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15/11/2010 Consolidation regime changes

Since its inception in 2002, the consolidation regime has allowed wholly-owned corporate groups to operate as a single entity for income tax purposes.

The 2010-11 Annual Budget, has resulted in Government initiatives that aim to improve how collections of the income tax from consolidated and multiple entry consolidated groups (MEC) are completed. Changes include;

–          from 11 May 2010, the government can recover unpaid (PAYG) liabilities

–          from 11 May 2010, the ‘liability for payment of tax’ rules apply to MEC groups

–          from the 2004-05 income year, an entity that pays its contribution amount under a tax sharing agreement can leave a consolidated group of MEC group clear from any further liability

–          from 1 July 2002, where there is a change in the provisional head company of a MEC group during an income year, any PAYG instalments paid by the former provisional head company on behalf of the group are attributed to the group.

The above changes were announced in the hope of resolving several long-standing operational issues and providing greater certainty and less compliance costs to businesses seeking to consolidate for tax purposes.

Posted on 15 November '10 by , under Business.

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Self-managed super funds (SMSF) aren’t just about financial investment

Individuals may be looking to opt for an SMSF because these provide entire control over where the money is invested. While this sounds enticing, the downside is that they involve a lot more time and effort as all investment is managed by the members/trustees.

Firstly, SMSFs require a lot of on-going investment of time:

  • Aside from the initial set-up, members need to continually research potential investments.
  • It is important to create and follow an investment strategy that will help manage the SMSF – but this will need to be updated regularly depending on the performance of the SMSF.
  • The accounting, record keeping and arranging of audits throughout the year and every year also need to be conducted up to par.

Data shows that SMSF trustees spend an average of 8 hours per month managing their SMSFs. This adds up to more than 100 hours per year and demonstrates that compared to other superannuation methods, is a lot more time occupying.

Secondly, there are set-up and maintenance costs of SMSFs such as tax advice, financial advice, legal advice and hiring an accredited auditor. These costs are difficult to avoid if you want the best out of your SMSF. A statistical review has shown that on average, the operating cost of an SMSF is $6,152. This data is inclusive of deductible and non-deductible expenses such as auditor fee, management and administration expenses etc., but not inclusive of costs such as investment and insurance expenses.

Thirdly, investing in SMSF requires financial and legal knowledge and skill. Trustees should understand the investment market so that they can build and manage a diversified portfolio. Further, when creating an investment strategy, it is important to assess the risk and plan ahead for retirement, which can be difficult if one is not equipped with the necessary knowledge. In terms of legal knowledge, complying with tax, super and other relevant regulations requires a basic level of understanding at the very least. Finally, insurance for fund members also needs to be organised which can be difficult without additional knowledge.
Although SMSFs have the advantage of autonomy when it comes to investing, this comes at a price. Members/trustees need to invest time and money into managing the fund and on top of this, are required to have some financial and legal knowledge to successfully manage the fund.

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