May 2024: Super & Property

Hidden tax costs of moving overseas

It is common knowledge that when an individual taxpayer moves overseas, there may be flow on capital gains tax (CGT) consequences in certain situations.

This is particularly so where the individual ceases to be a tax resident of Australia. In such cases, the change in tax residency status may result in the individual taxpayer being denied any main residence exemption (MRE) if they were to sell their former Australian home while being a foreign resident. The benefit of the full CGT discount may also be denied for other Australian assets sold whilst non-resident.

It is also widely known that where assets are transferred between spouses as a result of marriage or relationship breakdown, and if all the conditions are met, the CGT marriage breakdown rollover relief under Subdivision 126-A will automatically apply. One effect of the marriage breakdown CGT rollover relief is that the transferee spouse (or ex-spouse) is treated as having acquired the property (or an interest thereof) for the asset’s cost base in the hands of the transferor.

 


 

Late superannuation payments

Superannuation is required to be paid into your employee’s superannuation accounts 28 days after the end of the quarter.

Until ‘payday superannuation’ arrives on July 1st, 2026 (when employers will need to pay superannuation at the same time as wages), employers should be vigilant in meeting the due dates, as a payment that arrives even one day late is still considered late.

Mitigating a late superannuation payment

Once an employer recognises that they have not fully met their superannuation obligations, they should immediately prepare and lodge a superannuation guarantee charge (SGC) statement.

An SGC statement is due one month after the superannuation payment was due (i.e., the March quarter SGC statement is due on the 28th of May, one month after the 28th of April due date).

An SGC statement notifies the ATO of the shortfall in superannuation and calculates the nominal interest component and administrative component ($20 per employee). The nominal interest component is calculated at a rate of 10% from the first day of the quarter that the superannuation was not paid until the later of the due date of the SGC statement or the date the SGC statement is lodged.

ATO penalties

Voluntarily disclosing to the ATO is the best recourse for dealing with late superannuation payments. If the ATO discovers your late superannuation payments in a review of your affairs, they can apply “Part 7 penalties”, which starts at 200% of the liability, with ATO discretion required to reduce or remit the 200% penalty.

Taxpayers should be aware that the ATO has an unlimited timeframe if dealing with late superannuation payments, so the typical two-year / four-year review period does not apply to superannuation compliance.

 


How much is my business worth?

For many small business owners, their business is their largest asset and, for many, one that is expected to help fund their retirement. But what is your business really worth, and what sets a high-value business apart?

Every business owner is naturally curious about just how much their business is worth.  However, for every business that sells at an attractive price, there are others that struggle to sell, let alone fetch a premium. The question is, what makes a difference?

When you come to sell a business the first question is, what are you selling? In most cases, this is fixtures and fittings, plant and equipment, stock on hand, and the goodwill of the business.

Most business sales become a sale of business assets.
These assets are relatively easy to value with the exception of the goodwill. The value of plant and equipment and trading stock can generally be agreed.

So, what influences business value and what will people pay for?

  • A history of profits, profits, and more profits
  • Returns on capital invested (better than 30%)
  • Strong growth and growth prospects
  • Brand name and value
  • A business not dependent on the owners
  • A strong, verifiable customer list
  • Monopoly income – exclusive territories
  • A sustainable competitive advantage
  • Good systems and procedures

If you are planning on selling your business, identify who your buyers might be. There could be a purchaser who is prepared to pay a large premium to own your business because of the accretive value or because it is pivotal to their growth strategy.

And, even if you are not thinking about selling your business, the reality is that one day you will. If you build your business with this in mind, then you should look to do the things that will grow your business value from year to year

 


 

Should you be the ‘bank of Mum & Dad’?

The great wealth transfer from the baby boomer generation has begun, and home ownership is the catalyst.

The average home price in NSW is $1,184,500, the highest in the country. Canberra is next at $948,500, followed by Victoria at $895,000, with the Northern Territory the lowest at $489,2001. With the target cash rate expected to remain steady at a 12 year high of 4.35% over 2024, the pressure is on parents and family to help the younger generation become homeowners.

Over the last 15 years, home ownership has fallen from 70% to 67% of the population. Over time, declining home ownership will increase the wealth gap in Australia as for many, home ownership is a significant factor in wealth accumulation. According to the Actuaries Institute, wealth inequality is significantly higher now than in the 1980s, with the wealthiest 20% of households currently having six times the disposable income of the lowest 20%.

The Domain’s First Home Buyer Report 2024 estimates the time for a couple aged between 25 and 34 to save a 20% deposit for an entry level home to be 6 years and 8 months in Sydney, and 5 years and 5 months in Melbourne (the Australian average is 4 years and 9 months). In that time, they are begrudgingly paying rent (or staying with Mum and Dad).

So, should you help your children buy a home? If they can, many parents would prefer to assist their children when they need it most, rather than benefiting from an inheritance later in life. However, it’s essential that any support does not risk your financial security, and that means looking at what support you can afford to provide.

Read more

 


Do your kids really want to take over your business?

Generational succession – handing your business across to your kids or family – sounds simple enough, but many families end up in a dispute right at the point when the parents, business, and children are most vulnerable.

If you are looking to hand your business to your children or relatives, there are a few key issues to think about:

  1. Capability and willingness of the next generation – do your kids really want the business?
    There needs to be a realistic assessment of whether or not the business can continue successfully after the transition.
  2. Capital transfer – how much money needs to be taken out of the business during the transition?
    The higher the level of capital needed, the greater the pressure that will be placed on the business and the equity stakeholders.
  3. Income needs – ensuring remuneration is on commercial terms
    Under a generational succession, there should be an increased level of formality around compensation to directors and shareholders. Compensation should be matched to roles, and where performance incentives exist, these should be clearly structured.
  4. Operating and management control
    It’s essential to establish and agree in advance how operating and management control will be maintained and transitioned
  5. Transition timeframes and expectations
    Identify and ensure that all parties have a common understanding and acceptance of the time period over which the transition will take place.
  6. The need for greater formality and management structure
    Generational succession often requires a greater level of formality in the management and decision making process. This formality should achieve a separation of function between management, the Board, and shareholders.

It’s important that generational succession is managed as closely and diligently as if you were selling your business to a stranger to avoid misunderstandings and disputes.

 


Accessing money in your SMSF

The ATO has contacted professional accountants 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 an SMSF and roll over their superannuation into it.

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 sign 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.

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