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Preparing for the FBT year-end

With the end of the fringe benefits tax (FBT) year fast approaching, business owners need to be aware of the FBT and gross up rates when preparing for their FBT return.

The FBT rate increased from 47 per cent to 49 per cent from 1 April 2015. The rate increase was due to the introduction of the Temporary Budget Repair Levy imposed on individuals for a two year period (1 April 2015 to 31 March 2017).

Consequently, the gross up rates were increased from 1 April 2015 to 2.1463 for Type 1 benefits (GST-creditable benefits), and 1.9608 for Type 2 benefits (no entitlements to a GST credit).

The FBT rate will return to 47 per cent from 1 April 2017, as a result of the discontinuation of the Temporary Budget Repair Levy. The gross up rates from 1 April 2017 will be 2.0802 for Type 1 benefits and 1.8868 for Type 2 benefits.

Whether the benefits provided to the employee are type 1 or type 2, only the lower gross-up rate is used for reporting on employees’ payment summaries.

Posted on 21 March '16 by , under Tax.

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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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