GPL Financial Group GPL Partners

August 2016

A savings mirage?


Among the pitfalls of saving and investing for retirement is to mislead ourselves about the true state of our finances.



An almost textbook example can involve the self-employed. Most of us must have heard small business owners from time to time say things like: “My business is my super”. Their intention is, of course, to eventually sell their businesses to finance their retirement – possibly putting the proceeds into super.

As Smart Investing discussed recently (A paradoxical relationship: The self-employed and super), updated research by the Association of Superannuation Funds of Australia (ASFA) confirms once again that the majority of self-employed have little or no super.

This can lead to the issue about how much the self-employed can rely on the value of their businesses as a source of retirement finance to supplement any super and the Age pension.

The authors of the research paper, ASFA's director of research Ross Clare and senior research adviser Andrew Craston, note that ABS figures for 2013-14 suggest that the self-employed, on average, accumulate more non-housing wealth than employees. These non-housing, non-super assets typically comprise cash, shares and business assets.

Indeed, business assets can be a “substantial contributor” to the average wealth of the self-employed.

But as Clare and Craston write, “average figures do not tell the whole story”.

The non-housing, non-super assets (including business assets) of the self-employed are likely to vary significantly between individuals.

“For some self-employed individuals,” Clare and Craston add, “the value of the business might be little more than the market value of a second-hand utility or truck and some tools of trade. For others, it might be the value of an ongoing business worth a million dollars or more.”

(Of course, once businesses become really valuable, many owners would decide to change their business structure, moving away from being self-employed owner-managers of non-incorporated businesses.)

Another way that ASFA has attempted to measure the value of small business assets when owners retire is to look at the capital gains tax (CGT) concessions gained by eligible small business owners upon their possible retirement and sale of their enterprises. This makes interesting reading.

According to tax office statistics for 2012-13, 4,545 vendors of small businesses gained CGT retirement exemptions totalling a little more than $618 million in value. A further 870 small business vendors gained CGT small business, 15-year exemptions (for businesses owned for that length of time) totalling $397.2 million in value. These statistics should be put into context.

Retiring vendors of valuable small businesses would obviously want to benefit from any CGT concessions available from the sale of business assets. Yet considering the huge number of small businesses in Australia, it seems that the value of proceeds from the sale of business assets being used to help finance retirement is modest. And calculating the average concessions again can give a misleading impression.

Self-employed business owners obviously make up just one part of society that may be vulnerable to over-estimating the value of their assets as a means to help provide retirement capital.

Another example are homeowners who may be intending to downgrade or downsize their family homes to provide extra retirement money without first doing the necessary number-crunching.

Whether we are talking about the self-employed, homeowners who are intending to downgrade or whoever, it is important to consider gaining professional quality advice and to make informed decisions about the real adequacy of our retirement savings.

We should be confident that our perceived retirement savings are not a mirage of our own making.

By Robin Bowerman
Smart Investing 
Principal & Head of Retail, Vanguard Investments Australia
21 August 2016

Market Update – July 2016


See below for key points in this update and the report itself.



  • The RBA kept the overnight cash rate at 1.75% in July but cut to 1.50% during the August board meeting. 
  • In fixed income, the 3 Month Bank Bill Swap Rate and the 10 Year Australian Bond Rate fell by -0.05% and -0.11%, respectively, in July.
  • Spreads on Australian corporate debt fell over the month, as indicated by -16.36-point decline over the month of the iTraxx Australian Index to 109.67. 
  • Australian shares rallied over the month, with the All Ordinaries Index and the S&P/ASX 200 Index increasing by 6.28% and 6.29%, respectively. 
  • Domestic listed property performed in line with the broader share market, gaining 5.35% over the month.
  • Global equities experienced strong recoveries in July, with all regional markets participating. Japan added 6.17% to be the best performer, as measured by the TOPIX Japan Index. 
  • Global commodity prices ended the month -1.16% lower, as measured by the US$ CRB Spot Commodity Index. The oil price had its largest fall in months, declining by -13.93% for the month. Gold and Iron Ore prices continued to rise, adding 2.12% and 11.01%, respectively, in US Dollar terms. 
  • The Australian Dollar rose further against most currencies in July, gaining 1.29% against the US Dollar, 1.36% against the Euro, 2.87% against the British Pound and 2.24% versus the Japanese Yen.
  • The Australian Trade Weighted Index (TWI) rose by 1.44% over the month, ending July at 63.40.
  • Share market volatility fell both domestically (-5.18%) and in the US (-3.76%).


Please click on the following link to gain access to this resource.

Click here to view the 31st July 2016 Market Report

 Source:       Zenith Investment Partners

Change to salary sacrifice


Changes to salary sacrificed “meal entertainment” benefits



Changes will apply from 1 April 2016 for non-for-profit employees who salary sacrifice “meal entertainment” and “entertainment facility leasing expenses”.

The new law limits the amount that employees can salary sacrifice by introducing a single grossed-up cap of $5,000.

Until 31st March 2016, employees of eligible not-for-profit organisations were entitled to salary sacrifice meal entertainment benefits with no FBT payable by the employer and without it being reported.  Employees of rebatable not-for-profit organisations can also salary sacrifice meal entertainment benefits, but such employers only receive a partial FBT rebate.  If an employee has not scaled back their meal entertainment expenditure since April 2016, speak to your employer immediately.

Is the hype around the new super changes warranted or simply codswallop?


There has been a lot of media coverage regarding the superannuation law changes proposed in the recent federal Budget. 

There is even the suggestion that the government was “punished” in the recent election as a result of these proposed changes. But is all the hype warranted or is it based on ignorance?



In my view, much of the media coverage has been based on emotional hype, tugging on the heart strings that the government is somehow taking money off struggling pensioners. But if we delve into exactly what is being proposed, that’s not entirely the case. 

The $1.6m cap

Much has been made of the move to limit the amount of money a retiree can have in superannuation to $1.6m and pay no tax when in pension phase. The hype around this, in my opinion, is absolute codswallop.

According to ATO statistics, the average size of a self-managed super fund (SMSF) is around $1m and consists of two members – usually this is your average “mum and dad” super fund. This means the average individual SMSF balance is around $500k – a long way short of $1.6m.

One point that has been lost in all the media hype is the fact that the $1.6m limit is per member, not per fund, meaning an average “mum and dad” joint fund could have $3.2m in it before this change becomes an issue.

I suspect the number of joint funds with more than $3.2m in them will not be that high but even for those in that category; the earnings on the $3.2m will still be exempt from tax when in pension phase. It is only the income earned on the excess above the $3.2m fund balance that is taxable and even then it is only taxable at 15 per cent (or 10 per cent for capital gains). Even low income taxpayers earning over $18,200 pay a marginal tax rate of 19 per cent, which is higher than the 15 per cent that someone would pay on a fund balance of over $3.2m.

Given that the broad intent of compulsory super is to reduce dependence on the government to fund the age pension, in my opinion, the above mentioned change is not unreasonable. And according to the government’s budget papers, this change should impact only 1 per cent of super fund members.

That is not to say that I don’t think the proposed changes will result in some retrospective tax implications. There are bound to be some and those who will be affected will need to obtain professional advice in order to manage this.

Reducing the super contribution cap

The move to limit the maximum deductible super contribution limit to $25,000 – down from $35,000 (for those over 50) and $30,000 (for those under 50) is of serious concern to me, primarily because it appears to ignore business owners. Most business owners that I have worked with over the last thirty years invariably reinvest all their available cash back into growing their business; this is in addition to paying off their home loan and educating their children. For most people, the financial pressure of paying off mortgages and Uni fees doesn’t ease until well into their forties. Often, business owners don’t draw a full salary so don’t get the benefit of the 9.5 per cent compulsory superannuation guarantee levy (SGC).

It is only by the time they reach their fifties that they are in a financial position to contribute significantly into super and make up for the lack of opportunity in earlier years. The budget papers argue that this change will affect only 3 per cent of super fund members, however, I believe it will impact a significant number of business owners. After all, if the government is going to impose a $1.6m cap on the amount that can be concessionally taxed, why does it matter what the contribution limit is?

On the other side of the fence, I applaud the proposed changes to allow “catch up” contributions for unused caps over five years for those with a fund balance of less than $500k.

The $500k non-concessional contribution cap

Another proposed change is to limit the maximum amount a member can contribute to the fund and not obtain a tax deduction for. Previously, this was $180k per annum with no cap over your lifetime. In addition, you could “bring forward” up to three years contributions and make one contribution of $540k and repeat this every three years.

It is now proposed that there be a lifetime cap of $500k and that this includes all such contributions made, backdated to 2007. There will be no adverse consequences if contributions in excess of the $500k cap have already been made prior to budget night. However, if you have already exceeded the $500k contribution cap prior to budget night, then no further contributions will be allowed. This could result in unforeseen consequences (e.g. if future contributions were to be made in order to clear debt in the super fund). Hopefully the government will consider these implications as part of their “transitional measures”.
The government budget papers argue that less than 1% of super fund members will be affected by the change. Once again, I believe the business community has been forgotten about and that a significantly higher number of business owners will be affected.

For the reasons mentioned earlier, business owners often reinvest most of their wealth back into growing their business. Over the years I have seen a number of business owners with minimal wealth inside super, albeit that they may have accumulated some wealth outside of super. They will now be denied the opportunity to shift this into super to fund their retirement.

To conclude

In my opinion, much of the hype around the proposed changes has more to do with emotion than logic due to a lack of understanding of the proposed changes. None of the proposed changes in super will affect your average Joe, your average parents or grandparents; however, there could be serious consequences for small business owners. Considering 99.7% of actively trading businesses in Australia are classified as SMEs*, these changes could affect over 2 million business owners, so the media hype is warranted, it’s just directed at the wrong people.


Wednesday, 03 August 2016


Locking Up Bank Accounts


It seems that banks are being drawn in into financial disputes with couples.  And they are responding somewhat predictability.



If any joint account holder tells the bank, or the bank find out that the joint account holders are in dispute, they may ‘block’ access to the account.

This means that no-one will be able to withdraw funds from the account.  That means that no expenses can be paid from that account – not even joint household costs.

Deposits to the account may continue. 

The bank will continue to pay interest on the credit balance in the account.  The bank will only ‘unblock’ access to the account when they receive authorisation from all account holders.

Turmoil results.  And in a protracted divorce or dispute funds would be locked up for a very long period.





Making sense of NALI


NALI – Non-arm's length income

Non-arm’s length income has received a lot of attention recently, particularly in regard to LRBAs. What do practitioners need to be across when reviewing the income their clients have received from their non-arm’s length investments?



NALI has not historically received a great deal of attention and many practitioners may never come across a super fund that receives NALI. However, attention has recently been drawn to the issue with the increased interest in related party lending for limited recourse borrowing arrangements (LRBAs).

In this article we will review the definition of NALI, discuss relevant case law and outline the latest position by the Australian Taxation Office (ATO) on NALI in connection with LRBAs.

Non-arm’s length income

As most SMSF practitioners are aware, the NALI provisions are an anti-avoidance measure designed to prevent income that would otherwise be taxed at personal marginal tax rates being diverted to a super fund.

The non-arm’s length component of taxable income is a super fund’s NALI less allowable deductions. NALI is taxed at the top personal marginal tax rate (MTR) which is currently 47 percent. 

NALI is excluded from exempt current pension income for assets that are supporting income streams.
Non-arm’s length income definition

The definition of NALI is contained in section 295-550 of the Income Tax Assessment Act 1997 (ITAA 1997) and involves four classes of income:

  1. Income from non-arm’s length transactions. 
  2. Private company dividends. 
  3. Trust distributions where there is no fixed entitlement. 
  4. Trust distributions where there is a fixed entitlement. 

Income from non-arm’s length transactions

Income derived from non-arm’s length transactions has three components to the definition:

  1. The income is derived from a scheme. 
  2. The parties were not dealing on arm’s length terms.
  3. The income is more than the super fund would be expected to derive if the parties had been dealing at arm’s length.

A scheme is defined as:

  • Any arrangement 
  • Any scheme, plan, proposal, action, course of action or course of conduct.

An arrangement is defined as: 

Any arrangement, agreement, understanding, promise or undertaking, whether express or implied, and whether or not enforceable (or intended to be enforceable) by legal proceedings.

As such, the definition of a scheme is very broad.

Definition of arm’s length:

In determining whether parties deal at arm’s length, it is necessary to consider any connection between them and any other relevant circumstance.

The definition of arm’s length is therefore also very broad.

Case law

The Darrelen case considered the issues of private company shares and arm’s length transactions. 

Darrelen Pty Ltd was the SMSF trustee. The SMSF acquired four of the 100 shares on issue in a private company. The SMSF paid $51,218 for the four shares in October 1995. The private company was a passive holding company which simply held 25,609,320 shares in an ASX listed company. The SMSF had effectively acquired four per cent of the private company’s 25,609,320 shareholding in the ASX listed company, being 1,024,373 shares. In October 1995, the ASX listed company’s share price was $0.58, valuing the SMSF’s indirect holding at $594,136 (1,024,373 * $0.58).

Over the eight financial years from 1995/96 to 2002/03, the SMSF received dividends totaling $950,136.
The dividends were determined to be NALI, with the key consideration being that the purchase price of the shares was so far below market value (the SMSF paid $51,218 for $594,136 worth of shares). The dividend income derived occurred from a non-arm’s length transaction, despite all dividends being paid at arm’s length rates. 

Limited recourse borrowing arrangements

The ATO holds the view that non-commercial terms in LRBAs lead to NALI. The ATO released two interpretive decisions, ATO ID 2014/39 and ATO ID 2014/40 which cover these issues. The interpretive decisions follow a number of previous private binding rulings on the topic where there has not always been obvious consistency.

The ATO’s view is that non-commercial terms lead to NALI because without the loan there would be no investment in the asset. Without the investment in the asset there would be no income, including capital gains. Therefore all income is NALI.

Arm’s length borrowing arrangement

The ATO will look for consistency with arm’s length dealings covering a number of factors including:


  • the nature of the acquirable asset
  • the amount borrowed
  • the term of the loan
  • the loan to valuation ratio
  • the interest rate
  • principal repayments
  • any personal guarantees
  • the actual operation of the arrangement.

Safe harbour provisions

The ATO recently issued guidelines entitled ‘Practical Compliance Guideline 2016/5’ on safe harbour provisions regarding NALI in respect of related party LRBAs. Clients who have their LRBAs on terms within the safe harbour provisions can have comfort that this aspect of their LRBAs will not result in the application of NALI.

Importantly, clients intending to rely on the safe harbour provisions must ensure that their LRBA terms comply with the provisions by 31 January 2017 for the whole of the 2015/16 financial year.  
Alternatively, trustees can benchmark their arrangement against commercially available terms and conditions and ensure that they document and retain appropriate evidence to demonstrate that their LRBA has been established and maintained on terms that are consistent with an arm’s length dealing.  

The safe harbour provisions cover LRBAs over real property (including residential, commercial and primary production) and a collection of stock exchange listed shares in a company or units in a unit trust, which cover the majority of LRBAs. Where trustees have LRBAs over other assets, they will need to ensure that benchmarking is undertaken.


As with all private investment arrangements, it is important to ensure that the investment provisions of relevant superannuation law are complied with. SMSF trustees must thoroughly review all income received from non-arm’s length arrangements including related party limited recourse borrowing arrangements to ensure it is not taxed at the top marginal tax rate. 


Julie Steed, Senior Technical Services Manager, IOOF
​Wednesday, 17 August 2016


Scammers New Ploy – “You Will Be Arrested”


Don’t be alarmed and don’t respond – just hang up!



If it wasn’t serious, it would be laughable.  Scammers have become serial pests.


Taxpayers are being telephoned by scammers who in quite a friendly way, explain that they can avoid arrest by paying a fine almost always just (less than $9,999) to the Australian Taxation Office.  Arrest will NOT happen!

Your tax agent will know what recovery action, if any, is being taken by the Australian Taxation Office.

Our advice is be prepared and assume you will receive a call from a scammer.  Some taxpayers simply never answer the phone – let the answer machine screen your calls and only call back legitimate callers.

ATO exposes dodgy deductions, with examples


With over eight million Australians claiming work-related expenses each year, …..

….. Assistant Commissioner Graham Whyte is reminding people to make sure they get their deductions right this tax time.



“Australians claim over $21 billion in work-related expenses each year, and we want to support taxpayers to claim what they are entitled to – no more, no less,” Mr Whyte said.

“Most Australians want to do the right thing, but we are seeing mistakes, and while the amounts at an individual level are relatively small, collectively the overall impact is significant. That’s why, it is important for people to get their deductions right.

“From time to time we see people deliberately making incorrect claims. We’ve seen claims for car expenses where log books have been made up and claims for self-education expenses where invoices were supplied for conferences that the taxpayer never attended.

“Deliberately making incorrect claims is an easy way to get into some serious trouble. It’s just not worth it.”

Mr Whyte said while most tax agents are there to help you do the right thing, sometimes the ATO identifies tax agents offering special deals, inflating claims to generate larger refunds.

“If it sounds too good to be true – it usually is. The ATO takes action against tax agents who make dodgy claims, but to protect yourself, make sure your tax agent is registered. You can check on the Tax Practitioners Board website.”

Mr Whyte said in 2014-15, the ATO conducted around 450,000 reviews and audits of individual taxpayers, leading to revenue adjustments of over $1.1 billion in income tax.

“Cases involved omitted income or over-claimed entitlements like deductions. This included people making claims significantly different to those made by taxpayers in similar circumstances,” Mr Whyte said.

“Every tax return is scrutinised using increasingly sophisticated tools and data analytics developed by our ‘Data Doctors’ at the ATO. This means we can identify and review income tax returns that may omit information or contain unreasonable deductions.

“When a red flag is raised, our staff investigates further and if your claims seem unusual we will check them with your employer.

“If you’ve made a mistake, this will hold up the processing of your tax return, so it’s best to make sure you claim the right deductions from the start.”

My Whyte said this year the ATO has introduced real-time checks of deductions for tax returns completed online.

“If your claims are substantially higher than others in similar occupations, earning similar amounts of income, a message will appear, asking you to check them. This new process is just about helping you to make sure your claims are correct,” Mr Whyte said.

“If you are doing the right thing you have nothing to worry about. If you make an honest mistake we will help you fix it up and correct your tax return. We will not penalise you if you genuinely tried to get it right.

“But, if you didn’t make a reasonable or genuine attempt to get it right or are intentionally doing the wrong thing, you may receive a penalty.

Mr Whyte said it was easy to keep on the right track with your work-related expense claims by remembering three golden rules.

“One, make sure you spent the money yourself and were not reimbursed. Two, make sure it is related to your job, and not a private expense. Three, keep a record to prove it,” Mr Whyte said.

“We’ve got a range of guides including specific occupation guides on our website to help people understand what they can claim. If you use a tax agent, you can also ask them for advice on the right things to claim.

“You can also make it easier on yourself by using the myDeductions tool in the ATO app to record your work-related expenses on the go. You can then upload directly into your next tax return just like your pre-filled information.”

For more information on work related expenses, visit
For guides on deductions for specific industries and occupations, visit

Case Studies

Case study one

A railway guard claimed $3,700 in work-related car expenses for travel between his home and workplace. He indicated that this expense related to carrying bulky tools – including large instruction manuals and safety equipment. The employer advised the equipment could be securely stored on their premises. The taxpayer’s car expense claims were disallowed because the equipment could be stored at work and carrying them was his personal choice, not a requirement of his employer.

Case study two

A wine expert, working at a high end restaurant, took annual leave and went to Europe for a holiday. He claimed thousands of dollars in airfares, car expenses, accommodation, and various tour expenses, based on the fact that he’d visited some wineries. He also claimed over $9,000 for cases of wine. All his deductions were disallowed when the employer confirmed the claims were private in nature and not related to earning his income.

Case study three

A medical professional made a claim for attending a conference in America and provided an invoice for the expense. When we checked, we found that the taxpayer was still in Australia at the time of the conference. The claims were disallowed and the taxpayer received a substantial penalty.

Case study four

A taxpayer claimed deductions for car expenses using the logbook method. We found they had recorded kilometres in their log book on days where there was no record of the car travelling on the toll roads, and further enquiries identified that the taxpayer was out of the country. Their claims were disallowed.

Case study five

A taxpayer claimed self-education expenses for the cost of leasing a residential property, which was not his main residence. The taxpayer claimed he had to incur the expense of renting the property as he ‘required peace and quiet for uninterrupted study which he could not have in his own home’. This was not deductible.

In addition to the rental expenses, the cost of a storage facility was claimed where ‘the taxpayer needed to store his books and study materials’. They claimed they needed this because of the huge amount of books and study material associated with his course and had no space in his private or rented residence where these could be housed. This was not deductible.

The cost of renting the property was around $57,000, with additional expense of $7,500 for the storage facility. The actual cost of the study program he attended that year was only $1200.