Federal Budget 2020-21

The Budget is usually presented in May and as accountants, we get a nerdy excitement at the prospect of the tax planning that results.  Of course, this year is different.  Tax planning went out the window in April and was replaced with Stimulus planning.  The delay of the Budget until October seemed a lifetime away yet here we are, seven months into a global pandemic, sifting through a document full of unprecedented spending to kickstart our economy.

We knew the headline figure would be large, and the $213.7 billion deficit was not a big surprise.  In fact, there were few surprises in this budget as most of the measures had been announced prior to the budget being presented.  It has been clear that the Government sees the construction industry as a key driver to recovery.  As a business owner (particularly if you are in a Trade business) there is a lot in this for you, so let’s explore how this budget can help you to kickstart the Australian economy.

Personal tax cuts

The tax cuts that were expected in 2022-23 have been bought forward to this financial year.  The 19 percent tax bracket will increase from $37,000 to $45,000 and the 32.5 percent bracket will increase from $90,000 to $120,000.  The Low Income Tax Offset will increase from $445 to $700 and the LMITO (low and middle-income offset) of $1,080 will remain for an additional year, ending after 2020-21.  Ultimately this means more money in the pay packets of 11.6 million workers.  This money will be available almost immediately once the tax cuts are legislated.

I find it a little amusing that the tax cuts have been backdated to 1 July 2020.  I have no idea how the ATO would administer a mid-financial year tax cut so this a logical move in my opinion.

As a nation with one of the highest personal tax rates in the world, this is welcome news.  Bring on the Stage 3 tax cuts from 1 July 2024 which will flatten the tax rates resulting in 95% of taxpayers having a maximum rate of 30%.

Temporary Full Depreciation

We have become accustomed to budget changes to tax-deductible depreciation since 2012.  The government has been moving the deductible amount and the eligibility thresholds which has increased business investment in capital items by bringing forward the resulting tax deduction.  The latest measure is going to benefit almost every business who can invest in depreciable assets.

The temporary full depreciation measure takes away all the thresholds and eligibility (with the exception of those with turnovers exceeding $5 billion).  This means you can fully expense any ‘eligible’ assets purchased between 7.30 pm on 6 October 2020 that are installed and ready to use prior to 1 July 2022.  You can also fully expense the costs to improve existing eligible assets.

The key facts here, the asset must be an eligible asset which means it is a business asset subject to Division 40 depreciation.  Buildings and structure improvements to buildings are subject to a different type of depreciation (Division 43) which means the full depreciation is not going to apply to a property purchase or structure renovations.  You cannot use it for personal assets such as a new boat or investment purchases such as your rental property renovations.  The depreciation limit on luxury vehicles of $59,136 will apply, however many utes are not subject to this limit.  There are many assets that this will apply to and if you are intending to invest in capital in the next few years, this is your opportunity to maximise the tax deduction.

Temporary tax loss carry back

Our accountant minds are ticking away at how we can use this budget measure in combinations with the Full Depreciation to get you some of your previously paid tax back.  This measure applies to businesses with a turnover of less than $5 billion (so most businesses).  Without too many details available I imagine this is limited to those trading out of a company structure.

Essentially, if you have a tax loss in a business it will normally carry forward to future years to be offset against future profits.  However, it is expected that many businesses will have losses in 2020-21 and may not be able to use these for a few years.  As such the budget allows you to offset that loss against past taxes paid rather than carry the loss forward.

If you have tax losses in 2019-20, 2020-21 or 2021-22 you can offset these with tax paid in 2018-19 or later.  You will not be able to do this until the 2020-21 or 2021-22 tax return, so you don’t need to amend your 2020 return if you have already lodged this and it is applicable.

There are many questions that come out of this but no doubt it will be an excellent tax planning tool.  There was a loss carry back provision around 2012 -2014 so presumably, the rules will be similar.  We will be keenly waiting to find out how this will work.

It’s all about jobs

The government inspired catchphrases including the word “Job” just keep coming and the latest instalment is the JobMaker.  The JobMaker Plan involves $74 billion of spending to skill up our workforce.   If we are going to be creating new jobs, we need someone to do those jobs.  With high rates of unemployment, we need to find a way to direct people to areas that will need workers, at the same time creating sustainable careers.

Much of this money is directed at young people with the following key initiatives:

Boosting Apprenticeship Wage Subsidy.  The first lot of stimulus support for retaining apprentices was retrospective.  The apprentices needed to be in your employment before the key dates for you to be eligible for the wage subsidy.  This new initiative will help you to hire a new apprentice after 5thOctober 2020.  There are no restrictions on business size or employee numbers like the first and second round of apprentice wage subsidy.  The subsidy will be a quarterly payment of 50% of the apprentice’s wage up to $7000 per quarter until 30 September 2021.  This is expected to support up to 100,000 new apprentices and trainees.

JobMaker Hiring Credit.  Aimed directly at youth unemployment, payment will be made to businesses who create a job for an eligible employee from 7 October 2020.  An eligible employee is aged between 16-35 and is on Jobseeker, Youth Allowance (other) or Parenting Payment for at least one month of the 3 months prior to their hire.  The subsidy will be $200 per week for those aged 16-29 and $100 per week for those aged 30-35.  The program will be available for 12 months and subsidy is intended to run for the employee’s first year of employment.

JobTrainer Fund.  A fund of $1 billion will be established to support free or low fee training places, expected to benefit up to 340,700 people.  This money is meant to be directed to courses with areas of genuine skills needs, and presumably, some trades would be classified in this area.

Infrastructure spend

An effective way to create jobs is to initiate big infrastructure spending.  The budget added an additional $10 billion to project funding increasing the spending to $110 billion over the next 10 years.  The additional $10 billion announced in the budget is expected to be spent in the next 4 years, indicating an urgency to get these projects underway.

Much of this spend involves road, rail and water projects.  Money has been directed to State and Local governments for road upgrades, and presumably, some of these projects can be rolled out reasonably quickly.  Tradies, the demand for your services will be high over the next few years.

Housing Construction

For those not geared up for a large infrastructure project, the government has extended the First Home Loan Deposit Scheme by adding an additional 10,000 places. This allows first home buyers to enter the housing market to build or buy a newly constructed property with only a 5% deposit.

In conjunction with this, the Government is providing an addition $1 billion to enable the National Housing Finance and Investment Corporation to guarantee low-cost finance for eligible applicate to build affordable housing.

These initiatives are expected to generate $1.5 billion in additional economic activity.

Cutting red tape

The Government has relaxed a few things to make it easier for us to do business.  Of note are the following changes.

Insolvency Changes. The rules around trading while insolvent relaxed during COVID-19 but more permanent changes will be introduced from 1 January 2021.  The changes are aimed at small businesses allowing a lower cost process to restructure debts while they stay in control of their company.  There will also be a quicker, lower cost liquidation process available for those businesses that cannot survive.  These measures will be available to those companies that have liabilities of less than $1 million.

Relaxed credit rules.  If you have tried to borrow money from a financial institution in recent times you will understand that the processes are extremely restrictive.  The Government is relaxing the tight constraints that have been applied, hopefully allowing more people to access the funds required to spark investment.

While there has been a lot of criticism over this change in the regulatory framework of our credit laws, it will not be relaxed for the small loans and leases that are targeted at the more vulnerable (such as pay-day loans).  I personally think the relaxation of the laws will be a good thing.  The red tape we have to go through to get our clients even a basic loan has been incredibly restrictive and I cannot see how increased investment spending would be able to occur without this change.

Other spending and changes

Of course, there are plenty of other items in this budget, including investment in the Women’s Economic Security Statement 2020, changes to R&D concessions, spending on our security, the environment and health, but I have tried to highlight the items that are of interest to business owners.

One item that may be of interest to those who have young adult children is the increase of the age of dependents under private health policies from 24 to 31.  It was not highlighted in the speech, but I found it buried in the budget papers.

What next

Like all budgets, the bill will be debated and passed through parliament and then the various departments will work on how to enact the new rules.  The budget gives us a taste of what is to come, but the details are what we need so we can start to take advantage of these new initiatives.  As a business owner, it is time to consider how you will use these initiatives to your advantage.  It is your responsibility to take advantage of this unprecedented spending to create jobs, invest in capital and build your business.  That, along with a vaccine and the opening of borders, is the key to our nation’s recovery.

This week is the crucial week for action for those on Jobkeeper 1.0 and those intending to continue to claim support via Jobkeeper 2.0.  The long awaited alternative tests were released by the Commissioner of Taxation on 22 September giving us more clarity and some tools to assist our clients in determining their eligibility for Jobkeeper 2.0.  Once again our mind is swimming as we seek to get the best support for our clients in this crazy time.

If you are one of the businesses who were not impacted sufficiently by COVID-19 to be eligible for Jobkeeper you must be very bored by these conversations by now.  However, there are around 960,000 employers who have accessed Jobkeeper 1.0, and many are uncertain if they qualify for Jobkeeper 2.0. This make planning for the next 3 months very difficult if you are not sure of your eligibility.  This week will hopefully bring the clarity you are waiting for as to your continued eligibility.

The announcement of the Jobkeeper extension was made on 21 July.  Changes to the tests were quickly announced on 7 August as a result of the lockdown in Victoria.  The alternative tests were released on 22 September demonstrating that the government is taking a more measured approach than the rush to bring support to businesses in April.  Yet despite the delay in their release, the alternative tests are in line with the predictions of accountants trying to assess client eligibility.

Here is what you need to know:


The End of Jobkeeper 1.0

·       If your business is currently receiving Jobkeeper 1.0, this finished on 27th September.  You need to ensure that you have paid your staff at least the minimum of $1,500 for the fortnight 14th September – 27th September.

·       Report your turnover for September using the regular monthly business declaration  between 1 October – 14 October to receive the last of your payments for Jobkeeper 1.0 (being the payments for the two fortnights in September).


The start of Jobkeeper 2.0

·       Assess if you are eligible to receive Jobkeeper 2.0.  I will discuss how to assess this below.

·       If you are eligible you need to assess which Tier of payment your staff fall into.  This is determined by looking at the average number of hours the employee or business participant were actively engaged in the business in the four week period before either 1 March 2020 or 1 July 2020.  If the average hours are more than 20 hours per week the employee or business participant receives a Tier 1 payment.  If less than 20 hours, the employee receives a Tier 2 payment.

·       Advise via Singe Touch Payroll which Tier of payment is applicable for each employee.  If you don’t use Single Touch Payroll you will need to identify your employees when you make you submit your details on the Business Portal or MyGov.

·       Make sure you pay the employee the minimum amount for each fortnight based on their Tier.  The minimum amount is $1,200 per fortnight for Tier 1 and $750 per fortnight for Tier 2.  You have until 31 October to get this minimum payment made for the first 2 fortnights of Jobkeeper 2.0, allowing you time to properly assess your eligibility.

·       You will need to submit details of your businesses actual decline in turnover to the ATO between 1 – 31 October 2020.

·       In November you will need to continue with the monthly business declaration, not only declaring your turnover but which Tier your employees were paid for over the course of the month.

·       You will continue to be eligibly for Jobkeeper 2.0 until the next retest point at the end of December 2020.


Keep your employees informed

While there is no requirement to get new declarations from your employees for Jobkeeper 2.0, make sure you inform them of your eligibility, or not, so they can be aware of the circumstances.

Note, the eligibility tests for employees has not changed.  If you had assessed the employee eligible for Jobkeeper 1.0, the employee will continue to be eligible for Jobkeeper 2.0.  The start date of 1 July is the testing date for permanent employees and long term casuals and it is still the ”one in, all in” situation, meaning you cannot pick and choose which employees receive Jobkeeper.


The business eligibility test

When considering your eligibility for Jobkeeper 2.0, remember that this extension is really designed for the businesses who have been severely impacted by COVID-19.  In many cases businesses have returned to normal trading (although maybe slightly reduced) in recent times.  Jobkeeper 2.0 is largely designed to assist those in Victoria, and those in industries such as entertainment and tourism that simply cannot operate in a normal way at this stage.  Of course, there will be a wider net of businesses that will pass the eligibility test because it is not exactly business as usual right now, but this test will be a lot more difficult to pass than the Jobkeeper 1.0 test.

When it came to testing for Jobkeeper 1.0 we had a few options.  We could test on any month between March and August, or we could predict that the March- June quarter would show the required decline.  The ATO accepted those predictions so long as there was a reasonable basis for them.  We could choose between turnover on a Cash or on an Accrual basis.  With many businesses trading in a very different capacity in April and May, it was relatively easy for an effected business to pass the test.

There are no predications in Jobkeeper 2.0.  The test is based on actual figures and rather than looking at a month, it considers an entire quarter.  We need to look at the actual GST turnover from July- September for our comparatives.  The ATO prefer you to compare on the same basis as your Business Activity Statement (you either report on a cash or accrual basis) although they have said you can use the other basis this may be questioned by the ATO when your BAS comparisons don’t stack up.

The comparatives will be based on what your reported as your GST Turnover in your July- September 2020 BAS, and your July – September 2019 BAS.  To be eligible you need to show the 30% decline in turnover this year compared to last year, unless your business has a turnover of more than $1 billion per annum, in which case you need to show a 50% decline. The decline in turnover test for charities and not for profits is still 15%.

For most businesses it should be very simple to compare and determine eligibility.  If you qualify you will get Jobkeeper 2.0 from October – December.  You do not need to retest again until the end of December when a further extension is available at a further reduced rate until 28 March 2021.

Do not by surprised if you have dropped out for Jobkeeper 2.0.  If things go particularly bad in the October- December quarter the Government have left the door open for you to retest for the January- March quarter and jump back into the scheme.  Fingers crossed that will not be necessary.


The Alternative Tests

Aware that circumstances may prevent the traditional test to be appropriate for some businesses, the ATO has issued alternative tests that may be used.  These tests are very similar the initial alternative tests that were advised for Jobkeeper 1.0.  Remember, these are designed for businesses that have unusual circumstances and to be eligible to use an alternative test you must satisfy a condition to use the test, as well as pass the alternative test itself.

Below is a table explaining the alternative tests.  Note, if your business qualified for the ATO Bushfire’s 2019-2020 lodgement and payment deferrals, or received Drought Help concessions, you can exclude the months that these concessions or deferrals covered from the calculations, unless they are the only months that the business operated.  If this is applicable to you, I suggest you read the legislation at this link for more details on how the bushfire or drought figures impacts your test.




I know this seems extremely complicated and if you think one of these tests may apply to you, I strongly suggest you seek the advice of a professional.

It is going to be a busy month ahead with all these things to consider, along with Business Activity Statements to be lodged and our first of our lodgement deadlines coming up on 31 October 2020 (typically for those with overdue returns).  Have patience with your accountant.  They are doing their very best to get you through this challenging time.

When I think about time I feel a mixture of emotions.  It is something that is often on my mind or in my conversations.  Do you have time, how long will this take, I’m running late, I’m running out of time!  So much of what we do is based on time and I believe it is our most precious resource, yet others do not value our time in the way they should.

Tradies, like accountants primarily sell one thing – time.  It has taken them time to develop their specialised skills.   If they choose to spend a moment of their precious time solving a problem for a client, they deserve to be compensated for it.   It is the same for any skills-based profession, however I feel that tradies, like accountants often get a bad rap for the time it takes them to do a job.

Why is this?  Like tradies, accountants provide a service that is typically not a choice, nor is it exciting.  Accountants fill out forms to advise the authorities of the position your business is in and calculate the amount of tax needed to be paid.  No one wants to pay tax so often we are the bearers of bad news.  Your company has done really well this year, you have made a really good profit and now you have some tax to pay!  How often do I have to explain to clients that this is a good thing.  You have made a profit.  I am sure you did not get out of bed each day to run your business at a loss.  Yet the words profit and tax often provoke fear and sadness in business owners.  The fear and sadness is amplified when we dare to send an invoice for the time it took for us to prepare the accounts, analyse, minimise and calculate that tax position.

Tradies often face the same challenges, particularly if they are working for the public.  Clients do not choose to have a blocked drain, a broken car or an electrical fault.  The fact that you are solving a problem for your client can be forgotten when the invoice is raised.  But you just did this?  How hard can it be?  How can it be so expensive?  Hey there, you asked me to use my skills to solve your problem, skills I have trained in and developed yet my value should not count?

Tradies (like accountants) also have to contend with those who look for the cheapest option or think they can do the job themselves.  We are then called in to fix the problems that these cheap or DIY alternatives cause.  The old saying you pay peanuts, you get monkeys is very true when it comes to skilled professions.  Solving this problem and explaining the value of your work can be difficult.

Another parallel between tradies and accountants is the “head in the sand” customer.  For tradies, it is the client who knows there is a problem but leaves it so long to get it fixed that the problem becomes critical and much more expensive to resolve.  In the accounting world this is the client who has not lodged tax returns or BAS’s for a long period of time.  We try to help them, and they sometimes expect a discount because they are providing us with a “bulk” job to do.  We rarely discount these types of jobs.  We do not want to encourage this sort of behaviour.

So why does this lack of value of our time frustrate us?  It is because time is a limited resource.  As I write this I am currently 50 years old and I have a life expectancy according to the OECD 2017 (Table S6.2) of 84.5.  Based on this, I am due to die on 19 September 2053.  Let’s see how accurate that is!  What is important to me is based on this information I have 300,852 hours available to me and every single second this clock is ticking down.  I could die tomorrow, or I could live well beyond my expected date of death.   The clock keeps ticking down and those finite hours are precious.  If I chose to spend my precious hours helping a client I need to be compensated for it.

How do we value our time?  There are a few concepts you can use.  The first is what I call the thirds model (I am sure there is a more sophisticated name for it).  This model takes the base salary of an employee and effectively times it by 3.  1/3 is for the salary, 1/3 is for overheads and 1/3 is for profit.  This works perfectly if the employee is 100% productive however that is the seldom the case.  In accounting we adjust the salary to their productive salary (eg they are productive 65% of the day so we gross up their base salary to reflect this) and then use the 1/3 model.

Business owners typically work more than the standard 38 hour week and as such, their charge rate needs to reflect more than this.  There are two other concepts I want to raise, both are economic  concepts; opportunity cost and supply and demand.

Opportunity cost is the value of what you could otherwise be doing with your time.  If you are working on weekends or getting called out at night you should be applying a factor to your charge rate for the opportunity cost of not getting to spend time with your family.  If you must stop one job to attend to an urgent job, you should be factoring in the opportunity cost of potentially losing that first client because you were not able to serve them in the way you wanted to.   The opportunity cost of our life clock clicking down is that we probably have things we would prefer to do with our hour than work and there should be value placed on the choice we have made to work rather than enjoy time with our family or friends.

Supply and demand is an interesting and relevant concept.  This is the first economic theory we learn in high school and is fundamentally basic, yet we challenge it all the time.  The price point of a good or service is determined by the supply available on the market, and the demand for the good or service.

Media will tell you that plumbers charge more than doctors for their time.  I don’t believe this to be the case, doctors still earn very good money, but this notion is based on supply and demand.  Society in the more recent years has valued a university education above that of a trade.  Kids are leaving school and without any idea of what they want to do in life, head to uni to study something that may lead them in the direction of a career in the future.  I believe the smart ones are those like my son, who really does not have a head for study, and has decided to be an apprentice.  Not only do they start to earn money from day 1, they are gaining skills in an industry that has high demand and low supply.  This equates to a higher price point.

Even within the industry, there is a difference in skill levels.  If you are providing an excellent service and the phone keeps ringing, you are in high demand.  You are only human, you can only spread yourself so thin and you may well be covering that increased demand by forgoing the opportunity to spend time with your family.  You deserve to charge a higher price and you should proudly say how much you are worth.

We all have one life to live, one clock that is ticking down.  Let’s value our most precious resource and be brave in confronting those who challenge our value.

Have you taken a good hard look at yourself over the past few months when your normal routine changed?  I certainly have.  There are things I liked and things I definitely didn’t like about the way I adjusted to the temporary new normal.  I really liked my commitment to exercising (there are no excuses when the most exciting part of your day is going for a walk).  I very much enjoyed connecting with my husband as my busy travel schedule came to an abrupt halt and I was required to stay at home.  I was not so fond of the frequent trips to the fridge or the increased consumption of alcohol.  I became accustomed to wearing gym pants and found comfort working in my home office.

It is common thought that is takes 21 days to make a habit and 90 days to make it into a lifestyle.  We have certainly cracked the 21 days with the lockdown measures, but will your lifestyle be permanently changed in some way as a result of COVID-19?  Personally, I really hope to reduce the amount of travel I do now that I can so easily conduct a meeting over Zoom.  That will impact my lifestyle allowing me to explore new ways to use my time.

Perhaps now is an opportunity to work on some new business habits as we start to move out of the severe restrictions and back to something closer to normal.  I feel it is almost like the start of new year, we have that line in the sand when we can look at what we did BC (before Covid) and see what we can adapt to our advantage going forward.

I have no idea how we would have coped this past few months without technology.  Not only has it benefited our business, it has benefited our clients.  Now is the time to consolidate on this and encourage the use of more technology.  I feel that the fear of technology has been partially eased as we all had to embrace technology to remain connected.

If I can get my parents to partake in a weekly family Zoom catch up, there is hope for those who have neglected to take up technology options because it all seemed a little too difficult.  It really wasn’t that hard to find and use an online product that has helped over the past few months, and it is not just the millennials jumping online to conduct business.  Baby boomers and GenX are moving online and getting pretty good at it.

Even our business which I consider as an early adopter of technology has made changes.  We had to close our offices very early in the pandemic as we had a scare that effectively required all of our staff to self-isolate. The one problem we had was our phone system which required someone to be at an office location to answer the phone.

Always up for the challenge my business partner Michael sought a solution.  We now have a phone system that works over the internet and allows us to take, make and transfer phone calls using the Microsoft Teams product.  This means our work locations are no longer limited.  Our staff working from home can communicate with clients using their mobiles of through their computers via our work number.  After a few small hiccups we are now excited to be using our new phone system up and running.

Another app we have been promoting as a great benefit to those who have the bad habit of losing receipts, is Hubdoc.  Hubdoc is an app you can download on your phone and take photos of your receipts, feeding them directly into your accounting software.  Hubdoc is not the only product out there so speak with your accountant for the most appropriate solution for your business, but if you are using Xero, you will have Hubdoc as part of your subscription.

It is simple to use, particularly for your Tradie.  It is great way to break that habit of throwing receipts into the centre console of the car, or on the floor where they fade and are lost forever.  Now is a great time to start a new habit of taking those photos.  So how do you remember to do that?

Most habits are motivated by some sort of trigger.  Here is my suggestion on how to get into the habit of taking a photo of your receipts.  When you are at the shop, or the service station and the cashier asks if you would like a copy of your receipt, ask if you can take a photo instead. Use the question as your trigger.  Before long it will become second nature to opt in for a photo.  You will have a permanent copy of your receipt attached to the associated expense without the need to keep paper files.

As an alternative to taking a photo at the checkout, dedicate a time each day to take a snap of your receipts, but link it to something else you do everyday.  It may be when you watch the news, or as you crack open that first beer in the evening. Grab your phone and take a few pictures while you are watching the advertisements. Why not also take that time to reconcile your transactions in your accounting product?  A few minutes each day and everything will be done. The wonders of technology.

Associating a task with something that is already a habit makes it so much easier to introduce that as a new habit.  We all have habits that are good and bad, but lets take advantage of this fresh start to bring new technology and new good habits into our business lives.

Every Monday I start my week with an early morning Reformer Pilates class.  It is a lesson in vulnerability and personal strength as I manipulate my body in challenging new positions that I thought I would never have been capable of.  This morning the only thing preventing a spectacular fall from the machine was a fluffy band and my will and strength not to embarrass myself. I saw this as a metaphor for life right now, particularly business life.  I don’t know if my body can do the exercise that I attempt because I have never done it before.  The outcome is unpredictable, but I try it anyway.  We are running our businesses in this strange time with a level of vulnerability we have not seen before.  To succeed we must trust in our own strength and instinct.


I am sure COVID-19 has taught us all many life lessons and it is going to teach as so many more as this pandemic lingers as a disruptive force to our life for many years to come.  One thing that it has taught me more than anything is that life is completely unpredictable and trying to learn to deal with this unpredictability is a critical new skill to learn.

I think we all find comfort in predictability, even those who like to think of themselves living an “unpredictable” life.  In business, predictable is a necessary thing.  We create budgets, make plans and decisions all based on the fact that what we know from the past will be recreated into the future.  Right now, it feels that some of that has gone out the window.  As a business owner this can cause stress and anxiety, particularly for those who are working in an industry that has been highly impacted by COVID-19.


One of my husband’s favourite sayings is “let’s just see what the tide does”.  While I love this reference to surf culture and a free lifestyle sitting on a beach somewhere, it is can also be rather infuriating for someone like me, an accountant.  While there are unpredictable elements of my job, overall we know that our workflow goes in cycles and we can set out targets based on these cycles.

We are fortunate in that at this stage our work has only become more intense as a result of Jobkeeper and the other stimulus measures.  Compared to so many businesses out there we have nothing to complain about, but even with a level of predictability we are having difficulty making business decisions.  We are not sure how many of our clients will survive.  We are not sure how many of our clients will be able to afford to pay our invoices.  We are not sure how long it will take for those invoices to be paid.  In the back of our minds we are also concerned about staff getting sick and the impact that will have on us meeting our client’s needs. There is definitely an element of “seeing what the tide does” in our business at the moment.

This, however, is no excuse not to plan.  If anything, it means planning is more important that ever.  Planning now needs to account for unpredictability as well as predictability.  Your “what if” analysis has a whole bunch of new factors to consider.  Now is the time to be savvy about your business, to tighten your procedures, to enhance the customer experience and introduce better technology to give you a competitive advantage.


As a starting point take 15 minutes to write down your concerns about your business in this unpredictable time.  This may include loss of customers, staff unable to work, your customers going into liquidation meaning higher bad debts, or the fact that you simply cannot work as the government has closed your business.  Then start to formulate a plan to tackle this if the worst does happen.  We are fortunate to have some government support at the moment but this is not going to last for ever.  We need to be making plans for a business life after the support drops off.  That business life may look different to what it has looked like in the past.

No one knows where this pandemic is going to take us and honestly, it is OK to be looking one day at a time right now.  I am sure no business plan written in 2019 factored in a global pandemic.  What is predictable is that we will survive this and one day life will return to normal, even if that normal looks different to what we have known in the past.  People will still need to eat, be entertained, be clothed and housed.  Trade businesses are still going to be in strong demand.  Taxes are still going to need to be paid and most business owners will need someone to help them prepare those taxes.  What that will all look like into the future we do not know, so we need to adapt as the new models for doing business emerge.  It will be survival of the fittest, so be the fittest.  This means you need to be nimble and have great systems so you can adapt.


Tomorrow is unpredictable, and so is the day after that, and the day after that.  Unpredictable is starting to be predictable itself.  Strong business owners will learn to live with this and find ways to make the most of it.

I was just finishing university when Australia had its last recession and I honestly don’t remember that much about it.  I do recall our then Treasurer Paul Keating famously declaring that this was “the recession we had to have” and getting my first job as a graduate was very difficult, but the gravity of the situation certainly didn’t sink in as I was in my early 20’s.

That recession was in 1990-1991 and we have been fortunate to escape recession ever since, even during a Global Financial Crisis.  Thirty years later due to circumstances beyond our control we are slap bang in the middle of a severe recession.   This means that most business owners, including myself as a 51 year old, are experiencing this for the first time.  It is uncharted territory in so many ways.

Technically a recession is a fall in Gross Domestic Products (GDP) for two quarters in a row.  If you are not sure what GDP is, think of it like revenue in your own business.  GDP is the collective revenue for the country.  It is better to have more revenue than less in our country, just like it is better for your business to be selling more, not less.

When I think about recessions I am taken back to high school economics.  I loved economics at high school, but hated it at university.  In fact, I sucked at university economics because it was very complicated.  When we were discussing things like monetary and fiscal policy, supply and demand at high school, it just made sense.  High school economics started my love for business.  I really think as a first step to tackling this recession we need to revisit the fundamentals we were taught in high school.

I am not suggesting that this recession is as simple to understand as high school economics.  We have a layer of complexity that we have not confronted before in COVID-19.  Economics is based on the “perfect” market, which means that resources can simply move from one place to another when an opportunity arises, and information is equally available to everyone so that decisions can be made in a timely and efficient way.  This notion is unrealistic even in normal times but with the shut down restrictions and border closures, our market is far from perfect right now.  Yet that will not prevent our leaders from resorting to basic economic principles to help dig us out of this recession.


Supply and Demand

If you studied economics you will recall drawing a simple graph to demonstrate that the market price of a good or service is the intersection between supply and demand.  While that makes total sense, it is something we can overlook when we are pricing the products or services we sell.  We have seen some excellent examples of Supply and Demand impacts in the past few months as the price of products like hand sanitiser and face masks has skyrocketed as they have had a shift in demand, and the supply chain cannot meet that demand.  The price is correspondingly much higher than it was at this time last year when we didn’t really need these products in the same way that we do now. On the other hand retail outlets are constantly reducing the prices of their products to get stock moving.  People are just not buying certain products at the moment.

What is the demand for your product and how has it been impacted by COVID-19?  Life has not stopped altogether but if your product is a bit of a luxury, or something that can be delayed until better times, you will be starting to see a decrease in your revenue.  Knowing your customer, what they are experiencing and how this will impact their spending is critical to understanding the demand for your product.

If the demand for your product or service is reducing you need to consider a couple of things.  Clients will be price sensitive and maybe now is not the time to be raising prices. You still need to make a living so rather than dropping prices perhaps you need to be ahead of your competition.  Word of mouth is going to important and excellent customer service will help you to beat your competition when the pool of work reduces.  There will be competitors who undercut you on price but having the confidence to quote well and inform your potential clients of the benefits of quality over quantity will be more important than ever.  How will your business sharpen the experience for the customer?  How will you adapt to a reduction in demand for your products or services?


Monetary and Fiscal Policy

The two main ways a government can influence the economic outcome of a country are through Monetary Policy and Fiscal Policy.  Monetary policy is all about interest rates.  Changes to interest rates will impact our decisions to invest and save, as well as impact how much foreign investment we attract.  This delicate balancing act in turn impacts our economy.

The Reserve Bank of Australia look after monetary policy and you are probably familiar with the monthly publication of the official cash rate.  Reducing the interest rate is a tool to increase the investment that businesses make in our economy which should increase our GDP. The official cash rate is currently sitting at 0.25% as a result of many years of reduced interest rates.  At the present time, monetary policy has pretty much done what it can.  We really can’t go too much lower.

Without the assistance of Monetary Policy, we need to rely on Fiscal Policy.  Fiscal Policy is money injected into the economy from the government.  We are witnessing an incredible shift in our Fiscal Policy right now as we see our Budget Deficit grow to incredible numbers.  The necessary spend by the Government injects money into an economy that cannot sustain itself.  The Fiscal Policy impacts will be both short term and long term.

Our short term fiscal stimulus cannot go on for ever.  While so many businesses have benefited from Jobkeeper, Cashflow Boosts and other stimulus measures, we know that this money is going to drop off at the end of September.  It was always intended to be a short term fix.  The way to build our economy is to create jobs.  Infrastructure projects create thousands of jobs and we can see that this where the government will be focusing their longer term attention.

The construction industry are going to be the front line workers to drive our economy forward.  Infrastructure projects require tradies, and plenty of them.  There will be plenty of work but will you be in the right place to take advantage of this work?  The demand for Tradies will be high but there is going to be a lag between now and these projects being in full swing.  You need to be planning for this.



Unemployment is expected to reach 11% or higher in the next few months.  That is an incredibly high rate, and few of us remember a time when unemployment was so high.  People who are unemployed do not have the money for discretionary spending.  This means businesses that thrive on discretionary spending will have less customers.  In the next 6 months there will be many businesses that shut their doors.  It is going to be brutal, extremely sad and stressful for everyone.

Your focus for the next twelve months will need to be the survival of your business.  You should not expect to make extraordinary profits unless you are in an industry that is benefiting from the COVID-19 crisis.  You need to buckle down and get your house in order so that you can make it through.  Now is the time to think about the fundamentals of your business and go back to the basics so that you can be one of the surviving businesses at the end of all of this.

Just like the recession in 1990 and all the other recessions and depressions before them, the economy works in cycles and we will be return to a good place one day.  Riding out the storm will be tricky but it could make you a better business owner as you face the challenges ahead.   Read, learn, plan and adapt.  Lets hope this crisis is over soon.

It’s that time of year again, and I will no doubt be having the same conversation with many of my children’s friends who are new at lodging tax returns.  They will want my help to get as much tax back as possible and explain why their expectations do not necessarily match the reality of the tax refund.  So, to save time and reach a larger audience, I am writing this for you, the first time taxpayer.

Tax accountants wonder why the fundamentals of tax are not taught in school, but if you are like any other normal kid, I am sure a lesson on tax would have made little impact on your understanding of the Australian tax system.  Your mind would have been drifting off to something much more exciting because let’s face it, tax is boring.  That is until it becomes interesting to you when there might be something in it for you.  Yes, I bet you already have your anticipated tax refund spent.

How is that mystical refund calculated?  I am sure you have plenty of questions all of which are completely normal.  In fact, I am still explaining this to people who have been lodging tax returns for many years.  Tax can be complicated to understand. There are plenty of older people who are as confused by the tax system as you are.  Perhaps you should get your parents to read this as well.

Lodging your first tax return is a very grown up thing to do.  I see many parents taking a step back when it comes to organising your tax return.  It is one small act of responsibility that will set you on a good path as a tax paying citizen.  Lodging your tax return is one of those things you have to do each year.  It does not have to be scary, but if you leave it too long or ignore it altogether it can become an unpleasant experience (like going to the dentist).  Fortunately, in most cases your early tax returns will result in refunds encouraging you to attend to this life task each year.

Let’s break down some myths so you can feel a little educated when it comes time to do your tax.


Myth 1 – I hear that you get all your tax back the first time you lodge a tax return

Sometimes this is correct, but the ATO do not see you differently to any other taxpayer in Australia.  You don’t get a special exemption from paying tax just because it is your first time.  Tax is calculated on the total income you have earned for the year.  If you were fortunate enough to have earned income that takes you above the tax free threshold of $18,200, you will be contributing some of your income to the Australian Government in the form of tax.  Many first time tax payers have not earned a lot in their first year, so they may get all their tax back, but it is not a given.

The way your tax is calculated is quite simple in theory.  You calculate all of your income from various sources, including wages, interest, dividends and any work you do as a sole trader on an ABN.  You then take away any deductions that the government allows, and this gives your taxable income.  There is a formula applied to your taxable income to work out how much tax you need to pay.  This is compared to the tax that has already been taken out of your wages.  If you have had more tax taken out of your wages than needed, you get a refund.  If you have had less tax taken out of your wages than needed, you need to pay. This is the same for every taxpayer.


Myth 2 – If I buy some thing that I can use as tax deductions, I will get that money back

Not exactly.  A deduction reduces the amount of income that you have earned and this means the amount of tax you need to pay on that income is a little less.  The amount of tax you will get back on your deduction is based on your marginal tax rate (I will explain that later).  If your income is around $30,000 for the year, your marginal tax rate is 19%.  This means you will get back 19% of the expense.

If your income is $18,000 for the year, your marginal tax rate is 0%.  You guessed it you will get back $0 for your tax deduction.  You should never buy anything just for the tax deduction.  There should always be some other reason you are spending your money.  The tax deduction may be an advantage but should not be the only reason you make a purchase.

Your refund will be based on the amount of tax your employer has taken out of your income.  The ATO do not mystically give refunds just because you purchased something.  If your employer did not take any tax out, there is nothing to refund.  The best you can do is get back the tax that has been taken out of your pay.  You will not get any more tax back than that.


Myth 3 – My friend got heaps of tax back this year, I should get the same shouldn’t I?

Although tax is calculated using a formula, everyone’s circumstances are different.  Your income and deductions are not going to be the same as your friends, they are unique to you.

It is also possible that your tax is calculated with a slightly different formula to that of your friends.  If you have a Study Assist debt (eg HECS) and you go above a certain income level you will start to pay some of the debt back.  Private health insurance, Medicare Levy and Medicare Surcharge may effect the overall tax calculation.


Myth 4 – I think I have earned enough to move into a higher tax bracket. This means I am going to be higher tax on all of my earnings

This is a very common misconception that I discuss with taxpayers all the time.  Tax is calculated on a scale that increases the amount of tax you pay as your income gets higher. However, you only pay the higher tax rate on the income that is earned at the higher rate.

Let’s say your taxable income is calculated at $50,000 for the year.  On the first $18,200 you pay no tax at all.  This is the same regardless of how much you earn.  Between $18,201 – $37,000 you will pay 19 cents in the dollar and then you will pay 32.5 cents in the dollar between $37,001 – $50,000. On top of this you will pay 2% in Medicare levy.   The total of all of this is $7,796 + $1000 (Medicare Levy) = $8,786.   This is very different to thinking you will pay 32.5 cents on all of your income which would mean you would be paying $17,250 in tax.  That would be really bad.

So yes, you will be paying tax at a higher rate, but only on the income that relates to that higher tax bracket.  It is always better to earn more money than less.  There is no reason to reject a higher income because you will be paying a higher rate of tax.

The tax bracket your income falls into is known as your “marginal rate”.  In the case of a $50,000 salary your marginal rate is 34.5 cents (32.5 + 2 cents for Medicare Levy).  This means that any tax deductions will give you back 34.5 cents in the dollar.


Myth 5 – I have private health insurance so I should not have to pay Medicare

Medicare is levied on all taxpayers unless your income is very low, or you are exempt for a special reason.  Private health insurances prevents you from having to pay Medicare Surcharge, not the Medicare Levy.

Medicare Surcharge is extra tax that you pay if you don’t have private health insurance and your income is at a higher level.


Myth 6My employer is paying my Study Assist Loan (eg HECS) as a deductions from my pay so why is it on my tax return?

Your employer does not know how much you owe on your Study Assist loan, only that you have one (because you have told them hopefully).  They are taking extra tax out each pay to cover this, but the calculation of how much needs to be paid off your loan only happens when your tax return is done.

If you have not told your employer that you have a Study Assist Loan and you earn enough to start paying it back, you will probably end up with a tax bill.  Make sure you tell them so they can take some extra tax out.  It may take a few years to earn enough to start to pay your loan back but the debt will not go away.  It can be a nasty surprise if you have not informed your employer about it and not enough tax has been taken out.


Hopefully this has helped your understanding a little but I am sure you will have many questions.  Sometimes it is good to get a little help with your first tax return or take some time to read up on what you can and cannot claim based on the work you do.

The ATO has some excellent guides to help you based on your occupation.  Find the one relevant to you using the link below.


Finally, remember to be honest in what you tell the ATO and keep records of your receipts or calculations. Get into some good habits and lodging your tax return will be a breeze for years to come.

Cashflow is one of the biggest issues facing small business.  We all complain about it and get upset at the client who has not made payment, particularly if you have gone out of your way to do a great job for them.  In my business cashflow management is a huge issue as we have a large number of clients and it is very easy to lose control of our Accounts Receivable.  You need to be vigilant.  Take you eye off those debtors and they can very quickly get out of hand.

Money is what makes business happen.  If we don’t invoice our products and services, we don’t get paid and we are no longer in business.  Yet discussing price and payment is a topic that many of us do not feel comfortable with.  I know, because I am one of those business owners who cringes at discussions on pricing and payment.  Debt collection is without doubt my least favourite part of owning a business.

There will always be clients who don’t pay you bills or have difficulty paying our bills, but are we doing the best we can to give our clients the opportunity to pay our bills?  What is your invoicing process?  How easy is it for your client to make payment?

Here are four tips to help your client make timely payments of your invoices.

1.       Use an online invoicing system

Whether you are using Xero, QBO, MYOB or a purpose-built app, there will be the ability to create and send your invoices on the spot.  Honestly, if you are still handwriting your invoices you need to move into the 21st century.  We have mobile technology in our telephones that is infinitely greater than anything we could have imagined 20 years ago (when it was standard practice to hand write or type up invoices).  Everyone who is below the age of 80 (and many who are over the age of 80) has an email address.  Why are you not using the mobile app on your phone or tablet to create the invoice and deliver it (via email) while you are with your client?  I guarantee if you sit down with your accountant for 1 hour to get your invoice program set up, and you genuinely take an interest in learning how to use the program – you will be able to do it.  The investment you make by paying your accountant to help you, taking the time to learn and paying the subscription fees for the software WILL pay off if you embrace the technology.

The faster you get your invoice out – the faster you will get paid.

2.       Attach a payment system

Do you have the option on your invoices to press the “Pay Now” button to allow for fast and easy payment?  If not, why not?  There are many payment apps out there that easily connect to your accounting system to make payment as easy as possible.  Examples such as Pinch (see link to interview below), Stripe, Go Cardless and Paypal are all very simple to set up.  These systems charge you for each payment, so you only pay when the service is used.  In many cases you can get the client to pay the fees, or perhaps you just accept the fees as part of doing business (and getting paid faster).

3.       Consider a card reader so you can get payment in person

The Square card reader is now available at Officeworks so it is fair to say that mobile payment devices are becoming mainstream.  It is a simple mobile app and a small device that allows your client to tap their card while you are out on site.  You can’t get paid much faster than that.  For more details check out their website.


4.       Debt collection policy

It is important that you have a policy for debt collection, but that policy needs to be followed closely.  Due dates are given for a reason so if the due date has passed, follow up.  There are some people out there who will not pay invoices until they have been followed up (which I personally think is very disrespectful as a customer) but be aware that some of your clients may be waiting for you to chase them because that is their arrogant way of doing business.

As a customer I don’t wait for a follow up to pay my invoices, but I do sometimes forget that something is due and payable.  Maybe the invoice has been sent to one of my staff, so I was not aware it needed to be paid.  Maybe my busy schedule has not made paying an invoice as a priority and I have simply overlooked it.  Maybe you need to do something to get my attention? I am sure in most cases non-payment of invoices is simply due to an oversight.

Whether it be an automated invoice reminder (set up in Xero), a statement, an email or a text – a soft communication method will normally get your invoice paid.   If that doesn’t work a follow up phone call should be made to remind your client that you did something for them and they have not paid for it.  It is not for you to be embarrassed about – they are the ones who have not paid.  There should be no fear in asking for what is rightfully yours.

If you do not feel comfortable making these calls consider a debt collection service.  An example is Chaser https://chaserhq.com/, which is an app that integrates into Xero and provides real follow up on your outstanding debts.  There is nothing wrong with outsourcing the tasks you don’t feel comfortable doing. Your time is valuable so paying someone else to do something you don’t like doing is never a waste of money.

You have done the work and you deserve to be paid for it.  Take this part of your business seriously.  If cashflow is an issue for your business think about what changes you could be making to improve your cashflow.

Explaining how a Trust structure works to a client who does not have a legal or accounting background is difficult.  In fact, explaining a trust to someone who does have an accounting background can sometimes be difficult as well.  Trusts are complex beasts.  I spent a semester of my Masters degree intensely studying the topic of Trusts.  I have read many books and been to conferences specifically about Trusts, yet I definitely would consider myself an expert.  It is completely OK to think that Trusts are complicated because they are.

I want to share with you the way I explain Trusts to my clients.  This is an intentionally simple explanation.  I am aware that there is so much more to know, but I also feel that understanding the basic concept is a critical stepping stone in your journey to become the proud owner of a Trust.

Let’s go back to Ye Olde England

Trusts started back in 12th Century and relate to the King of England and The Crusaders, but I prefer to explain trusts as they would have been used in Jane Austin times.  I may be taking some creative liberty with this story, but I think it helps get the message across.

Back in those days, women were not able to own property in their own names.  This caused a dilemma for the wealthy landowner who only had daughters.  What would happen when he passed away?  How could he leave his property to his wife and daughters when they were not legally able to hold the title to the property?

Enter “Old Mate” down the road, the landowner’s trusted friend.  What if he left the property to “Old Mate” who could be the legal owner of the property, with an agreement (based on the landowner’s trust of the moral fortitude of “Old Mate”) that he would do the right thing by the women family members?  They could live in the property and benefit from any income the property would derive without any legal entitlement to do so. There is a distinct reason that the word “trust” is used!

Essentially a Trust is just a relationship.  The relationship between the Trustee (Old Mate) and the Beneficiaries (the wife and daughters).  The relationship between the legal owner and those who should reap the benefits of the assets of the trust.

In current time

Return from the times of Pride & Prejudice and think about your own trust structure and how it works.  The Trustee is likely to be a company (a Corporate Trustee) or it may be some individuals.  The rules that define the relationship between the Trustee and the Beneficiary are formalised in a document called the Trust Deed.  The Trust Deed names the beneficiaries of the Trust, explains the powers of the Trustee, and outlines the operating rules for the Trust.   If you do have a Trust, take half an hour to read your Trust Deed.  It will be riveting reading (I know), but it is a very important document.

Our court system has come a long way since the days of the Crusaders and now it is the legal obligation of the Trustee of a Trust to act in the best interests of the beneficiaries.  This is known as a fiduciary duty, the requirement to put another person’s interests in front of your own.

The Settlor

There are a few more concepts and roles that you need to be aware of so I will try to explain them as simply as I can.  A trust must be settled over a piece of property and the person who provides that property is known as the Settlor.

In our Ye Olde England example, the Settlor would have been the landowner who was giving the property to Old Mate to create the Trust.  I appreciate that may have been part of a will, but let’s just set that aside for this example and assume he created the trust prior to his death.

In today’s typical Trust set up the Settlor is often a lawyer, accountant or friend who is generous enough to give the trust a sum of money (usually $100 – $500) to start the trust.  Once this act of generosity has been performed, the Settlor has no further role in the Trust.  Most Trust Deeds specifically say this – so please don’t think your lawyer or accountant has somehow wormed their way into your family business or investments by being the Settlor.  In some states (eg NSW), stamp duty is payable on the trust property when the trust is settled, and that is why you keep the trust property amount low.  You don’t want to inadvertently settle a Trust on a large value and end up with a high stamp duty charge.

The Appointor (or Principal)

In your Trust Deed you will find reference to the Appointor or Principal of the Trust.  This is the person who has the power to replace the Trustee of the Trust.  Typically this role does nothing, but it does have the ultimate power.  If the Appointor is not happy with the Trustee – they can be replaced.

Vesting Date

Unlike a company that has an unlimited life (until you choose to wind up a company), a Trust has a limited life.  The termination of a Trust agreement is called the Vesting Date and this will typically be 80 years after the start of the Trust.  On that date the Trust should be “vesting” the assets to at least one of its beneficiaries.

What is a Discretionary Trust?

There are many variations on Trusts but I will discuss the two most common forms of Trust – the fixed Trust (Unit Trust) and the Discretionary Family Trust.

A Family Trust is considered “discretionary” because the distribution of the income of the Trust, or the assets of the Trust is as the “discretion” of the Trustee.

A Family Trust Deed will list some named beneficiaries, and then the family relationship to those named beneficiaries that will allow us to find potential beneficiaries.  Allowing additional beneficiaries based on a family relationship stops you from having to change the deed as the family dynamics change.  Potential beneficiaries can include parents, grandparents, children, grandchildren, siblings, aunts, uncles, nieces and nephews.  There is a large net that can be cast to find the potential beneficiaries.  You do not need to name your children in the deed as they will automatically be potential beneficiaries.

To some people this sounds scary.  What about that crazy cousin who may want to get their hands on your money?  The key to all of this is that although they can be beneficiaries to your trust, there is no entitlement to anything without the Trustee exercising their discretion to distribute to that beneficiary.  Your investments are safe from that crazy cousin.

If you have distributed income to someone and the money has not been paid to them, they do have a legal right to that money.  This is called an unpaid present entitlement.  The entitlement is limited to the amount you have distributed to a beneficiary.

The Fixed Trust

As a business owner you may want to use a Trust structure but you have a business partner who is not related to you.  You can’t use a Family Trust as you are not part of the same family.  You will also want some assurance of your share of the assets of the Trust.  In this instance you would have a Unit Trust.

As the name implies, the beneficiaries are issued Units and the number of units indicates the unit holder’s share of the assets and income of the Trust.  It is very similar to a company, except the income must be distributed to the unit holders each year.

Distribution of Income

The Trustee of a discretionery Trust does not have to distribute the income of the Trust, but any undistributed income is taxed at the highest marginal tax rate.  As such, it is usually in the best interests of the beneficiaries that the income is distributed to at least one beneficiary.

The distribution of taxable trust income will be taxed in the beneficiary’s tax return at whatever their marginal tax rate is.  Be cautious about distributing to children under the age of 18.  Tax rates on minors are much higher than the tax rates of a grown up to discourage parents from putting investments into their children’s names.

If a trust is running at a loss you cannot distribute the loss.  It will stay in the trust to be offset against future gains.

ABN’s and Trading Names

My final point in this simple explanation (which probably doesn’t seem so simple now that I have written it) is about the logistics of trading through a Trust.

The legal name of the Trust is the Trustee’s name, as Trustee for (which is abbreviated to ATF), the Trust name.  As an example, my trust is Jigsaw Accounting & Taxation Services Pty Ltd ATF Jigsaw Family Trust. Yes, it can be a tongue twister and it is not something you want to write 100 times a day.

While you will open your bank account with this name, you are entitled to use the Trustee name as your business name or trading name.   In my example, I trade under Jigsaw Accounting & Taxation Services Pty Ltd.

Your Trust will have its own Australian Business Number (ABN) if it is running a business, and its own Tax File Number.  When your supplier looks up your ABN it will refer to the Trust name, not the Trustee name.  Trusts are common structures and you are not trying to hide anything or do anything dodgy by using a Trust as your business entity.

Hopefully this has shed some light on something that is very complicated.  As I mentioned, there is a whole lot more information available and I could talk about Trusts for hours, but a simple understand is better than no understanding at all.  If you have questions, please speak to your accountant or lawyer.

Many Australians have Income Protection (IP), or Salary Continuance. A great many will have a policy owned in superannuation. Few will understand the disadvantages of owning this important cover in superannuation.

  1. 1 tier vs 3 tier definitions – Super IP will have only one definition to assess your claim under. Non-super policies will offer three definitions – more chances of claim success.
  2. Indemnity vs Guaranteed – A super IP policy will require proof of income at the time of claim. Non-super policies can be ‘Guaranteed’ meaning no proof of income is required – more certainty you’ll receive the benefit you’ve paid for.
  3. Ease of claiming – To claim super IP, you must convince both the insurer and trustee of the superfund a benefit should be paid. Non-super IP – insurer’s definition only.
  4. Temporarily or permanently incapacitated –Super fund IP pays an income stream to a member who is temporarily incapacitated. This may cease if the insured is deemed to be permanently incapacitated & TPD claimed. You’ll need to check the terms & conditions with your super fund. Non-super IP pays an ongoing benefit for both temporary & permanent incapacity and you can claim TPD at the same time.
  5. Reduced benefit periods – Super IP may only pay a benefit to 2yrs reducing the benefit paid & leaving you without income in the long term – Non-super can pay to age 65 or 70.
  6. Restrictive policy conditions – Super IP will require you to use all your sick leave before a benefit can be paid – Non-super IP doesn’t have this restriction.
  7. Guaranteed Renewable – Super IP is often not guaranteed renewable, meaning the insurer can cancel the cover at any time. Non-super policies are guaranteed renewable.
  8. Taxation –The tax treatment of Super IP premiums & benefits may be less favourable than non-super policies.
  9. Reduction of retirement benefit – Paying premiums for super IP from your fund will reduce your retirement benefit.
  10. Unadvised – Without advice from a specialist Risk Adviser super IP may lead to inappropriate cover & poor outcomes.

Still wish to have your IP premiums paid from super, but want access to the superior terms, conditions, & ability to claim of a non-super owned policy? Super-linked Income Protection maybe a possible option to give you the best of both worlds. To properly understand the options and ensure you have the most appropriate cover – speak to a specialist Risk Adviser.

Mark Burgess
Director of MB Advice

If you wish to learn more or review your life insurances, contact Mark at MB Advice on 0478 171 656 or mark@mbadvice.com.au.