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February 2018

Super returns on the up despite clients’ hesitation

While many accountants have reported their clients’ confidence in super is down, it appears there’s some good news on the returns front to kick off 2018.

         

 

Australian superannuation funds are estimated to have returned 10.5 per cent in 2017, nearly twice as much as the 10-year average, according to SuperRatings research released this week.

The research house said a “late rally” in Australian equities helped bolster returns despite poor performance from global shares.

“Investors will certainly be starting out 2018 on the front foot, despite some of the challenges we have seen throughout the past 12 months,” said SuperRatings chief executive Kirby Rappell.

Mr Rappell said 2017 had been a “frustrating” year for investors, but a falling Australian dollar and support from US market momentum had both helped returns hit the estimated 10.5 per cent – almost double the 5.6 per cent average seen over the last decade.

This figure would also mark the sixth consecutive year of positive returns, the statement added.

As a result of the 2016 federal budget, 2017 saw one of the biggest periods of reform for superannuation since the Costello era. The introduction of a transfer balance cap and the finalisation of event-based reporting were particularly contentious and complex items.

Professionals like Cooper Partners director, Jemma Sanderson, previously told Accountants Daily their clients have been “spooked” by the persistent tinkering with superannuation.

“They've gone through a lot of big changes recently so now they just need to calm down, say no further changes for some time, and let everything settle, let the dust settle, and let the confidence in the system really rebuild itself,” Ms Sanderson said.

“It doesn’t help the confidence in the industry and because superannuation is compulsory for most Australians, it’s an area where a lot of people have an interest from that perspective.

“Every adult Australian tends to have superannuation so we need to maintain the integrity of that system so that it also doesn’t become overly complicated for the general population because a lot of people can't afford to pay for that advice.”

 

By: Katarina Taurian
​03 JANUARY 2018
accountantsdaily.com.au

Tax assessments confirmed for undisclosed business income

The increasing cost of underreporting and failing to lodge.

         

 

The Administrative Appeals Tribunal has ruled that the Australian Taxation Office (ATO) was correct to issue tax assessments of $3.7 million and penalties of $3.3 million to a business taxpayer that had underreported its income and failed to lodge several year returns.

The taxpayer argued that it owned and rented out several Sydney properties, but did not engage in other business activities or receive the significant amounts of income that the ATO had assessed to it.

Evidence before the Tribunal showed the taxpayer made a range of expensive capital purchases, including fitness equipment, more than 30 motor vehicles, firearms and a “bomb dog”. Its bank statements included references to “consultation fees”, “gun licenses” and a “security industry register”.  A loan application suggested income 20 times what the taxpayer admitted to earning and had apparently made significant loans to related parties with no returns.

The commentary suggested that ATO was better prepared with evidence than the taxpayer.

It is hardly surprising that the Tribunal upheld the assessments and penalties issued and allowed the ATO to impose an extra 20% penalty for two of the taxpayer’s income years.

We report this case mainly to remind taxpayers about that burden of proof is theirs and disputation success can depend on case preparation and credibility.

 

AcctWeb

The Goldilocks effect – Economic and market update 4Q 17

The year 2017 was defined by a near-perfect goldilocks backdrop of steady global growth, modest inflation, and still-accommodative monetary policy, the combination of which helped fuel a broad-based rally in asset prices.

         

 

Global equities took a step higher, with non-US equities outperforming their US counterparts for the first time in five years, bolstered by a weak dollar and widespread improvement in growth across countries. Even previous weak links of the developed world such as Europe and Japan posted above-trend growth numbers, as rising sentiment, a modest upturn in CAPEX, and the ease of the post-GFC deleveraging cycle gave fresh momentum to domestic demand. In emerging markets, fundamentals have also improved more broadly, against the backdrop of solid Chinese economic data, higher commodity prices, and narrowing current account deficits. On the other hand, Australia appeared to be de-synchronised with the global recovery for most of the year, though the economy did appear to pick up speed as the year progressed, in part due to the effect of coming off a low base from the corresponding quarter in the previous year. For the whole year, the local share market was able to lock in a solid return of 11.9%—its best annual performance since 2013.

All that said, the current backdrop of strong market returns and unusually low financial volatility do raise some concern, as it underscores widespread complacency among investors, despite potential risks being well-known. In particular, valuations in various risk asset classes appear stretched, and the start of monetary policy normalisation in many parts of the world could potentially lead to unexpected consequences. Overall, the odds of a bumpy adjustment in financial markets appear much higher than before, with downside risks, in our view, being more elevated in the equity market than in the bond market.

Of most major economies, the US seems most susceptible to a market correction, with our fair-value CAPE suggesting that US stock valuations are approaching overvalued territory—even after adjusting for lower inflation and interest rates. Meanwhile, the lack of strong inflationary pressures despite robust growth and tight labor markets was undoubtedly a key defining element of the US economy in 2017. Yet that did not stop the Federal Open Market Committee from voting to increase the Federal Funds Rate target range by 25bps to 1.25-1.5% in December. The risk in 2018 is that the tight labour market will grow tighter, driving the unemployment rate well below 4%. Expectations of additional rate hikes would inevitably follow, ending an era of extraordinary monetary support in the US and possibly leading markets to price in more aggressive normalisation plans elsewhere. None of this is status quo.

Global fixed income investments continued to deliver muted returns against a backdrop of low interest rates and low yields across regions, including Australia. Reflecting subdued wage growth and mild inflationary pressure, the Reserve Bank of Australia (RBA) held the cash rate unchanged at 1.5% in December, marking the 16th straight month it has been on hold. Annual returns for cash assets are expected to be muted as official policy rates remain near historic lows.

Europe—risks diminish
Near term Euroscepticism risks appear to have diminished, with rising popular support for the EU in most European countries, though Italian elections in March 2018 could result in a victory to the Eurosceptic populist party, the Five Star Movement. Risks around Brexit are also seen to be more balanced, after the EU and UK made sufficient progress in the financial settlement bill in December, which allowed Brexit negotiations to move into their second phase of discussing future relationships.

China—surprises to the upside 
Growth surprised to the upside in 2017, with the full-year GDP growth number coming in at 6.9%, comfortably above the government’s annual 6.5% target. Nonetheless, ongoing policy and regulatory tightening should begin weighing on activity more heavily in 1H18, especially as the government becomes increasingly focus on the “quality” rather than “quantity” of growth this year. In 2018, we expect to see headline GDP slow to around 6.5%.

Japan—rising with the tide
The economy is marching along, with real GDP expanding for seven consecutive quarters, the longest streak for Japan in 16 years. While the expansion so far has come primarily from an acceleration in the export cycle and a mildly expansionary fiscal policy, we expect the recovery to become more broad-based in 2018, as rising confidence, a gradual increase in real wages, and solid profitability leave room for domestic demand to pick-up in 2018. The Bank of Japan is likely to adopt a gradual and flexible approach in 2018, staying vigilant against potentials risks to both the inflation outlook and financial stability.

Australia—rates dilemma 
Locally we saw a mixed performance throughout 2017, though the latest national accounts showed an acceleration in year-on-year GDP growth to a slightly above-trend of 2.8% in Q3 2017. Nonetheless, Australia may struggle to sustain this level of growth next year, as the effect of coming off a low base fades and as high leverage and fading dwelling investments put a limit on how fast domestic demand can accelerate. The RBA faces a major dilemma over the next few years, on whether to hike “in the name of financial stability”, or cut “in the name of inflation and wages”. Against this backdrop, the RBA will probably “drag their feet” and wait until late 2018 at the earliest to raise the cash rate.

 

Qian Wang, Senior Economist
02 February 2018
www.vanguardinvestments.com.au

 

Employee travel expense deductions

To claim for transport or other employee travel expenses (like accommodation and meals) you must have incurred the expenses as part of gaining or producing your taxable income.  

         
 
Just to reinforce the obvious, private and domestic travel expenses, including the costs of your ordinary home-to-work travel, aren’t claimable.
 
Important issues are:-
 
    – Is the travel a necessary part of performing your work (you can’t pretend your family holiday’s a work trip)?
 
    – Does your employer pay you to undertake the travel?
 
    – Do you have to follow your employer’s instructions during the travel period?
 
Accommodation, meal and other incidental expenses are deductible as work-related only if your work has “special demands” or “co-existing work locations” that mean you have to sleep away from home.
 
We’re here to help – contact us to find out more about getting your work-related tax deductions right.
 
 
AcctWeb

Payroll, compliance issues top dodgy practices in Aussie business

Thousands of anonymous reports to the workplace regulator have shown problematic payroll practices and shoddy internal compliance procedures are the leading causes of employee exploitation, particularly of foreign nationals. 

         

 

More than 20,000 tip-offs alleging potential workplace breaches have been made with the Fair Work Ombudsman since the launch of its Anonymous Report tool in mid-2016.

The vast majority of anonymous reports contain allegations concerning pay, with a large proportion of the reports received each month relating to the hospitality industry, with retail the next most-reported industry. 

In one example, an audit of a company’s record, following a tip-off, uncovered evidence of contraventions in relation to pay rates, break entitlements and pay slip requirements.

The company had been accused of paying its employees as little as $8 per hour, cash in hand, and were later issued with a compliance notice and a contravention letter, resulting in approximately $50,000 in wages and entitlements being paid back to workers.

Fair Work Ombudsman Natalie James said information received from members of the public provided valuable intelligence which helped design future compliance activities.

“The reports we receive enable us to identify trends and generate leads for our inspectors to follow up,” Ms James said.

“This assists us to focus our priorities and direct our resources to those areas where we will have the greatest impact.

“We also know that most people who use the tool provide information about their current employment.”

Young people, students and visa holders accounted for a significant number of the anonymous reports received, an indication of the vulnerability of these cohorts in the workplace. 

Close to 800 reports were received in languages other than English, with Chinese and Korean the most common languages used.

The Fair Work Ombudsman has been shining a spotlight on payroll, with two-thirds of the workplace regulator's court cases involved alleged record-keeping or pay slip contraventions in the last financial year.

 

By: Staff Reporter
23 FEBRUARY 2018
accountantsdaily.com.au

Super changes: $1.6 million transfer balance cap and death benefit pensions

Where a taxpayer has amounts remaining in superannuation when they die, their death creates a compulsory cashing requirement for the superannuation provider.

       

 

This means the superannuation provider must cash the superannuation interests to the deceased person’s beneficiaries as soon as practicable. 

It is expected that the new rules provide that where a deceased member’s superannuation interest is paid to a dependent beneficiary in the form of a death benefit income stream, a credit will arise in the dependant beneficiary’s transfer balance account (the superannuation pension ceiling after 1st July 2017).  The amount and timing of the transfer balance credit will depend on whether the recipient is a reversionary or non-reversionary beneficiary.

To reduce an excess transfer balance, you may be able to fully or partially convert a death benefit or super income stream into a super lump sum.  Or the dependent (assuming already in the SMSF) may be able to convert their own existing entitlements.  

Guidance is going to be important, as these issues become increasingly complicated, and advisers become more familiar with the problems and the solutions.

 

AcctWeb

‘Substantiation will be a key focus’: ATO drums in tax time 2018 hit list

The tax office has further detailed what type of work-related expenses will be in focus this tax time and signalled a particular focus on documentation where “red flags” are automatically triggered in its system.

         

 

As part of its broader and heavily heralded clampdown on work-related deductions, the ATO said today that substantiation will be bumped up its priority list when it assesses suspect claims.

“It’s important that you have a record of the expense and can demonstrate how you calculated your claims. Every year we disallow lots of claims because there is no evidence to prove the expense. Yet it’s so easy to keep an electronic record,” ATO assistant commissioner Kath Anderson said.

‘Other’ work-related expenses will be an area of focus for record-keeping, after $7.9 billion in claims were recorded last year between about 6.7 million Australian taxpayers.

Expenses of this nature can include home office, union fees, mobile phone and internet, overtime meals and tools and equipment.

The ATO is also warning against claiming private expenses where they are bundled with work expenses.

“We are seeing quite a few examples of people trying to claim the whole expense, including the private portion. Like some who incorrectly claim their entire phone and internet bundle, and others who claim an overseas study trip even though they had a holiday as part of the trip,” Ms Anderson said.

Up to the commissioner level, the ATO has been publicly pushing its compliance focus on work-related deductions for several months.

The ATO’s campaign has triggered concerns from professional associations. Most recently, CPA Australia said work-related deductions could well be on the chopping block in the May federal budget.

“We are of course waiting on the data, but CPA Australia is concerned that if the commissioner can’t administer the current laws, there may well be a policy response required,” head of policy and corporate affairs at CPA Australia, Paul Drum, told Accountants Daily last week.

Given the government’s focus on returning the budget to surplus, and its axeing of popular deductions for property investors last year, CPA’s hypothesis could come to fruition, but it would likely be to the detriment of small business and individuals.

“CPA Australia maintains its strong support for an equitable income tax system where all taxpayers — regardless of type — are able to claim tax deductions for qualifying expenses they have incurred in the derivation of their income,” CPA Australia said in its pre-budget submission. 

“If the evidence shows the need for policy reform in this area it is important that any changes do not abrogate the right of all taxpayers to make any claims for WREs at all,” CPA Australia said.

 

 

By: Katarina Taurian
​20 FEBRUARY 2018
accountantsdaily.com.au

 

New downsizing cap available

A benefit from downsizing to a smaller home.

         

 

If you are aged 65 or over, your home is your main residence for CGT purposes and you have owned it for a minimum of ten years, you could benefit.  You will be able to make additional non-concessional contributions, up to $300,000, from the proceeds of selling your home from 1 July 2018. 

The downsizer contribution cap of $300,000 will be in addition to existing caps; the capital must come from the proceeds of the sale price and application must be made within 90 days after the home changes ownership.  

There will also be exemption from the contribution rules for people aged 65 and above, and the restrictions on non-concessional contributions for people with total super balances above $1.6 million.

 

 

AcctWeb

ATO set to doorknock as 60% of cash-heavy businesses caught

As part of the government’s broader crackdown on the cash economy, the tax office has told tax agents it will soon be visiting more clients to check they are reporting their cash payments.

         

 

The ATO has already conducted nationwide ‘Protecting honest business’ visits in a bid to monitor reporting compliance with cash payments.

It’s set for a new round of visits soon, in areas where its data matching shows businesses are not accepting electronic payments.

“While we know not every business is doing the wrong thing, we found over 60 per cent of the businesses we visited so far need to take some kind of corrective action,” the ATO said in a statement released yesterday.

This follows the ATO visiting about 400 small businesses operating with a heavy focus on cash transactions last year.

The ATO’s work is part of a massive government crackdown on the black economy in Australia. In December 2016, the Turnbull government launched a taskforce dedicated to those who use cash payments to avoid tax and superannuation obligations.

 

 

By: Katarina Taurian
​30 JANUARY 2018
accountantsdaily.com.au

 

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