Every Self Managed Super Fund (SMSF) must have a trustee (or trustees), but you need to make a choice as to whether to have a corporate or natural SMSF trustee.

One option is to have individual or “natural” trustees (i.e. the members). This comes with cheaper initial setup costs and marginally cheaper annual filing fees.

The second option is to appoint a corporate trustee (a company). Conversely this comes with a higher setup cost and marginally higher annual filing fees.

However there are some other key advantages with having a company as the trustee that far outweighs the additional costs. These include:

• Ease of adding or reducing members. With a corporate trustee this is as simple as completing a member form and lodging a form with ASIC. With individual trustees, you will need to change the title of every asset (every shareholding, property, bank account etc.) and failure to do so can result in penalties.
• Single members funds. Single member funds can have a corporate trustee with only one director, but a fund with individual trustees must have 2 trustees, even if there is only one member.
• Separation of assets. SMSF law demands that the assets of a super fund are clearly kept separate from the assets of members. This is easy to do when the assets of the fund are in the name of a trustee company. However with natural trustees this is far more difficult, and means you must show the name of the super fund on titles as well as the name of the individual trustees. Currently land titles in WA do not allow this to happen, so further costly legal documentation may be required to satisfy the rules.
• Reduced penalties. After recent changes penalties for non compliance have increased substantially. For example, a breach of the separation of assets rules (see above) for a fund with a corporate trustee will result in a total penalty of up to $1,800 per breach. Comparatively, individual trustees would receive a penalty of $1,800 per trustee (and note that the individual trustees must pay this personally, not from the assets of the fund). Penalties for other breaches (like lending to members) can be as high as $10,800 – so for a fund with 4 natural trustees, that’s $43,200 between them.
• Succession. Funds with companies as the trustee can easily continue after the death of the members, whereas it’s more difficult and costly to keep funds with individual trustees continuing after death.

Pro tips

Having a company act solely as trustee for your super fund (i.e. not acting as trustee for any other trusts or businesses) reduces the current annual ASIC filing fee from $246 to $46.

It may be tempting to save initial costs by using an individual trustee, but our experience says it is far better to have a corporate trustee right from the start. Changing at a later date is possible, but comes with a cost and a frustrating administrative experience.

Author: Natasha Piccoli
Email: Natasha@faj.com.au

Edit – these rules have changed from 1 July 2017 and now apply to property valued at $750,000 or more, and the withholding rate is 12.5%.

The ATO has introduced a new rule for Australian residents buying or selling property valued at $2 million or more.

So how does this work?

The ATO wants any Australian Resident who purchases Australian property to withhold 10% of the purchase price and remit this to the ATO.

The exception to this is if the seller provides the purchaser with a “clearance certificate” on or before the day of settlement.
The clearance certificate is designed to provide the ATO with the information to determine the seller’s tax residency status and whether or not the 10% withholding tax should apply.

How do you obtain a clearance certificate?

A PDF version of the form is available through the ATO website and once completed, the original should be faxed or posted to the ATO and a copy retained. Clearance certificates are valid for 12 months from the date of issue.

How will the credit for the withholding tax be claimed?

Assuming the purchaser pays the amount to the ATO, the ATO will notify the seller that the payment has been received. If the seller provides their TFN to the purchaser then the ATO can easily match the payments when the purchaser lodges the “purchaser payment notification”. The purchaser payment notification is the form the purchaser lodges with the ATO along with the 10% withholding tax.

In Summary.

• Sellers and purchasers of Australian property or other CGT asset on or after the 1st July 2016 will have to comply with these new rules.
• Whether or not an amount needs to be withheld and the entire process that follows will depend entirely on the tax residency of the seller.
• The 10% withholding amount is calculated based on the market value of the property.
• Ignorance of the rules doesn’t appear to be an excuse and if a purchaser fails to remit to the ATO the amount they should have withheld, the ATO will apply a penalty equal to that amount. (also subject to interest)
• If the purchaser doesn’t remit the amount withheld to the ATO then the seller will not be entitled to a credit when they submit their tax return.
  The ATO would then pursue the seller for any amount not remitted to the ATO by the due date

Further information can be sought from the ATO directly, real estate agents, conveyances’ or legal practitioners.

Author: Adrian Wardlaw
Email: adrian@faj.com.au

You hire equipment to a mining company which goes into administration. The Administrator then sells your equipment and uses the proceeds to pay the mining company’s creditors. Can they really do this? The answer is yes, unless you have fully complied with the Personal Property Securities Act (PPSA).

What is the PPSA?
The PPSA introduces legislation enabling business’ to take security over the equipment you hire out or the goods you sell on credit terms with the ultimate goal of protecting your interest in your goods and equipment in the event your customer becomes insolvent. Your customers and your equipment will then be listed on the Personal Property Securities Register (PPS Register). Similar to how a bank registers a mortgage on a title to a property that they have lent money for.

Why do I need to register?
The main question is, “Why do I need to register my ‘equipment on hire’ or the customers who I have sold goods to”? The answer is to retain ownership in your property and protect your property from forming part of the pool of assets which may be lost in the event your customer becomes insolvent.
If liquidators are brought in, they would salvage what they can and pay the debts first to people and entities with priority and finally to unsecured creditors. If you have not registered under the PPSA you will be an unsecured creditor. If you have registered you’ll be one of the priority creditors.
For example a business hiring equipment is critically exposed to the PPSA and faces the loss of its equipment on the insolvency of the customer. The solution is simple, comply with the PPSA.

A business selling goods on credit terms can now take security over the goods.

Who does this apply to?
This can be relevant to potentially anyone who is in business and sells goods, has hire arrangements, has equipment loan arrangements or even businesses who provide equipment as part of a service.

Unfortunately the PPSA has changed the concept of ownership to one where possession will often trump ownership.

The most vulnerable are businesses who hire equipment out beyond one year or in an open ended agreement. For such businesses the PPSA creates a high degree of risk. A failure to comply with the PPSA when you should will result in the loss of your equipment, even though you own it. If your customer collapses whilst in possession of your equipment it becomes their property.

Whilst the PPSA is bad news for hirers it is fantastic news for anyone selling goods on credit. The PPSA has given legislative backing to the historical ‘retention of title’. Suppliers complying with the PPSA significantly improve the likelihood of recovering goods or their value on the insolvency of a customer.

Any of these types of businesses who have customers in vulnerable industries are particularly at risk. At the moment the natural resource sector is generally unstable. Similarly, the construction industry is having its own challenges. The scary thing is that, most of us do not know what types of business will be in trouble tomorrow. Simple law changes can decimate an industry. The downfall of the mining industry can have flow on effects in other industries that are heavily reliant on the mining sector. On that basis I would consider the business that makes the machinery that supplies the equipment to the mining entities vulnerable.

In my next blog I’ll discuss equipment hired to related parties, what happens when a client becomes insolvent and how to register.

Author: Adrian Wardlaw
Email: Adrian@faj.com.au

As a sole trader you do not have an obligation to contribute money into super each year for yourself, but if you choose to contribute you may be entitled to a tax deduction.

To be eligible to claim a super deduction you need to contribute to a complying super fund and advise your super fund that you intend to claim a tax deduction equal to your super contributions.

Under current laws you also need to ensure that less than 10% of your income for the year comes from salary and wages (the 10% rule). This is tested on a yearly basis, so you can get caught in a situation where your employment income increases at the end of the financial year to the point where it disallows your contributions made earlier.

Pro Tips:

• The easiest way to side-step the 10% issue is to salary sacrifice any wages you have to super. This is a safe way of making sure you get the tax benefit of contributing to super.
• At the recent budget the government announced changes to scrap the 10% rule from 1 July 2017. Until then you will still need to ensure you meet these rules.

Author: Brigette Liddelow
Email: brigette@faj.com.au

Generally the Australian Taxation Office considers home to work travel to be private and therefore non deductible.

However, there are a few exceptions:
1.    From your normal workplace to an alternative workplace while still on duty and back to normal place of work or home.
2.   Shifting places of work – e.g. regularly working at more than one site each day before returning home.
3.   From your home to an alternative workplace for work purposes and then returning to normal workplace or home.
4.   Where you need to carry bulky tools or equipment that are used for work. The requirements for this travel to be deductible include:

• The tools or equipment are needed to complete your work
• Your employer expects you to transport the tools or equipment
• There is no reasonable secure storage area available at your workplace

A general guide to tell if the tools or equipment are considered bulky is if it is difficult to transport them on a bus.

You can’t claim travel if:
1.   The travel is for minor work related tasks – e.g. travel down the road to pick up newspaper for the office on the way to work.
2.   You need to drive between your home and workplace more than once a day.
3.   You are on call – e.g. your supervisor contacts you to come into work.
4.   You are travelling to work outside of normal business hours.
5.   You do some work at home.

Itinerant work – you cannot count your home as a workplace unless you carry out itinerant work. If you perform itinerant work you can claim the travel costs of driving between alternative workplaces and home.

Factor’s indicating you perform itinerant work include:
1.   Travel is a major part of your work, not just because it is convenient to you and your employer.
2.   You have various workplaces to travel to through out the day.
3.   You are continually travelling from one site to another.
4.   You are often uncertain of the location of your work site.
5.   Your employer provides you with an allowance in recognition for your continual travel between different work sites through out the day.

Pro Tip:
The ATO are targeting home to work travel claims this year. We recommend speaking in detail with your accountant to ensure you’re entitled to claim the deduction.

Author: Rhys Frewin
Email: rhys@faj.com.au