Get your SMSF shipshape for EOFY

If you have an SMSF, it’s essential to get your fund is in good shape and ready for June 30 and the annual audit.

It’s particularly important this year, because the ATO is focussed on fixing a number of issues when it comes to SMSFs. These include high rates of non-lodgment and problematic related party loans by SMSF members operating small businesses.

Check your paperwork is up-to-date

Review all the administrative responsibilities of your SMSF to identify any incomplete ones. These include updating the fund’s minutes to record all decisions and actions taken during the year, lodging any required Transfer Balance Account Reports (TBARs), and documenting decisions about benefit payments and withdrawals.

Although it’s easy to forget, SMSFs are required to keep all contact details, banking details and electronic service address up-to-date with the ATO.

Make contributions and payments early

If you want a super contribution counted in the 2022–23 financial year, ensure the fund’s bank account receives payment by 30 June.

Minimum pension payments to members also need to be made by 30 June to meet the annual payment rules and ensure the income stream doesn’t cease for income tax purposes.

Ensure contribution administration is ready

If your SMSF receives tax-effective super contributions for salary sacrifice arrangements, ensure the fund has all the necessary paperwork before the arrangements commences.

Check you have appropriate evidence (and trust deed authority) to verify any downsizer contributions. From 1 January 2023, SMSF members aged 55 and over are eligible to make a downsizer contribution of up to $300,000 ($600,000 for a couple).

Lodge your annual return on time

Non-lodgment of the annual return is a major red flag for the ATO, particularly for new SMSFs.

Ensure your annual return is prepared and lodged on time to avoid coming under the tax man’s microscope for potential illegal early access or non-compliance.

Consider implications of new tax rules

The planned new tax on member balances over $3 million could create significant issues for some SMSF members, so trustees should review the potential implications ahead of EOFY.

Funds with large, lumpy assets such as business real property should consider the implications and liquidity issues of members implementing strategies designed to limit the impact of the new tax.

Value the fund’s assets

SMSF rules require all fund assets to be valued at market value at year-end, including investments in unlisted companies or trusts, cryptocurrency, and collectible assets. The ATO is monitoring this area, so trustees should organise appropriate valuations as soon as possible.

Ensure valuations can be substantiated if there are audit queries and the process is undertaken in line with valuation guidelines.

Reassess your investment strategy

Review the fund’s investment strategy to ensure it covers all relevant areas, including whether investment asset ranges remain relevant to your investment objectives. Deviations from strategic asset ranges must be documented, together with intended actions to address them.

Review your NALE

Non-arm’s length expenses (NALE) and income are key interest areas for the ATO, so check the fund complies with the rules.

Pay particular attention to all SMSF transactions involving related parties and ensure their arm’s length nature can be fully substantiated.

Get your auditor onboard

Trustees are required to appoint their auditor at least 45 days before lodgment due date, so ensure you have this organised.

Prepare for earlier TBAR reporting

From 1 July 2023, SMSFs will be required to report TBARs more frequently. All TBAR events will need to be submitted 28 days after the quarter in which the event occurred, so ensure you have systems in place to meet the new requirement.

All TBAR events occurring in 2022-23 will need to be reported by 28 October 2023.

Ensure trustees have a director ID

SMSF with a corporate structure must ensure all trustees have a director ID number. Although this was a requirement from 1 November 2022, many SMSF trustees are yet to apply.

Holding a director ID is an essential part of the SMSF registration process and directors must apply via the Australian Business Registry Services website.

If you would like to discuss EOFY tasks for your SMSF or your personal super contributions, call our office today.

Tax Alert June 2023

Budget incentives and crackdowns on unpaid tax debts and rental deductions

Although this year’s Federal Budget was short on big changes when it came to tax, there still have still been some important developments in this area. Here are some of the latest developments in the world of tax.

Small business tax incentives and write-offs

The budget ushered in some valuable new tax incentives for small businesses, including halving the increase in quarterly tax instalments from 12 per cent to 6 per cent for both GST and income tax during 2023-24.

The government also introduced a bonus 20 per cent deduction for businesses with turnovers under $50 million when they spend on energy saving upgrades. Up to $100,000 of total expenditure will be eligible, with the maximum bonus tax deduction being $20,000 per business.

Although smaller than the previous year, the instant asset write-off continues in 2023-24 with up to $20,000 available for immediate deduction on eligible assets.

The planned third tranche of personal income tax cuts due to start next financial year also remained in place, while >the low and middle income tax offset was not extended.

Super changes for employers

Another significant tax change announced in the budget will affect employers. From 1 July 2026 employers will be required to pay their Super Guarantee (SG) obligations at the same time they pay employee salary and wages.

The ATO has received additional resources to help it detect unpaid super payments earlier.

Employers also need to remember the SG amount for employee super rises to 11 per cent from 1 July 2023.

Tax debt warnings sent out

The ATO is continuing to write to directors of companies with tax debts warning if the company hasn’t paid the amount owing or contacted it to make other arrangements, a director penalty notice  (DPN) may be issued.

DPNs are issued to current directors and anyone who was a director at the time the company failed to pay. They make directors personally liable for failure to meet pay-as-you-go withholding (PAYGW), GST and Super Guarantee Charge obligations.

Directors receiving these letters need to arrange payment of the overdue amount or enter into a payment plan.

Data-matching adds investment properties

Residential investment property loans (RIPL) are the latest target of the ATO’s increasingly wide-ranging data-matching program.

Data will be obtained from financial institutions including all the major banks, regional banks and building societies.

The information is being collected following the ATO’s identification of a tax gap of $1 billion for individuals in the 2020-21 financial year due to incorrect reporting of rental property expenses.

Self-education expenses under spotlight

The ATO is currently developing a new draft taxation ruling covering the deductibility of self-education expenses incurred by an employee or an individual carrying on a business.

The draft ruling will reflect the current rules in this area following repeal of several sections of the Income Tax Assessment Act and some new legal decisions. The new ruling is expected to be completed in late June.

Taxpayers claiming self-education expenses recently had the existing requirement to exclude the first $250 of deductions removed.

GST fraud enforcement continues

The clampdown on the biggest GST fraud in Australia’s history is continuing, with a raft of enforcement activity undertaken by the ATO-led Serious Financial Crime Taskforce in recent months.

Search warrants were executed in three states against individuals suspected of promoting the fraud. This follows previous compliance action against more than 53,000 people, with two individuals sentenced to jail time for their GST fraud activities.

Cyber safety checklist released

The ATO is again emphasising the importance of business cyber safety by releasing a new checklist for small businesses.

The tips include simple ideas for keeping business and client data safe from cybercriminals, such as turning on automatic updates and using multi-factor authentication when possible.

Resources for training staff on preventing, recognising, and reporting cyber incidents are available from the government’s Australian Cyber Security Centre.

The importance of getting enough ZZZZ’s

Who says we can’t achieve more if we sleep less? Science, that’s who!

To be fair, there are many successful people who credit their success to managing or indeed thriving, on a few hours’ sleep so they can get more done. Martha Stewart, the American media personality, sleeps around four hours a night, stating: “Sleep is not the most important thing.” While Thomas Edison, the inventor of the electric light, kept the lights on – rejecting the idea of sleeping at night for napping for 15 minutes every four hours.

The science of sleep

The idea that successful people don’t sleep is an odd one, when you consider the science.

Scientists have long theorised about why we need to sleep. The most respected theories see sleep consisting of restorative processes that occur when normal brain function is partially suspended, and brain activity suggests information is being “replayed” during certain stages of sleep to consolidate memory.

A good night’s sleep

Given that sleep is as critical to our survival as food and oxygen – how much sleep is enough?

While there may be some individuals who function ok on just a few hours’ sleep, it’s thought that most adults need between 6- and 9-hour’s sleep for optimal health and wellbeing. On average, we manage less than six.ⁱ

It looks like those successful people who “humble boast” about how little sleep they get, might be in fact jeopardising their success by missing the benefits of a good night’s sleep.ⁱⁱ

The impact of sleep deprivation

Sleep deprivation has a powerful impact on your thought processes so it’s quite ironic that there are those who credit their success in part to sleeping less than the recommended amount.

Sleep duration and quality impacts more than just the obvious things like your mood and clarity of thought. Inadequate sleep can compromise decision-making processes, impact creative thought and the retention of information.

Sleep is also critically important to our physical wellbeing. Sleep deficiency is linked to many chronic health problems, including heart disease, kidney disease, high blood pressure, diabetes, stroke, and obesity.

How do I get a better night sleep?

If you are one of those ‘too busy to sleep’ people, it might be time to prioritise restful sleep. And if you are tossing and turning at night there is a lot you can do to get a better night’s sleep.

To sleep well, the most important thing you can do is set the scene to easily drift off to sleep and then stay asleep. That means making sure your sleeping environment is comfortable, quiet, and dark. Exposure to light, particularly light from screens like your phone or computer at night-time can mess up the body’s production of a hormone called melatonin that helps us to fall asleep, and sleeping in a room that is not very dark is not conducive to quality sleep – so close those blinds and turn off those devices.

Setting yourself up for a good night sleep can also involve a combination of deep breathing, relaxation, and creative visualisation techniques. This infamous sleep ‘hack’ is used by the US military to help soldiers in the field get to sleep involving these practices is considered amazingly effective, if practiced regularly.ⁱⁱⁱ

Going to bed at the same time every night can also help establish good sleep habits and not eating too late at night, and avoiding stimulants like alcohol and caffeine late in the day will also improve your sleep quality.

Getting a good night’s sleep is one way to help you on your path to success. By making some easy tweaks to your routine you’ll be sleeping like a baby and feeling more alert and productive as a result. Goodnight and sleep well!

i https://pilot.com.au/co-pilot/6-hours-sleep
ii https://www.ncbi.nlm.nih.gov/pmc/articles/PMC6281147/
iii https://www.huffingtonpost.co.uk/entry/military-sleep-method-asleep-anywhere_uk