Background
The main residence exemption allows capital gains to be tax free for Australian taxpayers when they sell property that was their place of residence, subject to certain criteria. The exemption applies to property that was never available for rent, and also for a further six years once it has been available for rent (the “six year rule”). There is also the requirement that no other property is nominated as the taxpayer’s main residence. It is important to note that when a property is reoccupied as the main residence the six years will also reset.

New legislation
On 9 May 2017 as part of the Federal Budget, the Government announced they would be removing the Capital Gains Tax (CGT) main residence exemption for foreign residents. This was enacted on 12 December 2019, however the rules are to be applied retrospectively to CGT events from 7.30pm AEST on 9 May 2017 onwards. Transitional relief is available to those who acquired their main residence after 9 May 2017 and sold before 30 June 2020.

Individuals
If at the time the CGT event occurs the taxpayer is classified as a foreign resident, they will not be entitled to the main residence exemption. For individuals, the CGT event is generally the time a contract for the sale was entered into. This includes Australian citizens or permanent residents who live overseas and are classified as non-residents for tax purposes.

The new legislation does not allow for any apportionment of the main residence exemption for the time of residency. There is also no cost base reset available at the time of becoming a foreign resident. If someone has lived in their Australian property for 30 years, moves overseas, and then sells their property, they will be subject to tax on the total gains from the original purchase cost. Holding costs can usually be applied to decrease the gain, however records of these are likely to not have been kept as they have were never before expected to be required at sale in this scenario.

Deceased estates
The trustee of a deceased estate is not entitled to the CGT main residence exemption if the deceased individual was a foreign resident at the time of death. However, a beneficiary of the deceased estate that is a foreign resident, is entitled to the main residence exemption if the deceased person was not a foreign resident excluded from the exemption.

Life events test
If a taxpayer has been a foreign resident for less than 6 years, they may be able to access the main residence exemption if they satisfy a “life events test”, with applicable events including terminal illness, death and divorce. Speak to an accountant at FAJ to see if this may apply to you.

Conclusion
If you plan on moving abroad, we strongly suggest speaking to your accountant well in advance about your property holdings.

Expatriates over 65 selling their main residence may have increased flexibility in some circumstances by utilising the “super downsizer scheme” which was introduced from 30 June 20.

Other related blogs:

Six-year main residence exemption
CGT main residence exemption and moving overseas  

Author: Jake Solomon
Email: jake@faj.com.au

 

Self-managed super funds must comply with Australian superannuation legislation which requires a compliance audit each financial year to avoid a range of penalties imposed by the ATO for failing to meet compliance obligations.

Three common SMSF audit issues consistently arising when reviewing Self-Managed Super Fund’s include:

• Deed Upgrades

The trust deed for a SMSF stipulates all the rules which govern the operation of a SMSF.

As there are constant changes to superannuation laws, we recommend trustees upgrade their deed whenever there are significant changes and at least every 5 years to ensure it is consistent with current legislation, and does not restrict options for members.

• Valuation of Assets

The SIS Act requires that all assets be shown at market value in the annual financial statements. This is so that the super fund value can be readily determined if a member wants to enter or leave the fund. 

Valuation is easy for listed securities like shares, but for non-listed assets such as property, artwork and other collectibles, this may pose as a complicated task to determine.

It is recommended by the ATO that all assets held in the superannuation fund are revalued regularly and carried at market value provided that the valuation is based on objective and supportable data. For more stable assets like property or collectibles, it may not be necessary to review values every year, unless there is a significant change to circumstances – for example a wide spread property downturn.

• Assets held in the wrong name

Fund assets must be held in the name of the fund and must be clearly distinguishable from other assets held by the trustee. Where an SMSF has a corporate trustee (that acts solely as trustee for the fund), this trustee name must be displayed for all assets owned by the SMSF. However where a SMSF has a number of individual trustees, it is a common error for the SMSF to display only one individual trustee name rather than showing all individual trustee names, and to not show the name of the super fund. If the super fund name is not included, it’s not possible to determine whether the individual trustees hold the asset on behalf of the fund, or for themselves. This is particularly challenging for property as in WA you can only include trustee names on a title. In this case trustees must hold other evidence such as a declaration of trust to prove ownership.

Related blogs:

Corporate or natural SMSF trustee?
Can you hold artwork in your super fund?

 

Author: Jesper Lim
Email: jesper@faj.com.au

Federal Government announces $27M in targeted relief funding for arts

Australia’s Art and Music sector was one of the first to be hit by restrictions from the result of COVID19. Australia- wide we have seen venues close, various performances and shows cancelled and an unbelievable number of performers and support crews out of work.

On the same night the $130billion JobKeeper legislation was passed, the Federal Government also made the announcement of $27 million in targeted support for Indigenous Arts, Regional Arts and arts charity Support Act.

The targeted support will be distributed as follows:

•$10 million to help regional artists and organisations develop new work and explore new delivery models. The funding will be delivered through Regional Arts Australia’s Regional Arts Fund, which had already been struggling following this year’s bushfire crisis.

•To support Indigenous artists and arts centres, the Government is providing $7 million in additional funding. The funding will be delivered under the Indigenous Visual Arts Industry Support program.

•The Government is providing $10 million to Support Act, the national music sector charity, which helps the most vulnerable music industry workers. The funding will allow Support Act to recruit new counsellors and expand counselling services, and provide critical resources to music and performing arts artists and workers.

Australia’s live performance industry is estimated to be worth over $4 million. Live Performance Australia (LPA) firmly believe the Federal Government has not grasped the scale of devastation that has shaken the industry. While the additional funds are a relief to some, much more is needed, especially if the industry is to have any prospect of surviving after COVID-19.

Related blog – New audit rules for clubs and associations 

Author: Natasha Woodvine
Email: natasha@faj.com.au

During the week the Government announced the JobKeeper stimulus targeted at keeping employers and their employees connected through this current crisis.

The intention is that businesses impacted by the Coronavirus will have wage costs subsidised so they can continue to pay their employees, whether they’re currently working or not.

Businesses can register their interest with the ATO now (almost 500,000 businesses did this within 48 hours of the announcement), but won’t be able to apply until the legislation is passed, hopefully within a week or so. 

Here’s how it will work.

If your business has a turnover of less than $1 billion and has suffered a 30% or more drop in turnover compared to the same month last year, you can register with the ATO. The turnover reduction is self-assessed, and the ATO has some discretion for those that don’t quite meet the criteria.

You then pay your existing workers. If they earn more than $1,500 (before tax) per fortnight, you pay them their normal pay. If they earn less than $1,500 per fortnight, you pay them $1,500 (yes, they get a pay rise).

At the end of the month, the government will reimburse you $1,500 per eligible employee. This will be effective from 30 March 2020 for a maximum period of six months, so your first Government payment will be received in the first week of May.

Eligible employees are your staff that have been employed since at least 1 March 2020 and are full-timers or part-timers. The package also extends to casual workers that have been with you for at least 12 months. Employees must be at least 16 years old and Australian citizens or relevant visa holders.

The subsidy is also available to employees that have been stood down (but not those made redundant, unless re-hired). So you are effectively able to re-engage your team at no cost, regardless of whether you ask them to show up for work or not. The aim is that you can continue to employ them, pay them, and maintain connection with them through this crisis, so hopefully when it’s all over you can hit the ground running. 

The JobKeeker subsidy is also accessible by self-employed people who have suffered a drop in income, regardless of whether they employ any staff. However there is little detail yet as to who might qualify as “self-employed” and how those rules will apply..

Not for Profit entities are eligible under the stimulus package too.

You will still need to pay super based on your staff’s normal earnings, but it’s up to you whether you pay the extra super for employees who were previously on less than $1,500.

A quick note for employees – you can only get the JobKeeker payment through one employer, and it may affect your entitlement to other Centrelink benefits.

The JobKeeper stimulus is a great initiative. It keeps workers employed, keeps people away from Centrelink queues, and gives businesses a fighting chance.

Other related blogs:
Cash Flow Boost

Author: Mark Douglas
Email: mark@faj.com.au

Accounting software is constantly taking advantage of new and improved technologies including automation and artificial intelligence. But these are features that need to be understood and activated before they can be of use. To optimize your time and obtain the best results from your accounting software it’s best to aim for as much automation as possible.

Bank feeds have revolutionised the way we now reconcile our bank and credit card accounts. A bank feed just means that your bank or financial institution uploads your bank transactions into your software on a regular basis (usually daily). Even transactions from other applications like PayPal and Stripe can be set up to feed into your software. Having your transactions fed into your software removes the need for laborious data entry. The ability to quickly match transactions based on machine learning and on rules you set up, assists in speedier reconciliations of your data and more up to date information for your reporting. Some software allows for cash coding so even small businesses are not weighed down with intricate coding.

Creating bank rules that allow you to automatically match bank transactions is another way of speeding up the process. For example you might set up a rule that every time a description includes the term “Officeworks”, the expense is automatically coded to the stationery expense. Being mindful of using meaningful and identifiable bank references through internet banking can assist in getting the most out of your bank rules. There can also be an advantage in having a business credit card as these tend to highlight suppliers names in the transaction listing. Even recording transfers between your bank accounts and credit cards can be automated with bank rules. Regular loan payments, wages and drawings can all be set up using bank rules.

So utilizing these features in your online software enables up to date information hence more control over your time and your cash. But automation comes with a downside. When using rules or relying on machine learning there’s always a larger margin for error of mis-coding, and once an error is made it tends to repeat. So importantly, you should invest a little bit of the time you save into a quick review of your general ledger and profit and loss statements to identify and correct any errors. The rest of the time saved is all yours.

Other related blogs:

What are bank feeds?
Choosing the right accounting software

Author: Kay Giles
Email: kay@faj.com.au