Fixed Interest Sercurities

Fixed interest securities

Fixed interest securities are generally suited to investors seeking income, however where a security trades at a discount to face value, some capital growth over time can also be expected. They are intended to pay a consistent stream of distributions based on either fixed or floating rates.

Corporate and Bank issued securities offer investors the benefit of than traditional fixed interest securities (such as government bonds) while providing liquidity via an ASX listing. These securities are generally issued by well-known companies in the S&P/ASX 200 Index; many of which are investment grade rated.

Features of a fixed interest security

  • can provide a regular income stream
  • usually higher yields than cash
  • access to a range of maturity terms
  • competitive pricing
  • may suit investors of all risk profiles
  • liquidity available from an active panel of fixed interest desks
  • historical negative correlation of debt market returns to other asset classes such as shares
  • some debt instruments, such as fixed interest bonds, allow investors to generate capital gains (or losses) from changes in interest rates
  • may help enable clients to diversify or balance their portfolio Types of Bonds
  • There are many types of bonds, broadly they can be classified into:
  • Government debt market
  • Corporate Bonds/Debentures

There are standard bonds and variants, here is a list of the variant types:

    • Floating Rate Bonds – the interest rate changes over time
    • Zero coupon bonds – no interest payments
    • Deferred coupon bonds – no interest paid in the first year
    • Indexed bonds – the interest rate is based on a margin above an index (such as CPI)
    • Convertible bonds – These bonds convert to ordinary shares either at a fixed price or number on maturity of the bond
    • Perpetual bonds – these bonds don’t have a maturity date. The initial sale price the issuer receives is never repaid but interest is paid perpetually.
    • Mortgage backed bonds – these bonds offer a pool of mortgages as security giving investors a reasonable assurance of receiving their interest payments and face value on maturity from the mortgage repayments.
    • Junk bonds – these bonds offer a higher yield in comparison to other securities because the issuer has a higher risk.

When trading bonds there are two ways that you could make a capital gain/loss:

  • If you hold the bond until maturity then the difference between the purchase price and the face value you receive at maturity is the capital gain or loss
  • If you sell the bond before maturity then the difference between the purchase price and the sale price is the capital gain or loss.

Plant and Associates Pty Ltd

Accountants Beenleigh, Accountants Nerang

www.plantandassociates.com.au

1300783394

Posted in Investments Tagged with:

Tax Nightmares

BAS time is typically a very stressful time for most business owners, to the point where some are consistently late lodging and/or paying their BAS.  A few simply don’t do it, preferring to stick their head int eh sand, letting matters spiral out of control.

The ATO is getting tough, they withhold refunds until all your lodgements are up to date, furthermore they could get a court order to wind up your business.

Not knowing how to prepare a BAS, not having adequate record keeping in place or simply being time poor is the biggest reason for business failure.

Instead of being stressed all the time, working long hours in your business, start focusing on the future, get a book keeper or accountant to look after your tax compliance including BAS, get the information to them in a timely manner and don’t be a statistic.

Take charge of your finances now and start getting ahead.

Plant and Associates Pty Ltd

1300 783 394 or (07) 55965758

www.plantandassociates.com.au

admin@plantandassociates.com.au

 

Posted in Bookkeeping, GST

Do you have a SMSF and are thinking of moving overseas? by Bernie O’Sullivan and Julian Smith (Cleardocs)

Fund residency requirements generally

For an SMSF to be a ‘complying fund’ and receive concessional tax treatment, the SMSF must be an Australian resident fund. SMSFs are at risk of losing their complying status, if their members spend time working overseas. This is because the residency rules require trustees and the majority of contributing members to reside in Australia.

For a fund to remain resident, the fund has to satisfy the residency rules throughout an income year — unless an exception applies.

The trustees’ presence rule

Generally speaking, for SMSFs, the individual trustees of the fund must be the same people as the fund’s members. Similarly, if a fund has a corporate trustee, then the directors of the trustee company must be the same people as the fund’s members.

Under the residency rules, central management and control of the SMSF must be in Australia: this implies that the trustee directors or individual trustees must function in Australia. Although these are commonly called residency rules, on closer examination they actually involve a physical presence test, rather than a residency test.

The exception to the trustees’ presence rule

However, there is one exception: a trustee or director may be absent from Australia for a continuous period of up to 2 years and still not jeopardise the fund’s complying status. To start the 2 year period again, the person must return to Australia for a visit of more than 28 days.

The risk to the SMSF by a breach of the trustees’ presence rule

The problem then, is that an overseas assignment of more than 2 years may well pose a residency problem for an SMSF — unless the assignment is broken by a return to Australia for a month or more.

The active members asset rule

Non-resident members must not have more than 50% of the total fund of active members

Member residency requirements revolve around the concept of an “active” member. Generally speaking, an active member is a member who is resident in Australia and currently contributing to the SMSF, or having contributions made by their employer to the SMSF.

Under another rule, the accumulated entitlements of non-resident active members must not exceed 50% of the entitlements of total active members — unless an exception applies.

The exception to the active members asset rule

However, there is also an exception to this rule. The amount of active member entitlements does not include those of a member:

  • who does not contribute to the fund when they are non-resident; and
  • who does not have contributions made by their employer to the fund in respect of periods of non-residency

This exception is available because the member is considered non-active.

Non-active, non-resident members still cause a problem…down the track

Even if that exception applies, a non-active, non-resident member will still present a problem to the SMSF if they are overseas for more than 2 years. This is because the SMSF will not be able to comply with the trustees’ presence rule.

Why is it important for a fund to maintain its residency status?

A fund needs to maintain its residency status. If a fund loses its residency status:

  • it will no longer be “complying”;
  • the tax rate on its income and gains increases from 15% to 45%;
  • a tax of 45% of its assets applies in the year it becomes non-complying;
  • a tax of 45% of the assets applies again if it then becomes complying again;
  • it loses the discount for certain realised capital gains;
  • it loses the exemption for income supporting current pensions;
  • it loses exemption of income flowing from life policy investments and PST unit realisations; and
  • it loses deductions for life and disability insurance premiums.

The ATO’s approach

The ATO has indicated at recent industry forums, that:

  • it has no discretion to ignore a fund’s non-compliance arising from non-resident status; and
  • it will be monitoring the residency status of SMSFs.

Funds can avoid residency problems

Planning an overseas assignment

It is crucial to seek advice on how a SMSF will be managed, before members go overseas. Although a member/trustee may plan to be away for less than 2 years, a change of plan to extend the trip may have disastrous results.

Contributions

If one or more remaining resident members have:

  • more than 50% of the fund’s assets, then this will still satisfy the 50% resident active member requirement , and contributions may continue. However, it will be important to carefully monitor the situation in case those balances change or the intentions of the remaining resident members change; or
  • less than 50% of the fund’s assets, then this will not satisfy the test. However, this problem may be avoided if during a period of non-residency, the contributions of the remaining resident members cease and no employer support is provided that is, the remaining members become non-active. However, the fund will still have to comply with the trustees’ presence rule

Trustees

It is important to seek advice about maintaining central management and control in Australia. It is not enough that the trustees may remain resident for tax purposes.

The legislation requires the trustees to be present in Australia, unless the 2 year concession applies. If a majority of the trustees/members remain in Australia or satisfy the 2 year rule, then it may be possible to put forward a case supporting Australian management and control. However, it is crucial to plan ahead and monitor to ensure that compliance is achieved.

What you should plan for

If there is any doubt about the central management and control of the fund, it would be prudent to plan for:

  • Replacing the trustees:

This could be done by converting the SMSF to a small APRA fund with a professional trustee. This approach would generally enable the fund to continue its existing investments and strategy — as long as the new trustee agrees with the existing investment strategy. However, there are increased costs to engage a professional trustee and increased regulatory fees.

  • Transferring entitlements to another fund:

Another approach is to consider winding up the fund and transferring the entitlements to a larger fund. However, the trustees would lose control over the specific assets: Also larger funds are most unlikely to accept the transfer of the member’s specific assets. This means that the SMSF’s assets may have to be converted to cash first (with duty and CGT consequences). However, one benefit is that administrative burdens and compliance concerns become a thing of the past.

These choices should be carefully considered in the context of members’ long term plans.

Plant and Associates Pty Ltd

www.plantandassociates.com.au

1300783394

admin@plantandassociates.com.au

Posted in Accountant, Asset Protection, Super, Tax

Land Tax – McCullough Robertson

McCullough Robertson Lawyers have provided the following information in relation to land tax. The Office of State Revenue have advised that they will be contacting all landowners claiming a land tax “home exemption” as part of their audit process.  Those clients at risk of losing their “home exemption” are:

  • clients who rent out rooms in their home
  • clients who spend time between multiple properties
  • Clients who move into rented accommodation and continue to claim the main residence(NSW)
  • Clients who reside on land not necessarily zoned residential (NSW)
  • Clients with multiple properties
  • Clients who use the same premises to live and carry on a business
  • Clients in the process of renovations/demolitions
  • Elderly – transitioning into care
  • Workers who work overseas, but may have claimed home exemption in past for Australian property.

Land tax is a tax based on the unimproved value of land. In QLD it is assessed on the 12 months from 30 June each year. In NSW it is assessed on the 12 months from 31 December each year.

Queensland Tax free threshold Maximum rate
Resident individuals $600,000 $62,500 each plus 1.75c for each $1 more than $5,000,000
Trustees, companies and absentees $350,000 $75,000 plus 2c for each $1 more than $5,000,000

 

New South Wales Tax free threshold Maximum rate
General $412,000 (tax free) $100 plus 1.6% up to the premium threshold
$2,641,000 (premium) $35,444 for the first $2,641,000 then 2%

Home exemption applies where?

property is owned by a person and used as the person’s home ?

property is owned by trustee and used as home of all beneficiaries of the trust ?

Used as a home statutory tests ?

main test – Continuously used for residential purposes for 6 month period immediately prior to 30 June ?

deeming test – deemed use at 30 June broadly if

– landowner resides in a nursing home/hospital for all or part of the 6 month residency period

– temporarily residing elsewhere due to demolition or renovations ?

residual test – Otherwise if Commissioner satisfied the land is used as a person’s principal place of residence

Land held by trustees ?

still eligible for main residence exemption if land is used by beneficiaries as principal place of residence and a power of appointment has been exercised in favour of those beneficiaries by the trustee ?

may not want absolute entitlement as this would trigger a CGT event ?

may just want to grant a mere right to occupy ?

Note exemption not available for NSW trusts or companies

NSW principal place of residence exemption (post 1 Jan 2005) ?

Home exemption applies where ?

land is used and occupied as the land owner’s principal place of residence, if the land

– is residential land or

– a strata lot ?

‘Used and occupied’ statutory tests ?

main test – the land (and no other land) has continuously been used for residential purposes for 6 month period immediately prior to 31 December ?

residual test – otherwise if Commissioner satisfied the land is used as a person’s principal place of residenceVarious concessions and extensions re exemption ?

If you would like further information or would like to discuss your situation you can contact Lyndon Garbutt, Senior Associate on 07 3233 8921 or email: lgarbutt@mccullough.com.au

Posted in Investments, Property, Tax

Income Tax Requirements of Deceased Estates

Executors and trustees of deceased estates should be aware that there are various tax requirements that must be fulfilled in respect of the estate of a deceased person and that these requirements must be met before any funds or assets are transferred to the beneficiaries of the estate.

Initially, a final tax return will be required for the individual up until their date of death. This will include any income earned by the person for the period from the beginning of the financial year (1 July) to their date of death. Any tax payable in respect of this tax return must be paid from the estate funds. You may also be required to lodge any outstanding returns for prior years.

If the estate earns any income between the date of death and the time that the estate is distributed to the beneficiaries, it will be necessary to lodge a tax return in respect of the estate of the person. In these circumstances, the executor/trustee must apply for a tax file number for the trust estate, lodge a tax return for the estate and pay any tax applicable. This must be done prior to the distribution of any funds to beneficiaries. In some instances, there may be several years where a tax return will need to be lodged for the trust.

 

Below are some examples that explain the potential tax implications of different circumstances:

Example 1:

Mr Sample dies on 30 March 2015. At the time of his death, he is retired and his only assets are cash in a bank account and shares held in a listed company.

In accordance with his will, all his assets are to be transferred to his wife, Mrs Sample. This is done very soon after his death and no income is received from the assets between the date of death and the transfer date.

In this circumstance, a tax return will need to be lodged in Mr Sample’s personal name for any interest or dividends received from 1 July 2014 to 30 March 2015. However, as his estate did not receive any income prior to the asset transfer to his wife, the trustee will not be required to apply for a TFN or lodge a tax return in respect of the estate.

 

Example 2:

Mr Sample died on 30 March 2015. At the time of his death, he holds significant cash investments in term deposits and shares in several listed companies.

In accordance with his will, the shares are sold by the executor and the proceeds received, together with the funds from the term deposits are held in a bank account prior to being distributed to the beneficiaries named in the will. As the funds are held for several months, there is an amount of interest income earned on the account during the interim period.

In this circumstance, the trustee would firstly need to lodge a personal tax return for Mr Sample for the period from 1 July 2014 to 30 March 2015.

They would also need to apply for a tax file number for the deceased estate (a trust) and a tax return would need to be prepared to include the interest income and any capital gain from the sale of the shares.

It is important to note that when dealing with shares and other non-cash assets (e.g. property), the executor may need to obtain confirmation of when the deceased person acquired the asset and the cost they paid for the asset. For this reason, it is important that if you own these types of assets, you should retain this information in such a manner that they can be located upon your death.

It should also be noted that only certain costs of deceased estates are deductible for tax purposes. For example, accounting fees for preparation of tax returns for the deceased person are deductible, however funeral costs are not.

If you are the executor of a deceased estate, you should contact us to discuss the possible tax requirements to ensure that there are no delays in distributing the estate to the beneficiaries.

Plant and Associates Pty Ltd

www.plantandassociates.com.au

1300783394

admin@plantandassociates.com.au

Posted in Accountant, Deceased Estate, Tax

Superannuation Concessional Contributions

For the 2015/2016 financial year and the 2014/2015 financial year the concessional contribution cap is $30,000 (if you are over 49 years of age as at 30/06/2014 then you can contribute up to $35,000 in the 2014/2015 financial year.) (if you are over 49 years of age as at 30/06/2015 then you can contribute up to $35,000 in the 2015/2016 financial year.

If you salary sacrifice then ensure the total you have contributed does not exceed the thresholds.  Remember it is the date your fund receives the funds that determines whether the amount counts towards your cap or not.  As such if your employer is late or early with a contribution then your fund may receive contributions of over the cap.

 

Income year Under 50 50 years to 59 years* 60 years and over*
2014/2015 $30,000 $35,000 $35,000
2013/2014 $25,000 $25,000 $35,000
2012/2013 $25,000 $25,000 $25,000
*Concessional contributions cap for older Australians applies in the following way for different financial years:

  • 2013/2014 year: If you were 59 years of age or older as at 30 June 2013 then you were eligible for the higher concessional cap of $35,000 for the 2013/2014 year. If you were 58 years or younger as at 30 June 2013, then you were eligible for the general concessional cap of $25,000 for the 2013/2014 year.
  • 2014/2015 year: The concessional cap for older Australians was broadened to those in their fifties from 1 July 2014. If you were 49 years of age or older as at 30 June 2014, then your concessional contributions cap for the 2014/2015 year is $35,000.
  • 2015/2016 year: If you were 49 years of age or older as at 30 June 2015, then your concessional contributions cap for the 2015/2016 year is $35,000.
Posted in Super

Minimum annual pension (income stream) payments

How much is the minimum you must withdraw from your super fund as a pension if you are in pension mode?

Remember that if you don’t need the funds, depending on your circumstances, you may be able to re contribute the amount back into super.  If you do this as a non concessional contribution this can make your super account tax free so that in the event of your passing and your adult children receiving your super, they will receive more of the funds and less will go to the tax man.

 

Back to normal Temporary relief
    2015/2016, 2014/2015 and 2013/2014 years 2012/2013 and 2011/2012 years* 2010/2011, 2009/2010 and 2008/2009 years
Age Percentage factors (PF)  No relief 75% of PF 50% of PF
55-64 4% 4% 3% 2%
65-74 5% 5% 3.75% 2.5%
75-79 6% 6% 4.5% 3%
80-84 7% 7% 5.25% 3.5%
85-89 9% 9% 6.75% 4.5%
90-94 11% 11% 8.25% 5.5%
95 or older 14% 14% 10.5% 7%
Posted in Super Tagged with:

Year End Tax Planning

OPTIONS FOR EMPLOYEES AND INVESTORS

  • Defer receipt of income – wages, bonus, director’s fees, commissions, rent, interest and dividends.
  • Defer capital gains on property, shares etc
  • Accelerate Deductions – for work related expenses and investment linked expenses (e.g. prepay interest)
  • Bring forward and realize any potential capital losses but only if there are capital gains to be offset
  • Superannuation co-contribution – paying up to $1000 into your superannuation fund if you are entitled to the government co-contribution
  • Medicare Levy Surcharge is payable if you do not have hospital cover in your private health insurance and your income (or combined income for couples) is over the current year thresholds.

 

OPTIONS FOR BUSINESSES

  • For businesses with current turnover not exceeding $2 million, can opt to be taxed on a cash basis instead of accrual basis (no debtors or creditors including in account), can also use pooled and one single rate of depreciation for all assets and may not need to conduct stock takes.
  • As at 01 July 2015 the following Small Business Entity changes have been made.
    • Write off depreciating assets costing less than $1,000 in the income year in which start to use the asset or have it installed ready for use for a taxable purpose.
    • Depreciating assets costing greater than $1,000, one small business pool will exist where assets will be depreciated at 15% in the year of allocation and 30% in subsequent years regardless of effective life.
  • Tax planning strategies may depend to some extent on your business structure which can be
    • Sole Trader
    • Partnership
    • Company
    • Unit trust
    • Family Discretionary Trust
  • In general terms, you can still follow many of the basic planning options set out above for employees and investors, i.e.
    • Defer income where possible
    • Defer capital gains
    • Accelerate deductions
    • Bring forward capital losses but only to offset capital gains
  • Pay all employees superannuation including your own, into the fund on or before 30 June
  • Directors fees and bonuses are only a tax deduction to the company if they are paid by 30 June or are authorized by an appropriate action before 30 June (e.g. a directors minute)
  • Bad debts must be written off in the books on or before 30 June to claim tax deduction
  • Writing off or writing down obsolete stock must also be done by 30 June in order to gain the benefit of the reduced stock value and resulting tax benefit
  • Prepayments can be a tax deduction provided there is some commercial benefit in the arrangement but must not relate to expenditures beyond the coming 12 months
  • Loans by companies to their shareholders or associates should be repaid by 30 June if the company is showing a profit in the current year or in the accumulated profits of prior years or a formal loan agreement with interest and set repayments should be entered into (Division 7A loan )
  • If capital gains cannot be deferred then you should consider whether any of the small business active asset and or retirement concessions apply
    • The small business 15 year asset exemption
    • The small business 50% active asset reduction
    • The small business retirement exemption
    • The small business asset rollover
  • Setting up a self managed superannuation fund
Posted in Tax Minimisation

Beware of Phone Scams

 

Beware of Phone Scams

Phone scams are the number one type of scam in Australia. Scammers can impersonate ATO employees to obtain personal information for financial gain from you . Generally, phone scams demand payment for an unexpected debt or offer an unexpected refund or grant.

It is important you are aware that scammers try to collect personal information to steal your identity, including:

  • tax file numbers
  • names
  • addresses
  • dates of birth
  • myGov user name and password
  • bank account and credit card details
  • drivers licence, Medicare and passport details.

This information is then used or sold to other criminals to commit identity fraud. This can happen immediately or even months or years later.

Phone scammers are likely to be pushy or aggressive. They may tell you that there is a warrant out for your arrest or offer to send a taxi to take you to a post office so that you can make a payment.

The ATO would never threaten jail or arrest and does not email, call or SMS asking for credit card or bank details to issue a refund.

Scammers pretending to be from the ATO are generally more common during tax time so we encourage you to be vigilant and to protect your personal information.

Posted in Accountant

Work related expenses in the ATO firing line

 

Work related expenses in the ATO firing line

This year the ATO is paying particular attention to the following work-related expenses: –

  • Overnight Travel. – The ATO is concerned that excessive claims are being made for overnight travel costs, such as transport, accommodation and meals. As a general rule, employees can claim a deduction for travel expenses they pay where –
  1. their employer requires them to perform their work away from their usual workplace for a short period
  2. it would be unreasonable to expect them to return home each day, which means they must stay away from home while they are doing that work.
  3. the ATO  considers an individual is “traveling” for work purposes, as opposed to “living-away-from-home”, when the period away is less than 21 days.
  4. however if away more than 6 nights a travel diary is required.
  5. Substantiation Exception – Under this exception, individuals can claim a deduction for the full amount of their overnight travel expenses with out receipts if certain conditions are met.
  6. See ATO TD 2014/19 for  allowable rates  
  • Expenses for transporting bulky tools and equipment between home and work. – Where an individual transports bulky tools and equipment required for their job, provided that certain requirements are met.
  1. a deduction is not allowable if a secure place for storage of equipment is provided at the workplace.
  2. if the equipment is transported as a matter of convenience or personal choice, no deduction is allowable.
  • Computers, phones and similar devices – As a general rule, the cost of mobile devices are deductible for employees who can demonstrate they are either “on call” or are required to contact their employer on a regular basis while they are away form the workplace.
Posted in Tax