Yearly Archives: 2015

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Marriage or relationship breakdown – dividends and deemed dividends

This fact sheet, available on the ATO website, discusses when an amount is taxed as a dividend or a deemed dividend received from a private company because of a marriage or relationship breakdown.
Throughout this fact sheet, a reference to:

  • a marriage includes a de facto relationship
  • a spouse includes a former spouse and a party to a de facto relationship
  • an order of the Family Court includes a consent order.

 

When do these rules apply from?

Apart for one exception, these rules have always applied and you have always needed to include an amount in your assessable income as explained in this fact sheet.
The one exception is where the Family Court requires the private company to pay money to a spouse who is not a shareholder. In that circumstance, the rules only apply where the obligation to pay the money was imposed by the Family Court on or after 30 July 2014.

 

What is a Family Law obligation?

For the purposes of this Fact Sheet, a Family Law obligation arises when a private company pays money or other property to a person because of a marriage or relationship breakdown.
The payment or transfer of property may arise because of an order of the Family Court that is made against either:

  • the private company
  • one of the parties to the marriage.

 

When does an ordinary dividend arise under a Family Law obligation?

An ordinary dividend arises in any circumstance in which a private company pays money or other property because of a family law obligation to a spouse who is a shareholder of the private company.

 

Example 1:

Mal, Justine and a private company are parties to matrimonial property proceedings before the Family Court. Mal and Justine are both shareholders of the private company. The Family Court makes an order requiring the private company to pay Justine $250,000.
On 30 April 2014, the private company makes the payment of $250,000 to Justine.
The payment of $250,000 is an ordinary dividend to Justine for the 2014 tax year.

 

Example 2:

Tim, Helene and a private company are parties to matrimonial property proceedings before the Family Court. Tim and Helene are both shareholders of the private company. The Family Court makes an order requiring the private company to transfer a rental property with market value of $1,000,000 to Tim.
On 30 April 2014, the private company makes the transfer of the rental property to Tim.
The market value of the rental property ($1,000,000) is an ordinary dividend to Tim for the 2014 tax year.

 

When does a deemed dividend arise under a family law obligation?

A deemed dividend arises in any circumstance in which a private company pays money or other property because of a family law obligation to a spouse who is not a shareholder of the private company.

 

Example 3:

Sam, Martha and a private company are parties to matrimonial property proceedings before the Family Court.
Martha is not a shareholder of the private company.
The Family Court makes an order for the private company to pay Martha $100,000. On 30 June 2015, the private company makes the payment of $100,000 to Martha.
The payment of $100,000 is a deemed dividend to Martha for the 2015 tax year.

 

Example 4:

Max, Denise and a private company are parties to matrimonial property proceedings before the Family Court. Denise is the sole shareholder of private company.
The Family Court makes an order for the private company to transfer a rental property with market value of $500,000 to Max. On 30 June 2014, the private company makes the transfer of the rental property to Max.
The market value of the rental property ($500,000) is a deemed dividend to Max for the 2014 tax year.

 

What amount must be included in your assessable income if you receive an ordinary dividend?

If you have received:

  • an amount of money, it is the amount of money which you must include in your assessable income.
  • property, it is the market value of the property that you must include in your assessable income.

 

What amount must be include in assessable income if you receive a deemed dividend?

If the private company has a distributable surplus less than your deemed dividend you include the amount of the distributable surplus in your assessable income.
If the private company has a distributable that is equal to or more than your deemed dividend, you include the amount of your deemed dividend in your assessable income.

 

Example 5:

Assume the same facts as example 4 except the private company has a distributable surplus of $300,000.
As the distributable surplus ($300,000) is less than the market value of the property ($500,000), only $300,000 is included in Max’s assessable income for the 2014 tax year.

 

Can I claim a franking credit?

Yes, you can claim a franking credit regardless of whether you receive an ordinary dividend or a deemed dividend provided the private company has franked the dividend.

 

Example 6:

Assume the same facts as example 5 except the private company franks the deemed dividend such that Max becomes entitled to a franking credit of $90,000.
Max must include the following in assessable income:

  • a franked dividend of $300,000
  • franking credit of $90,000.

Max is also entitled to claim a tax offset of $90,000.

ATO urges trustees to be SuperStream-ready

The ATO reminded SMSF trustees that from 1 July this year, employers with 20 or more employees will start using the SuperStream standard to send contribution data and payments electronically.

 

From 1 July 2015, employers with 19 or fewer employees will also be required to send contributions data and payments electronically.

 

“With over 350,000 SMSFs in Australia receiving contributions, SMSF employed members should check with their employer about when they are planning to send contributions using SuperStream. You should have all their details organised at least 60 days before the planned start date.

 

“Trustees need to set up an electronic service address – the destination for the contribution message – which can be obtained from a relevant service provider. This allows you to access this information via a login or email, depending on the service.

 

“Alternatively most administration software packages will be able to receive SuperStream-complaint messages and integrate with incoming bank account data automatically for their clients. So trustees using accounting or administration services may find they have a simple way to get this done.”

Privacy Legislation (2013) and individual credit rating

Australia’s privacy legislation rewrite in 2013 will allow credit providers to view a lot more information about individual credit behaviour.

 

Lenders currently have access to the following information about you;

  • Your defaults (only over 60 days in arrears),
  • Your insolvency history (ie bankrupt events), and
  • Your credit applications (although they could not see if your application was approved or declined)

 

 

From 1 January 2015 they will be able to see the above, and a lot more…..

  • The date that credit was opened or provided (in other words, if an application was approved)
  • The type of credit approved and what the credit limit is
  • The date that a credit account was closed, and
  • 2 years worth of month by month repayment history on each credit facility that are in place.

Repayment history will report like this (the boxes with numbers represent the days in arrears) –

 

 

 

Most of Australia’s lenders have agreed to provide your data to the credit reporting agencies. If a lender does not report this information they do not get to see the information from the other lenders. So it is just a matter of time before every licensed credit provider uses this database.

Personal Property Securities Act (PPSA)

The Personal Property Securities Act (PPSA) commenced 2 years ago, but many businesses are still not sure about how to use it correctly, if at all.
How does this important area of the law impact you and your business?.

  1. Examples of the sorts of scenarios where the PPSA should be considered are:
  2. Fixed and Floating Charges

Where the PPSA should be considered

Examples of the business applications where the PPSA should be considered are:

  • loan agreements
  • retention of title arrangements, such as: if you sell goods and needs to retain title to those goods until payment is received
  • leasing/hire purchase arrangements
  • structures where assets are owned by a different entity to the trading entity, and
  • consignment of goods

An example of a casualty of the PPSA

This year, an independent meat retailer was placed into administration with debts in the order of $8 million owing to creditors, mostly meat wholesalers. Although the retailer was able to be saved from insolvency by being bought out, the position of unsecured creditors is still unclear. It has been reported that around $5 million was owed to unsecured creditors, who had not registered their security interests on the PPSR, and therefore their fate now lays in the hands of liquidators.
The fallout from the financial collapse of this meat retailer is a good example to suppliers of the benefit of getting registered on the PPSR. Many suppliers conduct business of title arrangements or on consignment, and these arrangements are now considered to be security interests under the PPSA and must be registered on the PPSR to be secured. You won’t be able to just rely on your agreements anymore, and in this radical way the PPSR affects old practices irreversibly.
A useful action plan (if not already completed) is to review terms and conditions documents, and security interests should be properly registered on the PPSR. Reports from the register are that many suppliers have failed to register their security interests as a purchase money security interest (now known as a PMSI), resulting in the loss of the special priority that is provided by the PPSR to retention of title arrangements. The outcome may be that another creditor could have priority over your claim (in specific circumstances).
And although there are transitional provisions in place, ie a 24 month protection for security interests created prior to 30 January 2012, care needs to be taken, as supply of goods after that date may constitute a new security interest not protected by the transitional provisions. So it would be best to get the protection of the PPSR as soon as possible by getting registered!

 

Fixed and Floating Charges

Are you familiar with the concept of a fixed and floating charge? This terminology has been phased out with the start of the Personal Property Securities Act (PPSA).
Under the PPSA there doesn’t exist the concept of a fixed versus floating charge. Rather, there’s just a security interest that attaches to the grantor’s property (or collateral). So what used to be called an “all assets” fixed and floating charge is now called a security interest over a company’s all present and after-acquired property.
Traditionally, a “fixed” charge (one relating to particular and identifiable asset) covers what is now known as non-circulating assets under the PPSA, usually assets such as land or equipment.
A “floating” charge (one relating to any and all assets of the grantor at the time the charge crystallises) covers circulating assets under the PPSA (such as book debts and trading stock).
The practical difference is that the debtor can deal with floating/circulating assets in the normal course of business, while they cannot dispose of fixed/non-circulating assets without the consent of the lender, and this needs to be reflected in the drafting of the security agreement.
Businesses and individuals involved in giving or receiving loans are just some of the many areas that are impacted by this legislation. Any business using retention of title clauses, or that hires out equipment to others, are caught by the legislation and must have proper practices in place or risk serious losses. The PPSA also impacts many other areas that are not always obvious, for example business sales and acquisitions.
Disclaimer: The material contained in this article is provided for general information purposes only and does not constitute professional advice. You should not depend upon any information appearing herein without seeking independent advice as to your specific circumstances

Are your superannuation savings goals on track?

Are your superannuation savings goals on track?

Superannuation should never be a “set and forget” strategy. With the new calendar year here, now is a good time to review your circumstances and perhaps set some new goals to help boost retirement savings.
There have been a few changes to superannuation which applied from 1 July 2014 and it is important to understand how they may apply to you. The following are some considerations.

 

  • Making extra contributions

The general concessional contributions cap is $30,000 for 2014–2015 (up from $25,000 for 2013–2014). For people aged 50 and over, there is a higher concessional contributions cap of $35,000 for 2014–2015.

 

  • Checking super savings

It is a good habit to check your superannuation balance regularly. In addition to getting to know your super better, you may also want to protect your super from identity crime. For example, you may want to change passwords for accounts that can be viewed online.

 

  • Consolidating multiple super fund accounts

You may want to consider consolidating multiple super fund accounts. This may help avoid paying multiple super fund fees, reduce paperwork, and make it easier to keep track of your superannuation.
Keep all your statements in a safe place, especially if you do need to maintain multiple accounts.

 

  • Salary sacrificing super

You may want to ask your employer about salary sacrificing super. Or you may want to consider reviewing an existing arrangement with your employer.
TIP: Professional tailor advice should be obtained before implementing a new retirement savings strategy. Please contact our office to discuss your circumstances.