Vacant land deduction changes

Vacant land deduction changes hit 'Mum & Dad' property developments

Legislation that passed through Parliament last month prevents taxpayers from claiming a deduction for expenses incurred for holding vacant land. The amendments are not only retrospective but go beyond purely vacant land.

vacant landPreviously, if you bought vacant land with the intent to build a rental property on it, you may have been able to claim tax deductions for expenses incurred in holding the land such as loan interest, council rates and other ongoing holding costs. 

The new laws, aimed predominantly at Mum & Dads (individuals, closely held trusts and SMSFs), prevent these deductions from being claimed. Since the new laws apply retrospectively to losses or outgoings incurred on or after 1 July 2019 regardless of whether the land was first held prior to this date, and with no grandfathering in place, the amendments will not only impact those intending to develop vacant land but those who have already acquired land to develop. This is the same target as previous tax changes that denied travel claims to visit residential rental properties and depreciation claims on plant and equipment in some residential rental properties.

The changes however, go beyond purely vacant land for residential purposes. 

Deductions could also be denied for land with a building on it, if that building is not 'substantial'. The only problem is, the legislation does not clearly define what 'substantial' means. The Bill suggests that a silo or shearing shed would be substantial but a residential garage for example, would not meet the test.

If the new measures prevent holding costs from being claimed as a deduction, then they will generally be added to the cost base of the asset for capital gains tax (CGT) purposes. This means that they can potentially reduce any capital gain made when you dispose of the property in the future. However, holding costs for CGT assets acquired before 21 August 1991 cannot be added to the cost base and these costs cannot increase or create a capital loss on sale of a property. 

On the positive side, vacant land leased to third parties under an arm's-length arrangement may continue to be eligible for deductions for holding costs after 1 July 2019 if the land is used in a business activity. Also, land used in a primary production business will generally be excluded from the new rules. However, deductions could still potentially be lost (at least to some extent) if there are residential premises on the land or that are being constructed on the land. 

There are also carve outs for land which has become vacant or which cannot be used to produce income for a period of time due to structures being impacted by natural disasters or other events beyond the owner's control.

The amendments do not apply if you (or certain related parties) carry on a business on the land or where the land is owned by companies, superannuation funds (other than SMSFs), managed investment trusts or certain public trusts.

Collins Hume partners with you to achieve greater business and lifestyle success as your trusted advisers. Call us in Ballina or Byron Bay on 02 6686 3000.

General Advice Warning: This communication has been prepared on a general advice basis only. The information has not been prepared to take into account your specific objectives, needs and financial situation. The information may not be appropriate to your individual needs and you should seek advice from your financial adviser before making any investment decisions.

Calculating Super Guarantee

Calculating Super Guarantee: The new rules

From 1 July 2020, new rules will come into effect to ensure that an employee's salary sacrifice contributions cannot be used to reduce the amount of superannuation guarantee (SG) paid by the employer.

julyUnder current rules, some employers are paying SG on the salary less any salary sacrificed contributions of the employee. Currently, employers must contribute 9.5% of an employee's Ordinary Time Earnings (OTE) and they choose whether or not to include the salary sacrificed amounts in OTE. 

Under the new rules, the SG contribution is 9.5% of the employee's 'ordinary time earnings (OTE) base'. The OTE base will be an employee's OTE and any amounts sacrificed into superannuation that would have been OTE, but for the salary sacrifice arrangement. Let's look at an example:

Pablo has quarterly Ordinary Time Earnings of $15,000 which would ordinarily generate an entitlement to $1,425 in SG contributions ($15,000 x 9.5%). He salary sacrifices $1,000 a quarter, expecting his superannuation contributions to rise to $2,425 for that quarter. 

However, his employer uses the sacrificed amount ($1,000) to satisfy part of the employer's mandated SG obligation, and only makes a total contribution of $1,425, mostly consisting of the employee's $1,000 salary sacrificed amount.

Under the new amendments, Pablo's $1000 sacrificed contribution will no longer reduce the charge. Therefore, the charge percentage would only be reduced by 2.83% ($425 / $15,000 x 100). As the employer is required to contribute 9.5% of the OTE base, they must contribute an additional 6.67% to meet their minimum SG obligations. The employer has a shortfall of approximately $1,000 (6.67% x $15,000).

As sacrificed contributions no longer reduce the charge Pablo's employer will need to contribute $1,425 (mandatory employer contributions) in addition to the $1,000 employee sacrificed amount, to avoid a shortfall and liability for the SG charge.

The amendments also ensure that where an employer has not fulfilled their SG obligations and the superannuation guarantee charge is imposed, the shortfall is calculated using the new OTE base.

Collins Hume partners with you to achieve greater business and lifestyle success as your trusted advisers. Call us in Ballina or Byron Bay on 02 6686 3000.


Estate Planning Will challenges on the rise

Will challenges on the rise

Wealth and longevity are posing new challenges to estate planning

Will

Key estate planning issues at a glance

  • Economic factors and a rise in longevity are driving an increase in the number of challenges to wills.
  • There have been amendments expanding the scope for who qualifies as an eligible claimant in virtually every jurisdiction in Australia.
  • Parents dying aged 90+ leave behind children likely to be in varying circumstances that can influence their decision to contest a will.

Some families have been embroiled in disputes over deceased estates, with increasing acrimony and legal action from families disputing wills. The property boom of recent years means that a modest family home in a capital city may be so valuable it is worth fighting for a slice of the sales proceeds.

We are living longer which means we are building considerable assets and, due to compulsory superannuation, the superannuation death benefit may be the largest asset in the estate.

The growing size and nature of estates are two main reasons why will challenges are on the rise.

People dying at a very mature age can have children in different and complex circumstances such as divorce, second relationships, health problems or career disappointments. Some siblings may be financially successful while others struggle.

When dealing with human nature, there are a lot of people willing to challenge a will to get more money if they convince themselves that the will is unfair. An inheritance can represent the last chance to get enough money to put a deposit on a house or to help their own children buy a house.

Personal relationships with the deceased can vary widely. There could be children living interstate or overseas, and one living close to a parent who provides an enormous amount of support whilst the others visit sporadically.

An estate divided equally might be seen as unfair by the child who has cared for older parents. Inevitably, resentments arise and these can be compounded by the financial differences.

The scope of the Testator's Family Maintenance legislation has been greatly extended.

In virtually every jurisdiction in Australia, there have been amendments expanding the scope of who is an eligible claimant, although some jurisdictions have gone further than others.

For example, in 2017 Tasmania expanded the criteria for eligible claimants to include stepchildren which opened up a completely new avenue for stepchildren to be able to challenge the estate of a deceased parent's partner. A similar broadening of eligibility has happened in other jurisdictions and this will continue.

The grey area of de facto relationships has remained a fraught legal area because many older people re-partner after the death of a spouse, but they often don't remarry. That can be another complicating factor if a will is changed.

A far greater prevalence of blended families means that more people may feel they should be recognised in a will. However, while estate lawyers have numerous cases of the second spouse vs the first children, or the first children vs the second children, opinion is divided about whether these are the biggest disputes.

The cost of challenging can still be a barrier.

More people ask about challenging wills, but there is a "natural brake" coming to bear on challenges by the increasing reluctance of courts to allow legal costs to come out of the estate.

The law relating to will challenges in Australia is state-based, but in some states, for example New South Wales and South Australia, there is a big disincentive to make a claim against a will because if you lose, you may not get your costs paid or you could even have to pay the estate's costs if the court thinks that you have acted unreasonably in the process.

Do-it-yourself (DIY) will kits are another factor in the increased number of claims. Using a DIY will kit opens up greater likelihood of a will being challenged because of the lack of explanation around why it contains certain provisions.

You can exclude or include individuals, you can give one child a greater share of the estate than another or do virtually whatever you want, but if you don't document all the 'whys', you leave your will open to being challenged. That is one risk of using a will kit so having correct and accurate documentation is crucial.

Finally there is intestacy (dying without a will) which might sound attractive for some, but to have a court determine how assets are divided is not recommended. There are many cases in which judges have described circumstances where they have upheld the law as unjust because the relevant intestacy provisions did not suit the family in those particular cases. 

3 things you should do

1. Check that your will is up to date. Times change, assets are bought and sold, and the assumptions and the law on which existing estate planning and wills were prepared may change completely. Review your estate plan and will each time there is a major life event – at least every four or five years if not more.
2. Get on the same page as your accountant and lawyer. There can be a fundamental mismatch between the tax structures put in place – which sometimes are deliberately structured to shift ownership of assets – and someone's estate planning. Understand that asset ownership for tax purposes can limit the amount of the money you can distribute as part of their estate. We can make sure that all vested parties are on the same page with regard to understanding this.
3. Talk with your lawyer if you are concerned about a challenge. Estate lawyers go a long way towards structuring your estate planning, such that claimants cannot challenge your assets, but the legislation differs in different jurisdictions of Australia so there is no substitute for double checking with them.

As accountants who confer with individuals and families on estate planning issues, we encourage our clients to review their wills whenever there is a big life event, and consult an estate lawyer if they are concerned that their will could be contested.

If you are starting from scratch or it has been some time between estate plan reviews, call Collins Hume on 02 6686 3000 to get your affairs in order.

Article first published by James Dunn for Intheblack.com. (2019). Wealth and longevity pose new challenges to estate planning. [online] Available at: https://www.intheblack.com/articles/2019/11/01/wealth-longevity-pose-new-challenges-estate-planning?utm_source=exacttarget&utm_medium=email&utm_term=All%20Subscribers&utm_content=FEATURE+%7c+AUS+%7c+Wealth+and+longevity+pose+new+challenges+to+estate+planning&utm_campaign=CPA+Update+-+Member+-+ed+46_26-November-2019

Amend your discretionary trust deed before 31 Dec 2019


Amend your discretionary trust deed before 31 December 2019

Avoid NSW foreign duty and land tax surcharge

trustDiscretionary trusts that own 'residential land' in New South Wales or hold an ownership interest in a company or unit trust that owns residential land in New South Wales must amend their trust deeds to exclude foreign persons as beneficiaries before midnight on 31 December 2019, otherwise foreign land tax and duty surcharges may apply.

The New South Wales Parliament has proposed changes that (if enacted) will deem discretionary trusts to be 'foreign persons', unless the trust deed is amended before midnight on 31 December 2019 to:

  • exclude all foreign persons as eligible beneficiaries
  • prevent any amendment to the exclusion of foreign persons as beneficiaries, so that the exclusion is permanent and irrevocable.

This is the case even if none of the eligible beneficiaries of a discretionary trust are foreign persons.

Why does this matter?

If a discretionary trust is deemed a 'foreign person', surcharge duty of 8% and surcharge land tax of 2% will be payable on any residential land in New South Wales acquired or owned by the trust since the surcharges were introduced in 2016.

The proposed changes will apply retrospectively, so that if a discretionary trust:

  • paid surcharge duty or land tax but amends its trust deed to permanently exclude foreign persons as beneficiaries before 31 December 2019, the trust may apply for a refund of the surcharge,
  • owns residential land in New South Wales but does not amend its trust deed to permanently exclude foreign persons as beneficiaries before 31 December 2019, the surcharge duty and land tax may apply for prior years since the surcharges were initially introduced in 2016.

Different transitional rules apply to testamentary trusts

These proposed rules will also apply should your discretionary trust acquire a direct or indirect interest in property in the future. If you intend to purchase property in NSW using your discretionary trust you should seek appropriate legal advice before doing so.

Please Note:

As amendments of these types have the effect of changing the beneficiaries, specific duty/tax advice should be obtained prior to execution. 
"Discretionary Trust" can include any trust under which the trustee has discretions in relation to the distribution of income and capital. This could include hybrid trusts, capital protected trusts and some unit trusts. Specific legal advice should be sought on a case-by-case basis.

These proposed rules will also apply should your trust acquire property in the future. If you intend to purchase property in NSW with your discretionary trust you should seek appropriate legal advice before doing so.

What should you do?

  1. Arrange for the trust deeds of any discretionary trusts that own residential land in New South Wales or hold an interest in a company or unit trust that owns residential land to be amended, where necessary and appropriate, to satisfy the 'foreign person' exclusion requirements under the changes proposed by New South Wales Parliament. This is the case even if the trust deed previously satisfied the New South Wales foreign beneficiary requirements.
  2. Ensure any trust deed amendments are signed before midnight on 31 December 2019.
  3. Submit the trust deed and all variations to Revenue NSW for confirmation that the trust is not a 'foreign person' (although this does not have to occur before 31 December 2019).

It is imperative that you act immediately. Please contact Collins Hume in Ballina or Byron Bay on 02 6686 3000 or seek independent legal advice to discuss these proposed changes if you believe the proposed legislation will impact you.

Christmas disruption

5 things that will make or break your business's Christmas

The countdown to Christmas is now on and we're in the midst of the headlong rush to get everything done and capitalise on any remaining opportunities before the Christmas lull. 
Collins Hume Christmas
Busy period or not, Christmas causes a period of dislocation and volatility for most businesses. This dislocation and volatility mean that it is not 'business as usual' and for many businesses, it is the change that causes the problem.

Most business owners cope well with consistent trading conditions, where trading and business conditions are predictable as are the solutions to issues that arise, but it is a different story during periods of disruption. Here are some things to watch out for:

1. Ho, Ho, No. The trading stock headache. 
If business activity spikes over the Christmas period and you sell goods, then there is a temptation to increase stock levels. That makes sense as long as you don't go too far. Too much stock post the Christmas period and you will either be carrying product that is out of season or you will have too much cash tied up in trading stock. Try to work with suppliers who can supply on short notice. Better yet, see if some of your suppliers will supply you on consignment where you only pay them once the stock is sold. It might be better to miss a few sales than carry a trading stock headache into the New Year.

Managing your trading stock is not just about managing cost, consumers will go online if they cannot find what they need in store. Some savvy retailers are capitalising on this with opportunities to purchase online while instore if stock is not available or providing free shipping codes.

2. The discounting trend
Consumers now expect a bargain and can generally find one. The attraction of the Black Friday sales is that stock is generally available. Those waiting for bargains in the week immediately prior to Christmas, can only choose from what's left.

If you choose to discount stock (or the market forces you to), it's essential to know your profit margins to determine what you can afford to give away. A business with a 30% gross profit margin that offers a 25% discount (certainly nothing unusual about that in today's market) needs a 500% increase in sales volume simply to maintain the same position. The result generally is that often businesses trade below their breakeven point and generate losses. So, think carefully about your strategy and what you can sustain. 

3. The Christmas cost hangover
Costs tend to go up over Christmas. More staff, leave costs, downtime from non-trading days, as well as increased promotional costs all mean that the cost of doing business increases. Keep an eye on them. It's great to get into the Christmas spirit as long as you don't end up with a New Year hangover.

Many businesses also bring on casual staff. It's essential that you pay staff at the correct rates and meet your Superannuation Guarantee obligations. Under the Retail Award, the rate for adult casuals (21 and over) start at $26.76. There is also a 3-hour shift minimum for all casuals regardless of whether you send them home early. Check the pay calculator to find the correct rates.

4. New Year cash flow crunch
The New Year often leads into a quieter trading and tighter cash flow period. The March quarter tends to be the toughest cash flow quarter of the year. You will need a cash buffer going into the New Year. Don't over commit yourself in the run up to year end and end up in trouble in the New Year.

5. Take a lesson from Scrooge

If you work with account customers, start your debtor follow up now. If your customers are under any cash flow pressures, the Christmas period will only increase that pressure. The creditors who chase hard and early will get paid first. Don't be the last supplier on the list; the bucket may be empty by then.

Christmas is a great time of year. Just don't get caught up in the rush and let things get out of control. 

On behalf of all of the Collins Hume team, we wish you a safe and Merry Christmas. We'll look forward to working with you again in the New Year. Our Ballina and Byron Bay offices will be closed from midday 20 December 2019 to 10 January 2020.

Black Friday and Cyber Monday sale concepts

Australia embraces Black Friday and Cyber Monday

The Black Friday and Cyber Monday sale concepts have well and truly arrived in Australia with retailers embracing this latest retail event to stimulate what has been an economically lack lustre year.

shoppingWhy 'Black Friday'?

For many Australians, Black Friday is just confusing – shouldn't Black Friday' be on Friday 13th? In the US, the Black Friday sales follow Thanksgiving in a similar way to the Australian Boxing Day sales. The Black Friday sales also lay a clear runway to Christmas, stimulating consumer spending. 

The story behind the name Black Friday is hotly contested. In the US, the use of the name 'Black Friday' was first used for the gold market crash on 24 September 1869. The crash was engineered by financier Jay Gould and railway magnate James Fisk amongst others, when an attempted play to drive up the price of gold unravelled. The pair sought to corner the market in loose gold using political influence to keep Government gold off market, driving up the price from $100 to $163.50. However, when the Government recognised the scheme, it placed $4 million in-specie on the market. The price of gold plummeted to $133 with the ensuing panic spreading to the rest of the market. Gould, who secretly sold much of his gold stocks on the high, did better than Fisk who lost much of his investment. 

The use of Black Friday in a retail context appears to have come out of Philadelphia, where the police used the term for the general craziness created by the crowds swelling the city's population for the post-Thanksgiving Day sales and in preparation for the Army-Navy football game on the Saturday. Stretched to their limits the police could not take the day off and worked long shifts, thus it was a black day on their calendar.

The widespread use of Black Friday to describe a shopping sales event was at some point in the 1980s with PR spin turning the story into a positive economic event. The story goes that struggling retailers went from being 'in the red' throughout the year to 'in the black' following the boost in sales in the period between Thanksgiving and Christmas. When accounting was documented by hand, the black in black Friday was said to be from the black ink staining the fingers of the accountants. 

And now Black Friday is in Australia, adding another event to give consumers a reason to spend. We now jump from one retail event to the next with Easter eggs and hot cross buns appearing almost immediately after Christmas, with a quick foray into Valentine's Day in between, then a sea of pink for Mothers' Day before the big red signs come out for the EOFY sales. Post the last minute sales rush of the end of financial year, we have Fathers' Day, now Halloween, before the Christmas decorations go up and the Christmas carols go on a 24/7 rotation.

From a retail perspective, and to hijack Voltaire's famous quote, if Christmas did not exist, it would be necessary to invent it.

The rise and rise of online shopping

Black Friday and Cyber Monday are online focussed events (although anyone who fought the shopping centre on Friday, 29 November would hotly contest this).

Australia Post's recent 2019 eCommerce Industry Report states that in 2018, the five weeks from 11 November to 15 December accounted for almost 15% of all eCommerce transactions. The peak for this period was Black Friday / Cyber Monday, which was the biggest online shopping week in Australia's history, recording strong growth of over 28% from the previous year.

In general, more than 73% of Australian households shopped online in 2018. Group CEO Christine Holgate said, "Almost three quarters of all Australian households are now shopping online and we expect that around 12% of all consumer spending will be conducted online by 2021."

eCommerce in Australia is growing rapidly, with online spend reaching 10% of total retail sales in 2018, two percentage points higher than the previous year. Australians spent $27.5 billion buying goods online, an increase of 24.4% year on year.

The number of online purchases grew by more than 13% year on year in every State and Territory, with the national average growing over 20%.

Services such as Afterpay have also taken away the pain point for consumers deciding whether or not to make a purchase (without the debt loading of traditional credit card arrangements). Afterpay reported $4.3 billion in underlying sales through its platform in 2018-19 with a loyal client base entrenching the service as a habit.

While the rise of eCommerce sounds impressive, this growth does not necessarily represent economic growth. Much of the expansion of online shopping is an alternative to physical shopping and a reflection of a market shift towards consumer preferences. Growth in retail spending has been steady at a low rate, but rising prices have implied that the volume of retail sales declined over the year to the September quarter.

Collins Hume partners with you to achieve greater business and lifestyle success as your trusted advisers. Call us in Ballina or Byron Bay on 02 6686 3000.

Easy one-minute Business Risk Survey

Can you afford not to take our Business Risk Survey?

Our Business Risk Survey is an easy online self-assessment tool.

business risk scorecardThis is an initiative by Collins Hume to support our business clients to understand and improve their business, and it starts with our quick survey.

We know from experience that this survey will help business owners to identify concerns with their business.

Our survey only takes a minute, and you get the result straight away on your screen. There is no downside.

By investing one minute of your time, we also find that we also gain a much deeper understanding of your business and the issues that are bothering you. 

Our Business Risk Survey is an easy online self-assessment tool:

START SURVEY

No commitment. No cost to you. 

You will receive a copy of your Scorecard, and we can discuss it with you. Anything more is entirely up to you. 

If you do want to go further, we may be able to help you. We can talk about that once we know what your top risks and concerns are.

Once you complete the survey, you will be able to immediately download your own personalised Business Risk Scorecard. 

It gives you an easy way to identify how your business is positioned. We also get a copy, and will check in with you to discuss the results.

Collins Hume partners with you to achieve greater business and lifestyle success as your trusted advisers. Call us in Ballina or Byron Bay on 02 6686 3000.

How to offset your driving carbon emissions

How planting trees triple offsets driving carbon emissions

During National Recycling Week, Business Manager and Giving Coordinator David Keith talked about triple offsetting driving carbon emissions by planting trees.

tree plantingTriple Offset means you pay for you and two other people's carbon emissions, so you're not driving neutral, you're driving positive; climate positive. You're essentially saving the world more while driving about.

A friend of Collins Hume, Tim Wade, has in fact done all the hard work for us and calculated what it takes to triple offset our driving carbon emissions.

B1G1 Lifetime Partner, Tim, is a motivational speaker based in Singapore who presents at global conferences, conventions and corporate events about leading change and motivating positive results. He is also as committed as Collins Hume to helping achieve the United Nations Sustainable Development Goals.

"Peter Fowler and I were chatting about calculating a triple offset for carbon emissions from driving," said Tim. "We started asking how many trees we should plant to offset 10,000 km of driving."

"But because vehicles consume at different rates, we simply need to choose the single common denominator. In this case, it's offsetting by fuel volume purchased."

Tim has written an article which includes what he calls 'easification elements' to simplify the maths into trees-per-tank:

"When I fill up my car with fuel, to triple offset my CO2 emissions I plant eight fruit producing tress to help restore the environment," says David. "That costs me US$3.20 or about AUD$4.50."

Wait, how do I plant a bunch of trees?
Easy. Buy some saplings at a nursery and plant them on your land. Commitment: apart from the first time, it's unlikely that you'll outlay time, money and resources to repeat the exercise every time you stop for fuel.

Or…

Join B1G1.com and donate to a worthy cause that plants trees via the B1G1 member platform. There are causes do this starting from USD$0.40 per tree. Each tree produces fruit so families have vested interests in keeping their trees alive and can earn income from the fruit produced while the growing plant sequesters carbon from the atmosphere. 

Cost: Well under $1.50 per litre to fill a fuel tank. As a B1G1 member, 100% of your giving goes to the worthy cause. USD$0.40 per tree and planting 8 trees per tank for a normal car adds just US$3.20 to your cost of a full tank of fuel. Commitment: under two minutes once you're set up as a B1G1 member.

Please get on board – it costs very little to help save the planet. 
For B1G1 queries and member set up, contact David Keith at david.keith@collinshume.com.au. Visit Tim's website to read about other carbon offset ideas at https://www.timwade.com/category/global-issues/climate-change/.

Copyright 2019. @CollinsHume Accountants Business Advisers Ballina & Byron Bay NSW

Collins Hume's Business Risk Survey

Is it worth 1 minute to assess your level of business risk?

One minute | Ten easy questions

business risk surveyAt Collins Hume, we have developed a Business Risk Survey that is sure to be eye-opening for any business owner. 

It only takes a minute to complete but is of enormous benefit if you have concerns about your business that keep you awake at night.

In designing our Business Risk Survey, we urge business owners to do a pulse check on how you're feeling about how your business is tracking, to see if there are any concerns or opportunities that you're not getting to discuss because you're immersed in running your business day-to-day. 

Most importantly we've kept the questions brief:

  • It can help to identify some risks or issues with your business;
  • Only takes one minute;
  • There is no outlay for Collins Hume clients to complete the initial survey.

Our survey allows you to quickly assess key risks and value drivers in your business. There are only 10 questions in the survey which take about a minute to complete AND IT'S FREE.

BUSINESS RISK SURVEY

Once you have completed your survey you will receive our personalised Business Risk Scorecard.

Collins Hume partners with you to achieve greater business and lifestyle success as your trusted advisers. Call us in Ballina or Byron Bay on 02 6686 3000.

Collins Hume
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*Other than for the acts or omissions of financial services licensees.