Poor accountant – his superfund made non-compliance

In the case of The Trustee for the R Ali Superannuation Fund and Commissioner of Taxation, AAT had issued a notice of non-compliance to the Trustee of the R Ali Superannuation Fund.

The facts here are as follow

1. During the 2005 to 2008 financial years the R Ali Superannuation Fund was created at the direction of, and controlled by, Mr Ali, a registered tax agent.

2.  The fund then lent the money to Alnaz Pty Ltd, a company controlled by Mr Ali. Alnaz then lent that money to members of the Fund and/or business entities in which a member of the Fund was interested.

The AAT concluded the Fund is non-compliance for the following reasons:

• 100% of the fund assets were loans to related parties; and
• The loans in some cases were not made on an arms-length basis; and
• The loans constituted financial assistance to a member or relative; and
• Personal and fund assets were not maintained separately; and
• The transactions were in breach of the trust deed and the Act.
• The fact that the trustee is an accountant leads to the conclusion that it is more than mere error

Things need to be aware when hiring a staff

Last week I have been approached by one of my clients for recommendations of hiring an employee. After being with him for an hour or so, my key points are listed below before he goes ahead to hire an employee

1. Get employee to sign the Tax file number declaration (NAT 3092)

2. Provide a ‘Standard choice form’ to new employees who are eligible to choose a super fund

3. Depending on the situation, the employer might have to register for PAYG-W

4. Preparation of Contract for Employment

5. Compliance with Award for minimum wage etc

7. In NSW, Workers Compensation insurance is required

8. Health and Safety information need to be provided to the employee

9. Other Health and Safety policy and procedures

10. Leave entitlement and other entitlement for part-time, full-time or casual worker

Directors fee vs salary and wage to directors

A lot of my clients asked me to pay them directors fee rather than wages by saying that this was what their previous accountant told them.  So let us compare what really the difference between directors fee and salaries and wages is.

Salary and wage is normally fixed and regular payment while directors fee is more like irregular payment subject to resolution of the company.

The table below compares the difference between directors fee and salary and wage in the calculation of super, payroll tax, PAYG-W and workers compensation

From the table above, we can see that there is no difference between director fee and salary and wage if the payment is made to a working director. However accountant still favor directors fee. Why?  Say in a mum and dad company, we cannot really pay mum a salary and wage as she is normally a non-working director of the company. However we can pay her a $5000 directors fee at the end of year, no superannuation guarantee, no payroll tax (as the company payroll is not big enough), no PAYG-W and no workers comp. En, nice and easy. It is even better that $5000 is tax free provided mum is not working anywhere else. In addition she still gets most of family tax benefit. How good is that? For a working director, directors fee is a planning tool. We carefully watch the payment of salary and wage to working director before year end. That is because we want to make sure the company satisfies its super, PAGY-W obligations etc at the same time make sure the company sits in its best tax position. Let me explain this in a little bit detail. Say if we paid dad a $25,000 salary in June 2011, we would be better off paying him a director fee of $12,000 so that he is paying 15c in a dollar while company gets a deduction of 30c in a dollar. Be mindful the rule for superannuation guarantee payment though.

 

 

Trust – asset protection hero

Most of us probably know trust is a perfect vehicle to distribute income and save tax. However what most people don’t know is that it is also a perfect vehicle for assets protection. Some of the trust structures are poorly structured which will reduce the protection to the assets held on trust. In the following paragraph I want to show you a good example of trust structure for assets protection purpose.

The example I want to explain in detail in as follow

Ok let me explain how it works.

1. If someone wants to attack assts of you or your partner, the assets/business held on unit trust is effectively protected and separated from the assets under your own name. That is because the assets are legally held by Corporate Trustee A on behalf of unit trust not by you and your partner
2. If someone wants to attack assets held in your business in the unit trust, the lawsuit could only be against Corporate Trustee A as that is the entity holds the business. However the Corporate Trustee A is doing nothing apart from being a trustee company, therefore it owns nothing as well. The person attacking you will probably end up getting nothing if your trust is in the right structure.
3. By having Corporate Trustee B holding the units on behalf of the family trust will increase the asset protection compared to mum and dad holding units by themselves. Why? If mum and dad get attacked by someone, the units held by them might be affected in the pursuit of lawsuit. If we add one more layer – family trust, the units are protected as they are only controlled by mum and dad but not owned by them.

Capital work and capital allowance

Today I was having lunch with one of my clients. I got to the point that I have to explain how we take the figures from the depreciation schedule and put it in the tax return for her.

The first highlight in the table is, we call it, capital allowance where the deduction for dryer, dish washer and oven etc get included.

The second highlight in the table is called capital work deductions which includes the deduction for building improvement and building constructions.

Those deductions are pro-rated if the property was rented for part of year. After all this, she was happy with her tax returns.