corpus of the Trust. In simple terms your Trust now owns it and the only way to get it back is to either make a specific distribution as capital or vest (ie windup) the Trust. In most cases, upon vesting of the Trust the capital would be distributable to the default beneficiaries. To understand how it would work for your circumstances you should consult you’re Trust Deed

Point 2 – is the ability of the Trust to enter into a Gift and loan back arrangement. Be careful if you are considering this as again it needs a well-documented agreement and actual $$$ changing hands.

Loaning money to your Trust!

Loaning money to your Trust will allow you to request that you can recall the monies you have lent to the Trust . Repayments will depend upon the Trust the ability to pay and several other factors. Even though a loan agreement is not necessary, many people still decide to draw up an agreement for certainty and estate planning.

The Trustee has an obligation to repay the loan if requested. When there is no loan agreement is in place , then the loan should be recorded by the Trustee by a minute to ensue there is some documentation. The accountant should record it on the Trusts balance sheet. As Trustee or the lender you can request interest can be charged but that again depends upon what you have agreed to with the Trust and you as the lender.

Gifting assets to the Trust

There will be Capital Gains implications and we can assist you here . Tread carefully and allow us to help you work through the implications of the potential transfer..

A Trust can help protect you and your family’s assets. Many families gift assets to the Trust. This means that you forego ownership and the asset forms part of the Trust’s capital or corpus. A Trust can offer protection over time. Your Trust protects your assets when things go wrong. These include Creditors, angry family members and newly wedded children. The Trust protects your Assets as these people are now not able to make a claim on these assets as they are now owned by the Trust.

A Family Trust, mechanism allows the control to be established by yourself as the Appointor. The appointor has the ability to fire and hire the Trustee. This means that you effectively control the Trust.

Upon your death, your executor acts on your behalf. The great thing is that the Trust continues to the next generation detailed in the Trust Deed. This will continue until the trust vesting day normally 80 years after establishment.

There are Social Security opportunities . Gifting can in some circumstances for social security planning but seek advice!

Every person’s circumstances are different. Therefore what we have outlined above is a very simplified summary of the operation of the trust and your money. We suggest that you seek professional advice. We are happy to assist you if you need help in this area.

Reach out to Geoff if you wish to talk about your circumstances. Phone 95979966