Category Archives: News

News

Tax Assured & Justified Trust

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What is Tax Assured and the ATO’s justified trust program? The ATO’s Justified trust program comes originally from work done by the OECD and now implemented in Australia (and other OECD countries). Some background; in Australian we have what is called a self assessment system where we (taxpayers) work out our taxable income and send it to the Tax Office who issues an Assessment assessing the tax payable. All things being equal the ATO accepts that the numbers supplied are correct, having to conduct an audit if they suspect wrong doing.

The Justified Trust Program seeks to change this by performing what is basically an Audit of taxpayers each year in enough details that they consider that the tax position is assured or correct. Initially the Justified Trust program only applied to the top 100 Companies in Australia, it was very successful at both collecting more tax as well as lifting confidence in tax assessments so the program has now been expanded to the “next 5000” as well as private wealthy groups. The approach and regularity in these different groups varies but is underpinned by the same concepts and goals. What can you do to understand this and lower your risk?

  • The vast majority of groups are actively participating in the Justified Trust and Next 5000 programs but there are some groups who are refusing. I suggest it is in your interest to work with the Tax Office, while it is an increased burden to engage with the Tax Office it does also give you peace of mind that in the future you will not have a retrospective audit as you have already disclosed any major transactions.
  • Risks Marked to Market: There is some mis understanding of this key part of the program; once you are a TaxPayer who is large enough to be included in these programs the ATO expects you to review ATO rulings, TaxPayer alerts and Practical Compliance Guidance. This is a key way the Tax Office notifies tax payers of risk they see.
  • Keep neat records, lodge and pay on time. Seems simple but it is not always easy to achieve, late lodgement and/or payment increases the Risk rating the tax office applies to taxpayers (of all types and sizes!)

Author Alan Maddick May 11th 2022.

News

Trust Tax Expert

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Welcome to Maddick Consulting Group, my name is Alan Maddick and I am the owner of the business. Over the years I have developed a love of tax and the laws that rule our complicated tax system. Throughout the system there is a lot of wrong information; nowhere is this more common than the area of trusts, an area I specialise in. Most Accountants and ATO staff do not have a strong understanding of the laws the underpin trust taxation, areas I can help with;

  • Unit and Investment trusts
  • Deceased estates (these are also a type of trust)
  • Minor trusts
  • Disability trusts
  • Testamentary trusts
  • Family trusts
  • Self Managed Super (these are also a type of trust)

I can explain how these trusts work and how they interrelate with your Investments and your Personal Tax position. If you need help with your trust tax issue or a second opinion please get in touch with us here

News

Life Insurance Commissions

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Alan Maddick, March 2022

Traditionally when Financial Advisers recommend and advise on Life Insurances like Income Protection, Trauma or Life Insurance they receive a commission from the Life Insurance company; both initially on placement of the Insurance as well as on an ongoing basis.

Financial Advisers will say a couple of common things;

  1. “Commissions are paid by all insurers so it does not create a Bias or Ethical dilemma” or
  2. “The commission are paid from the insurer so there is no cost to you”

Lets have a look at number 1 – the commissions on insurance are generous and do create issues in the advice given by advisers, so much so that the Government has taken action to reduce the amount of commission payable reducing it down from 110% of the year 1 premium to now 60% of the year one premium. You can read more about this here on the ASIC site: Life Insurance Framework

For example a $1000 insurance premium will pay a $600 commission, if an adviser encourages you to take out more insurance lets say a $3000 policy now they are getting paid $1800 instead of $600. This creates a bias and business model where advisers will be rewarded for selling as much insurance as possible. If you need more insurance this is great news but if those extra funds could instead have been paid off your home loan or contributed to super then it is not so great for your long term financial position.

Next the commissions that are paid from insurers are paid from the premiums you pay! So the cost of the commissions do increase the cost of insurance. In fact this is so clear that as an adviser I can elect not to take a commission with most insurers. By doing this the Insurance Premium will be reduced by around 25%,* going back to the $3000 per year insurance example above by me not taking a commission that would reduce your premium to $2250 per year, a saving of $750. Imagine you keep the insurance for 15 years, you would save $11,250 or more.

As an adviser there is an issue with not getting paid for my work via commissions and that is I still need to get paid for my work advising you. Without commissions paying me you will need to pay for advice; while this is an out of pocket cost you can see it can save you a substantial amount. If that does not suit you I am happy to discuss receiving some commissions to cover part or all of the cost of advice.

* (some variation in the discount between insurers and policy types)

News

Sandringham tax

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Welcome to Maddick Consulting Group, we are Tax Specialists and happy to help you with your Tax Problem. We are located in Bay Road Sandringham / Cheltenham.

We prepare tax returns for all entity types with special interests in Private Wealth, Trusts and Estate Tax. Alan Maddick the Practice Owner has worked in Tax for a number of years and has supervised the lodgement of literally tens of thousands of tax returns. There is a wide range of opinions about what the Tax Laws say; our aim is to explain what the law actually says, not what Joe from the Pub told Paul who told you. Sadly this is also how some Accountants get their tax knowledge!

Alan the practice owner grew up locally and attended Hampton Primary and Sandringham Secondary College just down the road. If you want some help with your tax work please get in touch with our Tax Experts here

News

PSI IT Consultant

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Author Alan Maddick 22nd April 2021

The ATO has recently released a new draft tax ruling covering PSI (Personal Services Income) TR 2021/D2 this will go in force soon possibly with some minor changes. One of the scenarios we come across quite often in IT consultants wanting to know if the PSI rules apply to them.

If capured to by the PSI regime then Consultants will be limited in what they can claim and not be able to effectively use Business Structures like Trusts and Companies as part of their tax planning. So what does the new ruling say ? One of the key tests that IT consultants can pass is the Results test, the new new ruling has a couple of example scenarios;

A government department enters into a contract with Consultant Co for the provision of services by an individual who is nominated in the contract. The terms and conditions of the contract are that the individual is paid an hourly rate and works for a maximum of eight hours per day. Departmental officers provide direction as to the required tasks and the manner in which they are to be performed. The individual is provided with an office, stationery and desktop computer, and uses the department’s computer system, software and data for carrying out the required tasks. He also uses his personal laptop to assist him in his tasks but is not required by the department to use it. If the work performed by the individual is unsatisfactory, the department is entitled to terminate the contract, but the company is not required under the contract to rectify any defects in the work performed. Consultant Co is a PSE because its income includes the PSI of the individual who does the work.

TR2021/D2 at para 177

In this scenario the ruling states this is PSI and the results test is not met.

A government department enters into a contract with Consultant Co for the provision of services by an individual who is nominated in the contract. The terms and conditions of the contract are that the individual is required to develop a product for use on the department’s IT system in accordance with functional specifications provided by the department. The contract specifies a fixed amount by way of payment to Consultant Co for the development of the product which is required to be produced within 12 months of the commencement of the contract. Instalments of the contract price are payable upon achievement of specified milestones. From time to time, the individual uses departmental equipment to access the department’s IT system. However, the development work is undertaken primarily on the individual’s own equipment located at her business premises. If the final product does not satisfy the functional specifications, the contract requires the work to be rectified. Consultant Co is a PSE because its income includes the PSI of the individual who does the work.

TR 2021/D2 at para 180

In this example the results test is quite clearly met. The issue is what if your situaion is somewhere in the middle? For example you are paid per hour but you are liable for the contract if the implementation does not work? At Maddick Consulting Group we are experts at PSI and can help you work out if the PSI rules do apply to you. Please get in touch today.

News

Allocation of professional firm profits

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Author Alan Maddick 2nd March 2021

The allocation of profits in Professional Services Firm has been an evolving area in Income Tax Law for a number of years (since at least the 1980s) its an area that I have worked actively in since starting my Practice. In the last few years the tax Office has actively engaged Professional Services Firms and their Advisers to try and develop clear guidance on what is allowable and what is not.

On one end of the spectrum we have some Professionals that treat their Business Income and PSI declaring 100% of their income on their personal return.

On the other end of the spectrum we have Professionals who are streaming all or a large majority of their Income to Family Trusts and other structures reducing their Taxable Income down to artificially low levels.

The treatment of these issues also varies from Industry to Industry with some (for example Accountants) paying little attention to the older case law and others like Medical Practitioners often relying heavily on the 1980s laws and guidance.

The ATO has recently released draft guidance PCG 2021/D2 to me this looks well written and does clarify the ATOs position. So what does it say;

The main message remains in line with other guidance publish over the last few years – there should be a commercial reason for any structuring that is put in place and overall the average tax rates paid should not be too low.

There is quite a bit more detail in the draft guidance from the Tax Office which is great and gives everyone a lot more certainty.

News

Illegal Phoenix

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When you run a Company, sometimes things can go wrong. Maybe you have made a mistake in your management of the company? This is ok, we are human and business can be complex. Or Perhaps something has happened out of your control like Covid -19 or one of your Customers not paying you.

In this case you can liquidate your Company and avoid paying many of the debts of your business, this is one of the great things about operating a business as a Company but in some cases Business Operators will take advantage of this to deliberately avoid paying debts. In this case as a Director you could be pursued by the Government.

From ASIC’s perspective, the key characteristics of illegal phoenix activity involve circumstances where:

A company fails and is unable to pay its debts;
Directors of that company act in a manner which intentionally denies unsecured creditors (usually small businesses and employees) equal access to that company’s assets in order to meet unpaid debts; and
Within some period of time soon after the failure of the initial company (usually within 12 months), a new company commences using some or all of the assets of the former business, and is controlled by parties related to either the management or directors of the previous entity.

https://asic.gov.au/about-asic/news-centre/articles/illegal-phoenix-activity/

If you are worried about the Financial position of your Company or trying to work out how to re-start your business after a failed business has gone under please come in and see us. At Maddick Consulting Group we will only advise you on Business Structuring that is Legal and Ethical.

News

BitCoin

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Bitcoin – wow. Back a while ago, perhaps 7 or 8 years ago a freind of mine explained what Bitcoin was and how he and his freinds were mining them using old PCs that they had cobbled together. Honestly my attitude was “what the hell are you talking about” I guess back then BitCoins were worth around $50 or $100 each, today they are around $40,000 each.

What is the future of Bitcoin and Crypto? Well right now they are going a bit nuts but really who knows what the future holds, certainly they have now moved from some fringe concept to a fairly mainstream Investment.

From a Tax point of view the Australian Tax Office does view BitCoin and Crypto Currency like any other asset so yes if you were as lucky as my friend you now have a rather large tax issue. You can read more about the ATOs view of Crypto here if you would like to discuss your tax position please get in touch.

An emerging area we are seeing here at the practice is more and more people wanting to use their Super Fund to buy Bitcoin (or other Crypto Currencies). This is possible and relatively straight forwards, to get access to Crypto with your super you will need to set up a Self Managed Super fund and then purchase currency from there. We have plenty of experience in this now and there are a few special issues you need to be aware of so we do highly recommend you talk to a professional before starting down this path.

If you would like to know more about how we can help you invest in BitCoins or Crypto Currency please get in touch.