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Peregian Accounting Services
Unit 3 12 Grebe Street
Peregian Beach Q 4573

By the time we send our next newsletter the Federal election will have been held. Don't forget to vote on Saturday 7 September 2013; one year, someone in our office made it to polling booths with only 3 minutes to spare after remembering just in time! You can find your nearest polling booth at www.aec.gov.au.

Aged Care and Trusts

We have often been asked if trusts can be used to minimise the impact of the income and assets tests in Aged Care and we gave the following recent advice to a client (here quoted in part).

  1. Gifts reduce tax liability by up to $30,000 over 5 years or $10,000 in any one year.
  2. Monies put into trust for others are also considered gifts; it's not just cash payments or transfers of assets.
  3. Special Disability Trusts are exempt (for the principal beneficiary) from the income and assets tests for Aged Care up to an asset value of $596,500, and also qualify for gifting concessions. Severe dementia qualifies as a severe disability for the establishment of a Special Disability Trust.
  4. There is nothing to stop gifting any amount but only $30,000 will be deducted from the assessment for 5 years. Gifts over the threshold are called "excess gifting" and will be deemed assessable but after 5 years are no longer included in assessment.
  5. Any assets bought get included in the assessment - even if someone else uses them - but see below for income testing rules on what gets included (the below-listed assets are still included in the assets test but any income derived from them is not).
  6. Insurance bonds also get included in the assets test but not the income test. Insurance bonds held for 10 years are tax free and no income is received for tax purposes until they are redeemed. If using insurance bonds, we suggest breaking them up into more than 1 investment if access to cash is ever needed. Early redemption would have taxable implications and reduce the yield.

Financial investments do not include:

  • your home or its contents,
  • cars, boats and caravans,
  • antiques, stamp or coin collections,
  • standard life insurance policies,
  • holiday homes, farms or other real estate,
  • accommodation bonds.

Testamentary trusts can be very useful if established at least 5 years before an assessment is needed. Testamentary trusts are established by will and allow assets to be placed in trust while alive, that are then allocated according to your wishes on death. Income from the trust is distributed according to the trust deed, which is typically distributed to the testator whilst alive. If the trust is formed at least 5 years before an Aged Care Assessment is needed, the assets will not be included and only the income (if any) will be included.

Care should be taken when drafting, and legal advice is required to ensure all of your needs and wishes are accounted for. This advice is general in nature and should not be relied upon. Specific advice for your circumstances must be sought.

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Peregian Accounting -
Adaptive Accounting

Email: info@adaptive.net.au
Phone: 61 7 5448 1218
Fax: 61 7 5448 1221

Upcoming Due Dates

  • August 14 : PAYG withholding payment summary annual report due for employers who have no tax agent or BAS agent preparing the report.
  • August 21 : Jul 2013 monthly BAS due for lodging and paying (only for those on monthly reporting cycles).
  • August 25 : Jun 2013 quarterly BAS due for lodging and paying (if lodging via tax agent or BAS agent).
  • August 25 : PAYG withholding payment summary annual report due for employers who have a tax agent or BAS agent preparing the report.
  • September 21 : Aug 2013 monthly BAS due for lodging and paying (only for those on monthly reporting cycles).

Independent Contractors vs Employees

Independent contractors are natural persons (ie not companies or trusts) that run their own business, hiring out their services to other organisations. They negotiate their own fees and working arrangements, and can work for multiple clients at a time. Contractors can also be "incorporated", meaning that the entity contracting out services is not a natural person but is a company or trust, but the general view is that incorporated contractors cannot form employment relationships and should therefore always be treated as contractors. The information that follows discusses how and why to determine whether your independent (not incorporated) contractors should actually be classified as employees.

Contracting is a common way to provide workforce flexibility without the hassle of payroll, but engaging independent contractors does not necessarily absolve you of payroll obligations, and may end up costing you much more than you are hoping to save by not having employees. If your contractors have the nature of employees the ATO and Fair Work Ombudsman may decide that your workers are employees and workers' entitlements may have to be backpaid. In addition, there may be fines and interest on late payments.

There is no simple, conclusive test to work out whether you have employees or independent contractors, rather you have to decide based on a few factors whether they are more like one or the other. In general, however, if your workers are providing mostly labour, you control what they work on and how they do it, they bear little financial or operational risk, and they use your equipment and premises then it is likely they will actually be seen as employees rather than contractors. What you or your worker call the working arrangement or whether they have an ABN is not conclusive evidence; determinations are made objectively based on the circumstances of the arrangement.

Below is a table summarising some of the differences between employees and independent contractors:

Employees Contractors
Do ongoing work that is controlled by their employer Decide how to do their work and what skills they need to do it
Decide whether to employ someone else to do the work
Work hours they're told to work by their employer Decide what hours to work
Are contracted to work for a set time or do a set task
Use the tools and equipment of their employer Provide their own tools and equipment
Don't often incur business expenses, and are usually reimbursed or receive an allowance when they do Incur business expenses and other overheads by their own means
Are not responsible for financial risk Carry the risk of making a profit or loss
Are entitled to superannuation from their employer Pay their own superannuation
Are entitled to minimum wages by law Negotiate payment with the contracting entity, provided the contract is not unfair
Have income tax taken out of their pay Pay their own tax, including GST if applicable
Are paid regularly Invoice for their work or get paid at the end of the contract or project
Are generally entitled to paid leave if they are permanent employees Don't get paid leave
Have access to unfair dismissal legislation May have a contractual liability if their services are terminated but are not covered by unfair dismissal laws
Employers must pay WorkCover insurance for all employees Contractors have their own insurance

Importantly, whether you have employees or contractors you still have work health and safety obligations to provide a safe workplace.

More information:
Fair Work Ombudsman - Contractor or employee?
ATO Employee/contractor decision tool
Fair Work Building and Construction - Am I an employee or contractor?

If you have any feedback or suggestions for our newsletter please email us at newsletter@adaptive.net.au

Until our next contact
Good Health & Good Luck

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