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Transitioning to Retirement Made Simpler

Not quite ready to take the plunge into full retirement, but ready to make a start?

Transitioning into the retirement phase of your life means undergoing the process of slowly relying less on work-related earnings and more on superannuation and investments to cover your lifestyle expenses.

The time taken to transition into retirement is up to you;  it may take as little as 6 months or as long as 5 years.

However, income may be a source of concern during this transition period – this is why transition to retirement pensions can be of assistance.

A transition to retirement (TTR) pension allows you to supplement your income by allowing you to access some of your super once you’ve reached your preservation age.

This type of pension is similar to an account-based pension, but has a few extra rules.

Not only must you first have reached your superannuation preservation age, for TTR pensions in the pre-retirement phase, the minimum pension payment is 4% up to a maximum 10% of your account balance as at 1 July of each financial year or the value from the date your TTR pension started in that financial year. The minimum payment percentage is pro-rated in the first financial year.

If you start a TTR pension part way through a year, the 4% is pro-rata based on the remaining days in the financial year, divided by the total days in the year. The 10% upper threshold remains calculated based on a full year (i.e. no pro-rata necessary).

How Can A TTR Pension Benefit You?  

• You cut back your working hours without reducing your income.
• The taxable component of TTR pension payments attracts a 15% tax offset between the preservation age and 59, and all payments are tax-free at age 60 or over.
• Investment earnings are generally taxed at a maximum rate of 15%.

You can start a transition to retirement pension by contacting your superannuation fund and asking if they offer transition to retirement pensions. If they do and you are comfortable using their product, you can then follow the process to commence the pension. Alternatively, you may choose to start a transition to retirement pension with a different superannuation fund.

However, bear in mind:

• You’ll need to keep a super account open to accept employer contributions (or any other contributions), as these can’t be contributed directly to a pension account.
• TTR pensions don’t hold any insurance cover. This means you may want to keep any personal insurance you have connected to your super account.

There are a number of things you should consider before starting a TTR pension; professional financial advice is recommended. Why not start a conversation with a trusted, licensed adviser today?

Claiming The Small Business Technology Investment Boost

Could your small business claim a 20% bonus deduction on technology expenditure that supports their digital operations or the digitisation of their operations?

The small business technology investment boost is a broad measure intended to cover a wide range of business expenses and assets; however, questions may arise when you go to claim.

Can I Claim The Boost? 

To access the small business technology investment boost, your business needs to meet the standard aggregated annual turnover rules (with an increased $50 million threshold).

The expenditure must:

• already be deductible for your business under taxation law
• be incurred between 7:30 pm AEDT 29 March 2022 and 30 June 2023.

If the expenditure is on a depreciating asset, the asset must be first used or installed ready for use for a taxable purpose by 30 June 2023.

What Can I Claim With The Boost? 

A good indicator of eligibility is to consider if the small business would have incurred the expense if they didn’t operate digitally. That is if they hadn’t sought to adopt digital technologies in the running of their business. Using this rule of thumb, the costs below are eligible:

• advice about digitising a business
• leasing digital equipment
• repairs and improvements to eligible assets that aren’t capital works.

Eligible expenditure may include, but is not limited to, business expenditure on:

• digital enabling items – computer and telecommunications hardware and equipment, software, internet costs, systems and services that form and facilitate the use of computer networks
• digital media and marketing – audio and visual content that can be created, accessed, stored or viewed on digital devices, including web page design
• e-commerce – goods or services supporting digitally ordered or platform-enabled online transactions, portable payment devices, digital inventory management, subscriptions to cloud-based services and advice on digital operations or digitising operations, such as advice about digital tools to support business continuity and growth
• cyber security – cyber security systems, backup management and monitoring services.

Whether some expenditure is eligible for the boost will depend on its purpose and link to digitising the operations of the specific small business. For example, the cost of a multifunction printer would not be eligible if it were intended only to make copies of paper documents. However, it would be claimable if it was being used to convert paper documents for digital use and storage

New and ongoing subscription costs can also qualify as eligible expenditures if related to your client’s digital operations. For example, your ongoing subscription to an accounting software platform for your business would qualify. Likewise, a new subscription for digital content that is used in developing web content to advertise their business would be eligible.

In these cases, you should keep explanations of how the expenses relate to digitising their business, as well as accurate records of all their claims.

Where the expense is partly for private purposes, the bonus deduction can only be applied to the business-related portion.

Special rules apply if claiming the bonus deduction for eligible expenditure on a depreciating asset.

To avoid confusion or complications around applying the small business technology investment boost, it may be best to speak to your trusted tax agent. We’re here to help.

The Importance Of Establishing A Company Culture

Company culture has become an important part of how businesses are perceived. Businesses with a positive culture are more likely to attract clients and customers. Statistics also show that over 50% of executives believe that having a good culture can influence productivity, creativity, profitability, firm value and growth rates.

However, while describing and quantifying a company’s products and services can be easier, defining culture is a lot more complicated. It requires capturing the company environment, values and relationships.

Identifying your company culture, or what you want it to be, will determine your work processes, hiring new people into your team, and how you and your employees interact with clients.

The first thing to do is to identify key traits that describe your culture. Bring together a diverse group of people from across your company and brainstorm words and qualities that represent the culture. Collate the words you hear the most so that you end up with a list representative of the culture that employees most relate to.

The next thing you need to do is distil this list down to the core values you can see in it. You can conduct surveys (if you have a large company) or talk to your employees (if the company is small) and ask them whether the values you have chosen resonate with them and if not, which ones do. At this point, you should aim to have around 5 values, but this is a flexible number.

Last of all, once the core values have been established, share them throughout the company. Employees should relate to these values, and they should also feel motivated to embody them. Communicate with your employees why these values may or may not be working/suitable.

Remember that this is a process. You may not get it right the first time, which is why it is important to be receptive to feedback from all members of the company.

The Age Pension Thresholds Have Changed Since 1 July 2023…

One of the most common questions from those entering or nearing retirement is, ‘How much money can I have before it affects my pension?’

Our answer is usually derived from the total value of your savings, other assets and any income that might be earned from other sources. However, from 1 July 2023, the thresholds determining how much pension you may be paid have changed due to inflation-related adjustments.

This means that many of those who may otherwise have been looking at a part-pensioner status due to being over the threshold may be able to be on a full pension with the adjusted thresholds (depending on their circumstances).

Similarly, those who may have been ineligible for a pension due to being over the cut-off point for the assets test should become eligible to start claiming a part pension (and all the concessions that go with it).

What Assets Will I Be Tested On? 

The assets that you or your partner own that are included in your assets test include the following:

• Real estate (excluding your family home)
• The market value of your household contents (such as fridges, appliances, etc).
• Superannuation balances if you and your partner have reached the Age Pension eligibility age, including the balance of your pension accounts that provide you with an income stream. If your partner is below the Age Pension eligibility age, their super balances will not be included in your assets test
• Other financial investments, like term deposits or any surrender value of life insurance policies
• Retirement village contributions
• Business assets
• Motor vehicles
• Boats
• Caravans
• Jewellery
• Cryptocurrencies

The Age Pension assets limits are adjusted three times a year based on movements in the consumer price index (CPI). The thresholds for the full Age Pension change in July, while thresholds for the part-Age Pension change in March and September.

Assets Limit For A Full Age Pension

To be eligible for either a full or part-Age pension, there are limits on the value of the assets you (and your partner combined) can own.

The limits depend on whether you own your own home, as well as your living arrangements (including if you have a partner and whether they are age-eligible for the pension or not). The asset limits are higher for non-homeowners in recognition of the higher cost of housing for pensioners who rent their homes.

You also need to pass the income test and age and residency requirements.

The asset-free thresholds for full-age pension are the same for couples living together and those separated by illness.

If the value of the assets is above the thresholds, you may still qualify for a part-Age Pension.

The Income Test

The new thresholds also increase the amount pensioners can earn before their pension starts to reduce under the income test. For a couple, the income test cut-off point rises from $336 a fortnight to $360 a fortnight – for singles, it increases from $190 a fortnight to $204 a fortnight.

If you reach the threshold limits in the assets and income tests, your pension will be based on the lower amount.

For example, if you are eligible for $400 per fortnight according to the assets test and $500 per fortnight under the income test, then the $400 per fortnight test will apply.

Questions About The Pension

If you have questions about your retirement plan or pension eligibility, why not start a chat with a trusted advisor (like us) today?

Providing Affordable Housing? You Could Be Eligible For A CGT Discount

An additional 10% capital gains tax (CGT) discount may be available when you sell an Australian residential rental property that you used to provide affordable housing.

This will increase the potential maximum capital gains discount percentage on your sale from 50% to 60%.

What Is Affordable Housing?

For the affordable housing CGT discount purposes, affordable housing is any dwelling (house, unit or apartment) where the following conditions are satisfied:

• The dwelling is both a taxable Australian real property (TARP) and residential premises that you rent out or genuinely make available for rent. Caravans, mobile homes and houseboats are not residential premises.
• The dwelling is not a commercial residential premises.
• Management of the tenancy or its occupancy is done exclusively by a registered community housing provider (CHP).
• Each entity that holds an ownership interest in the dwelling has a certificate from the provider showing that the dwelling was used to provide affordable housing.
• No entity that has an ownership interest in the dwelling is in receipt of an incentive from the National Rental Affordability Scheme (NRAS) for the NRAS year.
• If a managed investment trust (MIT) has an ownership interest in the dwelling, the tenant does not have an interest in the MIT that passes the non-portfolio test.

Eligibility For Affordable Housing CGT Discount

When you sell a rental property used to provide affordable housing, you may make a capital gain on the profit. This may qualify you for an additional (up to 10%) affordable housing capital gain discount if you meet the following eligibility criteria:

The capital gain must have been either

• made by you as an Australian resident individual, or
• distributed or attributed to you either
  • directly from a trust or managed investment trust (MIT)
  • indirectly from a trust through an interposed partnership, MIT or other trusts (this does not include public unit trusts or super funds).

You must have also provided:

• new or existing affordable housing
• rental rates below market rent
• affordable housing to eligible tenants on low to moderate incomes (based on household income thresholds and household consumption)
• Affordable housing for a minimum period of three years (1,095 days) from 1 January 2018. This can be continuous or an aggregation of three years over a longer period.

The additional discount will be pro-rated for periods where you don’t use the property for affordable housing purposes or were a foreign or temporary resident for part of the time you owned the property.

Investing In Affordable Housing Through a Trust 

You can invest in affordable housing through a trust.

As an individual investor, only you can claim the additional affordable housing CGT discount. The trust cannot claim this discount.

For you to qualify for the affordable housing CGT discount:

• the trust can be a managed investment trust (MIT), but not a public unit trust or super fund
• the trust must be entitled to the general CGT discount on the capital gain on the property, either in full or part.

The capital gain can be distributed or attributed to you:

• directly from the trust or MIT
• indirectly from the trust or MIT through an interposed partnership, MIT or other trust, but not through a public unit trust or super fund.

Consulting with a tax professional could assist you in determining your eligibility for CGT discounts – why not speak with us today?

What Is A Proprietary Limited Company?

In Australia, the Pty Ltd Company (proprietary limited company) is one of the most popular business structures chosen by entrepreneurs and business owners. Pty Ltd companies offer both distinct advantages and certain disadvantages that individuals should carefully consider when determining the most suitable structure for their enterprise.

Benefits of a Pty Ltd Company:

• Limited Liability: The most significant advantage of a Pty Ltd company is the limited liability it provides to its owners (shareholders). Shareholders’ personal assets are generally protected from business-related liabilities. This means that if the company encounters financial difficulties or legal issues, shareholders are only liable for the amount they have invested in the company.
• Separate Legal Entity: Pty Ltd companies are considered separate legal entities, distinct from their owners. This separation allows the business to enter into contracts, own property, and engage in legal proceedings in its own name. It provides credibility and professionalism to the business.
• Access to Capital: Pty Ltd companies can issue shares to raise capital, making it easier to attract investors or secure funding. Investors may be more inclined to invest in a company structure as opposed to sole proprietorships or partnerships due to the limited liability protection.
• Perpetual Existence: A Pty Ltd company has perpetual existence, meaning it can continue to operate even if the ownership changes due to the death, sale, or transfer of shares of a shareholder. This stability can be appealing for long-term planning.
• Tax Benefits: Pty Ltd companies often benefit from various tax advantages, including access to corporate tax rates, tax deductions for business expenses, and the ability to distribute profits to shareholders in a tax-efficient manner.

Disadvantages of a Pty Ltd Company:

• Complex Compliance: Pty Ltd companies are subject to stringent legal and regulatory compliance requirements in Australia. This includes the need to file annual financial reports, maintain records, and adhere to corporate governance standards. Complying with these obligations can be complex and time-consuming.
• Costs: Establishing and operating a Pty Ltd company involves expenses such as registration fees, accounting fees, and ongoing compliance costs. These costs can be burdensome for small businesses or startups with limited resources.
• Ownership Restrictions: Pty Ltd companies can have a limited number of shareholders (up to 50), and there are restrictions on transferring shares. This may limit the company’s ability to attract a broad range of investors.
• Disclosure Requirements: Pty Ltd companies must disclose certain financial and operational information to the Australian Securities and Investments Commission (ASIC). This transparency requirement may not be appealing to business owners who prefer to keep their financial affairs private.
• Complex Decision-Making: As Pty Ltd companies typically have multiple shareholders, decision-making can become complex, especially if there are disagreements among shareholders. Formal processes and agreements are often needed to address these issues.
• Capital Raising Challenges: While Pty Ltd companies can issue shares to raise capital, attracting investors can be challenging, particularly for startups or smaller enterprises without a proven track record.

The Pty Ltd Company structure offers numerous benefits, including limited liability, access to capital, and tax advantages. However, it also comes with disadvantages, such as complex compliance requirements, costs, and ownership restrictions.

When choosing a business structure, entrepreneurs should carefully assess their business goals, size, and long-term plans to determine whether a Pty Ltd company fits their needs or if an alternative structure may be more suitable.

It’s advisable to seek legal and financial advice to make an informed decision. Why not start a conversation with your trusted business advisor today to get on the right track?

What’s All The Fuss About SMSFs?

A Self-Managed Super Fund (SMSF) is a unique and increasingly popular retirement savings vehicle.

SMSFs offer individuals and families greater control, flexibility, and investment choices than traditional superannuation funds.

In this article, we’ll explore what SMSFs are, how they work, their benefits, and some considerations for those interested in establishing and managing one.

What is an SMSF?

An SMSF is a type of superannuation fund that allows individuals to manage their own retirement savings.

Unlike industry or retail super funds, where investment decisions are made by professional fund managers, an SMSF puts the control firmly in the hands of its members, who are also the trustees of the fund. This level of control is what sets SMSFs apart.

How Does an SMSF Work?

An SMSF can have a maximum of four members, all of whom must also be trustees or directors of the corporate trustee. As trustees, members are responsible for making investment decisions, complying with legal obligations, and managing the fund’s assets. SMSFs can invest in a wide range of assets, including shares, property, cash, and fixed income.

Benefits of an SMSF:

• Control and Flexibility: SMSF members have complete control over their investment choices and strategies. This allows for a highly tailored approach to meet specific financial goals and risk appetites.
• Tax Efficiency: SMSFs offer potential tax advantages, particularly for those in retirement. Capital gains, for instance, are often taxed at a concessional rate if the assets are held for more than 12 months.
• Estate Planning: SMSFs provide estate planning benefits, allowing members to dictate how their assets are distributed upon their passing. This can be especially important for complex family situations.
• Asset Diversification: With greater control, SMSF members can diversify their investments across various asset classes, reducing risk and increasing the potential for returns.
• Borrowing for Investments: Under certain conditions, SMSFs can borrow to invest in assets like property, which can magnify returns and portfolio diversification.

Considerations for Establishing and Managing an SMSF:

• Compliance: SMSFs must adhere to strict regulatory guidelines set by the Australian Taxation Office (ATO). Non-compliance can result in penalties or the loss of tax concessions.
• Investment Knowledge: Managing an SMSF requires a strong understanding of financial markets, taxation rules, and investment strategies. It’s essential to keep abreast of changing regulations.
• Costs: While SMSFs can be cost-effective for those with substantial assets, they may not be suitable for smaller balances due to administrative and compliance costs.
• Time Commitment: Trustees need to invest time in managing their SMSF, including record-keeping, administrative tasks, and annual auditing requirements.
• Professional Advice: It’s advisable to seek professional guidance from accountants, financial planners, or SMSF specialists when setting up and managing an SMSF. Their expertise can help navigate complex regulations and optimize investment strategies.

Self-Managed Super Funds (SMSFs) have become a valuable retirement planning tool for many Australians, offering unparalleled control, flexibility, and investment options.

However, the decision to establish and manage an SMSF should not be taken lightly. It requires a solid understanding of financial markets, compliance obligations, and a long-term commitment to effective management.

When approached with diligence and professional guidance, an SMSF can be a powerful vehicle to achieve financial security and retirement success.

Why Are My “Connections” Important To Know During Tax Season?

In the realm of tax law, a critical concept revolves around understanding the notion of “entities connected with you.”

This concept serves as a linchpin in several aspects of taxation, from determining one’s status as a Small Business Entity to ascertaining the value of assets when seeking eligibility for Small Business Capital Gains Tax (CGT) Concessions. Furthermore, it holds significance when an individual has sold an asset and claimed it was used by an ‘entity connected with them.’

In various tax scenarios, having an entity connected to you can either prove beneficial or burdensome. A prime example of the former is when you sell a factory unit, and a company affiliated with you operates a mechanics business within that unit. In this case, you become eligible to claim the Small Business CGT Concessions on the sale of the factory unit, potentially leading to substantial tax benefits.

Conversely, connected entities can have adverse consequences, particularly in specific asset tests. When evaluating certain asset-related criteria, the value of assets connected entities hold is aggregated with your own. Consequently, having entities connected with you in such situations may not be advantageous.

Consider a scenario involving a family trust and a distribution made to the adult daughter. In this instance, her assets may need to be added to the overall asset pool when determining your eligibility for tax concessions. A key threshold for determining connection to a trust is if an individual has received 40% of the income or capital of that trust in the preceding four years.

Entities controlled by the same person or entity are also considered connected with each other. For instance, if you oversee two trusts, those trusts are not only connected to you but also to each other. This interconnectedness has implications for tax planning and assessment.

In the eyes of tax law, spouses are not automatically deemed connected to each other. This is not the default assumption; spouses are typically not considered connected entities. For instance, if you are in control of a company, and your spouse independently manages their own separate company, they would generally not be considered connected to each other. The implications of this can vary depending on the specific tax scenario.

While the concept of entities connected with you may seem intricate, it is a dynamic factor that necessitates ongoing attention and evaluation. Circumstances surrounding the connections can change over time. Returning to the example of the factory unit, the nature of its disposal could alter the connection dynamics. For instance, you may have retained ownership of the factory unit while transferring ownership of the company to your son five years ago. In this case, the company is no longer connected with you, potentially affecting your eligibility for specific tax concessions.

Understanding and managing the relationships between entities and their connections is pivotal in navigating the complexities of tax law. It is not a static concept, but one that requires ongoing consideration, as changes in these connections can have significant implications for an individual’s tax obligations and eligibility for various concessions.

Therefore, individuals and businesses should remain vigilant and seek professional advice when dealing with entities connected with them in the realm of taxation. Keeping us apprised of your future plans for your assets and of changes that could impact your connections means that we can ensure that you do not inadvertently miss out on any of the tax concessions available.

Why Should Your Business Engage An Adviser?

Feel like your business is stuck in a rut? Are you unable to solve a problem that you know will cost you in the long run? Struggling to navigate your way through a difficult time?

It might not be financially tanking, and it might not be that your revenue stream is down; however, if you’re not sure what direction to take with your business, you might need a fresh set of eyes and a bit of extra guidance.

A fresh pair of eyes to take a look at particular issues that your business is facing to deal with them doesn’t have to come from within the business. Sometimes, an outsider’s viewpoint or perspective can be even more informative.

Business advisers can be engaged across many fields with specially focused advice or strategies to a specific area (such as accountants, business bankers or commercial lawyers) or be a business adviser who is dedicated to considering the overall goals and long-term ramifications of your business’s strategies.

A business adviser can be hired on either a one-time basis (to deal with any one-off problems your business is set to face) or on an ongoing basis to provide continued support.

If you are only looking for a particular solution to a particular problem, one-time advice from a business adviser can be an easy and cost-effective solution.

However, if you’re looking for long-term ongoing support that’s backed by years of experience and a perspective that’s looking to preempt these issues, ongoing advice may be more appropriate for your needs.

Engaging a business adviser can provide your business with fresh ideas based on an objective analysis of your business’s current performance and situation.

Experts within their relevant fields are also able to provide you with specialised advice, based on the ongoing consultations you may have had with them previously or plan to have in the future.

As an example, contracting an accountant in a business adviser role means that you are looking for strategic and financial advice like profitability improvement, tax planning and advice regarding business performance. These can be critical to ensuring your business’s longevity and preparing for whatever the future may throw at you.

For example – if you were looking to sell your business, your contracted accountant should be able to map out the tax liabilities involved in doing so, the assets that would entail as part of the sale or even if you may be eligible for certain concessions.

An adviser who can offer timely and relevant advice to your financial situation can make a huge difference to your business in the long run. They can also assist you in plotting out business goals, preparing for hardship, or even working out what to do in the event of bankruptcy.

Looking for assistance in plotting out the financial future of your business, or for a tax specialist who can?

We are more than ready for that conversation to be had with you. We’re well-equipped to assist you with mapping out your business’s plan for the future, so why not speak with us and see how we can help you?

Your Health Has A Place In Estate Planning: What You Should Consider If You Fall Ill

When estate planning, most people focus on what will happen to their family and their assets after they pass, often neglecting to consider what would happen if they were to become ill or incapacitated.

Falling ill can be a very stressful and traumatic time for you and your family, especially if you are the primary financial provider for your household. Taking the time to become prepared and evaluating your financial situation can help you to prove if you are out of work for health reasons. It is essential to ensure you know of every entitlement available should you become sick or incapacitated.

Income Protection:

Income protection is a form of insurance that pays you a regular cash amount if you are unable to work as a result of a sudden illness, covering up to 75% of your income for a set period of time. You can insure your income through agreed value, where you decide the amount you wish to receive each month, or indemnity, where you prove your income at the time of claim rather than during application. Generally, you can claim part or all of your income protection insurance premiums that are taken outside of your super as a tax deduction, helping you save more on your tax bill. However, you are not entitled to deductions for a policy that compensates for a physical injury. Other insurance policies include health insurance, trauma cover or total and permanent disability (TPD) insurance.

Incapacity Plan:

Incapacity planning is a process through which capable adults make choices and plans about future events that are a possibility. It addresses what you would want to happen in relation to health care decisions and financial matters should you lose your ability to make or express choices. In the event you are seriously injured or develop an illness such as dementia, you may not be able to pay bills, file taxes or manage your assets and investments. Incapacity planning allows for those types of things to still be done by someone with the authority to handle them. An incapacity plan should contain the following documents:

• Living Will: states what kind of health care you wish to receive or refuse to receive, should you lose consciousness or capacity. Unlike a last will and testament, your living will has nothing to do with what happens to your property after you die.
• Financial power of attorney: allows you to choose someone who will have the legal authority to manage your financial affairs if and when you lose the ability to do so yourself.
• Medical power of attorney: allows you to choose someone to have the legal right to make medical choices on your behalf if you cannot make them on your own. You should discuss your wishes with the chosen representative before you are incapacitated and they need to make medical decisions.

Early Release of Super:

There are very limited circumstances in which you can access your super before you retire. You may apply for early release on the grounds of:

• Incapacity: if you suffer permanent or temporary incapacity.
• Severe financial hardship: if you have received Commonwealth benefits for 26 continuous weeks but are still unable to meet immediate living expenses.
• Compassionate grounds: to pay for medical treatment if you are seriously ill.
• Terminal medical condition: if you have a terminal illness or injury likely to result in death within 2 years, as certified by two registered medical practitioners, at least one of whom is a specialist