How good is ChatGPT at tax? Not being paranoid or anything but we were curious about the skills of the latest innovation to take the world by storm, ChatGPT, and its ability to work with the Australian tax system. Let’s start by saying that we were impressed. Not so much by ChatGPT’s ability to work with the complexities of the tax system, but for its tone and approach. The outcome of our testing, including the example below, is that you might end up with some general comments that are reasonably accurate, but you’re unlikely to get an answer that can be relied on. And with most technical commentary tied up in personal advice rather than on the web where ChatGPT can explore it, it is unlikely that we will get there any time soon. Here are the results of our test question and our commentary (ChatGPT’s response is in italics). Question: How much capital gains tax does an Australian resident pay on an investment property with a worked example ? ChatGPT: An Australian resident pays capital gains tax (CGT) on the profit made from selling an investment property. The CGT is calculated by subtracting the cost of the property (purchase price plus any costs associated with acquiring and owning the property) from the sale price. For example, let's say an Australian resident purchased an investment property for $500,000 and spent $50,000 on costs associated with acquiring and owning the property (such as legal fees, stamp duty, and repairs). The total cost of the property is $550,000. The accountant: Let’s stop there and take stock. There are some tricks and traps that need to be considered when working out an asset’s cost base. While repair costs in some cases can form part of a property’s cost base, this is not always the case. The situation is often different where the asset being sold is an investment property that has been rented to tenants. When a landlord repairs damage that occurs while the property is rented to a tenant, this will often be deductible to the landlord at the time the repair costs are incurred. Because deductions are available for these repair costs, they should not also be included in the property’s cost base. There are also other adjustments that need to be considered. In the context of investment properties, it will often be necessary to make adjustments to the cost base to take into account capital works deductions. Landlords can often claim capital works deductions when an investment property is used to derive assessable rental income. The property’s cost base should then be reduced by capital works deductions that have been or could be claimed by the landlord (although there is an exception to this if the property was acquired before 13 May 1997 and the cost of improvements was incurred by 30 June 1999). The longer the period of ownership, the more likely that capital works deductions and repair costs can end up being quite significant and have a material impact on the capital gain calculation. ChatGPT: After several years, the resident decides to sell the property for $700,000. The profit made from the sale is $700,000 - $550,000 = $150,000. The CGT rate in Australia is currently at 45% and the resident will pay 45% of the $150,000 profit, which is $67,500. The accountant: Let’s take a closer look at that calculation. There is no CGT rate of 45% that applies specifically to capital gains. Net capital gains form part of an individual taxpayer’s assessable income. This figure is then used to calculate the individual’s taxable income for the relevant income year. If there is a positive taxable income figure, then we apply the individual’s marginal tax rates. One way of explaining this is that a higher taxable income normally results in a higher tax bracket and a higher rate of tax. In other words, the tax rate that applies to an individual’s net capital gains is impacted by the individual’s other income or losses (if any). Also, while the highest marginal tax rate for individuals is currently 45 per cent for each dollar of taxable income above $180,000, Australian residents are also normally subject to the Medicare levy of 2%. This should be considered and factored in. ChatGPT: It's worth noting that there are certain exemptions and reductions that can be applied to the CGT calculation, such as the main residence exemption and the small business CGT concessions. The accountant: If only tax was that simple! There are certain exemptions and reductions that can apply to capital gains. While the answer mentions the main residence exemption and the small business CGT concessions, these concessions do not normally apply to the sale of an investment property. For the main residence exemption (or partial main residence exemption) to be available, one of the key conditions is that property would need to have been established and used as the individual’s main residence. The exemption is unlikely to be available if the property has been used solely as an investment property to derive assessable rental income, although if the property was inherited then the position could be different. Also, the small business CGT concessions would not normally apply to the sale of an investment property. This is because the concessions can only apply if the asset passes an active asset test, which requires the property to have been used in qualifying business activities for a minimum period of time. Assets used in a business carried on by the owner or certain related parties can often be treated as active assets for the purpose of these concessions, but there is a specific exception for assets used mainly to derive rent from unrelated parties. If the property has been solely used to derive rent (even if used in a rental business) from unrelated parties, the property is likely to fail the active asset test and the small business CGT concessions shouldn’t be available. Interestingly, the answer didn’t refer to the general CGT discount or indexation, which are the most likely concessions that would apply to a situation like this. If the seller is an Australian resident (and not a temporary resident) during the period they owned the property and has owned the property for more than 12 months, the 50% CGT general discount would often be available to reduce the capital gain. If the property was acquired before 21 September 1999, indexation of the cost base could be available instead. It would be necessary to compare both options to see which provides the more favourable result. ChatGPT: It is advisable to consult with a tax professional to determine the specific tax implications of selling an investment property. The accountant: Yes, indeed it is. Thank you ChatGPT.

Getting the best outcomes from a home care package for an elderly parent Know if you are getting what you are entitled to by the selected aged care provider. You are busy but you have been able to get Mum a home care package and find a provider to deliver the service. The hard yards have been done right? Surely at this point, you can relax and feel confident that Mum is getting the care and support she needs. Indeed, initially, it may have felt like this was the case. However, you are starting to notice when you visit Mum that she doesn’t seem to be going as well as she was… you may notice she is a bit frailer, or having difficulty with activities she used to do easily. Maybe she is forgetting more things or her personal appearance is changed. Surely you think, someone from the Home Care team will have recognised and responded to this? But as time rolls by there doesn’t seem to be any change and Mum continues to deteriorate. What should you do? Call the Care Coordinator We would recommend that in the first instance, you contact the home care provider and you want to speak with the Care Coordinator who oversees your Mum’s home care package. A great provider will have systems in place where they have staff who recognise the deterioration and have a system in-house to escalate and respond to these concerns and reach out proactively. A great provider will be available to listen to your concerns and review your Mum’s care plan and adjust accordingly. An unsatisfactory home care provider will not listen and not follow up with you, requiring endless calls on your part and may be unhelpful or unwilling to make changes to your Mum’s care service requirements. Check the statement We also recommend regularly checking the statement from the home care provider. They are obliged to provide a monthly statement which should clearly show what services have been delivered in the month, the cost of the services and the balance. There have been changes to how the government pays the home care packages to help reduce the large accrual of funds that had been occurring. When you are checking the statement, review the services that are reported as attended and ensure that indeed they were. Also consider if that is still relevant to your Mum’s current needs … or does Mum need more or something different now? The Care Plan should NOT be put on the shelf If Mum has had a change in needs, then the home care provider should review the Care Plan with you and Mum to determine what the new need(s) might be. These reviews should be done regularly regardless of any changes in care needs… but they should certainly be done if a change has been identified. You should then be provided with a copy of the Care Plan. Great home care providers should be proactive with this process and keep you informed and involved. Great providers will respond to your prompts for review and provide a copy of the Plan when asked. Inadequate home care providers won’t provide you with an opportunity to review the care needs and update the care plan or provide you with a copy. It is important to remember the Care Plan is the document that guides what you can use your home care package on. There needs to be an “assessed need” for a home care provider to approve and facilitate a service/product. There are rules around what these can be… but it is essentially a Consumer Directed Care model so if a need can be demonstrated and is important to Mum, then the provider should work with you to meet that need within the scope of the package. The provider should also be able to willingly and clearly explain to you why they cannot meet some requests if that is the case. To find out more about Family Aged Care Advocates and the valuable work they do, please visit familyagedcareadvocates.com.au and, in particular, their Aged Care Insights on their blog.

Underpayment of the super guarantee Workers are owed over $3.6 billion in superannuation guarantee according to the latest Australian Taxation Office estimates – a figure the Government and the regulators are looking to dramatically change. Superficially, the statistics on employer superannuation guarantee (SG) compliance look pretty good with over 94%, or over $71 billion, collected without intervention from the regulators in 2020-21. The net gap in SG has also declined from a peak of 5.7% in 2015-16 to 5.1% in 2020-21. The COVID-19 stimulus measures helped drive up the voluntary contributions with the largest increase in 2019-20, which the Australian Taxation Office (ATO) says they “suspect reflects the link between payment of super contributions and pay as you go (PAYG) withholding by employers. PAYG withholding is linked to the ability to claim stimulus payments such as Cash Flow Boost.” Despite these gains, a little adds up to a lot and 5.1% equates to a $3.6 billion net gap in payments that should be in the superannuation funds of workers. Lurking within the amount owed is $1.8 billion of payments from hidden wages. That is, off-the-books cash payments, undisclosed wages, and non-payment of super where employees are misclassified as contractors. In addition, the ATO notes that as at 28 February 2022, $1.1 billion of SG charge debt was subject to insolvency, which is unlikely to ever be recovered. Quarterly reporting enables debt to escalate before the ATO has a chance to identify and act on an emerging problem. Employers should not assume that the Government will tackle SG underpayments the same way they have in the past with compliance programs. Instead, technology and legislative change will do the work for them. Single touch payroll matched to super fund data Single touch payroll (STP), the reporting mechanism employers must use to report payments to workers, provides a comprehensive, granular level of near-real time data to the regulators on income paid to employees. The ATO is now matching STP data to the information reported to them by superannuation funds to identify late payments, and under or incorrect reporting. Late payment of quarterly superannuation guarantee is emerging as an area of concern with some employers missing payment deadlines, either because of cashflow difficulties (i.e., SG payments not put aside during the quarter), or technical issues where the timing of contributions is incorrect. Super guarantee needs to be received by the employee’s fund before the due date. Unless you are using the ATO’s superannuation clearing house , payments are unlikely to be received by the employee’s fund if the quarterly payment is made on the due date. The super guarantee laws do not have a tolerance for a ‘little bit’ late. Contributions are either on time, or they are not. When SG is paid late If an employer fails to meet the quarterly SG contribution deadline, they need to pay the SG charge (SGC) and lodge a Superannuation Guarantee Statement within a month of the late payment. The SGC applies even if you pay the outstanding SG soon after the deadline. The SGC is particularly painful for employers because it is comprised of: The employee’s superannuation guarantee shortfall amount – i.e., the SG owing. 10% interest p.a. on the SG owing for the quarter – calculated from the first day of the quarter until the 28th day after the SG was due, or the date the SG statement is lodged, whichever is later; and An administration fee of $20 for each employee with a shortfall per quarter. Unlike normal SG contributions, SGC amounts are not deductible, even if you pay the outstanding amount. And, the calculation for SGC is different to how you calculate SG. The SGC is calculated using the employee’s salary or wages rather than their ordinary time earnings (OTE). An employee’s salary and wages may be higher than their OTE, particularly if you have workers who are paid overtime. It's important that employers who have made late SG payments lodge a superannuation guarantee statement quickly as interest accrues until the statement is lodged. The ATO can also apply penalties for late lodgment of a statement, or failing to provide a statement during an audit, of up to 200% of the SG charge. And, where an SG charge amount remains outstanding, a company director may become personally liable for a penalty equal to the unpaid amount. The danger of misclassifying contractors Many business owners assume that if they hire independent contractors, they will not be responsible for PAYG withholding, superannuation guarantee, payroll tax and workers compensation obligations. However, each set of rules operates slightly differently and, in some cases, genuine contractors can be treated as if they were employees. There are significant penalties faced by employers that get it wrong. A genuine independent contractor who is providing personal services will typically be: Autonomous rather than subservient in their decision-making; Financially self-reliant rather than economically dependent on your business; and Chasing profit (that is, a return on risk) rather than simply accepting a payment for the time, skill and effort provided. ‘Payday’ super from 1 July 2026 The Government intends to introduce laws that will require employers to pay SG at the same, or similar time, as they pay employee salary and wages. The logic is that by increasing the frequency of SG contributions, employees will be around 1.5% better off by retirement, and there will be less opportunity for an SG liability to build up where the employer misses a deadline. Originally announced in the 2023-24 Federal Budget, Treasury has released a consultation paper to start the process of making payday super a reality. Subject to the passage of the legislation, the reforms are scheduled to take effect from 1 July 2026. What is proposed? The consultation paper canvasses two options for the timing of SG payments: on the day salary and wages are paid; or a ‘due date’ model that requires contributions to be received by the employee’s superannuation fund within a certain number of days following ‘payday’. A ‘payday’ captures every payment to an employee with an OTE component. The SGC would also be updated with interest accruing on late payments from ‘payday’. Currently, 62.6% of employers make SG payments quarterly, 32.7% monthly, and 3.8% fortnightly or weekly. We’ll bring you more on ‘payday’ super as details are released. For now, there is nothing you need to do.

When trust distributions to a company are left unpaid What happens when a trust appoints income to a private company beneficiary but does not actually make the payment? The tax treatment of this unpaid amount was at the centre of a recent case before the Administrative Appeals Tribunal (AAT) that saw a taxpayer successfully challenge the ATO’s long-held position ( Bendel and Commissioner of Taxation [2023] AATA 3074 ). For many years, the ATO’s position has been that if a trust appoints income to a private company beneficiary but does not actually make the payment, this unpaid amount can be treated as a loan. Under Division 7A of the tax rules, these loans can be taxed as unfranked dividends unless they are managed using a complying loan agreement with annual principal and interest repayments. This AAT decision challenges an important ATO position, with the tax outcomes being potentially significant for trust clients that currently owe (or may have owed in the past) unpaid trust entitlements to related private companies. But this is not the end of this story. On 26 October 2023, the Tax Commissioner lodged a notice of appeal to the Federal Court. There is no guarantee that the Federal Court will reach the same conclusion as the AAT. We will need to wait and see. As the case progresses, we will let you know about the impact. How to contact us It's important to speak to a financial professional before taking any action. Contact Collins Hume Accountants & Business Advisers in Ballina or Byron Bay on 02 6686 3000.

Don’t want to pay tax on Christmas? Here are our top tips to avoid giving the Australian Tax Office a bonus this festive season.   1. Keep team gifts spontaneous $300 is the minor benefit threshold for FBT so anything at or above this level will mean that your Christmas generosity will result in a gift to the ATO at a rate of 47%. To qualify as a minor benefit, gifts also have to be ad hoc — no monthly gym memberships or giving one person multiple gift vouchers amounting to $300 or more.  Gifts of cash from the business are treated as salary and wages – PAYG withholding is triggered and the amount is normally subject to the superannuation guarantee. Aside from the tax issues, think about what will be of value to your team. The most appreciated gift is the one that means something to the individual. Giving a bottle of wine to someone who doesn’t drink, chocolates to a health fanatic, or time off to someone with excess leave, isn’t going to garner much in the way of goodwill. A sincere personal message will often have a greater impact than a generic gift.  2. The FBT Christmas party crunch If you really want to avoid tax on your work Christmas party then host it in the office on a workday. This way, Fringe Benefits Tax (FBT) is unlikely to apply regardless of how much you spend per person. Also, taxi travel that starts or finishes at an employee’s place of work is exempt from FBT. So, if you have a few team members that need to be loaded into a taxi after overindulging in Christmas cheer, the ride home is exempt from FBT. If your work Christmas party is out of the office, keep the cost of your celebrations below $300 per person if you want to avoid paying FBT. The downside is that the business cannot claim deductions or GST credits for the expenses if there is no FBT payable in relation to the party. If the party is held somewhere other than your business premises, then the taxi travel is taken to be a separate benefit from the party itself and any Christmas gifts you have provided. In theory, this means that if the cost of each item per person is below $300 then the gift, party and taxi travel can potentially all be FBT-free. Just remember that the minor benefits exemption requires several factors to be considered, including the total value of associated benefits provided across the FBT year.  If entertainment is provided to employees and an FBT exemption applies, you will not be able to claim tax deductions or GST credits for the expenses. If your business hosts slightly more extravagant parties and goes above the $300 per person minor benefit limit, you will pay FBT but you can also claim a tax deduction and GST credits for the cost of the event.  Just bear in mind that deductions are only useful to offset against tax. If your business is paying no or limited amounts of tax, a tax deduction is not going to help offset the cost of the party. 3. Avoid client lunches and give a gift The most effective way of sharing the Christmas joy with customers is not necessarily the most tax-effective. If, for example, you take your client out or entertain them in any way, it’s not tax deductible and you can’t claim back the GST. There are specific rules designed to prevent deductions and GST credits from being claimed when the expenses relate to entertainment, regardless of whether there is an expectation of generating goodwill and increased business sales. Restaurants, a show, golf, and corporate race days all fall into the ‘entertainment’ category.  However, if you send your customer a gift, then the gift is tax-deductible as long as there is an expectation that the business will benefit (assuming the gift does not amount to entertainment). Even better, why don’t you deliver the gift yourself for your best customers and personally wish them a Merry Christmas. It will have a much bigger impact even if they are not available and the receptionist tells them you delivered the gift.  From a marketing perspective, if your budget is tight, it’s better to focus on the customers you believe deliver the most value to your business rather than spending a small amount on every customer regardless of value. If you are going to invest in Christmas gifts, then make it something people remember and appropriate to your business. You could also donate on behalf of your customers (where your business takes the tax deduction) or for your customers (where they receive the tax deduction).  4. Charities love cash  Charities love cash. They don’t have to spend any of their precious resources to receive it – unlike a lot of charity dinners, auctions, and promotional campaigns. And, from a tax perspective, it’s the safest way to ensure that you or your business can claim a deduction for the full amount of the donation. There are a few rules to giving to charities that make the difference between whether you will or won’t receive a tax deduction.  The charity must be a deductible gift recipient (DGR). You can find the list of DGRs on the Australian Business Register (use the advanced search). If you buy any form of merchandise for the ‘donation’ – biscuits, teddies, balls or you buy something at an auction – then it’s generally not deductible.  Your donation needs to be a gift, not an exchange for something material. Buying a goat or funding a child’s education in the third world is generally acceptable because you are generally donating an amount equivalent to the cause rather than directly funding that thing. The tax deduction for charitable giving over $2 goes to the person or entity who made the gift and whose name is on the receipt.  5. Christmas bonuses If you are planning to provide your team with a cash bonus rather than a gift voucher or other item of property, then remember that this will be taxed in much the same way as salary and wages. A PAYG withholding obligation will be triggered and the ATO’s view is that the bonus will also be treated as ordinary time earnings (unless it relates specifically to overtime work) which means that it will be subject to the superannuation guarantee provisions. The Christmas tax quick guide Here’s our quick guide to the tax impact of Christmas celebrations. The information is for GST-registered businesses that are not using the 50-50 split method for meal entertainment. Happy Christmas! From all of the team, we want to take this opportunity to wish you a safe and happy Christmas. The year has gone quickly and has no doubt had its challenges. The Christmas holidays are an opportunity to take stock and revel in the spirit of the season.  We look forward to working with you again in 2024 making it the best possible year for you and wish you and your family the warmest of Christmas wishes.  Please note that our offices will close at 3PM on 22 December 2023 and will reopen on 2 January 2024.

The Redesigned Stage 3 Personal Income Tax Cuts The personal income tax cuts legislated to commence on 1 July 2024 will be realigned and redistributed under a proposal released by the Federal Government. After much speculation, the Government has announced that they will amend the legislated Stage 3 tax cuts scheduled to commence on 1 July 2024. This will mean that more Australian taxpayers will receive a personal income tax cut and take home more in their pay packet from 1 July, but for some, the impact will be less favourable than it would have been prior to the redesign. What will change? The revised tax cuts redistribute the reforms to benefit lower-income households that have been disproportionately impacted by cost of living pressures. Under the proposed redesign, all resident taxpayers with taxable income under $146,486, who would actually have an income tax liability, will receive a larger tax cut compared with the existing Stage 3 plan. For example: An individual with taxable income of $40,000 will receive a tax cut of $654, in contrast to receiving no tax cut under the current Stage 3 plan (but they are likely to have benefited from the tax cuts at Stage 1 and Stage 2). An individual with taxable income of $100,000 would receive a tax cut of $2,179, which is $804 more than under the current Stage 3 plan. The current, legislated, and redesigned Stage 3 tax rates for Australian resident taxpayers: Tax rate 2023-24 2024-25 legislated 2024-25 proposed 0% $0 – $18,200 $0 – $18,200 $0 – $18,200 16% $18,201 – $45,000 19% $18,201 – $45,000 $18,201 – $45,000 30% $45,001 – $200,000 $45,001 – $135,000 32.5% $45,001 – $120,000 37% $120,001 – $180,000 $135,001 – $190,000 45% >$180,000 >$200,000 >$190,000 However, an individual earning $200,000 will have the benefit of the Stage 3 plan slashed to around half of what was expected from $9,075 to $4,529. There is still a benefit compared with current tax rates, just not as much. There is additional relief for low-income earners with the Medicare Levy low-income thresholds expected to increase by 7.1% in line with inflation. It is expected that an individual will not start paying the 2% Medicare Levy until their income reaches $32,500 (up from $26,000). While the proposed redesign is intended to be broadly revenue neutral compared with the existing budgeted Stage 3 plan, it will cost around $1bn more over the next four years before bracket creep starts to diminish the gains. How did we get here? First announced in the 2018-19 Federal Budget, the personal income tax plan was designed to address the very real issue of ‘bracket creep’ – tax rates not keeping pace with growth in wages and increasing the tax paid by individuals over time. The three point plan sought to restructure the personal income tax rates by simplifying the tax thresholds and rates, reducing the tax burden on many individuals and bringing Australia into line with some of our neighbours (i.e., New Zealand’s top marginal tax rate is 39% applying to incomes above $180,000). The three point plan introduced incremental changes from 1 July 2018, 1 July 2020, with stage 3 legislated to take effect from 1 July 2024. It’s not a sure thing just yet! The Government will need to quickly enact amending legislation to make the redesigned Stage 3 tax cuts a reality by 1 July 2024. This will involve garnering the support of the independents or minor parties to secure its passage through Parliament. The three stages of reform: Tax rate Stage 1 Stage 2 Stage 3 legislated Stage 3 redesigned 0% $0 – $18,200 $0 – $18,200 $0 – $18,200 $0 – $18,200 16%       $18,201 – $45,000 19% $18,201 – $37,000 $18,201 – $45,000 $18,201 – $45,000   30%     $45,001 – $200,000 $45,001 – $135,000 32.5% $37,001 – $90,000 $45,001 – $120,000     37% $90,001 – $180,000 $120,001 – $180,000   $135,001 – $190,000 45% $180,001 and over $180,001 and over $200,001 $190,001 Any concerns? If you have any concerns about the impact of the proposed changes please contact Collins Hume in Ballina on Byron Bay on 02 6686 3000. For tax planning purposes, for those with taxable income of $150,000 or more, the redesigned Stage 3 tax cuts offer less planning opportunity than the current plan. But, any change in the tax rates is an opportunity to review and reset to ensure you are taking advantage of the opportunities available, and not paying more than you need.

Key grant information Funding is available to help high-emitting manufacturing and mining facilities in NSW develop and deploy decarbonisation projects, from feasibility studies through to commissioning. Status: Ongoing Grant amount: Up to $305,000,000 Who can apply: NSW high-emitting manufacturing and mining facilities that emit more than 0.09 MtCO2e per year.  Program objective High-emitting industries funding will help NSW achieve significant and sustained industrial emissions reductions by 2030, in line with NSW’s target of net zero by 2050, through the following 3 objectives: Supporting decarbonisation in high emitting facilities –  help NSW manufacturing and mining operations deliver value for money emissions reduction projects. Accelerating transformative decarbonisation projects –  prioritise innovative and ambitious low emissions projects to fast track NSW’s progress to net zero. Helping industry thrive in a low carbon economy –  build local skills, knowledge and jobs to ensure NSW industry prospers in a new low carbon economy. Application timeframe HEI funding will open for applications in October 2022 and a rolling assessment process will be implemented over a period of 2 years. This means that applications can be submitted at any time and they will be assessed immediately following receipt. This program is administered by Office of Energy and Climate Change and funded by NSW Treasury.

Collins Hume Accountants and Business Advisers in Ballina and Byron Bay has announced the appointment of Naomi Monk as the firm's new Practice Manager, effective 7 March 2024. Naomi, who joined Collins Hume in 2017, has been promoted from an internal position and succeeds Clare Busch who stepped into the role after David Keith’s retirement at the end of 2022. Collins Hume Partner, Jamie Doyle said Naomi’s predecessor had a big and brilliant 14 months with the firm. “The changes that Clare initiated in our business will carry forward and help us for many years,” Jamie said. “An awesome legacy.” Jamie also emphasised that he and the Partners were excited about the appointment of Naomi, who is an admin and customer service specialist having previously performed roles in interstate tourism and local hospitality back office before joining Collins Hume. She has also been a key part of getting Collins Hume‘s business sustainability initiatives off the ground, as Dedicated Office Sustainability Champion. Speaking on her appointment, Naomi undertakes in tandem with Collins Hume’s leadership team to “continue to challenge and push the boundaries of what’s possible for Collins Hume’s clients and our business”.

The ATO has issued a warning to trustees of SMSFs about sloppy valuation practices. ATO data analysis has revealed that over 16,500 self managed superannuation funds (SMSFs) have reported assets as having the same value for three consecutive years. With many of these assets residential or commercial Australian property, you can forgive the ATO for being incredulous. For trustees of SMSFs, where asset values are consistently reported at the same value, it’s likely your SMSF will be flagged for closer scrutiny by the ATO. The value of assets in your SMSF impacts on member balances and by default, can impact the amount you can contribute, ability to segregate assets for exempt current pension income, the work test exemption and access to catch-up concessional contributions. And, as we move closer to the implementation of the Division 296 $3m superannuation tax, valuations will be very important for anyone with a member balance close to or in excess of $3m. If the asset is an in-house asset, for example a related unit trust,   then an accurate valuation is essential to ensure the fund remains within the 5% in-house asset limit. If the value of in-house assets rises above 5% of total assets, the asset/s need to be sold to bring the limit back below 5%. Valuing at market value Each year, the assets of your SMSF must be valued at ‘market value’ and evidence provided to your auditor. Broadly, market value is the amount that a willing buyer of the asset could reasonably be expected pay to acquire the asset from a willing seller assuming that the buyer and seller are dealing at arm’s length, and everyone acts knowledgeably and prudentially. It’s a common sense test that looks at the value you could reasonably expect to achieve for an asset. If your SMSF holds collectible and personal use assets like artwork, jewellery, motor vehicles, etc a valuation must be performed by a qualified independent valuer on disposal. This does not necessarily mean that an independent valuation needs to be completed every year but at least every three years would be prudent. If you are not utilising an independent valuer, you will still need to make an active assessment based on market conditions. For example, if you hold artwork and the artist who created your investment artwork died, has this changed the value? Are the primary and secondary markets for the artwork transacting at a higher value? Leaving the value of the asset at its acquisition price calls into question the rationale for acquiring the asset within the fund in the first place. If the asset is unlikely to add any value to your retirement savings, then should it be held in your SMSF when you could achieve a higher rate of return elsewhere? In most cases, the ATO require trustees to value an asset based on “objective and supportable data”. This means that you should document the asset being valued, a rational explanation for the valuation, and the method in which you arrived at it. Valuing real property Commercial and residential real estate does not need to be valued by an independent valuer. But, if there have been significant changes to the property, the market, or the property is unique or difficult to value, it is a good idea to have a written independent valuation from a valuer or estate agent undertaken (their report should also document the valuation method and list comparable properties). If you are completing the valuation yourself, ensure that you document the time period the valuation applies to and the characteristics that contribute to the valuation. For example, a 10 year old brick four bedroom property on 640m2 of land in what suburb and any features that make it more or less attractive to a buyer, for example proximity to transport. And, you should access credible sales data either on similar properties in the same suburb that have sold recently or from a property data service. More than one source of data is recommended. The estimates on a lot of online property sales sites are general in nature and not reliable for a valuation of a specific property. The average price change for the suburb however could be used as supporting evidence of your valuation. For commercial property, net income yields are required to support the valuation. Where the tenants are related parties, for example your business leases a commercial property owned by your SMSF, you will need evidence that a comparative commercial rent is being paid and the rent is keeping pace with the market. Valuing unlisted companies and unlisted trust investments Valuing unlisted companies and unlisted investments can be difficult. The financials alone are not enough. But, if your SMSF invested in an unlisted company or shares in a unit trust, then there is an expectation that the trustees made the decision to make the initial acquisition based on the value of the asset, its potential for capital growth and income generation. That is, if you assessed the market value going into the investment, then it should not be a stretch to value the asset each year. The difficulty for many investors is that in unlisted companies or trusts, the initial investment was broadly equivalent to the cash requirements of the activity being undertaken. Generally, the starting point is the value of the assets in the entity and/or the consideration paid for the shares/units. For widely held shares or units, this is the entry and exit price. Where property is the only asset, then the valuation principles for valuing real property are likely to apply. Where there is no reliable data or market We’ve seen a few scenarios where the assets purchased or created by the SMSF have no equal or there is no market – the true extent of the value will only really be known when the asset is realised. These unusual items default to either a professional valuation or a viable market assessment. This might be a derivative of the purchase price or data from a related market. Valuations and the impending Division 296 tax on super earnings The value of assets will be particularly important for those with super balances close to or above the $3m threshold for the impending Division 296 tax on fund earnings. Because the tax will measure asset values and tax the growth in earnings above the $3m threshold, accurate valuations will be important to ensure that the fund does not pay tax when it does not need to, and to reduce the likelihood of anomalies artificially inflating tax payable. How to contact us We’re available to assist you with tax planning including asset valuations. Contact  Collins Hume Accountants & Business Advisers in Ballina on 02 6686 3000 (Byron Bay by appointment). Collins Hume clients can book here »

As a business owner, the path to increased profitability and a better lifestyle often parallels that of elite athletes striving for excellence. Just as top athletes rely on coaches to gain that crucial extra edge, you can benefit from expert guidance to elevate your business. The Power of Mentorship Mentorship bridges the gap between theoretical knowledge and practical application. Having a mentor for your business can be akin to an athlete having a coach, helping you achieve that extra one percent which can make the difference between success and mediocrity. Key Benefits of Working with a Mentor Skill Enhancement: Mentors can help your team develop critical skills necessary for navigating today’s complex business environment Employee Retention:  A strong mentorship program enhances employee satisfaction and loyalty, reducing turnover and ensuring a stable, skilled workforce Leadership Development:  Mentorship cultivates future leaders within your organisation, ensuring long-term stability and growth. Introducing Strategy360 for Business Owners Working with Collins Hume offers numerous benefits. We tailor our solutions to your precise needs, designed to improve business performance, minimise risks, boost business value, advance strategic initiatives and execute plans effectively. Our approach ensures that your business receives targeted support and guidance, ultimately leading to enhanced success and growth. We take the complexities of business and simplify them. Customising and collaborating with business owners, we help focus on achieving meaningful outcomes aligned with their specific objectives. We understand business. We have worked with hundreds of business owners covering all aspects of their business from set up to sale. We know that being a business owner can be difficult and often lonely. We offer helpful and holistic support for business owners and can be that sounding board you need to ensure you make informed decisions. Elevate your business to new heights. Contact Nathan McGrath on 02 6686 3000 for an obligation-free discussion on how Collins Hume can help you achieve greater profitability and a better lifestyle. Meet Nathan McGrath

The ATO has made a call to help identify and manage illegal early access to superannuation by members of self-managed superannuation funds (SMSFs). In general, access to your super is only possible if: You retire and turn 60; or You turn 65 (regardless of whether you’re working). Early access to superannuation is only possible in very limited circumstances such as terminal illness, permanent incapacity, and severe financial hardship and there are very strict protocols to follow before any amounts are paid out. One of the benefits of an SMSF is the control that it provides to members. The flip side of full control is the temptation to dip into the super account and approve transfers without proper controls. There are two common ways illegal early access occurs: When the trustees (or their business) are in financial distress and they use the superannuation account for a short-term loan; or A promoter offers access through a scheme – often getting people to establish the SMSF and roll over their superannuation into the SMSF. Illegal access to the SMSF’s account or assets is not difficult to identify and generally will be picked up by your auditor. Where illegal access has occurred, not only is it likely that your retirement savings have been lost or impaired, but you are likely to face additional tax, penalties and interest, and be disqualified as a trustee. In addition, your name will be published online. One of the signs that there is a problem is when SMSF annual returns are not lodged on time or at all so ensure you are up to date with your SMSF compliance. Considering self-managed super? Unsure where to start? Ask to speak with Collins Hume's knowledgeable superannuation advisers to find out more on 02 6686 3000.

Here’s a summary of the key changes coming into effect on 1 July 2024. For business $325 energy relief credit for small business commences (for small businesses that meet the relevant State or Territory definition of a ‘ small customer ’) $20k instant asset write-off extended to 30 June 2025 (subject to the passage of legislation). For taxpayers Tax cuts reduce personal income tax rates and change the thresholds Superannuation guarantee increases from 11% to 11.5% - check the impact on any salary package arrangements Superannuation caps increase from $27,500 to $30,000 for concessional super contributions and from $110,000 to $120,000 for non-concessional contributions Luxury car tax threshold increases to $91,387 for fuel-efficient vehicles and $80,567 for all others Car limit for depreciation increases to $69,674 $300 energy relief credit for households comes into effect (credited automatically quarterly). Need support or have questions? Talk to us today about maximising your outcomes and reducing your risks. Call Collins Hume on 02 6686 3000.