What to do with your Lost Super

After COVID 19’s impact on the world, an influx of employees who had lost their jobs fell into the job market. Many of these came from companies that couldn’t afford to continue their employment. As a result, many individuals had to seek alternative employment, or draw from their super. Some individuals took on multiple jobs to pay bills, and others drew from the super that they had accumulated in the government’s early release scheme specifically for coronavirus related income loss.

Super is held by superannuation funds, and accumulates as a result of how much super an employer pays to the employees’ funds. Many Australians may find that they actually possess multiple super accounts as a result of having “lost” their super accounts during changeovers. It can also happen as a result of changing names, moving addresses, living overseas or changing jobs.

Australians can use the ATO’s online tools to:

• View details of all of their super accounts, including lost or unclaimed amounts
• Consolidate eligible multiple accounts (including any super held by the ATO)
• Withdraw your super held by the ATO when certain conditions are met.

As superannuation funds often have fees associated with their upkeep, as well as insurances that may be tied into it (such as life, total and permanent disability and income protection), it’s important to consult with providers before accounts are consolidated.

https://www.ato.gov.au/Individuals/Super/Growing-your-super/Keeping-track-of-your-super/#Lostsuper

Easy ways for your Small Business to Stay ahead at Tax Time.

As an employee in a business, often there are perks that can come with the job. A company car, fuel money, perhaps some technology to help make things easier. Small business owners however have to be a lot more mindful of how they use the money from their business.

Any money or assets that a business has earned or possesses, is solely the property of that business. That means that there are numerous issues that can arise from dipping into these company funds.

As a business owner, it’s important to keep records and correctly report transactions if using company money or assets (e.g, company car). These can include instances such as

• taking money out of your company for yourself or your family
• receiving money from it (for example, as a director, shareholder or an associate)
• using your company’s assets for private purposes.

For small businesses, this can be easily done through:

• Salary, wages or director’s fees
• Repayments of a loan you have previously made to the company
• A fringe benefit, such as an employee using a company car
• Dividends (formal distribution of the profits)
• A loan from the company

If a business does not report correctly or keep appropriate records for transactions, an unfranked deemed dividend could be included in their assessable income (this is a bad thing) during tax time.

Here are some easy ways to avoid being put into this situation:

• Always ensure that any company money issued is accounted for as per the previous categories.
• Have a separate bank account for the company to pay for company expenses (not private ones!)
• Keep proper records of all company transactions
• Repay any loans from the company before the tax return date to avoid unwanted income tax

https://iorder.com.au/publication/Download.aspx?ProdID=75273-07.2020

Pros and cons of home reversion

Super (AU): Pros and cons of home reversion

Home reversion is when you sell a share of the future value of your home whilst still living there. You receive a lump sum payment and continue to own the remaining share of your home equity.

Pros

• You are able to continue living in your home after you sell the share
• You can conduct renovations or maintenance that your home may need with the lump sum payment you receive
• You can use the lump sum for any urgent needs such as medical treatments
• The lump sum could help you secure accommodation till your home sells

Cons

• You will own the lower share of the equity in your home
• Transactions and costs can get complicated and it may be hard to navigate that
• Your eligibility for Age Pension might also be influenced
• Your ability to afford aged care could be affected
• You might end up eating into money that you need for the future – such as for medicare
• You might be locked into fewer options if your circumstances change
• If you are the sole owner and someone else lives with you, they may no longer be able to live in the house if you move out or pass away

What you need to know about luxury car tax

Luxury car tax or LCT is a 33% tax on cars that have a value (including GST) above the set threshold. However, the tax is only on the value which is above the threshold.

Businesses and individuals that sell or import luxury cars are required to pay LCT.

You can make LCT payments in instalments or annually. If you choose to report your payments in instalments, they will be included in your GST instalments. If you choose to pay GST annually, then you don’t need to worry about reporting monthly or your quarterly BAS.

You may be able to defer paying LCT by quoting your ABN. You are able to do this if you are only going to be using your car to:

• Hold it for trading stock (doesn’t include holding it for hire or lease)
• Carry out research and development for the car’s manufacturer
• Export it GST-free

If and once you stop using your car for the above purposes, then you will need to start paying LCT.

What is the transfer balance cap?

The transfer cap refers to the amount of money that can be transferred from your superannuation account to your tax-free ‘retirement phase’ account.

At the moment, the transfer balance cap is $1.6 million and all individuals have a personal transfer balance cap of $1.6 million.

Exceeding the personal transfer balance cap means that you have to:

• Commute the excess from one or more retirement phase income streams.
• Pay tax on the notional earnings related to that excess

The amount in your retirement phase account may grow over time, due to investment earnings. Although this may grow beyond the personal transfer cap, you will not exceed the cap. However, if you have already used all your personal cap, and then your retirement phase account goes down, you cannot ‘top it up’.

The rules applied to capped defined benefit income streams are different from other income streams – this is because you can’t usually transfer or commute excess amounts from other streams.

Records you need to keep on rental properties

When you own a rental property, keeping records is important. These will help you meet tax obligations. Generally, only individuals with their name on the title deed declare income and claim expenses.

Remember that the records must be kept in English or should be easily translatable into English, and kept for a minimum period of 5 years.

The records you need to keep include:

• Dates and costs of buying the property: These will help work out any capital gain or loss when the property is disposed of – the date entered into the contact is the purchase date, not the settlement date.
• Any rent and rent-related income: This will be required to report tax return.
• Expenses associated with the property: These are important to claim deductions you may be entitled to. These records should include the name of the supplier, the amount of the expense, nature of the goods or services, the date the expense was incurred, date of the document
• Significant changes: These include repairs or improvements or partial or all sale of the property – the cost of repairs and improvements should be kept separate from depreciation costs so that deductions and capital gains and losses can be calculated correctly.
• Costs of selling or disposing of property: To be able to work out any capital gain or loss

Choosing investment options in your super

Many Australians ignore the decision of choosing investments for their super and often end up in the ‘default’ option as they make no effort to choose otherwise.

Default options that aim for ‘balanced’ or ‘growth’ investments tend to have 60-80% of funds invested in shares and property. This approach for investment is based on the best-suited strategy for a large number of members across the years they will be investing.

However, the default options may not be the best for your financial circumstances and risk profile. Understanding different investment options and how risk assessments work will help you choose better investment options.

Further, aim to change investment options over time rather than sticking to the same one. For example, you could consider changing options once you begin receiving a pension.

The amounts you don’t need to include as income

Amounts which are not classified as income are split into 3 categories.

Exempt income

This is income that you do not pay tax on, although, some exempt income may be taken into account when determining:

• Tax losses of earlier income years that you can deduct
• Adjusted taxable income of dependants

Some examples include certain Government pensions, certain Government allowances, certain overseas pay, some scholarships, etc.

Non-assessable, non-exempt income

This is also income that you don’t pay tax on – it does not affect your tax losses.

Some examples include the tax-free component of an employment termination payment (ETP), genuine redundancy payments, super co-contributions, etc.

Other amounts

There are also other amounts that are not taxable.

Some examples include: Rewards or gifts received on special occasions, prizes won in ordinary lotteries, child support and spouse maintenance payments, etc.

SMSF Pensions

SMSF funds can provide pension or lump sum benefits during retirement. Retirement is a condition of super release if you have reached your preservation age. Depending on your date of birth, your preservation age will be between 55 and 60. The benefits from your super are tax-free once you are over the age of 60.

If you plan to start a super pension income stream, then the funds from your accumulation account need to be transferred to your retirement account to fund your pension. Your retirement account has a cap of $1.6 million, so you can transfer that amount as a lump sum but no more. The earnings on these funds are tax-free.

Each year, you need to withdraw a minimum percentage of your account balance from the retirement fund. This minimum percentage will depend on your age.

Alternatively, you can start your Transition-to-retirement pension if you have reached your preservation age but you are still working. However, unlike the funds that support your super pension once you begin retirement, these are taxed at 15%.

Tax treatment of insurance payments for damaged or destroyed property after a disaster

The Australian weather can be unpredictable, resulting in intense weather conditions. Bushfires, severe storms or floods can cause personal properties and assets a lot of damage. In the case that this does occur, individuals need to determine the tax treatment of any insurance payouts or relief payments that they may receive.

Usually, individuals are unlikely to experience tax consequences for payments for personal property or assets. Personal property or assets include your home and household assets.

On the other hand, if an individual’s income-producing assets incur damage, then they will need to determine the proper tax treatment of the payouts or relief payments that they receive and the costs involved in repairing or replacing the assets.

If you have been working from home and using personal assets to produce income (such as a personal laptop you are repurposing) then determining which tax treatment applies could get complicated. You may have to talk to the ATO or an advisor to clarify the specificities of your situation.