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Jobkeeper Payment Cycles

Jobkeeper Payment Cycles

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Jobkeeper runs over 26 fortnights from 30 March 2020 to 28 March 2021. That is 26 Jobkeeper payment cycles. Here are the relevant dates.

Jobkeeper Payment Cycles

The first round of Jobkeeper covers two quarters: June and September 2020. Its modified extension covers two more quarters: December 2020 and March 2021.

Jobkeeper 1.0

Jobkeeper 1.0 started on 30 March 2020 and ran over 13 fortnightly payment cycles to 27 September 2020, paying $1,500 per fortnight per eligible employee.

1 – 30 March to 12 April 2020

2 – 13 April to 26 April 2020

3 – 27 April to 10 May 2020

4 – 11 May to 24 May 2020

5 – 25 May to 7 June 2020

6 – 8 June to 21 June 2020

7 – 22 June to 5 July 2020

8 – 6 July to 19 July 2020

9 – 20 July to 2 August 2020

10 – 3 August to 16 August 2020

11 – 17 August to 30 August 2020

12 – 31 August to 13 September 2020

13 – 14 September to 27 September 2020

So all up you should have received 13 payments of $1,500 per employee, so all up $19,500 per eligible employee.

Jobkeeper 2.0

Jobkeeper 2.0 started on 28 September 2020 and runs until 28 March 2021, but rates change. To be eligible as an employer from 28 September onwards you must have had an actual turnover drop of at least 30% in the relevant quarter. So no more projected turnovers. It is all based on actual turnovers now.

December Quarter

From 28 September 2020 to 3 January 2021 Jobkeeper has dropped to $1,200 per fortnight per eligible full-time employee and $750 per part-time employee.

14 – 28 September 2020 to 11 October 2020

15 – 12 October 2020 to 25 October 2020

16 – 26 October 2020 to 8 November 2020

17 – 9 November 2020 to 22 November 2020

18 – 23 November 2020 to 6 December 2020

19 – 7 December 2020 to 20 December 2020

20 – 21 December 2020 to 3 January 2021

March Quarter

From 4 January to 28 March 2021 Jobkeeper drops down to $1,000 and $650 per full-time and part-time employee respectively.

21 – 4 January to 17 January 2021

22 – 18 January to 31 January 2021

23 – 1 February to 14 February 2021

24 – 15 February to 28 February 2021

25 – 1 March to 14 March 2021

26 – 15 March to 28 March 2021

So these are the 26 Jobkeeper payment cycles.

 

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Disclaimer: numba does not provide specific financial or tax advice in this article. All information on this website is of a general nature only. It might no longer be up to date or correct. You should contact us directly or seek other accredited tax advice when considering whether the information is suitable to your circumstances.

Liability limited by a scheme approved under Professional Standards Legislation.

Small Business CGT Concessions

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This overview of small business CGT concessions will give you a rough road map of the most generous concession for small business in Australia. 

Small Business CGT Concessions

Imagine the small business CGT concessions didn’t exist. Let’s say you have a small business. And your business is your life. Started from scratch 30 years ago. Risked the family home during the GFC for it. Risked everything. Gave dozens of people good steady jobs. Was part of the engine that drives Australia.

Now you get an offer to sell with a $1m capital gain. How much do you get to keep? 53% – the ATO will take the other 47%, assuming that you have other income and the capital gain fully hits the top marginal tax rate.

Doesn’t feel right. So can you see why we need the small business CGT concessions? To make sure your life’s work doesn’t evaporate in tax. If you qualify, you will pay little or no tax. It can change your life.

Do You Qualify In Principle?

The small business CGT concessions are very generous. But to qualify you have to pass three hurdles. 

Hurdle # 1   Basic Conditions

The basic conditions are your first hurdle. To pass these basic conditions, you need to meet one of 4 conditions – A, B, C or D. It is an either-or proposition. If you fail one, you can still get through with another.

A – Turnover 

You need to carry on a business and have a turnover of less than $2m. This is called the small business turnover test. If you don’t pass it, just keep going. Maybe you pass the net asset value test.

B – Net Asset Value 

You pass the maximum net asset value test, if you have net assets of $6m or less. Your net assets include your interest in the business you sell as well as certain assets of your affiliates and connected entities. But your net assets don’t include your main residence, personal use assets and superannuation for this test.

C – Partnership

If the asset you sell is a partnership asset, then the partnership as a whole must carry on a business and meet the turnover test. If that fails, then the your proportionate share of the partnership will go into your net asset value test under B.

D – Passively Held

If the asset is passively held and used by an associate or connected entity in a small business entity, you pass.

You only need to pass one of these four. Take a capital intensive business like a farm as an example. It might hold land worth more than $6m, but have a turnover of less than $2m, and hence qualify.

Hurdle # 2     Active Asset Test

The active asset test is your second hurdle. You need to always pass this test. This means that the asset must have been part of your business. ‘Used or held ready for use’ is the term they use.

Hurdle # 3      Shares or Units

And the third hurdle only applies if shares or units are involved. If they are not, skip this one. You are done.

If your set up includes shares or units, then this turns into a different ball game. It will get a lot more complicated. How this all works is a long story that we will cover later.  So for now let’s just assume that no shares or units are involved. That you are a sole trader selling your business. 

Do You Qualify For a Specific Exemption?

So you qualified in principle. But what do you actually get? It depends which specific concession you qualify for.

 There are 4 small business CGT concessions. Each of these four is unique with its own set of rules and requirements. Would be boring otherwise. And how you combine these four is important as well and might result in different tax outcomes.

Subdiv 152-B    15-Year Exemption

The first and most generous exemption is the 15-year exemption. It is unique in that it exempts the entire capital gain without any cap. Think about that. The entire capital gain: Tax-free.

This exemption takes priority over the other three exemptions. And it applies before any capital loss offset. So you can keep your capital losses and still get the entire capital gain tax-free.

But to pass you must have owned the asset for at least 15 years and be at least 55 years old. 

And the CGT event must happen in connection with your retirement or permanent incapacitation. What is or isn’t “in connection with your retirement” is often a point of contention though.

If you qualify for the 15-year exemption, you can stop reading here. Anything that comes after this won’t affect you anymore since your entire capital gain is disregarded. This exemption has priority. If you qualify, it applies whether you like it or not. But we have never met a living soul who doesn’t like this one.

Subdiv 152-C   50% Reduction 

This one is easy. The moment you pass the basic conditions, you have this one in your pocket. You don’t have to apply it but you can.

The 50% reduction allows you to reduce a capital gain by a further 50%. Why further? Because you probably already got the 50% CGT discount if you held the asset for at least 12 months.

So now in addition you get the 50% small business reduction when you pass the basic condition. And after that you can still apply the other two exemption, hopefully reducing your capital gain to zero.

Subdiv 152-D    Retirement Exemption

This one is also easy even though it comes with slightly more fineprint. You can claim a capital gain of up to $500,00 as exempt. But not more – ever. That is the lifetime cap.

And there is one more catch. If you are under 55, you have to pay the exempted amount into super. Some people don’t like that. And so they skip this one or park it. The secret word is J5. Sounds confusing – I know.

Here is an example how this works out in conjunction with the 50% reduction.  Let’s say the capital gain is $4m. The 50% CGT discount brings it down to $2m. The 50% reduction brings it down to $1m. And then you and your spouse claim $500,000 retirement exemption each. And voila. You walk away with $4m tax-free in your pocket. Not bad.

Subdiv 152-E  Rollover 

This one will buy you time. Your capital gain is not disregarded just yet, but you defer paying tax on it.

This rollover relief allows you to defer the capital gain for at least two years or beyond two years if you acquire a replacement active asset or incur capital expenditure on active assets. You can choose to rollover the entire capital gain or just a portion after the 50% reduction and retirement exemption. The decision is yours.

If you don’t acquire a replacement asset withing the 2 years, you trigger CGT event J5. But guess what? That might be exactly what you had inteded.

By now you might be 55 and no longer have to put the retirement exemption into super. So now you apply the retirement exemption and walk away with the cash tax-free. 

So that was a quick small business CGT concession overview to give you a rough idea. To show you what is possible.

But don’t give up if this sounds too confusing. Just ask your accountant or ask us. My number is 0407 909 779 – just call me. I am Heide Robson.

 

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Disclaimer: numba does not provide specific financial, legal or tax advice in this article. All information on this website is of a general nature only. It might no longer be up to date or correct. You should contact us directly or seek other accredited tax or legal advice when considering whether the information is suitable to your circumstances.

Liability limited by a scheme approved under Professional Standards Legislation.

How Super Rules Change with Age

How Super Rules Change

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Some super rules change with age – some don’t.

How Super Rules Change with Age

The rules around superannuation are confusing. And one of the reasons for that is that some change as you age and some don’t. Here are 9 rules that change and 9 that don’t.

Super Rules Not Affected by Age

Not everything changes as you age. Some super rules stay the same from birth to death. They are not affected by age, neither yours nor anybody else’s.

1 – Tax Rates 

Your tax rates within super don’t change – no matter your age. You will always pay 15% tax on accumulation and 0% on pension within super.

2 – Tax Free

Your tax-free components will always be tax-free irrespective of age. Neither you nor any beneficiary will ever pay tax on tax free-components.

3 – Contributions

The rules around government co-contributions as well as spouse contributions apply irrespective of your age.

4 – Investment Rules

The rules around what your fund is allowed to invest your super in don’t change with age.

5 – Special Conditions of Release

Your age has no bearing on whether you meet a special condition of release like terminal illness, disability or financial hardship.

6 – Transfer Balance Cap

Your transfer balance cap and account is not affected by your age. Whether you can start a pension might depend on your age, but the amount doesn’t.

7  – SIS Dependants

SIS dependancy doesn’t depend on age. Whether you qualify as a SIS dependant or not has nothing to do with how old you are.

8  – Tax Dependants

Your tax dependancy doesn’t depend on your age as long as you are not a child of the deceased. 

9  – Administration

The rules around the administration of your fund – annual audit, annual return, TBAR reporting etc – are not affected by your age. 

Super Rules Affected By Age

What worries our lawmaker while you are young no longer worries them when you are old. And vice versa. And so many super rules change with age.

1  – Personal Contributions

Between 65 and 74 you must pass the work test to make personal contributions. Once you hit 75, the door is closed apart from SG and downsizer contributions.

2 –  Concessional Contributions

While a minor, your super can’t receive personal concessional contributions unless you run a business. Once you turn 18, the door is all open.

3 – Downsizer Contributions

You can only make downsizer contributions once you are aged 65 or more. 

4  – Superannuation Guarantee

Under 18 you have to work at least 30 hours per week and earn at least $450 per month to get the super guarantee. Once 18, only the $450 threshold applies.

5 – General Conditions of Release

General conditions of release depend on your age. Preservation age, turning 60 and 65 are important trigger points.

6 – Minimum Pension Payments

Your minimum pension payment percentage steadily increases with age. It starts at 4% under 65 and increase to 14% when 95 or older.

7 – Taxable Components of Benefit Payments

If you access your super before you turn 60, you pay tax on any taxable component. Once 60, any benefit payment to you is tax-free.

8 – Child Dependancy

While under 18, being somebody’s child automatically makes you a tax dependant and eligible for a death benefit pension. Past 18 it doesn’t. 

9 – Death Benefit Pension

A death benefit pension is tax-free when the deceased at the time of death and/or the beneficiary are 60 or older. It isn’t, while both are under 60.

So this is a short overview of how super rules change with age. If you get stuck, please email or call us. There might be a simple answer to your query.

 

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Disclaimer: numba does not provide specific financial or tax advice in this article. All information on this website is of a general nature only. It might no longer be up to date or correct. You should contact us directly or seek other accredited tax advice when considering whether the information is suitable to your circumstances.

Liability limited by a scheme approved under Professional Standards Legislation.

In-Specie Contributions

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When your SMSF receives in-specie contributions, two things happen in one go. Your SMSF receives a contribution. And your SMSF acquires an asset.

In-Specie Contributions

There are two ways for an asset to move into your SMSF. The trustee can either buy the asset. Or the trustee can receive the asset as an in-specie contribution.

Let’s use an example. Let’s say you bought an apartment 10 years ago, negatively geared it against your income. And you did well. But now the mortgage is paid off, so you start paying marginal rates on your rental income. So you do an in-specie contribution into your SMSF.

In-Specie Contributions

In-specie contributions are complex. They come with baggage. A ton of strings attached. Four to be exact.

1 – An in-specie contribution is a contribution, so you need to watch out for contribution caps.

2 – But an in-specie contribution is also an acquisition, so you also got the superannuation investment rules to deal with.

3 – An in-specie contribution usually comes from a related party – who else would transfer an asset into your fund? So you got all the rules around related party transactions to comply with, especially s66 of the SIS Act.

4 – And an in-specie contribution might require a loan. So you need to get around s67 of the SIS Act telling you not to borrow money.

No Change of Legal Ownership

For in-specie contributions no cash changes hands. There is no actual sale of the asset. No change of legal ownership.

The trustee – be it an individual or corporate trustee – owned the asset before the contribution. Not as a trustee in trust for the members. But in their own right as an individual or company.

After the contribution the individual or corporate trustee are still the legal owners of the asset.  Nothing changed in that respect.

Transfer of Beneficial Ownership

What changed is the beneficial ownership of the asset. The contribution was a transfer of beneficial ownership.  

Before the contribution the trustee – be it an individual or corporate trustee – held both the legal and beneficial ownership of the relevant asset.

After the contribution the trustee is still the legal owner of the asset. But beneficial ownership is now in the hands of the members. The trustee only holds the asset in trust for members. Because after all an SMSF is only a fiduciary relationship.

Trustee on Title

For an in-specie contribution the trustee needs to own the asset before the transfer – not as a trustee but in its own right. A trustee can only hold an asset in trust for members if it is the legal owner of the asset.

This is often an issue when assets are held in individual names but the SMSF has a corporate trustee, particularly when the asset is property. If the land register lists the title in individual names and the SMSF has a corporate trustee, there is no room for an in-specie contribution.

This comes up more often than you might think. Mum and dad investors buy a commercial property in individual names and negatively gear it against their salary and wages.  Once the property is positively geared, they transfer it into the SMSF through in-specie contributions to move future lease income and capital gains into the concessional tax environment of super. At least, this is what they intend to do.

But if the SMSF has a corporate trustee, then this doesn’t work since the corporate trustee doesn’t have legal ownership of the asset. The title is in individual names.

But in practice it depends on whether the auditors let this through. And whether the ATO ever looks closer. 

Part Transfer

The transfer doesn’t need to cover the entire asset. It can just be part of an asset. For example 25% or 50%.  So if an asset’s value exceeds the annual contribution and bring-forward caps, you can contribute the asset over time.

Let’s say a small business owner transfers 50% of his business premises into an SMSF using the bring-forward rule. So he now holds 50% as trustee and the other 50% directly. He waits three years and then starts transferring the remaining 50% in several tranches.

Contribution

Whether you make a contribution in-specie or in cash, the normal contribution caps still apply. So if you want to transfer your business premises into your SMSF and its market value exceeds contribution caps, you do the transfer in stages over several years.

You can’t make any more non-concessional contributions, once your TSB hits $1.6m. TSB stands for Total Superannuation Balance. Think of it as everything you got in super.

So with that limit, it gets much harder to get an entire building into an SMSF. Anything that is worth more than $1.6m won’t fit. You would just transfer a portion into the SMSF and keep the rest outside of super.

Acquisition

An in-specie contribution is an acquisition the SMSF makes. And so all six superannuation investment rules apply. You need to….

1 –  Pass the sole purpose test – s62 SIS Act
2  – Act at arm’s length – s109 SIS Act
3  – Keep in-house assets below 5% – s82 SIS Act
4  – Not acquire assets from related parties – s66 SIS Act
5  – Not hold assets for personal use – s62A SIS Act + para 13.18AA SIS Reg
6  – Not borrow money – s67 SIS Act

Look at s66 / # 4 again. Not acquire assets from related parties. But an in-specie contribution is exactly that. It is an acquisition from a related party. So this would put an end to any in-specie contributions.

But s66 contains three exceptions. Listed securities, business real property and in-house assets below 5%. So those three asset groups can still come into the SMSF via an in-specie contribution. 

Related Party Transaction

An in-specie contribution almost always comes from a related party. Never say never, but who else would transfer an asset into your fund?

Since the asset comes from a related party, the legislator wants to make sure that the transfer happens at arm’s length. That the asset comes in at market value – not more and not less. So you got s66, s82 and s109 of the SIS Act to contend with.

Loan

There is no point in making an in-specie contribution for $3.50. So in-specie contributions are usually about substantial asset values. And that makes it more likely that a lender has a charge over the asset that allowed the asset’s acquisition in the first place. 

If that is the case, the lender is unlikely to consent to an in-specie contribution. So you would refinance the loan and change it to an LRBA – probably with a different lender – to get around s67 of the SIS Act . 

So looking at all this, you can probably see that in-specie contributions are doable but complex. 

If you have a question, please email or call. There might be a simple answer to your query.

 

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Disclaimer: numba does not provide specific financial or tax advice in this article. All information on this website is of a general nature only. It might no longer be up to date or correct. You should contact us directly or seek other accredited tax advice when considering whether the information is suitable to your circumstances.

Liability limited by a scheme approved under Professional Standards Legislation.

Super Investment Rules

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The SIS Act lists various superannuation investment rules that are to to keep your super safe  until you retire.

Superannuation Investment Rules

Superannuation is highly regulated in Australia. Especially four areas have the legislator’s full attention. How much goes into super. What happens to it while inside. How much moves into pension mode. And how much comes out. 

How much goes into super is all about concessional and non-concessional contributions. What happens while inside is all about superannuation investment rules. How much moves into pension mode is all about transfer balance accounts and caps. And how much comes out is all about conditions of release and benefit payments.  

Insider Deals

Government and retail super funds are unlikely to do insider deals with you. You are just one small fish in a big pond.  But your SMSF might be a temptation too hard to resist when cash is tight. So investment rules are especially relevant for SMSFs, since there is so much room for dodgy deals. 

Take the arm’s-length rule as an example. Imagine the arm’s-length rule didn’t exist. Your SMSF could buy below market from related parties and bring extra super in. Or sell below market to related parties and move extra super out. And this points to the highest risk when it comes to SMSFs – related parties. Dodgy deals with related parties.

Related Parties

And so investment rules focus on related parties. This is where the risk is. Your SMSF has two related parties – you and your ‘Part 8 associates’. Part 8 of the SIS Act covers related party transactions – hence the term ‘Part 8 associates’.

You is simple. It is just you. But determining your Part 8 associates is not that simple. It involves a lot of people – your family, fellow SMSF trustees, business partners in a partnership, any entities you or another Part 8 associate controls and so on.

Your family alone includes your spouse, children and close relatives, which includes your and your spouse’s siblings, parents, grandparents, uncles, aunts, nephews and nieces. Can you see how this can get complicated?

Part 8 discusses control in great detail. But to keep it simple, just think of majority. Think of 51% or more. Think of you and your Part 8 associates running the show.

So these related parties are the focus of Australia’s superannuation investment rules. 

Investment Rules

There are six investment rules that govern what happens to your super while inside your fund. Protecting your super from you and your Part 8 associates.

You must pass the sole purpose test and act at arm’s length. You must keep in-house assets below 5% of total assets.  And you must neither acquire assets from related parties, nor acquire or hold assets for personal use, nor borrow money. That’s it. Just those six rules. But there are plenty of exceptions.

# 1   Pass the Sole Purpose Test

The sole purpose test in s62 (1) of the SIS Act is the core of Australia’s superannuation framework. It requires trustees to focus on the provision of retirement benefits and/or death benefits.

 s62 (1)  Each trustee …must ensure that the fund is maintained solely: (a)  for one or more of …the core purposes; or (b)  for one or more of the core purposes and for one or more of the …ancillary purposes..

# 2   Act at Arm’s Length

Trustess must act at arm’s length. No deals with related parties. s109 (1) states this very clearly.

s109 (1)  A trustee …must not invest …unless:  (a)  the trustee …and the other party …are dealing with each other at arm’s length….

But then there is a back door. You can do business with related parties as long as your terms and conditions are at arm’s length. 

s109 (1) (b): or…  the terms and conditions…are no more favourable to the other party than … if the trustee …were dealing with the other party at arm’s length…

# 3   Keep In-House Assets Below 5%

Dealings with related parties carry a huge inherent risk. To contain this risk the legislator wants to keep super assets connected to related parties at a minimum – below 5%. 

s82 (2): If the market value ratio of … in-house assets as at the end of…a…year of income exceeds 5%, the trustee of the fund…must prepare a written plan. …

(4)  The plan must set out the steps …to ensure that: (a)  … in-house assets …are disposed of during the next … year…; and (b)  the value of the assets so disposed of is equal to or more than the excess amount….

Keep in-house assets below 5%. If you don’t, you need to come up with a plan how to get in-house assets below the 5% threshold again in the following year. 

There are three categories of in-house assets listed in s71(1) of the SIS Act. Loan, investment or lease – connecting the SMSF to a related party.

s71 (1):…an in-house asset …is an asset …that is a loan to, or an investment in, a related party…, an investment in a related trust…, or an asset….subject to a lease…between a trustee … and a related party…

Lease

Lease might mean a lot more than you think. Para 13.22A of the SIS Regulations defines lease arrangements much wider than other parts of the law. 

SIS law assumes a lease whenever a related party controls the use of the asset, even if there is no lease agreement that would be enforceable by legal proceedings.  

Para 13.22A:…any agreement, arrangement or understanding in the nature of a lease (other than a lease) between a trustee of a superannuation fund and another person, under which the other person is to use, or control the use of, property owned by the fund, whether or not the agreement, arrangement or understanding is enforceable, or intended to be enforceable, by legal proceedings.

Think of a holiday home owned by an SMSF. If a related party stays there even just one night, SIS law assumes a lease.

Excluded

Certain assets are specifically excluded from being in-house assets per s71(1) SIS Act.

The three exceptions most relevant to SMSFs are 1) business real property, 2) widely held unit trusts (at least 20 entities have fixed entitlements to at least 75% of the trust’s income and capital) and 3) property owned as tenants in common but not leased to a related party.

# 4   Not Acquire From Related Parties

Section 66 (1) of the SIS Act is like a sledgehammer. It says that as the trustee of a super fund you must not acquire any assets from a related party even if it is at arm’s length. Oommpphh. That hits hard. Much harder than s109. 

s66 (1) SIS Act: … a trustee ….must not intentionally acquire an asset from a related party of the fund.

But there are exceptions to this rule. Listed securities, real property, in-house assets and relationship breakdowns are the most relevant ones.

Listed Securities

If the asset is a listed security, then there is a definite market value at the time of transfer, hence the exception in s66 (2) (a) SIS Act.  

s66 (2):  Subsection (1) does not prohibit a trustee …acquiring an asset from a related party of the fund if: (a) the asset is a listed security acquired at market value…

Real Property

SMSFs may acquire business real property from a related party at market value. Small business owners often use this exception to transfer business premises into their SMSF.

s66 (2)  Subsection (1) does not prohibit a trustee …acquiring an asset from a related party…(b) if …the asset is business real property of the related party acquired at market value…

Business real property is defined in s66 (5) of the SIS Act. It is any real estate – any freehold, leasehold or indirect interest in real property or Crown land – used wholly and exclusively for business.  Farm land is regarded as wholly and exclusively used in a business even if up to two hectares is used for domestic or private purposes.

In-House Assets

The in-house asset rules are like a materiality threshold. It is the legislator saying, “Let’s not sweat the small stuff”.

If an asset is insignificant – less than 5% of total assets – then it is ok to acquire it from a related party at market value. Thanks to s66 (2A) SIS Act.

s66 (2A):..does not prohibit the acquisition of an asset by a trustee …from a related party… if: (a)  …the asset … is an in-house asset…and (b)  …acquired at market value; and (c)  ..would not result in…in-house assets …exceeding the level permitted by Part 8.

But here is s83 SIS Act to remind you what to do if it does exceed 5%..

s83 (2): If the market value ratio of the fund’s in-house assets exceeds 5%, a trustee of the fund must not acquire an in-house asset.

Relationship Breakdowns

And then there are relationship breakdowns. When you separate, s66 (2B) of the SIS Act gives you the option to move super from one spouse to the other. 

s66 (2B): …not prohibit a trustee …acquiring an asset from a related party …[if] …the member and …spouse …are separated; and …there is no reasonable likelihood of cohabitation being resumed; and …the acquisition occurs because of…the breakdown of the relationship …and  the asset represents…the member’s own interests …or .. entitlements as determined under …the Family Law Act 1975 …

For more details see s71EA SIS Act.

# 5    Not Use Assets for Personal Use

s62A SIS Act together with paragraph 13.18AA of the SIS Regulations have very strict rules around collectables and personal use assets.

It starts with a long list of collectables and personal use assets in s62A of the SIS Act. The list ranges from artworks, artefacts and antiques over jewellery, coins and stamps to vehicles, motorbikes and recreational boats. And then para 13.18AA tells you what to do and not to with these assets.

Collectables and personal use assets must not be leased to or used by a related party, not be stored or displayed in the private residence of a related party and not be sold to a related party below market value and without an official valuation. The asset must be insured in the name of the fund. And any decision regarding the storage of the asset must be well documented and kept for 10 years. 

As with any investment the acquisition of collectables and personal use assets must comply with all the other superannuation investment rules.

# 6  Not Borrow Money

This one sounds very straight forward. An SMSF trustee must not borrow any money.

s67 (1):  …a trustee of a regulated superannuation fund must not: (a)  borrow money; or (b)  maintain an existing borrowing of money.

But there are four important exceptions. A trustee can borrow money to pay a benefit, surcharge or security transaction. The only requirement is that the borrowed amount does not exceed 10% of fund assets and is paid within a set number of days. For benefit and surcharge payments it is 90 and for security transactions 7 days.

And then there is one more exception. And this is a big one. A trustee can borrow money as part of a limited recourse borrowing arrangement (LRBA). 

LRBAs

An SMSF is allowed to borrow in order to purchase a single acquirable asset – provided the requirements under sections 67A are satisfied.

s67A (1) (a):  …the money is…for the acquisition of a single acquirable asset…, (b)  …held on trust … and (c)  the…trustee has a right to acquire legal ownership …and (d)  the rights of the lender …are limited to …the acquirable asset; and  (e)  … the …trustee’s rights are limited … to the acquirable asset; and  (f)  the acquirable asset is not subject to any charge …except as .. in (d) or (e).

This single acquirable asset is then put into a bare trust with the lender only having recourse against this one asset in case of a default. Other fund assets are safe. 

In the past the loan for the LRBA might have come from a third-party like a bank. But nowadays it usually comes from a related party since most banks no longer lend to SMSFs. 

If the loan comes from a related party, you need to act at arm’s length. You do this by sticking to market terms and conditions.

Safe Harbour

But acting at arm’s length is not that straight forward, so the ATO gave you PCG 2016/5 as a safe harbour.

PCG 2016/5 – arm’s length terms for Limited Recourse Borrowing Arrangements established by self-managed  superannuation funds (issued on 6 April 2016)

If your LRBA complies with this PCG, the Commissioner will accept your LRBA as being at arm’s length.

If you choose not to follow the safe harbour rules – they are not compulsory – you need to demonstrate that the terms of the borrowing arrangement – including a benchmarked interest rate – are at arm’s length. Otherwise the income generated from the asset is considered non-arm’s length income and hence taxed at top marginal rates.

So these are the six superannuation investment rules you need to follow as the trustee of an SMSF. 

 

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My Super When I Die

Cash Your Super Before You Die

 

Disclaimer: numba does not provide specific financial or tax advice in this article. All information on this website is of a general nature only. It might no longer be up to date or correct. You should contact us directly or seek other accredited tax advice when considering whether the information is suitable to your circumstances.

Liability limited by a scheme approved under Professional Standards Legislation.

Cash Your Super Before You Die

Cash Before You Die

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Cash your super before you die. Make sure your super is gone by the time you go, unless you have a tax dependant.

Cash Your Super Before You Die

You probably wonder why. Having super is good. Being frugal is good. Leaving super for your children is good. It sounds like a nice thing to do. And it is… but if you don’t cash out in time, your adult children will receive less than you think.

If you wait too long, your super will leave a nasty tax-bill behind. And your children will remember what – your super or the tax bill that came with it? 

But you probably shake your head and remember the terrible time when your spouse died. You had both just turned 65. And back then you received his or her entire super without any tax to pay. So why can’t you do the same for your children? 

Death Benefit Dependant

The answer is just one phrase – tax dependant – also referred to as a death benefit dependant.

Death benefit dependant is the term the ITAA97 uses. Tax dependant is the colloquial term most people, including the ATO, use. Two different words. Same thing.

As a spouse you qualified as a tax dependant. A spouse, a child under 18 as well as anybody in an interdependency relationship with or financially dependent on the deceased is considered a tax dependant. And tax dependants receive the lump sum death benefit tax-free. 

But your children are neither under 18 nor live in an interdepencey relationship with or are financially dependant on you. So they don’t qualify as tax dependants. And so they will pay tax on any taxable component that comes their way.

Sole Purpose

This concept of a tax dependant links back to the sole purpose of superannuation. Its sole purpose is to provide for your retirement and/or your tax dependants when you no longer can. For that purpose your super received massive tax concessions over the years.

But anything that is left over when you die without tax dependants clearly wasn’t needed for your retirement or tax dependants. So the legislator wants those concessions back.

Those concessions were never intended for your financially independent children. And so they charge your adult children a so-called ‘super death tax’. So this is why you need to cash your super before leaving it to a non-tax dependant.

Cashing Super

Cashing your super just means moving it out of the super environment. You do this by paying a member benefit to yourself – be it as a pension or a lump sum. 

A lump sum payment can be in cash. But a lump sum can also be in specie. So you don’t sell the asset, but transfer the title from the corporate trustee to yourself.

When To Cash In

But picking the right time to cash your super is not easy. Here are six factors to consider, some predictable, some impossible to predict.

# 1   Family Situation

While your children are little and your spouse alive, you have plenty of tax dependants. So you don’t need to worry about super death tax. You need to worry about life insurance.

But when your spouse has passed away and all your children are financially independent, then super death tax is an issue, since you no longer have any tax dependants.

# 2   Taxable Components

Your super consists of a tax-free and taxable component but either might be nil. 

If your entire super is in the tax-free component, you don’t need to worry about super death tax. None of your beneficiaries will pay any tax on your super. 

But if most or all of your super is in the taxable component, then a 30% tax rate for any untaxed and 15% for any taxed element looms large over your non-tax dependants.

# 3    Marginal Tax Rate

The higher your marginal tax rate, the more you save by leaving your super in your fund. If your marginal tax rate is 45% tax + 2% Medicare, then leave your super where it is as long as you can.

If you have no other income and your super earnings are under the tax-exempt threshold, then you pay no tax anyway – be it within super or outside of super. So then you might as well take it out.

# 4   Timing

It is difficult to get the timing right. If you cash your super too early, you might pay more tax outside of super than your beneficiaries pay in death tax.

But if you don’t cash your super before you die, you might waste part of your family’s legacy on super death tax. 

# 5   Capital Gains Tax

When you die, your SMSF must either sell the assets and then pay cash or transfer the title to pay in specie. Either way – sale or transfer – you are looking at a CGT event and hence a potential realised capital gain.

While you are alive and in pension phase, a realised capital gain isn’t an issue since your super is exempt from tax anyway. But once you are gone, a realised capital gain might result in a large tax bill for your children to deal with.

# 6    Fate

Call it fate, destiny, divine intervention or something else.  Accidents happen. Nobody knows how much time they have left.

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So these are six factors to consider to work out whether and when you should cash your super. If you get stuck, please email or call us. There might be a simple answer to your query.

 

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Disclaimer: numba does not provide specific financial or tax advice in this article. All information on this website is of a general nature only. It might no longer be up to date or correct. You should contact us directly or seek other accredited tax advice when considering whether the information is suitable to your circumstances.

 

Liability limited by a scheme approved under Professional Standards Legislation

senior card

Seniors Card

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As you reach your sixties you might qualify for one of the best deals around – your state government’s Seniors Card.

Seniors Card

With a senior card you will qualify for concessional fares on public transport as well as other discounts from participating businesses.

Concessions

The most important feature of a Seniors Card is that it gives you access to concessional fares on public transport.

There might be other state government concessions like discounted entries to National Parks, museums and so on. But the nature of these concessions vary from state to state and territory.

And then there are the discounts that private businesses might offer you when you present a Seniors Card. They don’t have to. But many do, especially in relation to travel, hospitality, insurance and commodities. Check the online directory in your state or territory listing local deals and discounts.  

Eligibility

How to qualify for the card varies from state to state and territory. 

To be eligible you need to be 65 years in Queensland, 62 to 65 in Western Australia depending on your date of birth and at least 60 years in all other states and territories. 

You must be a resident with an official address in that state or territory.

You can still work in paid employment while holding a seniors card, so you don’t have to retire to qualify. But all states and territories set a limit on the number of hours you can undertake paid work and still qualify.

This number is set per week and averaged over 12 months, but varies widely across Australia. In NSW, ACT, Tasmania and South Australia it is 20 hours per week. Western Australia draws the line at 25 hours. In Victoria and QLD you can work for up to 35 hours.

The Seniors Card is not means-tested. And this is important. You might live in a mansion with water views and have money coming out of your ears, and still qualify for discounts.

Application

You usually apply online with your green Medicare Card or over the phone. 

Victoria, Western Australia and Queensland also offer a paper form application.

In Queensland and ACT you can apply in person at government service centres. In Western Australia and South Australia you apply at an Australia Post outlet and in Tasmania a Service Tasmania shop will help you.

What to provide with your application differs slightly from state to state but you usually need to provide proof of identity, age and address. 

Travelling

Many places in Australia will give interstate seniors with an interstate Seniors Card the same concessions as local seniors with the a local Seniors Card.

The same applies to many places overseas. So always take your Seniors Card with you when you travel.

Validity

The cards don’t have an expiry date. Once you receive a Seniors Card, it is valid for a lifetime. So there is no need to renew the card.

The card lists your name, is not transferable and can be replaced if damaged, lost or stolen. 

More Information

Each state and territory provides online information about their Seniors Card program. Their websites will give you up-to-date information about eligibility, application and concessions. We have listed the links here:

New South Wales – Victoria – Queensland – Western Australia – South Australia – Tasmania – ACT – Northern Territory

Senior Business Discount Card

All states and territories offer a Seniors Card, but only Victoria and Queensland offer a Senior Business Discount Card. 

A Senior Business Discount Card is not as good as a Senior Card. It offers less. And so you would only apply for a Senior Business Discount Card if you don’t qualify for a Seniors Card.

But it still is pretty good given that thousands of business outlets in Victoria and Queensland will offer you free deals or discounts on the Discount Card.

If you have any questions, please reach out to us. There might be a simple answer to your query.

 

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Disclaimer: numba does not provide specific financial or tax advice in this article. All information on this website is of a general nature only. It might no longer be up to date or correct. You should contact us directly or seek other accredited tax advice when considering whether the information is suitable to your circumstances.

 

Liability limited by a scheme approved under Professional Standards Legislation.

Commonwealth Seniors Health Card

Commonwealth Seniors Health Card

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The Commonwealth Seniors Health Card (CSHC) is to help you cover your medical expenses while self-funding your retirement.

Commonwealth Seniors Health Card 

Funding your retirement is one thing. There is super, maybe the age pension, maybe some personal savings.

Paying your medical expenses however is a different story. Nobody thinks of medical expenses to begin with. We all imagine our retirement to be spent on golf courses, cruise ships and overseas trips. But with time medical bills will enter the scene. And this is when the Commonwealth Seniors Health Card (CSHC) comes into play.

Self-Funded Retiree

The Commonwealth Seniors Health Card (CSHC) is aimed at self-funded retirees, who don’t claim the age or DVA pension – even though they are of pension age – and instead just live off their super.

It is to help self-funded retirees with their medical bills. The government’s hope is that this additional support will allow you to stay self-funded, even as your medical bills increase with age. 

Concessions

The CSHC comes with a range of possible concessions.

It might give you cheaper access to Pharmaceutical Benefits Scheme (PBS) prescription items and increase your benefits via the Medicare Safety Net. You might receive an energy supplement and receive other benefits from state governments and businesses. And there is a small chance that doctors agree to bulk-bill you as a CSHC holder.

The Centrelink / Department of Human Services website has more information about possible concessions.

Conditions

There are four conditions to qualify for the Commonwealth Seniors Health Card.

1  –  You must be of pension age, which starts somewhere between 65 and 67 depending on your date of birth;

2 –  You must be self-funded and not receive any income support from Centrelink or DVA (Department of Veterans Affairs);

3  –  You must be an Australian resident currently living in Australia;

4  –   Your annual adjusted taxable income (ATI) must meet an income test.  

The good news is that there is no asset test. So this is different to the age pension.

Threshold

The threshold for you annual adjusted taxable income (ATI) is indexed and hence changes each year. In rough numbers, your ATI must be less than $55k when single and less than $90k as a couple. If you live apart as a couple due to illness, respite care or prison, then your combined ATI is about $110k. 

Indexation

From 2001 until 2014 the ATI thresholds were not adjusted to inflation. And as a result, less and less self-funded retirees qualified for the CSHC.

With time this would have pushed the CSHC into oblivion. So in September 2014 indexation came back. And the income thresholds have been indexed every September ever since.

So you would think that increasing the income thresholds would make more Australians eligible for the CSHC.

But the indexation is offset by another change in the opposite direction. Since January 2015 deemed income from superannuation in pension mode is now included in your ATI and hence makes it harder to pass the income test. 

Adjusted Taxable Income

Your adjusted taxable income (ATI) is your

1 – taxable income plus
2 – foreign income not taxed in Australia, plus
3 – total net investment losses, plus
4 – employer-provided fringe benefits (if exceeding $1,000), plus
5 – reportable super contributions and plus
6 – any deemed super income from a taxed source.

Let’s go through these one by one.

1 – Taxable income

Your taxable income is your gross income less deductions. Even if you don’t have to lodge a tax return, you might still have taxable income.

2 – Foreign Income Not Taxed in Australia

This relates to income you receive from outside Australia for which you don’t pay Australian income tax. 

3 – Total net investment losses

Your total net investment losses are your net losses from rental-properties and from financial investments. You add these negatively geared losses back to your adjusted taxable income. 

4 – Employer-Provided Fringe Benefits

Employer-provided fringe benefits include benefits such as cars, loans, housing, and health insurance. But you only add them to your ATI if they exceed $1,000.

5 – Reportable Super Contributions

Reportable superannuation contributions are not the compulsory 9.5% superannuation guarantee (SG) contributions your employer might have paid for you. It also doesn’t include the non-concessional contributions you might have paid out of your after-tax income.

Instead, it is the salary sacrifice you might have paid into your super fund as well as any additional super your employer might have paid for you in addition to SG.

6 – Deemed Super Income from a Taxed Source

Super benefits can come from an untaxed or taxed source. Most Australians only have super from a taxed source. You usually find untaxed sources only among retired former government employees.

Super benefits from an untaxed source are subject to tax and therefore already part of your taxable income and hence ATI. So there is no need to deem any income. 

Super benefits from a taxed source while aged 60 or over are tax-free, however. As a result the actual payments are not included in your taxable income. And this is where deeming comes into play.

Your ATI includes a deemed amount of pension income for any pensions started post 2014. So not the actual payments, but a deemed amount.

New applicants on or after 1 January 2015 include deemed super income based in their adjusted taxable income.

This is a radical change, but it only applies to new applicants applying for the CSHC on or after 1 January 2015 and new pensions.

Pre-2015

This deeming of pension income only applies to CSHC cards issued and pensions started on or since 1 January 2015.

If you have been holding your current CSHC card since 31 December 2014 or earlier, then these pension benefits still fall under the old rules. Meaning there is no deeming of super income.

However, this grandfathering only applies to the actual pension in place as of 31 December 2014. If you start a new pension on or after 1 January 2015, then this new pension will be subject to the new rules, even though you might be a pre 2015-CSHC holder. 

Calculation

Deeming means that the actual amounts withdrawn from your super account are not taken into account for the ATI. Instead deeming assumes a standard rate of return on your super pension assets. Your actual returns or pension payments might be different from this standard return.

The calculation uses the asset value of your super pension assets applying a set interest rate. This might sound familiar. The age pension also deems super income since 1 January 2015.

Overseas Travel

You can spend up to 19 weeks overseas without losing your current CSHC. If you are away for longer, you need to apply for a new card.

This is important if you held your CSHC since pre-2015. A new application would break the grandfathering rules and would mean that your new card would become subject to the deemed income rules we will discuss later.

If you have any questions, please reach out to us. There might be a simple answer to your query.

 

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Disclaimer: numba does not provide specific financial or tax advice in this article. All information on this website is of a general nature only. It might no longer be up to date or correct. You should contact us directly or seek other accredited tax advice when considering whether the information is suitable to your circumstances.

 

Liability limited by a scheme approved under Professional Standards Legislation.

retirement age

Retirement Age

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There is no mandatory retirement age in Australia. You don’t have to retire. It is just an option you have once you reach a certain age.

Retirement Age in Australia

Australia has no official retirement age. You can work as long as you like. But if you want to access your super or claim the age pension, then you must have reached a certain age before you can do that. 

To access your super, you must have reached your preservation age. And to claim the government age pension you must have reached your pension age.

What your preservation and pension ages actually are depends on your date of birth.

Perservation Age

To claim your super you must have at least reached your preservation age, unless you have met a special condition of release that allows you earlier access to your super under special circumstances like severe financial hardship or permanent disability.

The minimum preservation age is 55 years if born before July 1960 and 60 if born in July 1964 or later with a staged transition for anybody born in between these dates as follows:

56 if born between July 1960 and June 1961.
57 if born between July 1961 and June 1962.
58 if born between July 1962 and June 1963.
59 if born between July 1963 and June 1964.

Pension Age

To qualify for the age pension you need to meet four conditions. And one of these conditions is that you have reached pension age.

Your pension age depends on your date of birth. It is 65 years if born before July 1952 (and even younger for women born before 1949) and 67 if born in July 1957 or later with a stage transition in 6 months increments for anybody born between these dates.

65 years and 6 months if born July 1952 to December 1953
66 years if born between 1954 and June 1955
66 years and 6 months if born July 1955 and December 1956

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If something doesn’t make sense, please reach out to use. There might be a simple answer to your query.

 

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Disclaimer: numba does not provide specific financial or tax advice in this article. All information on this website is of a general nature only. It might no longer be up to date or correct. You should contact us directly or seek other accredited tax advice when considering whether the information is suitable to your circumstances.

 

Liability limited by a scheme approved under Professional Standards Legislation.

age pension

Age Pension

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75% of Australians of pension age receive the age pension – be it a partial or full pension.

Age Pension

You don’t automatically receive the age pension when you hit a certain age. You need to actively apply for this government-funded benefit by submitting the relevant Centrelink forms to Centrelink. Centrelink is part of the Department of Human Services of the Australian Government.

To qualify you need to meet four conditions.

1 – You need to be of pension age.
2 – Be an Australian resident for social security purposes.
3 – Pass the income test.
4 – And pass the asset test.

# 1   Pension Age

The first condition is that you must be of pension age. Your pension age depends on your date of birth and is :

65 years if born before July 1952
65 years and 6 months if born July 1952 to December 1953
66 years if born 1954 to June 1955
66 years and 6 months if born July 1955 to 1956
67 years if born in 1957 or later.

If you are a woman born before 1949 your pension age is even lower than 65 years.

# 2   Australian Resident

The second condition is that you need to be an Australian resident and must reside in Australia on the day you make your claim.

An Australian resident is an Australian citizen or a permanent visa holder or a protected Special Category visa holder from New Zealand.

The rules around residency tightened on 1 July 2018 when the Enhanced Residency Requirements for Pensioners came in. Under these new rules you now need to prove 15 years of continuous Australian residency when applying for a new age or disability support pension, unless you meet one of the following two exceptions. 

You either had 10 continuous years of Australian residency including at least 5 years between age 16 and pension age.

Or you had 10 continuous years of Australian residency and proof you have not received activity tested income support for cumulative periods of five years or more. 

Existing Exemptions

Existing exemptions will stay the same. So you don’t need to meet these residency requirements, if you are receiving a widow, widow B or partner allowance when reaching pension age. Or if you are or were a refugee. Or if you are a woman and your partner died while you were both Australian residents, provided you were an Australian resident for at least 2 years before your application. But we do shake our heads at this one. Why only if you are a woman? What about a stay-at-home dad whose late wife was the bread winner?

Before July 2018

Before July 2018, the residency rules were more lenient. You needed to have been an Australian resident for at least 10 years. But these 10 years didn’t have to be continuous. You were able to add up the years over multiple stays,  provided one of those stays was at least 5 years.

Australia has a social security agreement with over 30 countries. If you reside and/or work in one of these countries, you might still count as an Australian resident for social security purposes thanks to the special rules in these agreements.

# 3   Income Test

To be an eligible individual you must satisfy two tests: an income test and an asset test. And you need to pass both tests to qualify. The test that delivers the lowest amount of entitlement is the one that will determine your entitlement. 

The income test assesses your fortnightly income against thresholds set by the government. If your fortnightly income exceeds the full income threshold, then your entitlements are gradually phased out down to a cut-off point.

The thresholds vary depending on your family status, living arrangement, disability and other factors. 

Deemed Income

If you own financial assets (such as shares, term deposits or since 2015 super), then the income test doesn’t actually use the actual income earned from these assets. Instead the test uses deemed income.

Deemed income is when you assume a rate of return even when that rate isn’t necessarily what you actually earn on your investment. 

Work Bonus

If you choose to work while on the age pension, then you are entitled to a Work Bonus. This bonus is $250 per fortnight and works like an offset in the income test. You can accumulate unused work bonuses up to a certain threshold. 

# 4   Assets Test

For the assets test you determine the value of your assessable assets less any relevant debt against set asset thresholds. The test looks at your assets worldwide but then grants you certain exemptions, for example for your home.

An asset is essentially anything you own which has monetary value and can be converted into cash – no matter how liquid or illiquid the asset might be. But certain assets and asset classes are exempt from the test.

If your total assets are below a threshold, you pass the asset test. If they exceed the threshold, your entitlements are phased out down to a cut off point.

Timing

You only become entitled to the age pension from the date Centrelink receives your claim form and all supporting documents. So if money is really tight, make sure you have all your papers ready before your pension age birthday.

So these are the four conditions to qualify for the age pension. If you have a question, please reach out to us. There might be a simple answer to your query.

 

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Disclaimer: numba does not provide specific financial or tax advice in this article. All information on this website is of a general nature only. It might no longer be up to date or correct. You should contact us directly or seek other accredited tax advice when considering whether the information is suitable to your circumstances.

 

Liability limited by a scheme approved under Professional Standards Legislation.