Posted in: super
Contractors who run their own business and sell their services to others have different obligations to their super than what employees in a business may usually have.
A contractor (also known as an independent contractor, a subcontractor, or a subbie) who is paid wholly or principally for their labour is considered to be an employee for super purposes, and may be entitled to super guarantee contributions under the same rules as other employees.
A contract may be considered ‘wholly or principally for labour’ if:
- You’re paid wholly or principally for your personal labour and skills
- You perform the contract work personally
- You’re paid for hours worked, rather than to achieve a result
If hiring a contractor to perform solely their labor for a fee, the employer may also have to pay super contributions on their behalf.
In this sense, if you are a contractor who is being contracted to an outside business than your own to perform your usual work or labour, your employer must contribute to your super the same way they would any other employee.
This could be seen in an example of an electrician who runs their own small business, or is employed by a small business who has been hired by another business to supplement their workforce and perform a specific role that they can fit to.
Say the electrician who runs their own business has been subcontracted by the larger business.
They are performing labour but also providing materials (ie, themselves plus a toolbox plus a van full of powerpoints and wiring etc), they would be seen as a contractor and not an employee for super purposes. They must pay themselves super, in this case.
However if they are sub-contracted to perform labour only then the company that has sub contracted them may be liable to pay super on the amount that they pay to their contractor. This would be the case where the electrician just turns up with their tool box and everything else is provided by the “employer”.
If they are in an employment-like relationship with the person that they entered their contract into, they may need to have their super paid to them by their contract employer. In order for super to be applied from what you earn, the contract must be directly between you and your employer. It cannot be through another person or through a company, trust or partnership.
It is important that both parties in the process are aware of their super obligations during the contracted period. There can be significant penalties for employers who use contractors if they fail to correctly pay super. Each case regarding contractors and super needs to be assessed independently to ensure that you are doing the right thing. There is no definitive black and white line between a contractor and a contactor in an employment-like relationship that can be obviously seen after all.
If you’re unsure about whether or not you’re meeting your obligations as an employer, or are a contractor looking to make sure their super is being correctly paid into, speak with us.
Posted in: tax
With tax return season approaching quickly this year, you may have already started looking into lodging your income tax return. Ensuring that your details are correct and that any information about your earned income from the year is lodged is the responsibility of the taxpayer and their tax agent. However, if during this income tax return process the tax obligations of the taxpayer fail to be complied with, the Australian Taxation Office has severe penalties that they can enforce.
Australian taxation laws authorise the ATO with the ability to impose administrative penalties for failing to comply with the tax obligations that taxpayers inherently possess.
As an example, taxpayers may be liable to penalties for making false or misleading statements, failing to lodge tax returns or taking a tax position that is not reasonably arguable. False or misleading statements have different consequences if the statement given results in a shortfall amount or not. In both cases, the penalty will not be imposed if the taxpayer took reasonable care in making the statement (though they may still be subject to another penalty provision) or the statement of the taxpayer is in accordance with the ATO’s advice, published statements or general administrative practices in relation to a tax law.
The penalty base rate for statements that resulted in a shortfall amount is calculated as a percentage of the tax shortfall, or in the case of no shortfall amount, as a multiple of a penalty unit. This percentage is determined by the behaviour that led to the shortfall amount or as a multiple of a penalty unit, which are as follows:
- Failure to take reasonable care – 25% of the shortfall amount or 20 penalty units
- Reasonable care is not taken if the taxpayer failed to do what a reasonable person in the same situation would have done.
- Recklessness – 50% of the shortfall amount or 40 penalty units
- Recklessness is determined as disregarding or showing indifference to a real risk of a shortfall amount arising that a reasonable person would have been aware of.
- Intentional Disregard – 75% of the shortfall amount or 60 penalty units
- Intentionally disregarding the law occurs if there is full awareness of a clear tax obligation, and the obligation is disregarded with the intention of bringing about certain results (underpaying tax or over-claiming an entitlement).
If a statement fails to be lodged at the appropriate time, you may be liable for a penalty of 75% of the tax-related liability if:
- A document that is necessary to establish tax-related liability fails to be lodged
- In the absence of that document, the tax-related liability is determined by the ATO.
To ensure that the statements, returns and lodgements are done correctly, and avoid the risk of potential penalties, contact us today. We’re here to help.
Posted in: business
If a business cuts costs, it’s usually to save on the money that is being spent. However, cutting costs too deeply may actually impact employee and customer satisfaction, and overall harm the success of the business that has been built thus far. In saying that, if cost-cutting measures aren’t employed enough, that can also be a threat to the business’s very viability.
There are a number of ways through which businesses can attempt to optimise and achieve a balance in their cost-cutting strategies, without sacrificing or reducing their overall success.
When beginning the cost-cutting process, align with what the business strategy actually needs to be cut. Rather than approaching the budget with a hacksaw method of reducing the most expensive items, consider optimising the cost against what the business strategy requires from it, and consider the inherent value of what could be cut. Is it something that adds value to the business, despite the cost? Will this cost return on investment against what the strategy purports?
Similarly, do not simply approach cost-cutting with a reduction in staff as a solution to the issue. Reducing staff is merely a short-term approach to cost-cutting that may have a long-term impact on the resources that the business will have available for use.
Instead, aim to optimise the staff available in the business. Consider the expertise that the business will require in moving forward, and plan accordingly. Retain the talent from the existing pool of staff, fill any existing vacancies and consolidate roles where people may be being underutilised. If people involved in the business are underperforming, consider culling these specifically.
Ensuring that employee satisfaction is being fulfilled by the business can assist in cost-cutting, as higher employee satisfaction leads to lower turnover for employees. This measure should cost businesses far less in the long run.
Similarly, in this constantly changing business environment, the impact of COVID-19 has furthered the question of whether or not the way that businesses can operate should remain the common practice. If housed in an office (and it is practical to do so), consider employing remote work as an option or alternative for employees. It can bring down the rent, energy, and other office expenses significantly, while also potentially give you better access to talent.
The overall finances of the business should be looked into as well, to ensure that the costs of financing are not severely impacting the business. Simple measures that can be employed include changing banks to a more cost-effective facility, consolidating credit cards into one with a lower rate, or other changes that may reduce fees and improve access to capital. Similarly, paying bills early or switching to a monthly fee can also improve financial performance, as it can assist in getting the cash flow of the business under control.
Removing non-essential expenses (such as gifts and entertainment) can also be a cost-cutting measure to employ in business. Going paperless, becoming more energy efficient in the office or negotiating with suppliers for more cost-effective alternatives are other similar, simple measures that can be made use of in the cost-cutting approach to business.
Cost-cutting for your business does not have to be a particularly painful process. By looking at your business with a critical, and strategically aligned eye, you can optimise the cost-cutting process to suit what your business needs. For assistance with business planning, cost-cutting, or other business-related advice, speak with us today.
Posted in: money
Sometimes there are a few unexpected expenses that can impact on our financial situations, and make things just a little more difficult to deal with. The refrigerator breaking down the same week that the car registration is due could be too much of a financial burden for many individuals. With many credit-providing schemes and dubious loans advertised to the public, there is a simpler way to solve your financial issue if you are applicable.
The No Interest Loan Scheme is provided by the Australian government for individuals and families to have access to safe, affordable credit.
No interest loans are designed to assist people in getting back on a more stable footing financially, allowing them to borrow up to $1,500 to pay for essentials. The term for this loan is between 12 and 18 months, with no credit checks, interest, fees or charges. Repayments for no interest loans are affordable as you are only paying for what is borrowed.
To receive a no interest loan, you must:
- Have a Health Care Card, a Pensioner Concession Card or an income less than $45,000
- Have lived at your current address for more than 3 months
- Show that you can repay the loan.
There are only a couple of steps that need to be completed to apply for a no interest loan under the scheme. A meeting must be arranged with a NILS provider through a telephone or website enquiry, in which you will be interviewed and helped through the application process. Then they will assess your eligibility and present you with an outcome. Loan assessments generally take between 45 and 90 minute, with the loans being approved within 2 days. If all paperwork is provided on the day, it can sometimes be same-day approval.
No interest loans can only be used for essentials. These can include:
- Household items, like a fridge, washing machine, computer or furniture
- Educational materials e.g. tablet or textbooks
- Some medical and dental services
- Car repairs and tyres
Posted in: super
With a significant number of Australians approaching retirement and looking at the best ways to maximise their retirement assets and income from their super for it, retirement planning makes sense.
Unfortunately, there are those who want to target people approaching and planning for their retirement with schemes designed to ‘help’ retirees and prospective retirees avoid paying tax by channelling their income through a self-managed super fund.
Retirement planning schemes are designed to help people avoid paying tax on the income earned through their assets (often in an illegal manner). Those schemes may seem like a simple get-rich-quick solution in maximising assets and income for retirement but can put people’s entire retirement savings at risk.
Anyone can fall prey to a retirement planning scheme. Anyone who is looking to put significant amounts of money into superannuation can be at risk of being ensnared, particularly those who are over 50, and who are:
- SMSF trustees
- Self-funded retirees
- Small business owners
- Professional service providers
- Individuals who are involved in property investment
Checking for standard features of retirement planning schemes can be an excellent way to avoid becoming tangled in one. Retirement planning schemes usually:
- Are artificially contrived and complex, with SMSF members often targeted and encouraged to use their SMSF as part of the scheme
- Involve a lot of paper shuffling
- Are designed to leave the taxpayer with a minimal or zero tax, or even a tax refund
- Aim to give a present-day tax benefit by adopting the arrangement
- Sound too good to be true – in most cases, they are.
Currently, there are a number of schemes targeted towards those individuals who currently have an SMSF, as they have a high level of control and autonomy in the way that their retirement savings are invested (subject to applicable tax and super laws).
Some examples of retirement planning schemes include:
- Some arrangements involving SMSFs and related-party property development ventures.
- Refund of excess non-concessional contributions to reduce taxable components
- Granting legal life interest over a commercial property to SMSFs
- Dividend stripping
- Non-arm’s length limited recourse borrowing arrangements
- Personal services income
- Liquidating an SMSF
To avoid becoming a part of a retirement planning scheme, seek professional advice on super or SMSFs from an accountant.
Posted in: business
It’s a daunting task, seeking someone who can fill a specific position that your business needs filled. It’s important that irrespective of how the economy is performing, the state of the workforce and what your business currently consists of, the employees that you hire are the best and most-talented people that you can get.
Though often we think of recruitment as a valid strategy of employment, it often seeks to fill gaps or vacancies that might be caused by staff turnover or insufficiency. This is still a valid strategy for businesses that need immediate solutions to staff/skill shortages.
However, hiring for your business shouldn’t just be about filling an immediate need – it’s about ensuring that your business attracts and retains talented employees for the long-term, to help your business grow to its full potential. A talent acquisition strategy should be put in place by your business to assist in addressing this issue.
Essentially, a talent acquisition strategy should be tailored to reflect and suit your business goals over the course of the next five years. It’s important to consider how the business is going to expand in the future, and what employees you need to join you in journeying towards that goal. Investing in the right talent now will pay off dividends for your business in the long term.
It’s all well and good to know what you need for your business in terms of talent – but how do you convince them to join you? Just as marketing campaigns are important for selling whatever your business produces, it’s important to consider how to market your business towards the talent you want to acquire.
There are plenty of ways to use data to strengthen your strategy, such as figuring out where your current top talent came from and using that information to focus your talent acquisition efforts on certain academic programs or professional networking sites. Data can also be used to refine job descriptions, career pages, emails and more, as it can eliminate in the application process any questions or phrasing that could be deterring qualified candidates.
Identifying where to find the majority of your top talent is an important step in the process of acquiring talent. It’s also important to ensure that you are utilising and expanding on our sourcing strategies when trying to find better talent.
Sometimes to recruit a skillset, you have to be a little adventurous in where to reach out to. Diversify your talent searching approach by looking outside of the usual LinkedIn profiles, and seeking out talent at specialised job boards, academic programs or networking events.
Above all, ensuring that your business has a reputation that draws potential talent is critical to engaging with those you want to acquire. Promoting aspects of your business that could draw in potential talent through multiple channels could be what convinces them to sign up with your business. Drawing attention to perks, the company culture and other work-life balance benefits or growth opportunities could be a way to highlight what sets you apart from the rest.
Posted in: tax
In Australia any income earned by a job may be considered to be taxable income. Those who receive their income via the sharing economy are no exception to the rule. In fact, there can be further complications that result from incorrect understandings of how the income tax and goods & services tax may apply to those individuals.
The sharing economy is a socio-economic system built around sharing resources, often through a digital platform like a website or an app that others can purchase the right to use for a fee.
Popular sharing economy services and activities that could be subject to income tax include
- Being a Driver for popular ride-sharing/ride-sourcing services and obtaining fares for those services
- Renting out a room, whole house or a unit on a short term basis
- Sharing assets (such as cars, parking spaces, storage space or personal belongings) through platforms such as Camplify, Car Next Door, Spacer, Toolmates or Quipmo.
- Creative or professional services provided by individuals through online platforms to fill a need of others (also known as the gig economy)
Here are some of the things you need to bear in mind about the income and goods & services tax for these popular sharing economy services.
If you’ve ever caught an Uber or gotten a Lyft, you’ve been on the passenger side of ride-sourcing. The income received from ride-sourcing is subject to goods and services tax (GST) and income tax is applied to it. All drivers on ride-sourcing platforms in Australia must have an Australian business number and be registered for GST.
- An ABN
- GST to be registered from the day that you start, regardless of how much you earn.
- GST to be paid on the full fare.
- Business activity statements (BAS) to be lodged monthly or quarterly.
- To know how to issue a tax invoice (any fares over 82.50 must be provided one if asked).
Income tax needs to:
- Include the income you earn in your income tax return
- Only claim deductions related to transporting passengers for a fare, including apportioning expenses limited to the time you are providing a ride-sourcing service
- Keep records of all your expenses and income.
Renting out all or part of your home
Renting out all or part of your residential house or unit through a digital platform can be an easy way to supplement your income, especially if you aren’t using the property at that particular time. If you do this, you:
- Need to keep records of all income earned and declare it in your income tax return
- Need to keep records of expenses you can claim as deductions
- Do not need to pay GST on amounts of residential rent you earn.
Sharing Assets (Excluding Accommodation)
Assets that can be shared through a platform can include personal assets (e.g. bikes, caravans), storage or business spaces (e.g car parking spaces) or personal belongings like tools, equipment and clothes.
When renting out or hiring these (share) assets that you own or lease through a digital platform, you:
- Need to declare all income you receive in your income tax return
- Are entitled to claim certain expenses as income tax deductions
- Need to keep records of the income you earn and of the expenses you can claim as deductions
Providing time, labour or skills (services) through a digital platform for a fee requires you to report income in your tax return. Deductions for expenses directly related to earning this income can be claimed, and records need to be kept to support these claims.
The following services that can be provided are considered to incur assessable income that needs to be reported in your tax return:
- Delivering goods
- Performing tasks and activities
- Providing professional services
If the thought of trying to navigate your way through your tax return is a little daunting, consider speaking to us for assistance.
Posted in: business
When a business cannot deal with the workload in house, a candidate or party outside of the business is often hired to assist in performing those services. This is called outsourcing, and it’s a practice that companies sometimes use to cut costs – especially if it’s easier to do this than to train up another employee.
The best model of outsourcing is one that meets the needs of the business. Clearly identifying those needs is a strategic step to take to ensure that the model chosen is the right one. There are four types of models when it comes to outsourcing.
The freelance model of outsourcing assigns work to a freelance worker, which can be long-term, short-term, part-time or full-time. Jobs can be posted to freelance sites, freelancers can bid on them and you can select who you would like to work with. This model is a quick and easy way to get one-off projects completed that require special skills, or obtain a little extra help during the busy season.
Pros: Cost-effective, quick and the skills needed for the job can be sourced
Cons: Overselling skills, difficult to brief, and jobs can be further outsourced by freelancers.
This model focuses on project-based work, and involves outsourcing entire projects to a specialised outsourcing centre. Essentially all you have to do is provide the centre with the project requirements, and they will carry out the development work, project management and quality control through to the project’s completion.
Pros: Less work to be done by you, cost-effective in money and time, new staff aren’t needed and there is a fixed cost for the project.
Cons: May lack local knowledge if located overseas, time zone and language barriers can be difficult to overcome
Business Process Outsourcing
With the business process outsourcing model, a service provider sets up and operates an offshore office for you that they hand over when it is ready. Essentially, it’s contracting a business or organisation hires another company to perform a process task required by the hirer for the business’ operational success.The provider has the facilities, setup, office environment and management required for global team members to work.
Pros: offers improved productivity, increased capacity, no need to worry about other sectors, inexpensive and an easy way to grow your team.
Cons: Large-scale BPOs can be more expensive to run and can be difficult to communicate needs and wants if the BPO doesn’t understand your industry or business.
This model is the model you want to employ if you’d like to build a separate office outside of your home country with more than 25 staff. To begin with, and much like a BPO, a provider ensures that there is workspace and office equipment, and hires the employees. Rather than have the provider run the business for you, they then transfer the operation back to you.
Pros: Create work culture and environment among global team members, costs are less expensive than a BPO if there are more than 15 employees.
Cons: Can be expensive to set up, operating under foreign work ethics and work cultures can impact team management, and requires time and effort to invest in the business in person.
Always consider what is best suited for your business, and confer with professional advisors before implementing a strategy regarding outsourcing
Posted in: super
Marriage and de facto relationships come with a number of perks – but did you know that if your partner earns less than you or is not currently working, you could contribute to their super fund savings?
Many households in Australia, either as a result of unemployment, maternity/paternity leave or by choice, have single income households. As a result, the retirement savings held in super for one member of these households may not be increasing as exponentially fast as the working member. The good news is that, when in a relationship, a spouse can boost their non-working partner’s super fund with their own contributions.
The best part? It could be a tax write-off for the working spouse.
Under Australian superannuation law, a spouse can be a legally married partner with whom you live or your de facto partner. That gives additional benefits to those in de facto relationships, who can choose (if one member of the relationship isn’t working or earns less) to boost their partner’s super fund. A spouse must also be younger than their preservation age or between 65 and their preservation age and not retired.
There are two ways that someone can help their partner’s superannuation grow:
- Making a Spouse Contribution to their super account
- Arranging for Contribution Splitting (also known as Super Splitting)
Spouse superannuation contributions can now be made for spouses earning up to $40, 000 per year. If a spouse earns less than $37, 000, the maximum tax offset of $540 can be claimed when contributing a minimum of $3, 000 to their super. Anything contributed that is more than $3, 000 will not receive the spouse contribution tax offset.
This tax offset cannot be claimed if:
- A spouse has exceeded their non-concessional contributions cap for the financial year.
- Their super balance is $1.6 million (for 2020/21) or more on 30 June of the previous financial year in which the contribution was made.
Another way to inject funds into your spouse’s super is to choose to have some of your own super contributions put into their super account. This is fine as long as they have not reached their preservation age yet, or are between their preservation age and 65 years and not retired.
Super contributions can only be split in the financial year immediately after the year in which the contributions were made or in the same financial year as the contributions were made only if your entire benefit is being withdrawn before the end of that financial year as a rollover, transfer, lump sum or benefit.
There are two types of contributions that can be split:
- Employer contributions – the most common form of super contributions to split
- After-tax contributions – money that you voluntarily deposit into your super after tax.
Always discuss starting spousal co-contributions to super with your accountant or financial advisor for help and guidance prior to starting this process.
Posted in: tax
It’s a simple, step-by-step process used by many Australians to increase their income. Borrow money from a financial institution, invest in a second property and pay off the loan with the profit accrued from the investment property (ie. rent from tenants).
But did you know that the interest on a home loan for the purchase of an investment property can be claimed as tax-deductible?
To clarify – claiming a tax deduction on the interest of a loan can only be used on the loan that was used to purchase the investment property. It also must be used to earn income, because a property that is solely residential isn’t eligible for any tax deductions (except in certain situations where the residence may be used to produce income, like home business or office).
Here are a few examples of when tax deduction claims on your property are not allowed:
- If the secured property is being used for living as a primary residence, and no income is made from it.
- Refinancing your investment loan for some other purpose (like buying another property).
- Using the loan for a private purchase, other than the purchase of a home.
- If the investment property is a holiday home that is not rented out, then deductions cannot be claimed as it doesn’t generate rental income.
As an example, if borrowing against your main residence for the purpose of purchasing an investment property, then the interest on that loan is tax-deductible. Conversely, if the loan was against the investment property to buy a car for your personal use, then the interest from that loan will not be tax-deductible.
The only way that a tax deduction on a home loan’s interest is possible, is if there is a direct, unbroken relationship between the money borrowed and the purpose the money was used for. Any money that resulted from a home loan, for instance, should have been invested into a property.
If you happen to redraw (make extra repayments into your loan that reduce the loan balance) against an investment loan for personal use, the tax-deductible interest is watered down. This is because the new drawdown (transfer of money from a lending institution to a borrower) is deemed to not be for investment purposes.
It is important that any investment loans are quarantined from your personal funds to maximise tax deductions on interest. Though it may be tempting to pull additional funds from the loan for additional finances, it’s also shooting yourself in the foot.
A better strategy (if there is only investment debt that has been incurred, and you wish to pay it off), is to place funds in an offset account (a bank account that is linked to your home loan) and then redraw those funds for your personal use. It’s also important to ensure that the offset account is a proper offset – a redraw that is disguised as an offset account can be a major drawback for investors looking to capitalise on their tax threshold.
If you or someone you know has recently purchased an investment property with a home loan, speak to your accountant or financial advisor to see how your tax return can benefit from it.