Category: news

Read the ATO’s new Cash and hidden economy review and audits guide. This will help you know what to expect if involved in a review or audit. It steps through the process of providing documents or other information the ATO ask for, to assist their review.

Note that the use a variety of risk indicators to identify businesses for review or audit because of the possibility they may be engaging in the cash and hidden economy. These indicators include results from data matching, comparisons of business information against their small business benchmarks and reports from the community. Based on these indicators, the ATO select businesses for review or audit.

You can find out more at http://www.ato.gov.au/Tax-professionals/News-and-updates/Latest-updates/New-Cash-and-hidden-economy-review-and-audits-guide/

Thanks to recent government reforms, the financial planning industry has had to radically overhaul the way advisers are remunerated. A call for greater transparency and accountability has created renewed enthusiasm for ‘fee for service’ models as opposed to the traditional commission based models. Commission payments are still the dominant income stream for the industry, but greater awareness of the true cost should ultimately lead to a better deal for the consumer. Some important questions must be asked before entering into a relationship with an adviser, including:

– If the advice appears to be ‘free’, what is the total cost once commissions are deducted. These include entry fees, ongoing management fees, service fees, percentages of total amounts invested, upfront and trailing fees on insurance policies and various incentives direct to the adviser. Often this adds up to substantially more cost to the consumer, despite the initial advice appearing to be ‘free’.

– On a commission based structure, are you investing in products which best suit your needs, or ones that pay the best commission to the adviser?

– Is your adviser able to suggest options from any investment vehicle, for example direct property, or are they limited to recommending from their ‘preferred product list’?

– What is the cost of poor advice? It is often said that we get what we pay for in life, so it is worth considering if the cheap or ‘free’ option will cost more in the long run due to short sighted or incorrect options being taken, or tax implications being overlooked.

At CNS Financial Solutions, we believe in focussing primarily on the advice, with actual investment options forming the final stage of the process after the plan of attack has been formulated. We are proud of our knowledge, experience and ongoing efforts to educate ourselves and believe that we provide excellent service and value for money. Working on an hourly rate for our services enables us to avoid taking commissions and concentrate on what is the best option for our clients without any conflict of interest.

For many people, the attraction of creating a Self-Managed Super Fund lies in the ability to use previously unavailable funds to invest in property. While this can be a very effective strategy, it may not always be the best fit for your objectives. Good advice is incredibly important when considering purchasing real estate within an SMSF, but is often difficult to come by.

The most common issues arising from this area are the involvement of borrowings and the sole purpose test.

Borrowings: Within the last few years, it has become common practice to obtain a loan for a superannuation real estate purchase. But as per usual with super, the legislation is exceptionally complex and care must be taken to comply with a raft of requirements. In addition, most banks providing these financing arrangements will require investors to jump through countless hoops. Never has good advice, and accurate “hoop clearing” guidance been more important.

Sole Purpose Test: As with all super fund assets, property is required to meet the sole purpose test. Any investment within the fund must be owned for the sole purpose of providing retirement benefits to the members. This means that the property cannot be rented or inhabited by any related parties (family member, business partner etc.). The one (albeit very important) exception to this rule is the letting of small business premises. A small business owner may purchase the commercial premises from which they operate from within their SMSF. This creates an opportunity for both asset protection, and succession planning.

If you are interested in purchasing real estate in your SMSF, or considering setting up an SMSF, feel free to contact the office and make an appointment with one of our superannuation specialists.

Many of our clients have been asking about a fairly new accounting software product called Xero. Xero is a cloud based bookkeeping / accounting product and at CNS Partners, we love Xero.

The features include:
– The ability to collaborate online. Work together as a team on financials. Collaborate with your accountant and bookkeeper to get the advice you need, when you need it. Invite an unlimited number of people for free. You control what each person can see.

– The software is Private and secure. Xero operates a multiple redundant servers at tier-one data centres, guarded 24/7/365 and they run database backups every 10 minutes.

– It is a cloud based product. The beauty of Xero online accounting is that you can work on any system — Mac, Windows or Linux. Plus, there’s a mobile version designed for smartphones like iPhone, Android and Blackberry.

– Software updates are free and automatically available when you login. Every 3-6 weeks Xero release innovative new features and enhancements based on ideas from customers.

– All your invited users have access to the latest version of your financial data. You never need to worry about installing software. With Xero online accounting your data is never out-of-date.

– The software imports bank feeds from your financial institution. Bank feeds automatically import all your bank account, credit card and PayPal transactions so you always have a complete and up-to-date view of your business. Having instant access to real-time financial data lets you control cash flow like never before.

– Get paid faster with online invoices by providing the recipient with easy payment options right from the invoice. You’ll also get an update when the invoice is opened no more “lost invoice” excuses.

As stated above we think that Xero is a great solution for small business administration. The fact that we, as your accountant, can access your accounting records at any time quickly, is a real advantage.

If you would like to know more about Xero please visit their website http://www.xero.com/au/

You can claim a deduction for work-related car expenses if you use your own car in the course of business or performing your job as an employee. For example; carrying bulky tools or equipment, attending conferences and meetings, delivering items or collecting supplies, travel between two separate places of employment or travel to a client’s premises.

You have a choice between four methods. If you qualify to use more than one, you can choose the method that gives you the largest deduction. Your options are;
– Cents per kilometre
– 12% of original value
– One-third of actual expenses
– Logbook

Cents per kilometre
Using this method, your claim is based on a set rate (dependent upon your car’s engine capacity) for each business kilometre travelled up to a maximum of 5,000 businesses kilometres per car, per year.
You do not need written evidence when using this method, however, you need to be able to show how you worked out your business kilometres.

12% of original value
To be eligible to use this method, you must have travelled more than 5,000 business kilometres during the income year. If you used your vehicle for only part of the year, you need to justify that it would have travelled more than 5,000 business kilometres. As the method title suggests, your claim is based on 12% of the original cost of your car or 12% of its market value at the time you first leased it. You can only claim up to a maximum 12% of the luxury car limit which is currently set by the ATO at $57,466. This method also does not require written evidence, however, you need to keep a record of how you worked out your business kilometres.

One-third of actual expenses
As with the 12% of original value method, to be eligible to use the one-third of expenses method, you must have travelled more than 5,000 business kilometres during the income year. If you used your vehicle for only part of the year, you need to justify that it would have travelled more than 5,000 business kilometres. Your claim is for one-third of all your car expenses, including private costs but excluding capital costs such as purchase price, principal on any money borrowed or modification/improvement costs. For fuel and oil costs, you can keep receipts to work out the amounts or you can estimate them based on odometer records that show readings from the start and the end of the period you had the car during the year. You will need written evidence for all the other expenses for the car, such as interest on a loan, registration fees, insurance and repairs as well as records that show the car’s engine capacity, make, model and registration number. Additionally, you may need to show how you worked out your business kilometres and any estimates you made.

Logbook
Your claim using the logbook method is based on your business use percentage of the vehicle. Expenses that can be claimed under the logbook method include running costs and decline in value. To work out the business use percentage of your vehicle, you need a logbook and the odometer readings for the logbook period. As with the one-third method, you can claim fuel and oil costs based on actual receipts or you can estimate the expense based on odometer records that show readings from the start and end of the period. For all other expenses, you need written evidence.

A logbook is valid for five years and must cover at least 12 continuous weeks. The logbook must show; when the logbook period starts and ends and the corresponding odometer readings, total number of kilometres travelled during the period, total number of business kilometres and the business use percentage. Each business trip in the logbook must show the date, odometer readings at beginning and end, kilometres travelled and reason for the trip. These records must also show the make, model, engine capacity and registration number of the vehicle. To make life simple, a vehicle logbook can be purchased from most newsagents and post offices or if you are technically minded there are some great new apps you can download.

From 1 July 2013, the amount of time you have to lodge a lump sum claim or confirm your income changed.

You now have one year instead of two years to:
•lodge a lump sum claim for Family Tax Benefit and Child Care Benefit
•lodge a lump sum claim for the Single Income Family Supplement, if you do not receive Family Tax Benefit
•confirm your income for Family Tax Benefit and Single Income Family Supplement-this means you and your partner (if you have one) need to lodge a tax return with the Australian Taxation Office, or
•tell us you don’t need to lodge a tax return.

If you do not lodge your lump sum claim for Child Care Benefit within one year, you will not have your eligibility for Child Care Rebate assessed.

If you receive Family Tax Benefit Part A, you may be eligible for other payments, such as the Family Tax Benefit Part A supplement. To receive these payments, you now have one year instead of two years to make sure:
•your child is fully immunised for the financial years they turn one, two and five
•your child has had a health check for the financial year they turn four and you’vi told us the health check is complete (if you receive an income support payment).

Continuing on from last month’s article regarding motor vehicle deductions, it is now time to elaborate on when you are eligible to claim such a deduction.

So to refresh your mind, there are 4 methods used to determine the amount of motor vehicle deduction available. They are; Cents per kilometre, 12% of original value, One-third of actual expenses or the Logbook method.

You can claim a deduction for work-related car expenses if you use your own car in the course of performing your job as an employee. For example;
• where you carry bulky tools or equipment,
• to attend conferences or meeting,
• to deliver items or collect supplies,
• to travel between two separate places of employment where you have two jobs,
• to travel from your normal workplace to an alternative workplace and back to either your normal workplace or directly home

to travel from your home to an alternative workplace and then to your normal workplace or directly home (for example where you travel to a client’s premises)

Like all tax deductions, you can only claim work-related portions. Therefore, any travel that is deemed private cannot be claimed. For example, an employee’s daily commute from the home to the office is private travel and cannot be claimed. However, people doing itinerant work or who need to carry bulky tools or equipment that is used for work and can’t be left at the workplace can claim for driving between work and home. For any clarifications, please contact CNS Partners.

A ‘Will’ is a document setting out your wishes as to how you would like your assets and belongings (called your ‘estate’) to be dealt with after you die.

In Australia, people have full freedom of ‘testamentary disposition’. This means that you can leave your estate to whomever you choose. So while people commonly choose to leave their assets to close family and friends, you don’t necessarily have to include these people in your Will. However, some people do have a right to ask the court to give them more or part of your estate if you have not provided for them ‘adequately’.

A Will can also be disputed or challenged in several other ways. For more information about this, see our article, What are the avenues to challenge a Will?

If someone dies without a Will, their estate is distributed according to the ‘rules of intestacy’. The rules of intestacy provide a specific hierarchy of people to receive your assets and are applied strictly to every person, no matter what their personal circumstances were. In many cases, the rules of intestacy unfortunately do not give effect to a person’s wishes.

For example, if a person is survived by a legal spouse (including a husband or wife from whom they are separated but not legally divorced) and has no children, the surviving spouse will receive the entire estate.

If a person has no spouse and no children (for example, a young adult), that person’s parents are each entitled to half of the estate, regardless of whether the parent(s) had any relationship with the child or not.

The rules of intestacy also apply to any assets that are not properly dealt with by your Will — in that case you have a ‘partial intestacy’. If the rules of intestacy do not deal with your estate how you would wish, it is very important that you make a Will and have a proper estate plan to deal with any assets that your Will cannot deal with.

For more information or advice about making a Will, contact our friendly estate planning team today.

There are a number of structures that you can choose from when creating your business. The four main types of business structures commonly used by small businesses are:

• Sole trader: an individual trading on their own
• Partnership: an association of people or entities running a business together, but not as a company
• Trust: an entity that holds property or income for the benefit of others
• Company: a legal entity separate from its shareholders.

When deciding upon a structure for your business, it is essential to choose the one that best suits your business needs and remember that there are advantages and disadvantages for each. Choosing your business structure is an important decision that can determine the licenses you will need to operate, so you need to investigate each option carefully.

Sole Trader
A sole trader is the simplest business structure. If you operate your business as a sole trader, you trade on your own and control and manage the business.

A big advantage of a sole proprietorship is the high level of autonomy the owner has to run his business. There are no other owners to divide profits with, which allows a sole proprietor to use business funds in any manner. Sole proprietors have relatively few formalities to adhere to and very little regulation from federal, state and local government. However, a major disadvantage of a sole proprietorship concerns the lack of liability protection for the business owner. This means a sole proprietor has a personal responsibility to pay every business debt and obligation.

Partnership
For tax purposes, a partnership is an association of people who carry on a business as partners or receive income jointly. A partnership is not a separate legal entity and doesn’t pay income tax on the income it earns. Instead, you and each of your partners pay tax on the share of net partnership income you each receive.

The main advantage of a partnership is that it is easy and inexpensive to establish. The disadvantages are that a partnership offers no personal asset protection for partners of the business. A partner may be even liable for the negligent acts of another partner. If the partnership’s business assets do not cover an obligation, a creditor may pursue a partner’s personal assets as compensation for the business debt.

Trust
A trust does not have a separate legal existence like a company. All transactions in respect of the trust are undertaken by the trustee. Consequently, a transaction entered into by the trustee is a personal obligation.

Advantages:
– limited liability is possible if a corporate trustee is appointed
– there can be flexibility in distributions among beneficiaries
– trust income is generally taxed as income of an individual (also disadvantage)
– better access than a company to capital gains tax concessions

Disadvantages:
– the powers of trustees are restricted by the trust deed
– trust income is generally taxed as income of an individual (also advantage)
– losses are held within the trust until profits are made
– the costs in maintaining a trust are usually higher than that of a sole trader of partnership

Company
A company is a separate legal entity capable of holding assets in its own name. The two main participants in a company are the shareholders and the directors. The shareholders are the owners of the business and the ones who put the capital into the business.

Advantages:
– Companies offer the advantages of limited liability for the shareholder
– The company tax rate, 30%, is much lower than the highest marginal tax rate for individuals, which is 45% plus Medicare
– Asset ownership can be transferred in certain circumstances, through a company structure without significant stamp duty costs.

Disadvantages
– Where negative gearing starts by a company the tax losses are trapped within the company. Therefore this often means that negative gearing should be structured outside the company.
– The costs in maintaining a corporate entity are usually higher than that of a sole trader of partnership

The above is a brief snapshot of each structure. The best structure is different for each individual and family. If you would like to know more about structuring for your business please contact CNS Partners.

Recent studies indicate that approximately 15% of Australians seek assistance with management of their personal financial affairs. Many of those surveyed replied that they had no spare cash available to invest – a fair point when you consider that most of us spend more than we earn! With the cost of living constantly increasing, including petrol, electricity and other everyday necessities, it is often hard to see where a surplus might come from. This is precisely where the right advice can prove invaluable.

Every one of us can improve our financial position using well planned strategies.
– When did you last prepare a family budget?
– How long did you stick to the budget?
– Have you considered different ways to reduce costs without affecting your lifestyle?
– Have you considered what your situation will look like in 5, 10, 20 years’ time?
– If you could put some money away regularly, what would you put it towards?

Good financial advice can assist with answering these questions and helping to achieve goals. Having a plan should not simply relate to having enough money to invest in a managed fund or buy a rental property. A ‘plan’ is just that – a road map to your financial future with directions along the way to help you arrive safely. What to invest in comes at the very end, after the funds have been made available. The most important piece of the puzzle is putting the steps in place to arrive at that end point, which is the true value of a ‘financial plan’. And most importantly, the sooner you start, the greater your chance of making a difference!

Traditionally the primary driver behind Superannuation strategies, the tax breaks available to funds held within Super, have been a contentious and varying topic. As it stands, there are still advantages for employing a well-constructed superannuation contribution strategy.

You may remember back to a previous article where we discussed the various types of contributions that can be made to a Super Fund. Perhaps the most common form of contribution is the “Concessional Contribution”. This is where an individual sacrifices some of their income to be saved in their Super Fund.

While the individual does not have access to these funds until they retire, they are eligible to claim a tax deduction of up to $35,000 (depending on their age) for these savings. This means that if the person has a marginal tax rate above 15% (the Super Fund rate), they make an effective tax saving of that difference.

Moreover, any earnings that are made on these savings are simply taxed at a flat rate of 15%. Considering that an individual will pay their marginal rate on any investment earnings (up to 46.5%) there may be considerable benefit in utilising a Salary Sacrifice strategy.
However, where superannuation benefits really come in to their own is when the members get closer to retirement.

When a member reaches “Preservation Age” (currently 55), they are eligible to enter into a Transition to Retirement phase. By taking a portion of their fund as a pension (which can be re-contributed), the member is able to acquire a tax free status for a large part of the fund. In this phase, earnings made by the fund are not taxed, while contributions can still be made to increase the value of the fund.

When it comes time for the members to fully retire and rely on their superannuation, the fund moves into a complete pension mode. In this phase, there is no tax on any part of the fund. However, if members wish to make further contributions, there will be taxation implications.

Navigating this complex series of rules and regulations can be stressful for anyone, whether they are members of a large Super Fund, or trustees of their own SMSF. If you require any assistance, or wish to understand the world of Superannuation better, feel free to contact our superannuation team at CNS Partners.

A very good article from the Charter Magazine detailing the complicated world of contractor versus employee.

Follow the link below:

Contractor or Employee? Who can tell?