Are you yet to apply for your director identification number (director ID)? You must apply personally. As your advisor, we cannot apply on your behalf. However, we can assist with any questions you may have, for example, around eligibility etc.

If you missed the deadline, you could still apply. The ATO says it will take a reasonable approach with directors who are trying to do the right thing. Directors who need additional time to apply (beyond 14 December 2022) can request an extension of time by completing an Application for an extension of time to apply for a director ID.

To recap, a director ID is a unique 15‑digit identifier that a company director will apply for once and keep forever. By allowing regulators to trace directors’ relationships with companies over time, director IDs will help prevent illegal activity and level the playing field for businesses.

Director IDs are administered by the Australian Business Registry Services (ABRS), which the ATO manages.

Who?

You need a director ID if you are an ‘eligible officer’ of

• a company, a registered Australian body or a registered foreign company under the Corporations Act (2001)
• an Aboriginal and Torres Strait Islander corporation registered under the Corporations (Aboriginal and Torres Strait Islander) Act 2006 (CATSI Act).
• An ‘eligible officer’ is a person who is appointed as:
• a director
• an alternate director who is acting in that capacity.
• You also need a director ID if you are a director of a:
• corporate trustee, for example, of an SMSF
• charity or not-for-profit organisation that is a company or Aboriginal and Torres Strait Islander corporation
• registered Australian body, for example, an incorporated association that is registered with the Australian Securities and Investments Commission (ASIC) and trades outside the state or territory in which it is incorporated, or
• foreign company registered with ASIC and carrying on a business in Australia (regardless of where you live).

Who doesn’t?

A director ID is not required if you are a director of an incorporated association (with no ABRN) registered with the Australian Charities and Not-for-profits Commission (ACNC), a company secretary but not a director, acting as an external administrator of a company, run your business as a sole trader or partnership.

It has also recently been clarified by the ABRS that directors who resigned their directorship before 31 October 2021 are not required to obtain a director ID. Deceased directors, who cannot apply personally, are also exempt.

In summary, if you run a company that is a small business, have a corporate trustee of your SMSF, or are heading up a not‑for‑profit or even a large sporting club, it’s quite likely that you’re a director, and you’ll need to apply for your director ID.

The fastest way to apply for a director ID is online at Australian Business Registry Services (ABRS website – www.abrs.gov.au/directorID ). To access the online application, use the myGovID app with at least a standard identity strength to log in to ABRS Online.

Remember, you must apply personally.

Scam ATO emails – Four things to remember

An ever-increasing number of email and SMS scams are doing the rounds in 2023, but perhaps most troubling is the fact that they are becoming increasingly believable.

In our industry, they are typically sent from scammers purporting to be the ATO and seeking additional information from you as the taxpayer. There is even anecdotal evidence to suggest that one scam doing the rounds somehow had the specifics of taxpayers’ refunds in the email’s wording.

We thought it timely to pass on four key things to remember if you are confronted with a suspicious email or SMS:

1. The ATO will never ask you for your tax file number (TFN), bank details or other personal information in an electronic communication (including email or text message).
2. Be cautious when clicking on hyperlinks embedded in SMS and emails. You should always access ATO services by visiting ato.gov.au or my.gov.au, or via the ATO app.
3. If you are unsure about the legitimacy of a myGov notification you have received, you should go directly to the myGov homepage and sign in to check your Inbox.
4. Ensure you keep your tax file number (TFN) and passwords secure. Don’t share your password with others, and never reply to emails with your password or other sensitive information, such as your TFN, including to prospective employers or new clients.

ATO new-year resolutions

The ATO has just released its new year’s resolutions, and no gym is in sight! According to the ATO, the five new year’s resolutions to keep if you want to stay on top of your tax and super in 2023 are:

Know if you’re in business or not

Are you earning an increasing or decent income from a hobby? If so, you might already be in business for tax purposes. The more of the following questions you answer yes to, the more likely it is your activities constitute a business:

• do you intend to be in business?
• do you intend and have a prospect of making a profit from your activities?
• is the size or scale of your activity enough to make a profit?
• are the activities repeated and continuous?
• are your activities planned, organised and carried out in a business-like manner? For example, do you:
• keep business records and have a separate business bank account?
• advertise and sell your goods and services to the public rather than just to family or friends?
• operate from business premises?
• maintain required licences or qualifications?
• have a formal business plan or budget?
• have a business name or an ABN?

Keep business details and registrations up to date

It’s important to keep your ABN details up to date as emergency services, and government agencies use this information to support businesses during disasters. Also, if you earn over $75,000 this financial year, you’ll need to register for GST. We can assist you with that. Be mindful that it may be advantageous to register even where your turnover is below this threshold.

Keep good records

Good record-keeping helps you manage your business and its cash flow. It is also your defence should the ATO enquire about your affairs or select your business for an audit. Feel free to approach us if you need assistance with your record-keeping practices.

Work out if the PSI rules apply to you

The Personal Services Income (PSI) rules are a suite of ATO provisions designed to prevent persons who derive income from their personal services from “splitting” or “alienating” that income with other persons and therefore minimising the overall tax payable.

If you cannot pass one of the tests within the PSI Rules and do not have a personal services business determination (PSBD) from the ATO, then regardless of the trading structure you choose, your PSI income derived will be classified as PSI, which means:

• you will be unable to claim certain deductions against your PSI (basically, your deductions will be limited to those of a normal employee)
• your PSI, less allowable deductions, will be attributed to you and therefore included in your individual tax return and taxed at an individual marginal tax rate as though you were an employee.

Look after yourself

The last few years have thrown some curve balls at a small businesses, so it’s good to be prepared. If you’re struggling, the NewAccess program can help. It’s free, confidential and designed for small businesses doing it tough.

How much do you need to start an SMSF?

In a complete backflip, ASIC has now moved from indicating that those who wish to commence an SMSFs need $500,000 and a commitment of 100 hours a year to not nominating a minimum balance. The superannuation industry has welcomed this change.

By way of background, back in 2019, ASIC issued guidance that stated that $500,000 was a suitable starting point for an SMSF. This was based on the premise that running a fund takes 100 hours per year and costs $13,900 per year. The position was based on data from the ATO and another industry research firm.

ASIC’s original guidance also noted that “balances under $500,000 have lower returns after expenses and tax” and will often be uncompetitive compared with APRA-regulated funds.

This guidance was controversial with the SMSF industry believed ASIC’s position was flawed, notably, as fund administration costs have reduced significantly over the years, which means that SMSFs can be competitive at all sizes.

ASIC’s view was also in conflict with two research papers commissioned by the SMSF Association. Rice Warner conducted the first research paper in 2020 on the ‘Cost of operating SMSFs’. The second research paper was conducted by the University of Adelaide in February 2022 and focused on how SMSF performance at different fund balances compares to APRA-regulated funds.

Putting aside the one-off establishment costs, the research reports show that the annual running costs for an SMSF will generally fall between $1,189 for a low-cost fund and up to $3,088 for a high-cost fund with full administration costs in the accumulation phase (or up to $3,373 for a high-cost fund with full administration costs in pension phase). These running costs will logically be higher if you add financial advisor fees, costs for managing non-standard assets, and any potential insurance premium costs.

Although the research reports confirm $200,000 is an appropriate threshold, certain individuals, such as those who do not take an active interest in their retirement savings, should avoid establishing their SMSF, irrespective of their superannuation balance.

Estate planning – The key questions

Few things are more important than having your estate’s affairs in order.

Death can strike at any time. We all know this, right? Why is it that so few of us have this stuff sorted then? Maybe it’s because the subject matter doesn’t bear thinking about.

Take a different view. Peace of mind comes from knowing that your estate planning is in proper order and that your wealth will be passed on and protected as you intend. So rather than putting this off, make it a priority.

Here are a few questions to help you decide whether you might have some gaps that need filling in your estate planning:

• Do you have a Will? If you do, when was it last updated?
• Could you (or your spouse) locate your Will if you had to?
• Do you have a Power of Attorney in place if you cannot make your own decisions?
• If you and your spouse leave everything to one another in your will, have you considered what would happen in the event of your simultaneous death?
• Do you realise that superannuation and family trusts don’t form part of your Estate, and thus other strategies (besides a Will) are needed to deal with these properly?
• Do you know that tax-effective structures known as Testamentary Trusts can be used to pass on wealth securely to family members, but they are most effective when documented in your Will?
• Have you adequately considered who should be the Executor of your Will (sometimes the people closest to you, such as a spouse, maybe in no fit state to take on the role)?

The critical steps of estate planning are:

1. Which assets? 

Which assets are to be dealt with as part of your estate plan?

1. Who owns them? 

Assets may be owned individually, jointly, within superannuation, or by related entities such as companies or trusts.

1. How do you want them distributed upon your death?

This is a question only you can answer: who should get what and when?

1. How do you bring about the outcome? 

An estate plan brings together the answers to the above questions. It will usually include Wills and Powers of Attorney but, in many cases, will also involve succession planning strategies to deal with related entities and superannuation balances. Additional steps may also be necessary to provide for children or blended families.

ATO finalises Section 100A guidance

The ATO released its final guidance material on the application of s 100A on 8 December 2022. In doing so, it has clarified a number of issues and examples in the draft material, much of which is welcome.

To recap, the ATO in February 2022 updated its guidance around trust distributions made to adult children, corporate beneficiaries and entities carrying losses. Depending on the structure of these arrangements, there is a potential that the ATO may take an unfavourable view of what were previously understood to be legitimate distribution arrangements.

The ATO chiefly targets arrangements under section 100A of the Tax Act, specifically where trust distributions are made to a low-rate tax beneficiary. Still, the real benefit of the distribution is transferred or paid to another beneficiary, usually with a higher tax rate. In this regard, the ATO’s Taxpayer Alert (TA 2022/1) illustrates how section 100A can apply to the quite common scenario where a parent benefits from a trust distribution to their adult children.

The final guidance is not the law and represents no more than the ATO’s view about how the law applies. It carries no legal authority, and taxpayers in consultation with us as your advisor may consider adopting a bolder approach to distributions, depending on their circumstances.

We also note that on 24 January 2023, the Full Federal Court handed down its much-anticipated decision on a case in this area. This decision, however, did not shed much light on what constitutes “an ordinary family or commercial dealing” in this trust distribution space which is what many in the industry have been keen to hear more about.