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The lastest news from LBW.....

...... includes tax and technology updates and general business information.

You'll find more on Twitter and Facebook also.

Alan Perrott, blog editor for the LBW team.

Investing for the L O N G term!

Remember you don't invest for today, or even tomorrow ...it's really for a lifetime.  So what has happened in the last 20 years ..... this year's ASX/Russell report into long term investments returns shows how five major threats to long-term wealth creation could potentially play out for millions of Australians.

  1. Rear-view mirror investing
  2. Lack of portfolio diversification
  3. Reliance on residential property
  4. Investing in over-priced traditional assets
  5. Setting and forgetting.

All the signs point to a future where savvy investors will increasingly use diversified multi-asset strategies, designed to efficiently capture new sources of return opportunities to help build their long-term wealth.

Download the report from our downloads page.


MYOB users - 10 March deadline approaches!

Important Notice for AccountRight Clients

 

If you're still using AccountRight 2016.2 you'll need to update to the latest AccountRight version BEFORE 10 MARCH 2017 to keep working online.

 

Updating is FREE and the latest version has all the benefits of online accounting, plus a new innovation to give you greater insight into your business. You can find out more by contacting one of our accountants on 02 9411 4866.

 

You'll no longer be able to access your online company file if you continue using the old software after this date.

Super Stream Deadline Approaches

31 October Deadline...

... but only for employers with 20 or more employees

You need to be using SuperStream no later than 31 October 2015.

There's not much on the employer checklist - but you need to start!

1. Choose an option

 To be SuperStream compliant  you need to pay super electronically.  Choose the option that suits your business and check that it's SuperStream-ready.

  • 1. Super fund services

Large super funds have online payment services you can use. Check with your fund.

  • 2. Super clearing house

A clearing house pays super to your employees' funds for you. You make a single payment to the clearing house and they do the rest.

You can also choose from several commercial options. Your super fund may have a clearing house you can use. Talk to your fund to see what they offer.

  • 3. Payroll system

If you use a payroll system, check with your system provider that it is SuperStream ready. You may need to update your system.

 Accountant or bookkeeper services

You can also ask your bookkeeper to handle your super payments, using one of the options above.

Remember: Even though others may pay super for your employees, you're still responsible to ensure they pay it correctly.

2. Collect information

 You'll need to collect some information from your employees. Once you've got the information, enter it into your system and you're ready to start using SuperStream.

3. Use SuperStream

Start using SuperStream well before the deadline. This will allow you to enjoy the benefits sooner and ensure everything is running smoothly.

On Friday, 31 July 2015 Katarina Taurian of SMSF Adviser reported that the ATO has recently outlined and explained how many penalties it handed out in the 2014/15 year as well as the number of trustee disqualifications, notices of non-compliance and wind-ups.

The ATO disqualified approximately 660 trustees and issued 92 notices of non-compliance, according to the ATO's director in superannuation, Mary Simmons.  Further, the ATO wound up approximately 44 SMSFs due to contraventions.

Under its new penalty powers, the ATO has also handed out approximately 54 education directions and 27 rectification directions, Ms Simmons said.

The powers, introduced in July last year, allow the ATO to impose administrative penalties on trustees for certain SIS Act breaches.  In addition, the powers allow the ATO to direct SMSF trustees to fix a breach and direct trustees to undergo education in the event of a breach.

"We haven't seen the penalties themselves cause a significant shift in what contraventions are being reported or the number of contraventions themselves that are being reported," Ms Simmons told delegates at the SMSF Association's state technical conference in Sydney this week.

"That could also be just a function of timing. When you think that penalties apply to contraventions from 1 July 2014, and the reporting timelines, and when most SMSFs would lodge – we are still waiting on a lot of that intel to come through."

Discussing administration penalties, Ms Simmons noted that from 31 July this year, there will be an increase in the penalty units from $170 to $180.  This new figure will apply to all contraventions that take place after 31 July this year. The figure will also be indexed every three years from 1 July this year.

In light of recent confusion, Ms Simmons also stressed that the lodgement of an auditor contravention report does not automatically result in a penalty for a trustee or member.

"What is really important to make clear is that we actually firstly confirm that there's a contravention before we can impose a penalty," Ms Simmons said.

GBU of Debt (The Good, Bad, and the Ugly)

 

Debt, like with most things, can be good for you if taken in moderation. But not all debt is the same, and some debt can be very bad for you in deed. But what is good debt and how do you avoid the bad?

In general, good debt carries a few simple traits - low interest rate and/or tax deductibility. Lowering the rate of interest can be achieved by either using some of your assets/property as security (as in most home loans) or by improving your credit score (more applicable to businesses and homeowners in the US). Being able to claim tax deductibility on most occasions comes down to what the loan was used to pay for - i.e. the loan needs to pay for an asset that has the the main purpose of deriving you an income.

Bad debt on the other hand usually has neither of these qualities (higher rate of interest and not tax-deductible).  

Ranking of Debt (for illustration purposes only)

  1. Money owed to parents - Most parents forget about interest altogether, though non-financial costs may be high; 
  2. HECS - Though this is not tax-deductible, the low rate of interest (generally inflation, which is currently below 3%) means for most people this is the lowest cost debt.  Also, the reason for taking on the debt is generally a very good one.  Furthermore, in some cases it may be a debt that you will never have to actually repay (i.e. compulsory repayments depend upon your taxable income exceeding a certain level);
  3. Investment loan secured against property - Whether the investment is the property itself, shares or other asset, this type of debt generally has a low cost (mortgage rates) and is tax-deductible;
  4. Margin loan - This would have a higher rate of interest than the above, but it does avoid the need to place another mortgage over you home or other property;
  5. Business debt - Most business loans have a higher costs than personal investment loans, but are tax-deductible.  Costs may become lower if appropriate security offered, but covenants required by lenders may also be high.  For many businesses, such debt is used as an engine for growth;
  6. Home loan - A very useful source of debt, and usually comes at a low rate of interest.  But its non-tax-deductability means the after-tax cost can be higher than the above;
  7. Car loan - Debt to purchase a much needed vehicle usually comes with a rate of interest 2-3% above mortgage rates and is generally not tax deductible (except the portion used for business use);
  8. Personal loans - This type of debt generally comes at reasonable costs without any tax deductability;
  9. Credit cards - Though you can get away with paying no interest for very short term balances, any medium to long-term debt can be very costly in deed; and
  10. Loan shark - Interest costs may be high.  Non-financial late payment penalties may also be high.
It is useful to understand the difference between your own debts and how to rank them as you can use this order to figure out how much to pay towards each of them.  In eliminating debt, the process is quite simple.  Pay-off as little as you can from the higher ranked debts (without incurring penalties), and pay as much as you can off the lowest ranked debt.  Once that debt is gone, you continue the process, paying off the new, lowest ranked debt as much as you can.

So some debt may be necessary, and some not so necessary.  Some good, and some not so good.  The trick is to avoid the bad and unnecessary debt by living with your means, and if that  fails, make sure you get rid of the bad before worrying about the good. 

ATO targets SMSF loan arrangements

The ATO updated its website last week saying that it understands some individuals and organisations are promoting arrangements where SMSF monies are deposited into unit trusts or pooled investment trusts less a management fee. This money is then used to obtain a personal or business related mortgage which results in the SMSF assets being used to provide members with current-day benefits.

The ATO says it is closely scrutinising these lending arrangements on the following weblink. The ATO says such arrangements would breach the sole purpose test as the SMSF is being used for a purpose other than providing retirement benefits for members. According to the ATO, the primary purpose of such arrangements is to enable individuals and any associates to use their super savings, rather than assets held outside the fund to provide assistance to members or relatives.

Christmas Cheer with no FBT fear

As with any benefit that a business provides to staff, the question of whether it is a (taxable) fringe benefit or not needs to be considered.

The Australian Tax Office states that there are no different FBT rules that apply to Christmas parties (entertainment) than to any other entertainment.  The good news is that these parties may come under the "minor benefits" umbrella.  A minor benefit will be FBT-exempt where, broadly, the benefit is less than $300 per person and provided on an infrequent and irregular basis.

The FBT law allows however (perhaps getting into the spirit of the season) for the minor benefits threshold to apply to each benefit provided, not to a total value of "associated benefits".

So if, as a generous employer, you put on a barbecue and hand out gifts, the meal and the gift are considered separately for FBT purposes.  If each is less than $300, they are both generally FBT-free.

Exemption Negates Deduction

It is worth noting however that as such minor benefits are exempt from FBT, sadly a business cannot then claim the expenses as a tax deduction, nor can claims be made for any GST credits.

Where Do Taxis Stand?

For an employer thinking of paying for this travel option for staff, the important consideration in regard to this will be venue. If the taxi travel is from home to an entertainment venue (that is not the workplace) and home again, the Tax Office will include the cost of the ride as part of the entertainment and deem that it is to be included in the cost-per-head total (that is, it counts towards the $300 minor benefit limit).

But if the cab trip is from home to a function held at the workplace, and/or from the workplace back to home after the festivities, the taxi fare is exempt from FBT.

Spreading the Joy

The safest option FBT-wise would be to hold the Christmas party on the business premises on a working day, as providing the food and drinks will be FBT free; if it's only employees who attend.  If spouses or partners are invited (the law refers to them as "associates") the cost will still be FBT free if less than $300.  And if bona fide clients attend there is no FBT in respect of them.  If the party is held off-premise, at say a restaurant or pub, the $300 limit applies to both employees and associates.

Some canny business operators have taken the convivial, and tax effective, approach of holding more than one social event over the year.  Rather than have just one large bash at Christmas, a business may decide to spread the entertainment budget out to, say, an end-of-financial-year function in winter.

Dividing the party purse into two events can reduce the value of the entertainment each employee enjoys below the minor benefits limit of $300, and keeps the FBT liability of an employer to a happy minimum.  It should be remembered however that to be a minor benefit it is necessary that the particular benefit (or similar benefits) be provided irregularly and infrequently.

3 Big Rocks

Some of you may already be familiar with the following object lesson, which goes something like this:

  • You have a jar, a pile of sand, small pebbles and 3 big rocks
  • Objective - put all of the sand, pebbles and rocks into the jar

The lesson is quite simple. If you start with the sand and finish with the rocks, you will not be able to fit it all in and you risk the big rocks falling out. You need to start with the big rocks first.






The 3 big rocks represent what we should focus on first and for most families, the 3 big financial planning rocks are:



Three Big Rocks
(1)Living Comfortablythroughout your Working Life;

(2) Saving for aComfortable Retirement; and

(3) Paying off theFamily Home.

This is by no means an exhaustive list, and many have more rocks (e.g. some of the 'pebbles' below) or less rocks (e.g. retiree may only have 1 rock left). When filling your financial planning "jar" these rocks should be the focus and have priority over lesser goals or wants.


Small Pebbles
Children's Education, Family Business, Overseas Holidays, Domestic Holidays, Bequests, Gifts, Donations, New Car, New Furniture, Self Education, Family Support, New Phone, New Computer, Family Activities, etc.


Again, some of these may very well be big rocks and not pebbles and should demand a higher focus in your financial plans. A private school education for your children may be a must or contributing to the family business may be necessary. The important thing here is to understand which goals are necessities (big rocks) and which can be foregone or delayed if necessary.




A Pile of Sand
Finally, after you have put in your rocks and then your pebbles, you can now fill any free space in your jar with sand. These are the luxuries in life, the wants, but not the musts. These may include:

 

Luxury Cars, Art Collections, 5-Star Holidays, First Class Travel, Top End Consumer Goods, and so on.



So what are your big rocks? And have you prioritised them appropriately? Have you put first things first?

Though it would be great to satisfy all our needs and wants, as most of us know, the latter can be a long and never ending list. By focussing your financial planning on your major short-term and long-term goals (your big rocks), you are likely to have more success in securing your financial future and minimising unwanted surprises

Twitter

Well, we've entered the world of Twitter!  And now we can Tweet.....what has Twitter done for your business?