A guide for owners We look at the flow of money in and out of a company and the problems that trip up business owners. When you start up a business, inevitably, it consumes not just a lot of time but a lot of cash and much of this is money you have already paid tax on. So, it only seems fair that when the business is up and running the business can pay you back. Right? There are myriad ways owners look for payback from a company they have invested their time and money into it from dividends, salary and wages, jobs for sometimes underqualified family members to cash advances and personal expenses like school fees and nights out picked up as company expense. But, once the cash is in the company, it is company money. Repaying money loaned to the company If you have lent money to your company, you can draw this money back out as a loan repayment. The loan repayment is not deductible to the company but any interest payments made to you will be as long as the borrowed money has been used in the company’s business activities (assuming interest has actually been charged on the loan). Conversely, any repayments made by the company on the loan principal are not income for tax purposes but you will need to declare any interest earned in your income tax return. All loans, including the loan term and repayments, should be documented. Dividends: Paying out profits Dividends basically represent company profits being paid out to the shareholders of a company. If the company has franking credits from income tax it has paid, the dividends might be franked and the credits can often be used by the shareholder to reduce their personal tax liability. When a dividend is paid by a private company it must provide a distribution statement to the shareholders within four months after the end of the financial year. This gives private companies up to four months after the end of the financial year to work out the extent to which dividends will be franked. If any of the shares in the company are held by a discretionary trust then there are some additional issues that will need to be considered, including whether the trust has a positive amount of net income for the year, whether the trust has made a family trust election for tax purposes and who will become entitled to distributions made by the trust for that year. Repaying share capital Many private companies are set up with a relatively small amount of share capital. However, if a company has a larger share capital balance then there might be scope for the company to undertake a return of share capital to the shareholders. Whether this is possible will depend on the terms of the company constitution and there are some corporate law issues that need to be addressed. From a tax perspective, a return of share capital will normally reduce the cost base of the shares for CGT purposes, which means that a larger capital gain could arise on future sale of the shares but there won’t necessarily be an immediate tax liability. Having said that, there are some integrity rules in the tax system that need to be considered. The risk of these rules being triggered tends to be higher if the company has retained profits that could be paid out as dividends. Shareholder loans, payments and forgiven debts: Using company money There are some rules in the tax law (known as Division 7A) that determine how money taken out of a company is treated. Division 7A is a particularly tricky piece of tax law designed to prevent business owners from accessing funds in a way that circumvents income tax. While amounts taken from a company bank account by the owners are often debited to a shareholder’s loan account in the financial statements, Division 7A ensures that any payments, loans, or forgiven debts are treated as if they were dividends for tax purposes unless there is a loan agreement in place which meets certain strict requirements. These ‘deemed’ dividends cannot normally be franked. If you have taken money out of the company bank account then the main ways of avoiding this deemed dividend from being triggered are to ensure that the loan is fully repaid or placed under a complying loan agreement before the earlier of the due date and actual lodgement date of the company’s tax return for that year. To be a complying loan agreement the agreement requires minimum annual repayments to be made over a set period of time and there is a minimum benchmark interest rate that applies – currently 4.77% for 2022-23. For example, if your company is paying school fees for your kids, or you take money out of the company bank account to pay down your personal home loan, if you don’t pay back this amount or put a complying loan agreement in place then this amount is likely to be treated as a deemed unfranked dividend. That is, you need to declare this amount in your personal income tax return as if it was a dividend and without the benefit of any franking credits. This means that even though the company might have already paid tax on this amount, you will be taxed on it again without the ability to claim a credit for the tax already paid by the company (causing double taxation of the same company profits). The rules are very strict when it comes to loan repayments. If a repayment is made but the same amount or more is loaned to the shareholder shortly afterwards then there are some special rules that can apply to basically ignore the repayment. There are some exceptions to these rules and the position needs to be managed carefully to avoid adverse tax implications. Collins Hume's purpose is to inspire business owners to achieve success in powerful and meaningful ways. Let us know if any topics covered here are of particular interest to you. Call our team in Ballina or Byron Bay on 02 6686 3000.

Wills, estate planning and testamentary trusts Having a valid will ensures that your assets and possessions are distributed according to your wishes after your passing. However, simply creating a will is not enough — it's essential to update it regularly to reflect any significant changes in your life circumstances or the law. The last time you updated your will may depend on a variety of factors. There are several life events that can trigger a will update, including: Entering Into or Ending a Personal Relationship: marriage, divorce or starting or ending a de facto relationship for example Birth or Adoption of a Child: Having a new child in the family may prompt changes to your will to ensure that your child is provided for in the event of your death Death of a Beneficiary, Executor or Trustee: If someone named in your will as a beneficiary, executor or trustee passes away, you may need to update your will to reflect this change Change in Finances: Changes in your financial situation, such as a large inheritance or the sale of a property, may prompt a need to update your will to reflect your current assets Relocation: Moving to a new state or country may require changes to your will to ensure that it conforms to the laws of your new jurisdiction Changes in Tax Laws can impact your estate plan and you may need to update your will to reflect these Change in Personal Wishes: As your life circumstances change, your personal wishes and preferences may change as well. You may need to update your will to reflect these changes. It's recommended that you review your will every few years, even if your circumstances haven't changed significantly. This ensures that your will accurately reflects your current wishes and that any outdated information or provisions are updated or removed. With the recent increase in property prices your financial situation may be significantly different. Many leading estate planning lawyers are now recommending that Testamentary Trusts are incorporated into your estate plan. What are the benefits of a Testamentary Trust? A Testamentary Trust is typically prepared as a discretionary family trust established under the terms of a will. The assets that form part of the estate will be held in trust for a potential beneficiary until the termination of the trust (for example, in the event the beneficiary reaches a nominated age). Benefits of establishing a Testamentary Trust under the terms of a will include: Tax savings: For example, children under the age of 18 years who receive income from a testamentary trust are taxed on that income as adults, and therefore enjoy the normal tax-free threshold and marginal tax rates which apply to adults An inheritance may be protected against creditors in the event of a beneficiary’s bankruptcy In the event the beneficiary becomes part of divorce proceedings, an inheritance is less likely to be distributed pursuant to a Family Court order in property settlement proceedings if the trust is established and managed correctly Offering protection against future business dealings of the beneficiaries Families can ensure adequate funds are provided for a beneficiary and at the same time protect the funds by keeping them out of the beneficiary’s control They assist in shifting wealth to future generations in tax effective manner and may save capital gains tax and even stamp duty. Other issues to consider The Trustees of the Testamentary Trust do not have to be the executors of your estate The guardian of your infant children will need to work with the Trustees, so choose people for these roles who don’t have obvious conflicts of interest You can make specific gifts of property to beneficiaries that take effect before the balance of your estate goes into the testamentary trust Your creditors will be paid out of the estate before any assets go into the testamentary trust. Tax considerations for planning your estate In Australia, there are several tax considerations that should be taken into account when planning your estate. Here are four key points to consider: Capital Gains Tax (CGT): When assets such as property or shares are sold, CGT may be payable on the increase in their value since they were acquired. In the context of estate planning, CGT can be a significant issue if beneficiaries are left with assets that have appreciated in value, as they may be liable to pay CGT if they later sell those assets. However, there are various strategies that can be used to minimise CGT, such as gifting assets during the owner's lifetime, or utilising trusts or other structures to hold assets. Stamp Duty: In some states, stamp duty is payable when assets are transferred as a result of a will or intestacy. The amount of duty payable varies depending on the value of the assets being transferred and the state in which the transfer occurs. Estate Tax: Unlike some other countries, Australia does not have a specific estate tax. However, assets in an estate may be subject to income tax, CGT or other taxes which can reduce the value of the estate that is ultimately distributed to beneficiaries. Superannuation: Depending on how your super is structured, it may be subject to tax upon the owner's death. It is important to consider the tax implications of super when planning an estate, as it can have a significant impact on the value of the estate that is ultimately distributed to beneficiaries. When it comes to estate planning, considering a trust and its tax implications always seek professional advice from Collins Hume as part of your decision-making process. Please contact Collins Hume today if you wish to discuss your estate plan with a specialist adviser.

Numbers are just a different way of telling a story Meet Kim Roy, an Accountant with a passion for helping business owners understand their numbers and create better businesses. With a Bachelor of Business (Communications) from QUT in Brisbane and Certifications in Xero and Xero Payroll just to name a few, Kim has a broad range of skills and expertise. Before joining Collins Hume, Kim held various roles in public relations, internal communications and general management in the not-for-profit sector. After leaving the big smoke and returning to Tenterfield, Kim joined a friend's accounting firm in an admin support role, where she learned the ropes doing tax returns. She eventually became an accountant, leveraging her natural communications ability and primary production upbringing to help her clients. Kim's typical day involves serving small and medium-sized businesses, with a particular focus on cloud accounting technology and troubleshooting. She is also Collins Hume’s specialist go-to bookkeeping gun on Xero, MYOB and QuickBooks user queries. With a flair for problem-solving and drilling into the detail, Kim excels at figuring out the root cause of accounting and bookkeeping issues and finding ways to resolve them. “My husband had his own painting business so I did all of his bookkeeping and BAS for about 12 years which makes it very easy for me to relate to small business owners with cash flow issues or trying to find enough time to manage the paperwork,” says Kim. Kim also assists Partner, Kelly Crethar on Collins Hume’s people and culture initiatives, with her project expertise proving invaluable following two years of managing JobKeeper and COVID-19 support. One of the things Kim loves about working at Collins Hume is the degree of flexibility the firm offers. “The Partners are open to new ideas and are not afraid of change, making it an interesting and dynamic workplace,” says Kim. “I am constantly learning and improving, which I enjoy immensely.” When she's not working, Kim enjoys stand-up paddleboarding and indulging in her crafty side by crocheting and drawing. She is famously the brains behind the design and construction of our handmade Christmas tree using 100 per cent recycled and renewable materials, which generated loads of positive buzz in 2022. Kim's message to business owners is to make use of their accountant’s expertise and know-how. “Accountants are there to help, and investing time in business improvement is never a waste of time,” Kim added. “I see us an investment in their business, not a cost.” “You can't avoid tax, but you can understand it and make the best decisions with confidence.” Copyright 2023. Collins Hume Ballina and Byron Bay

What information on sellers will the ATO know? From 1 July 2023, a new reporting regime will require platforms that enable taxi services (including ride-sourcing) and short-term accommodation to report their transactions to the ATO each year. From 1 July 2024, the regime will expand to include all other platforms. While the legislative instrument for the reporting regime is still in draft (see LI 2022/D27), it is expected that platform providers will report their transactions to the ATO every six months. The platforms will submit data on the sellers for transactions on their platform including: ABN and business / trading name (where applicable) First, middle and surname/family name (for individuals) Date of birth (for individuals) Residential or business address Email address and telephone numbers Bank account details. And, for platforms facilitating short-term accommodation: Listed property name Listed property address Number of nights booked. In addition, the platforms will provide aggregate quarterly data on the value of transactions, industry types, total gross income etc. The reporting regime does not include platforms that simply match suppliers to sellers and are not engaged in the transaction such as quotes for hiring tradies where the job is not accepted through the website. Collins Hume's purpose is to inspire business owners to achieve success in powerful and meaningful ways. Let us know if any topics covered here are of particular interest to you. Call our team in Ballina or Byron Bay on 02 6686 3000.

Just in time for the Fringe Benefits Tax (FBT) year that started on 1 April, the ATO has released new details on electric vehicles. The FBT exemption for electric cars If your employer provides you with the use of a car that is classified as a zero or low-emissions vehicle there is an FBT exemption that can potentially apply to the employer from 1 July 2022, regardless of whether the benefit is provided in connection with a salary sacrifice arrangement or not. The FBT exemption should normally apply where: The value of the car is below the luxury car tax threshold for fuel-efficient vehicles ($84,916 for 2022-23) when it was first purchased. If you buy an EV second-hand, the FBT exemption will not apply if the original sales price was above the relevant luxury car tax limit; and The car is both first held and used on or after 1 July 2022. This means that the car could have been purchased before 1 July 2022, but might still qualify for the FBT exemption if it wasn’t made available to employees until 1 July 2022 or later. The exemption also includes associated benefits such as: Registration Insurance Repairs or maintenance, and Fuel, including electricity to charge and run the vehicle. But, it does not include a charging station (see How do the tax rules apply to home charging units? below). While the FBT exemption on EVs applies to employers, the value of the fringe benefit is still taken into account when working out the reportable fringe benefits of the employee. That is, the value of the benefit is reported on the employee’s income statement. While you don’t pay income tax on reportable fringe benefits, it is used to determine your adjusted taxable income for a range of areas such as the Medicare levy surcharge, private health insurance rebate, employee share scheme reduction, and certain social security payments. Who the FBT exemption does not apply to By its nature, the FBT exemption only applies where an employer provides a car to an employee. Partners of a partnership and sole traders are not employees and cannot access the exemption personally. If you are a beneficiary of a trust or shareholder of a company, the exemption can only apply if the benefit is provided in your capacity as an employee or as a director of the entity (you need to be able to show you have an active role in the running of the entity). How do the tax rules apply to home charging units? The ATO has confirmed that charging stations don’t fall within the scope of the FBT exemption for electric cars. This means that FBT could be triggered if an employer provides a charging unit to an employee. If an employee purchases a home charging unit then it might be possible to claim depreciation deductions for the cost of the unit over a number of income years if the unit is used to charge a vehicle that is used for income-producing purposes. However, if an employee is only using the vehicle for private purposes then the cost of the charging unit is a private expense and not deductible. What about the cost of electricity? A friend of mine travels a lot for work and used to rack up large travel expenses… right up until he switched to an electric vehicle. Now it costs him 3 cents per km in electricity. Because it is often difficult to distinguish home electricity usage, the ATO has set down a rate of 4.20 cents per km for running costs for EVs provided to an employee (from 1 April 2022 for FBT and 1 July 2022 for income tax). If you use this rate, you cannot also claim any of the costs associated with costs incurred at commercial charging stations. It is one or the other, not both. You also have the option of using actual electricity costs if you can calculate them accurately. Our purpose is to inspire business owners to achieve success in powerful and meaningful ways. Let us know if any topics covered here are of particular interest to you. Call our team in Ballina or Byron Bay on 02 6686 3000.

1 July 2023 Super Balance Increase but no Change for Contributions The general transfer balance cap (TBC) – the amount of money you can potentially hold in a tax-free retirement account, will increase by $200,000 on 1 July 2023 to $1.9 million. The TBC is indexed to the consumer price index each December and applies individually. If your transfer balance account reached $1.7m or more at any point before 1 July 2023, your TBC after 1 July 2023 will remain at $1.7m. If the highest amount in your account was between $1 and $1.7m, then your cap is proportionally indexed based on the highest ever balance your transfer balance account reached. That is, the ATO will look at the highest amount your transfer balance account has ever been, then apply indexation to the unused cap amount. For example, if you started a retirement income stream valued at $1,275,000 on 1 October 2022 and this was the highest point your account reached before 1 July 2023, then your unused cap is $425,000 ($1.7m-$1.275m). This unused cap amount is used to work out your unused cap percentage ($425k/$1.7m=25%). The unused cap percentage is then applied to the indexation increase ($200k*25%=$50k) to create your new TBC of $1,750,000. But don’t worry, you don’t have to calculate this yourself, you can see your personal transfer balance cap, available cap space, and transfer balance account transactions online through the ATO link in myGov. The caps on the contributions you can make into super however, will remain the same. That is, $27,500 for concessional contributions and $110,00 for non-concessional contributions. The contribution caps are linked to December’s average weekly ordinary time earnings (AWOTE) figures. Let's Talk That’s all we focus on: You, your family, your wealth, your business and the legacy you (and we) leave. That’s it. Join Collins Hume on this amazing journey.

What the ATO will be Asking about your Holiday Home Taxpayers claiming deductions on holiday homes are in the ATO’s sights. The ATO is more than a little concerned that people with holiday homes are claiming more deductions than they should and have published the starting questions they will be asking to scrutinise claims: How many days was it rented out and was the rent in line with market values? Where do you advertise for rent and were any restrictions placed on tenants? Have you, your family or friends used the property? The problem is blanket claims for the holiday home regardless of the time the home was rented out or available for rent. You will need to apportion your expenses if: Your property is genuinely available for rent for only part of the year. Your property is used for private purposes for part of the year. Only part of your property is used to earn rent. You charge less than market rent to family or friends to use the property. The ATO has also indicated that deductions might be limited if a property is only made available for rent outside peak holiday times and the location of the property (or other factors) mean that it is unlikely to be rented out during those periods. The regulator is also likely to be suspicious if the owner claims that the property was genuinely available for rent during peak holiday periods but wasn’t deriving any income during those periods. This might indicate that the property was really being used for private purposes or that the advertised rental rate was unrealistic. Whether a property is genuinely available for rent is a matter of fact. Factors that help demonstrate a property is genuinely available for rent include; it is available during key holiday periods, kept in a condition that people would want to rent it, tenants are not unreasonably turned away, advertised in ways that give it broad exposure to possible tenants, and the conditions are not so restrictive that tenants are unlikely to rent the property. How to contact us We’re available to assist you with tax deductions and tax compliance. Contact Collins Hume Accountants & Business Advisers in Ballina or Byron Bay on 02 6686 3000.

"Surround yourself with people that push you to do better" — Warren Buffet At Collins Hume, March is always a special month that reminds us of our beginnings and our purpose as we celebrate our business birthday each 1 March. Communities across the Northern Rivers mark one year since devastating floods in our region and, with hindsight, some remarkable stats and facts have been published. Take a look at the ABC's coverage here » The Government announced that from 2025‑26, the 15% concessional tax rate applied to future earnings for super balances above $3 million will increase to 30%. The announcement doesn't propose any changes to the transfer balance cap or the amount that a member can have in the tax-free retirement phase. And, if you have an SMSF with a total balance of less than $1 million, from 1 July 2023 you will need to report quarterly to the ATO instead of annually. Privacy and data have had a shakeup as Australia commences forging its own path in the wake of some big breaches in 2022, which means more talks about updating the legislation to allow the government's security agencies to intervene when hackers are impacting business operations. We're also keeping an eye on this. Our purpose is to inspire business owners to achieve success in powerful and meaningful ways. Let us know if any topics covered here are of particular interest to you. Read our Autumn Strategist newsletter here »

What’s the Deal with Working from Home? The Australian Taxation Office (ATO) has updated its approach to how you claim expenses for working from home. The ATO has ‘refreshed’ the way you can claim deductions for the costs you incur when you work from home. From 1 July 2022 onwards, you can choose either to use a new ‘fixed rate’ method (67 cents per hour) or the ‘actual cost’ method depending on what works out best for your scenario. Either way, you will need to gather and retain certain records to make a claim. The first issue for claiming any deduction is that there must be a link between the costs you incurred and the way you earn your income. If you incur an expense but it doesn’t relate to your work, or only partially relates to your work, you cannot claim the full cost as a deduction. The second key issue is that you need to incur costs associated with working from home. For example, if you are living with your parents and not picking up any of the expenses for running the home then you can’t claim deductions for working from home as you have not incurred the expenses, even if you are paying board (the ATO treats this as a private arrangement). Let’s take a look at the detail: The new ‘fixed rate’ method Previously, there were two fixed rate methods to choose from for the 2021-22 income year: A cover-all 80 cents per hour rate for expenses incurred while working from home (which was available from 1 March 2020). This COVID-19 related rate was intended to cover all additional running expenses incurred while working from home; or If you had a space dedicated to work but were not running a business from home, you could claim 52 cents for every hour you worked from home to cover the running expenses of your home. This rate doesn’t cover certain items such as the depreciation of electronic devices, which can be claimed separately. It’s clear that working from home arrangements are here to stay for many workplaces even though COVID restrictions have eased. So, from the 2022-23 financial year onwards, the ATO has combined these two fixed rate methods to create one revised method accessible by anyone working from home, regardless of whether they have a dedicated space or are just working at the kitchen table. The new rate is 67 cents per hour and covers your energy expenses (electricity and gas), phone usage (mobile and home), internet, stationery, and computer consumables. You can separately claim the cost of the decline in value of assets such as computers, repairs, and maintenance for these assets, and if you have a dedicated home office, the cost of cleaning the office. If there is more than one person working from the same home, each person can make a claim using the fixed rate method if they meet the basic eligibility conditions. What proof does the ATO need that I am working from home? To use the fixed rate method, you will need a record of all of the hours you worked from home. The ATO has warned that it will no longer accept estimates or a sample diary over a four week period. For example, if you normally work from home on Mondays but one day you have an in-person meeting outside of your home, your diary should show that you did not work from home for at least a portion of that day. Having said that, the ATO will allow taxpayers to keep a record which is representative of the total number of hours worked from home during the period from 1 July 2022 to 28 February 2023. There is nothing in the ATO guidance to suggest that claims are limited to standard office hours. That is, if you work from home outside standard office hours or over the weekend, then make sure you keep an accurate record of the hours you are working so that you can maximise your deductions. You also need to keep a copy of at least one document for each running cost you have incurred during the year which is covered by the fixed rate method. This could include invoices, bills or credit card statements. Where bills are in the name of one member of a household but the cost is shared, each member of the household who contributes to the payment of that expense will be taken to have incurred it. For example, a husband and wife, or flatmates where they jointly contribute to costs. You need to keep these records for five years so that if the ATO come calling, you can prove your claim. If this proof is not available at the time, the deduction will be denied. If your work from home diary is electronic, ensure you can access this diary over time (such as producing a PDF summary of your calendar clearly showing the dates and times of your work at the end of each financial year). The ‘actual’ method Some people might find that the actual method produces a better result if their expenses are higher. As the name suggests, you can claim the actual additional expenses you incur when you work from home (and reduce the claim by any personal use and use by other family members). However, you will need to ensure you have kept records of these expenses and the extent to which the expenses relate to your work. Using this method, you can claim the work-related portion of: The decline in value of depreciating assets – for example, home office furniture (desk, chair) and furnishings, phones and computers, laptops or similar devices. Electricity and gas (energy expenses) for heating, cooling and lighting. Home and mobile phone, data and internet expenses. Stationery and computer consumables, such as printer ink and paper. Cleaning your dedicated home office. Be careful with this method because the ATO is looking closely to ensure these expenses are directly related to how you earn your income. For example, you can’t claim personal expenses such as coffee, tea and toilet paper even if you do use these items when you are at work. Nor can you claim occupancy expenses such as rent, mortgage interest, property insurance, and land taxes and rates unless your home is a place of business. It is unusual for an employee’s home to be classified as a place of business. I run a business from home, what can I claim? Where your home is also your principal place of business and an area is set aside exclusively for business activities, you can potentially claim a deduction for an appropriate portion of occupancy expenses as well as running costs. An example would be a doctor who runs their surgery from home. The doctor may have one-third of the home set aside as a place of business where they see patients. It is important to keep in mind that Capital Gains Tax (CGT) might be payable on the eventual sale of the home. While your main residence is normally exempt from CGT, the portion of the home set aside as a place of business will not generally qualify for the main residence exemption for the period it is used for this purpose, although if you are eligible, the small business CGT concessions and general CGT discount may reduce any resulting capital gain. How to contact us We’re available to assist you with tax deductions and tax compliance. Contact Collins Hume Accountants & Business Advisers in Ballina or Byron Bay on 02 6686 3000.

Collins Hume's NRL Footy Tipping Competition kicks off for 2023 Footy season is knocking on our door and Collins Hume would like to invite you to participate in our annual NRL Tipping Comp. It’s that time of year again folks! Rules and prize values for 2023 will be kept the same as in 2022. Prize Information First prize $300 Second prize $100 Third prize $50 Knockout Comp Winner $100 5 quick steps to join: Go to https://www.iTipFooty.com.au Click the 'REGISTER' button if you don't already have an account with iTipFooty.com.au Once you have successfully registered, log in and click the JOIN COMP button Enter Comp #103098 and Comp Password CH1234 Click join comp... DONE! Check in for results each week. Prizewinners will be announced at the end of the season. Good luck!

The ATO’s final position on risky trust distributions The ATO has released its final position on how it will apply some integrity rules dealing with trust distributions — changing the goalposts for trusts distributing to adult children, corporate beneficiaries and entities with losses. As a result, many family groups will pay higher taxes because of the ATO’s more aggressive approach. Section 100A The tax legislation contains an integrity rule, section 100A, which is aimed at situations where income of a trust is appointed in favour of a beneficiary, but the economic benefit of the distribution is provided to another individual or entity. For section 100A to apply, there needs to be a 'reimbursement agreement’ in place at or before the time the income is appointed to the beneficiary. Distributions to minor beneficiaries and other beneficiaries who are under a legal disability are not impacted by these rules. If trust distributions are caught by section 100A, this generally results in the trustee being taxed on the income at penalty rates rather than the beneficiary being taxed at their own marginal tax rates. While section 100A has been around since 1979, until recently there has been relatively little guidance on how the ATO approaches section 100A. This is no longer the case and the ATO’s recent guidance indicates that a number of scenarios involving trust distributions could be at risk. For section 100A to apply: The present entitlement (a person or an entity is or becomes entitled to income from the trust) must relate to a reimbursement agreement; The agreement must provide for a benefit to be provided to a person other than the beneficiary who is presently entitled to the trust income; and A purpose of one or more of the parties to the agreement must be that a person would be liable to pay less income tax for a year of income. High risk areas Until recently many people have relied on the exclusions to section 100A which prevent the rules applying when the distribution is to a beneficiary who is under a legal disability (e.g., a minor) or where the arrangement is part of an ordinary family or commercial dealing (the ‘ordinary dealing’ exception). It is the ordinary dealing exception that is currently in the spotlight. For example, let’s assume that a university student who is over 18 and has no other sources of income is made presently entitled to $100,000 of trust income. The student agrees to pay the funds (less tax they need to pay to the ATO) to their parents to reimburse them for costs that were incurred when the student was a minor. This situation is likely to be considered high risk if the student is on a lower marginal tax rate than the parents because the parents are receiving the real benefit of the income. The ATO is also concerned with scenarios involving circular distributions. For example, this could occur when a trust distributes income to a company that is owned by the trust. The company then pays dividends back to the trust, which distributes some or all of the dividends back to the company. And so on. The ATO views these arrangements as high risk from a section 100A perspective. Common scenarios identified as high risk by the ATO include: The beneficiary is a company or trust with losses and the beneficiary is not part of the same family group as the trust making the distribution. A company or trust which is entitled to distributions from the trust returns the funds to the trustee (i.e., circular arrangements). The beneficiary is issued units by the trustee of the trust (or a related trust) with the amount owed for the units being set-off against the entitlement and where the market value of the units is less than the subscription price or the trustee is able to do this without the consent of the beneficiary. Adult children are made presently entitled to income, but the funds are paid to a parent in relation to expenses incurred before the beneficiary turned 18. Where to from here? If you have a discretionary trust, it will be important to ensure that all trust distribution arrangements are reviewed in light of the ATO’s guidance to determine the level of risk associated with the arrangements. It is also vital to ensure that appropriate documentation is in place to demonstrate how funds relating to trust distributions are being used or applied for the benefit of the beneficiaries. The ATO’s new approach applies to entitlements before and after the publication of the new guidance but for entitlements arising before 1 July 2022, the ATO will not generally pursue these if they are either low risk under the new guidance, or if they comply with the ATO’s previous guidance on trust reimbursement agreements. How to contact us We’re available to assist you with tax planning and trust compliance. Contact Collins Hume Accountants & Business Advisers in Ballina or Byron Bay on 02 6686 3000.

From 1 January those aged 55 and over can make a ‘downsizer’ contribution to super Downsizer contributions are an excellent way to get money into superannuation quickly. And now that the age limit has reduced to 55 from 60, more people have an opportunity to use this strategy if it suits their needs. What’s a ‘downsizer’ contribution? If you are aged 55 years or older, you can contribute $300,000 from the proceeds of the sale of your home to your superannuation fund. Downsizer contributions are excluded from the existing age test, work test, and the transfer balance threshold (but are limited by your transfer balance cap). For couples, both members of a couple can take advantage of the concession for the same home. That is, if you and your spouse meet the other criteria, both of you can contribute up to $300,000 ($600,000 per couple). This is the case even if one of you did not have an ownership interest in the property that was sold (assuming they meet the other criteria). Sale proceeds contributed to superannuation under this measure count towards the Age Pension assets test. Because a downsizer contribution can only be made once in a lifetime, it is important to ensure that this is the right option for you. Let’s look at the eligibility criteria: You are 55 years or older (from 1 January 2023) at the time of making the contribution. The home was owned by you or your spouse for 10 years or more prior to the sale – the ownership period is generally calculated from the date of settlement of purchase to the date of settlement of sale. The home is in Australia and is not a caravan, houseboat, or other mobile home. The proceeds (capital gain or loss) from the sale of the home are either exempt or partially exempt from capital gains tax (CGT) under the main residence exemption, or would be entitled to such an exemption if the home was a post-CGT asset rather than a pre-CGT asset (acquired before 20 September 1985). Check with us if you are uncertain. You provide your super fund with the Downsizer contribution into super form (NAT 75073) either before or at the time of making the downsizer contribution. The downsizer contribution is made within 90 days of receiving the proceeds of sale, which is usually at the date of settlement. You have not previously made a downsizer contribution to super from the sale of another home or from the part sale of your home. Do I have to buy another smaller home? The name ‘downsizer’ is a bit of a misnomer. To access this measure you do not have to buy another home once you have sold your existing home, and you are not required to buy a smaller home — you could buy a larger and more expensive one. SMSF reporting changes from 1 July 2023 If you have an SMSF with a total balance of less than $1 million, from 1 July 2023 you will need to report quarterly to the ATO instead of annually. Previously, SMSFs with a balance under $1m reported annually at the same time as lodging the SMSF annual return. How to contact us We’re available to assist you with tax planning and superannuation compliance. Contact Collins Hume Accountants & Business Advisers in Ballina or Byron Bay on 02 6686 3000.