MWL Financial Group

February 2024

As February kicks off and with the summer holidays behind us, many of us are settling back into our regular routines and it’s time to turn our focus to the year ahead.

In this issue:

– Tax changes – what it will mean to me
– How to get your business ready to sell
– SMSFs: What happens if you exceed your super caps

Tax changes – what it will mean to me

Prime Minister Anthony Albanese has announced proposed changes to address ongoing cost of living pressures with all 13.6 million Australian taxpayers receiving a tax cut from 1 July 2024, compared to the tax they paid in 2023-24.i

Now is the time to assess what it means to your hip pocket and what implications it may have for end of financial year planning as a result of the new rules, due from 1 July 2024.

The Federal Government has recently announced changes to the third stage of a series of tax reforms introduced by the previous Coalition government almost six years ago which were designed to deliver tax cuts to most, simplify the tax system and protect middle income earners from tax bracket creep.

The proposed changes

The new rules will see the current lowest tax rate reduced from 19 per cent to 16 per cent and the 32.5 per cent marginal tax rate reduced to 30 per cent for individuals earning between $45,001 and $135,000.

The current 37 per cent marginal tax rate will be retained for those earning between $135,001 and $190,000, while the existing 45 per cent rate will now apply to income earners with taxable incomes exceeding $190,000.

In addition, the low-income threshold for Medicare levy purposes will be increased for the current financial year (2023-24).

A single taxpayer with a taxable income of $190,000 paid $59,967 tax in 2023-24. Under the revised rules, they will now pay $55,438 tax, a tax cut of $4,529. While still a reduction in tax paid, this compares with the $7,575 tax cut received if the original Stage 3 tax cuts had proceeded.

On the other hand, low-income earners will receive a bigger tax cut under the revised rules.

A single taxpayer with a taxable income of $40,000 who paid $4,367 in tax in 2023‑24, would have received no benefit from the original Stage 3 tax plan, but will now receive a tax cut of $654 under the revised rules.

Implications for investment strategies

For high-income earners, the key take-away from the government’s new changes to the tax rules is you will now receive a lower amount of after-tax income than you may have been expecting from 1 July 2024.

This reduction makes it sensible to revisit any investment strategies you had planned to take advantage from your larger tax cut to ensure they still stack up.

For example, the smaller tax cut for some may impact the effectiveness of property investment.

Investment strategies such as negative gearing into property or shares, however, may become more attractive. Particularly for investors close to the new tax thresholds and looking for opportunities to avoid moving onto a higher tax rate.

Timing expenditure and contributions

Investors considering repairs or maintenance for an existing investment property should revisit when these activities are undertaken. Depending on your circumstances, this expenditure may be more suitable in the current financial year given the difference in tax rates starting 1 July 2024.

Selling an asset liable for CGT also needs to be reviewed to determine the most appropriate financial year for the best tax outcome. 

Other investment strategies that may need to be revisited include those involving making contributions into your super account.

If you are considering bringing forward tax-deductible personal super contributions, making carry-forward concessional contributions, or salary sacrificing additional amounts before 30 June, you should seek advice to ensure the timing of your strategy still makes sense.

If you would like help with reviewing your investment strategies or superannuation contributions in light of the new rules, contact us today.

https://treasury.gov.au/sites/default/files/2024-01/tax-cuts-government-fact-sheet.pdf

How to get your business ready to sell

Whether you are selling your business because you have to, or because you are planning a well-earned retirement, it pays to step through the process carefully.

In particular, if the sale isn’t handled correctly, you could find yourself receiving a hefty tax bill, as selling a business triggers capital gains tax (CGT).

Don’t rush it!

It’s important not to take some time because there is lots of preparation to do.

You will need to be clear about exactly what is being sold; whether assistance will be provided after the sale; how customers, employees and suppliers are to be notified; and whether existing leases and hire purchase arrangements will be transferred.

Decide whether you want a clean outright sale, or are prepared to accept an earnout arrangement or buy-sell agreement. Most potential buyers will want to an independent valuation, so you need to have your business documents organised and updated.

If you operate your business as a franchise, check your franchise agreement for any special clauses relating to a sale.

Tax considerations

Although tax is often the last thing on your mind when selling, it shouldn’t be. It can have a big impact on how much of the sales price you get to keep.

Capital gains tax (CGT) is the biggest tax issue to consider when selling, as your capital gain is calculated on the sale price of the asset minus its cost base.

CGT applies to company shares and goodwill, but does not apply to trading stock and depreciating assets used solely for taxable purposes, like business equipment.

While CGT can be expensive, small business owners are able to access several valuable concessions. These are in addition to the normal 50 per cent CGT discount applying when an asset is owned for more than 12 months.

Applying the four small business CGT concessions can eliminate or substantially reduce the CGT payable on a business sale if the annual turnover is under $2 million.

However, your business must meet basic eligibility conditions for CGT concessions. As the rules are complex, speak to us for more information before deciding to take advantage of these concessions.

Increasing the saleability

Part of your pre-sale planning process should also focus on ways to improve your business’s appeal to potential buyers.

Establishing a detailed succession plan can make the process much smoother. The Department of Industry offers an online template you can use to develop your plan.i

Working through this process can help ensure your business isn’t dependent on your profile or name to be viable in the long-term, making it more attractive to buyers.

Spring cleaning your business

Other important tasks include updating your business’s accounts and business records and generally tidying up the operation so it presents well to potential buyers.

Most potential buyers will require three to five years of financial statements and other business records so they can value your business. They will also want to review the business’s income tax returns and details of physical and other assets (such as goodwill and intellectual property).

Information about your customers, competitors, sales information, debtors and creditors, insurance, inventory and marketing activities also needs to be available.

As part of your preparations, you should also review your obligations in terms of employee and contractor entitlements such as tax, superannuation contributions and long-service.

Get good advice

Key to ensuring a successful exit from your business is getting professional advice early in the process.

And don’t forget that you will need to keep all records relating to sales and purchases, employee payments and payments to other businesses for five years after the sale.

If you need help preparing your business for a future sale or want to know more about the implications of disposing of business assets, call our office today.

https://business.gov.au/-/media/business-information/templates-and-tools/succession-plan-template.docx

SMSFs: What happens if you exceed your super caps

The rules around making some types of super contributions have been relaxed in recent years, so it’s worth exploring the different opportunities available to you before making a large contribution.i

What are contribution caps?

Given the tax-effective environment of Australia’s super system, there are annual limits on how much you can contribute each financial year.

The two main types of contributions are concessional (before-tax) and non-concessional (after-tax) contributions.

Concessional contributions include employer Super Guarantee contributions, salary sacrifice and personal tax-deductible contributions, with the general contributions cap for 2023-24 being $27,500. In some situations, you may be permitted to contribute more if you have unused cap amounts from previous financial years.

If you’re a SMSF member, you may be able to make a concessional contribution in one financial year and have it count towards your concessional cap in the following financial year.

Non-concessional contributions cap

If you use after-tax money to make a super contribution, this is classes as a non-concessional contribution and there is no tax payable when the contribution is paid into your super account.

The general non-concessional contributions cap in 2023-24 is $110,000 provided you meet all the eligibility criteria, such as your Total Super Balance being below your personal limit. Your personal cap may be different.

If you’re age 55 or older, the once-only downsizer contribution cap is $300,000 per person ($600,000 for a couple). These contributions from the sale of your main residence don’t count towards your annual non-concessional cap.

Exceeding your contribution caps

There are different rules for super contributions that exceed the annual caps, depending on the type of contribution.

If you go over the annual concessional cap, your contribution is counted as personal assessable income and taxed at your marginal tax rate, with a 15 per cent tax offset to reflect the tax already paid by your super fund. Your increased assessable income may also affect any Medicare levy, Centrelink benefits and child support obligations.

The excess contributions can be withdrawn from your super fund, but if you choose not to withdraw them, the excess is counted towards your non-concessional contributions cap.

If you don’t or can’t elect to release excess contributions, you could end up paying up to 94 per cent in tax.ii

Exceed your non-concessional cap

Contributions exceeding your annual non-concessional (after-tax) cap are taxed at 45 per cent plus the 2 per cent Medicare levy. This is in addition to the tax already paid on this money.

Before the ATO applies this tax, you are given the opportunity to withdraw the excess non-concessional contributions, plus a notional amount to reflect the investment earnings.

You pay tax on the notional earnings just like personal income, less a 15 per cent offset.

Withdrawing excess contributions

Like most things to do with tax and super, the process for withdrawing excess contributions is fiddly.

If you have an excess concessional contribution, the ATO sends you a determination letter with details of what you need to do, plus an income tax notice of assessment.

You have 60 days to decide whether to have the excess concessional contribution refunded by the super fund and tax deducted by the ATO, or to pay the tax personally and leave the contribution in your account.

Refunding excess non-concessional contributions

For excess non-concessional contributions, the ATO assumes you wish to have your excess contributions and notional earnings refunded in order to avoid paying 47 per cent on them.

The default process is the ATO automatically issues a release authority to your fund and directs it to deduct the additional tax owing and return the leftover amount to you.

If you wish to nominate a specific fund from which the refund should be paid, or leave the excess in your account and pay the tax personally, you must make an election within 60 days of the initial notice.

Call us today to assess how the super contribution caps may affect you.

https://www.ato.gov.au/individuals-and-families/super-for-individuals-and-families/super/growing-and-keeping-track-of-your-super/caps-limits-and-tax-on-super-contributions/restrictions-on-voluntary-contributions
ii 
https://www.ato.gov.au/individuals-and-families/super-for-individuals-and-families/super/growing-and-keeping-track-of-your-super/caps-limits-and-tax-on-super-contributions/concessional-contributions-cap

MWL MELBOURNE OFFICE &
MWL Fairway Group
Level 5/574 St Kilda Road,
Melbourne VIC 3004
(03) 9866 5888

SYDNEY OFFICE
Level 2/1 Spring Street,
Chatswood NSW 2067
(02) 8404 6700