Last week I covered the increase in Superannuation that workers are now entitled to. This is great for the worker but, as a small business operator and an employer I commented on this being a new tax. Well another change that has been proposed is to allow the payment of Superannuation to all employees, not just those under 70 years young.

 n a recent news report the Assistant Treasurer and Minister for Financial Services and Superannuation, Bill Shorten, said “As a result of strong representations from members of the Labor caucus and cross-bench, including Yvette D’Ath, Shayne Neumann, Deb O’Neill, Michelle Rowland, Rob Oakeshott and Tony Windsor, I have decided there will be no age limit for superannuation guarantee contributions. These changes will start on 1 July 2013,”

 These policies will be delivered through amendments to the Superannuation Guarantee (Administration) Act 1992. “Together with the low income superannuation contribution and Stronger Super package of reforms previously announced, the increase in the superannuation guarantee will improve the adequacy of retirement incomes and deliver a comfortable and secure retirement for current and future generations of Australian workers”

Depending on the regulations surrounding the new legislation this may be great for our Grey Nomads. As it stands now, once you turn 70 your employer can not contribute to your super fund. As all the details are not yet known, we can but speculate on what will be available but if the employer is allowed to contribute to super for a 75 year old, then it may be that the 75 year old can also contribute to super, which is now limited under current legislation. This opens the door for some very effective tax planning and would certainly encourage our civic elders to maintain their contacts at work so that by putting in that weeks work every year they may be in a position to top up their super and reduce their exposure to income tax.

As it is, every worker over the age of 55 should be looking at their superannuation in two ways, one as a retirement benefit and two, as a very effective tax saving tool. Under the right circumstances you can increase the balance of your superannuation by several thousand dollars per year with no contribution from you, just by commencing a transition to retirement pension through your super fund. The benefits available depend upon the balance of your super fund and the length of time before retirement. This strategy requires you to start drawing a pension from your super and salary sacrificing an amount back to super such that your take home pay remains the same but your tax bill is reduced and a saving in tax of $50 per week is $2,600 per year and over 10 years, with interest, this would amount to over $30,000 providing a nice increase in your super fund. Talk to your tax adviser to determine if the benefits to be derived from a transition to retirement pension suit your circumstances. Talk to your financial adviser for a second opinion but remember they cannot give advice as to the taxation implications associated with their recommendations or your choice.

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 An article in the Australian Financial Review last week commenced with the words “ It was smiles all round among Superannuation types yesterday as the Gillard Government finally tabled legislation for a sharp rise in the level of compulsory contributions.” Federal Government members were again congratulating themselves on the introduction of a new tax. This refers to the new tax on wages paid by business who now have to find extra money to contribute an additional 3% to their employees superannuation. Now this is great news for the employed, provided they can keep their jobs given the additional burdens that are continually heaped onto the small business employer.

  The positive spin put on this legislation, which is great for the employee , states that in the biggest change to superannuation in 20 years, around 8.4 million Australians will have their superannuation savings boosted as a result of the superannuation guarantee rate legislation introduced into the Parliament.  The Superannuation Guarantee (Administration) Amendment Bill 2011 increases the superannuation guarantee (SG) rate from nine per cent to 12 per cent.  The Assistant Treasurer and Minister for Financial Services and Superannuation, Bill Shorten, said “This is an historic reform. Today, the Gillard Labor Government has taken another important step towards increasing the adequacy and fairness of retirement incomes for Australian workers.”

“Australians should not have to work hard and retire poor. Nine per cent super is simply not enough.” For example: An employee aged 30 earning around $70,000 today will retire with an extra $108,000 in superannuation under these reforms. 

The increase in the SG will boost the superannuation savings of Australian workers by around $500 billion by 2035. A proportion of these savings will be channelled back into the Australian economy to fund jobs and nation-building infrastructure. 

Big business have no problem in finding the extra cash, they just put up prices. Small business is not so lucky as they have to manage their budget a lost closer just to stay competitive. When the Superannuation Guarantee Levy was first introduced, it was supposed to be in place of a pay increase for the workers. They were to get a 9% pay increase which was to be put aside for their retirement. Well this “benefit” has long been forgotten and now with the 9% being increased to 12%, albeit over several years, the employees do not see this as a pay increase but a deserved benefit, even if unearned.

This increase, although some see it as being tiny, is still a hefty impost on small business, no wonder there are many small businesses out there having trouble paying the Super Contribution for their staff.  Not only does this Super increase cost small business but other costs tied to Super also increase such as payroll tax and that other State Government tax known as Workers Compensation Insurance. To call it workers comp insurance is a misnomer as it is not insurance, it is a Government tax that assists workers injured at work and is a great idea. The trouble with workers comp is that if an employer has a worker injured, the worker receives the benefit but the employer’s premium is increased such that the payment to the employee is recouped from the employer. The other problem here is that the premium for Workers Comp includes the Super paid by the employer but when the employee receives his payout from the Insurance Company no payment is made to the employee’s super fund. 

More on the changes to Superannuation next week.

I had the unenviable task of attending the funeral of a friend the other day and as happens at this sort of event everyone chooses a non-death related topic to talk about. Well as is the case when talking to an accountant, the subject usually turns to Tax and how best to avoid it. The old chestnut about the only two certainties in life being Death and Taxes and how we can avoid at least one of them was mentioned a few times.

 The funeral was a sad/happy affair where the life of the departed was celebrated. The attendants from Macarthur Lady Funerals were an absolute treat and if any of your loved ones leave this earth I would suggest you give Macarthur Lady a call as their professionalism is beyond words.

 The other thing I would suggest is that you ensure you, and your loved ones, have a will in place. I recently had a client whose affairs were, to say the least, tangled. He died without a will and the business partner managed to squander the estate such that the children ended up with nothing.

Even if you do have a will in place, the Tax Man may still try and get an uneven share of what is not his.

 If someone dies whist at work then the payment of unused annual leave, leave loading and long service leave to the beneficiaries is not taxed and is not included on a Group Certificate. This is a win for the taxpayer, although it is once off opportunity to get that last payout tax free and a tax break I am in no hurry to benefit from.

 On death, the payment of monies held in a Superannuation Fund are tax free if paid to a dependant but may be taxed at the top marginal rate if paid to other family members.  A dependant is identified at the time of death and, according to the Tax Office, would be the taxpayer’s spouse or defacto spouse, a former spouse or former defacto spouse, a child of the deceased under 18 years of age or someone who relied on the deceased for financial maintenance at the time of death, or any other person with whom the deceased had an interdependency relationship just before death.

An interdependency relationship exists between two people where they have a close personal relationship, and they live together even if they are not related by family, and one or each of them provides the other with financial and domestic support and personal care.

What this all means is that if Dad has $1m in super, and this is made up of Employer super contributions, then when he kicks the bucket, if he leaves this money to his kids, and they are all aged over 18, then tax will be payable by the children on that payout. Now, is it possible to beat the taxman? Of course, where there is a WILL, there is a way. If the balance of the Super fund is left to Mum, then as a dependant, no tax is payable and she can then give the money to the children without anyone having to pay tax. If there is no Mum, then Dad has to play a smarter game and draw down on his super , tax free, over the years so that when his time is up, the Fund is empty and no Tax is payable.

 There are a couple of other options which depend on age and work status but these tend to be more specific to the individual rather than generic and it may be to your benefit to talk to your Accountant as to the taxation implications associated with the dispersal of your estate.

Last week we covered the cost of having a Christmas Party on business premises and discovered that although no Fringe Benefits Tax is payable, there is no tax deduction allowed.

So what happens if the party is held at a local restaurant? Well this again depends upon the generosity of the boss. If he is too generous then the cost of the party can increase significantly because of the addition of fringe benefits tax.

 Christmas party held off business premises

 The costs associated with Christmas parties held off your business premises (for example, a restaurant) will give rise to a taxable fringe benefit for employees and their associates unless the benefits are exempt minor benefits.

* Where the benefits are indicated as qualifying for the minor benefits exemption, it is on the basis that the necessary conditions have been satisfied.

Now what if the Boss also gives you a pressie?

 Gifts provided to employees at a Christmas party

 The provision of a gift to an employee at Christmas time may be a minor benefit that is an exempt benefit where the value of the gift is less than $300.

 Where a Christmas gift is provided to an employee at a Christmas party that is also provided by the employer, the benefits are associated benefits, but each benefit needs to be considered separately to determine if they are less than $300 in value. If both the Christmas party and the gift are less than $300 in value and the other conditions of a minor benefit are met, they will both be exempt benefits.

Confused? Well this is why you need an accountant to advise on how various types of expenses are recorded and reported to the ATO. 

A good Public Relations exercise for the small business is to give a bottle of wine or spirits to their best customers or suppliers at Christmas time. As a marketing tool you get a tax deduction for the purchase and maybe more sales as a thank you.

Sorry to put this boring stuff in my column but I have to cater for a multitude of readers and with the penalties that can apply if you get it wrong, it is always good to know what traps are put in place to catch the unwary.

I don’t mean to scare you but there is only nine weeks until Christmas, and even less to that work Christmas party.

As an employer I try to ensure a safe and happy work environment for my staff. One of the benefits provided is a thank you at Christmas time. Of course if the staff turn up to the “thank you” party then I can be taxed (a second time) on what I spend on my staff. This applies to all employers so be easy on them if they cut back a bit more this year, after all they are saving to pay for the carbon dioxide tax.

For the benefit of employers we will give a brief review of information provided by the ATO in relation to Christmas parties.

Tax deductibility of a Christmas party

The cost of providing a Christmas party is income tax deductible only to the extent that it is subject to FBT. Therefore, any costs that are exempt from FBT (that is, exempt minor benefits and exempt property benefits) cannot be claimed as an income tax deduction.

The costs of entertaining clients are not subject to FBT and are not income tax deductible.

Christmas party held on the business premises

A Christmas party provided to current employees on your business premises or worksite on a working day may be an exempt benefit. The cost of associates attending the Christmas party is not exempt, unless it is a minor benefit. This is all calculated on the cost per head to attend.

       Where the benefits are indicated as qualifying for the minor benefits exemption, it is on the basis that the necessary conditions have been satisfied. 

This is a brief introduction to Christmas Parties held on business premises, next week we will look at Christmas parties held at a restaurant, function centre or somewhere else not on the business premises.