Why is my tax refund so small?
The tax refund many Australians expect has dramatically reduced. There is a psychology to tax refunds that successive Governments have been reticent to tamper with. As a nation, Australia relies heavily on personal and corporate income tax, with personal income tax including taxes on capital gains representing 40% of revenue compared to the OECD average of 24%. And, for the amount we pay, we expect a reward.
The reward is in the form of tax deductions that reduce the amount of net income that is assessed for tax purposes and tax offsets that reduce the tax payable, generating a refund for some. And, refunds have a positive impact on tax compliance.
As part of the previous Government’s efforts to flatten out the progressive individual income tax system, a time-limited low and middle income tax offset was introduced. The lifespan of the offset was extended twice, partly as a stimulus measure in response to COVID-19. The offset delivered up to $1,080 from 2018-19 to 2020-21, and up to $1,500 in 2021-22 for those earning up to $126,000. This was a significant boost for many people each tax time and bolstered the tax returns of millions of Australians. For many, the end of this offset has meant that their tax refund has reduced dramatically compared to previous years.
We have recently teamed up with Accountancy Insurance, a very reputable provider of tax audit insurance in Australia, to offer our clients an opportunity to participate in our new Audit Shield service.
With audit activity on the rise, we believe it is an opportune time to offer our Audit Shield service to our clients as an effective mechanism to protect you against unplanned professional fees which may arise as a result of audit activity.
What is our Audit Shield service?
Our Audit Shield service provides for the payment of our professional fees otherwise payable by you when incurred as a result of our accounting firm being required to respond, on your behalf, to an audit, inquiry, investigation, review or examination (audit activity) of your lodged returns or your financial compliance obligations instigated by the Australian Taxation Office (ATO) or other government revenue authorities.
How likely am I to be selected for audit activity?
Data matching becomes more sophisticated each year. This makes it simpler and far more likely for previously untargeted tax payers to encounter audit activity, despite compliancy. The ATO, along with other relevant government revenue authorities have unprecedented access to tax payer records, allowing them to specifically target previously unreviewed tax returns. Now more than ever you could be at risk of audit activity.
What lodged returns/financial compliance obligations are covered?
The cost of being properly represented in matters relating to audit activity can be quite considerable depending on the length of time or complexity involved. Our Audit Shield service provides a cost effective solution to guard against these unbudgeted costs.
With our Audit Shield service you are protected for audit activity in respect of:
- Capital Gains Tax
- Employer Obligations – Superannuation Guarantee / PAYG
- Fringe Benefits Tax
- Income Tax, GST and BAS
- Payroll Tax, Land Tax and Stamp Duty
- R&D Tax Incentive (ATO only)
- Record Keeping
- SMSFs (available separately)
- Work Cover
- Plus more!
Would you like to know more?
Should you have queries regarding our Audit Shield service offer, please contact our team.
Succession: What does it take to get you and your business to the next generation?
What is the end game for your business? Succession is not just a topic for a TV series or billionaire families, it’s about successfully transitioning your business and maximising its capital value for you, the owners.
When it comes to generational succession of a family business, there are a few important aspects:
- Succession of the business;
- Succession of the ownership of the business;
- Succession planning/pathway; and
- Moving from a business family to an investment family.
For generational succession to succeed, even if that succession is the sale of the business and the management of the sale proceeds for the benefit of the family, communication is essential. Where generational succession fails, it is often because succession has not been formalised until a catalyst event or retirement planning requires it.
A concept of ‘legacy’ is not enough. Successful succession occurs when the guiding principles of governance, family rules, aligning values, dispute resolution, succession and estate planning are managed well before discontent tears it apart.
Generational succession usually involves the transfer of an interest in a business to another generation of a family (usually younger). It is often a family in business rather than simply a family business.
“One-third of Australian family businesses expect that the next generation will become the majority shareholders within 5 years time. Yet only 25% of Australian family businesses have a robust, documented and communicated succession plan in place.”
PWC Family Business Survey
The options for how a movement of an interest may occur are many and varied but usually focus on the transfer of some or all of the equity held in the business over a period or at a defined point in time and the payment of some form of consideration for the equity transferred. Alternatively, a part of the equity transfer may ultimately be dealt with through the estate.
Generational succession comes with its own set of issues that need to be dealt with:
Capability and willingness of the next generation
A realistic assessment of whether the business can continue successfully after the transition. In some cases, the older generation will pursue generational succession either as a means of keeping the business in the family, perpetuating their legacy, or to provide a stable business future for the next generation. While reasonable objectives, they only work where there is capability and willingness. Communication of expectations is essential.
Consider the capital requirements of the exiting generation. To what extent do you need to extract capital from the business at the time of the transition? The higher the level of capital needed, the greater the pressure on the business and the equity stakeholders.
In many cases, the incoming generation will not have sufficient capital to buy-out the exiting generation. This will require the vendors to maintain a continuing investment in the business or for the business to take on an increased level of debt. Either scenario needs to be assessed for its sustainability at a business and shareholder level. In some scenarios the exiting owners will transition their ownership on an agreed timeframe.
In many small and medium businesses, the owners arrange their remuneration from the business to meet their needs rather than being reasonable compensation for the roles undertaken. This can result in the business either paying too much or too little. Under generational succession, there should be an increased level of formality around compensation. Compensation should be matched to roles, and where performance incentives exist, these should be clearly structured.
Who has operational management and control?
Transition of control is often a sensitive area. It is essential to establish and agree in advance how operating and management control will be maintained and transitioned. This is important not only for the generational stakeholders but also for the business. Often the exiting business owners have a firm view on how the business should be run. Uncertainty in the management and decision making of the business can lead to confusion or a vacuum – either will have an adverse impact. Tensions often arise because:
- The incoming generation want freedom of decision making and the ability to put their imprint on the business.
- Without operating control, they feel that they have management in name only.
- The exiting generation believe that their experience is necessary to the business and entitles them to a continued say.
- A perception that capital investment should equate to ultimate operating control.
- An uncertainty by either or both generations about the extent of their ongoing roles.
Agreeing transition of control in advance, on an agreed timeframe, can significantly reduce tensions.
Transition timeframes and expectations
Generational succession is often a process rather than an event. The extended timeframe for the transition requires active management to ensure that there are mutual expectations and to avoid the process being derailed by frustration.
The established generation may have identified that they want to scale down their business involvement and bring on other family members to succeed them. This does not necessarily mean that they want to withdraw completely. An extended transition period is not uncommon and can often assist the business in managing the change. This can also work well in managing income and capital withdrawal requirements.
The need for greater formality and management structure
A danger for many SMEs is the blurring of the boundaries between the role of the Board, shareholders, and management. With generational succession, this can become even more pronounced. Formality in these structures is important, with clear definitions of the roles and clarification of the expectations. For example, who should be a director and what is their role?
For some, the role of the family is managed by a family constitution – an agreed set of rules. For others there will be an external advisory group that advises the family to ensure that the required independent expertise is brought to bear.
Successfully managing generational change is a process we can help you navigate. Talk to us about how we can help to structure an effective transition path.
30% tax on super earnings above $3m
Treasury has released draft legislation to enact the Government’s plan to increase the tax rate on earnings on superannuation balances above $3m from 15% to 30% from 1 July 2025. This is the final step before the legislation is introduced into Parliament and a step closer to reality.
The draft legislation appears largely unchanged from the Government’s original announcement.
The proposed calculation aims to capture growth in total super balance (TSB) over the financial year allowing for contributions (including insurance proceeds) and withdrawals. This method captures both realised and unrealised gains, enabling negative earnings to be carried forward and offset against future years.
The ATO will perform the calculation for the tax on earnings. TSBs in excess of $3 million will be tested for the first time on 30 June 2026 with the first notice of assessment expected to be issued to those impacted in the 2026-27 financial year.
From a planning perspective, for those with superannuation balances close to or above $3m, it will be important to explore the implications to your personal situation – there is no one size fits all strategy here and what is best for you will depend on your circumstances. Superannuation, even with the increased tax, remains a tax efficient vehicle.
With banks starting to phase out cheques, from 1 January 2024, AMG Accountants + Advisors will no longer be accepting cheques as a form of payment.
Other payment options include:
- electronic payment via internet banking
- credit card, debit card, direct debit or monthly instalments* via our website
All available payment details are listed on invoices issued.
* Note: 1.5% surcharge applies to credit card payments, Monthly payment plan also available for balances over $1,000 – Application criteria applies. See T&C’s at https://quickfee.com.au/terms-conditions/