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December 2021 – Practice Update

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December 20, 2021

After yet another year of challenges, we would like to take this opportunity to thank our clients for their ongoing support and understanding throughout 2021. We look forward to welcoming you back in 2022 and working with you to reach your financial and personal goals.  From all of us at Hughes O’Dea Corredig, we wish you and your loved ones a safe and joyous holiday period and a Merry Christmas and Happy New Year!

Hughes O’Dea Corredig will be closed for the Christmas and New Year period from 11:30 am Thursday 23 December 2021 and reopen on Monday 10 January 2022.

Super is now following new employees

The ATO is reminding employers that, as of 1 November 2021, there is an extra step they may need to take to comply with the choice of super fund rules.

If a new employee does not choose a super fund, most employers will need to request the employee’s ‘stapled super fund’ details from the ATO to avoid penalties.

A stapled super fund is an existing super account which is linked, or ‘stapled’, to an individual employee so that it follows them as they change jobs.

When a new employee starts, employers need to:

  • offer eligible employees a choice of super fund;
  • if the new employee does not choose a super fund, the employer will need to request stapled super fund details using Online services for business; and
  • pay super contributions into one of the following:

–    the super fund they choose;

–    the stapled super fund the ATO provides if they have not chosen a fund; or

–    the employer’s default fund (or another fund that meets the choice of fund rules) if the employer cannot pay into the two above.

ABN ‘intent to cancel’ program

The ATO is reviewing Australian business numbers (‘ABNs’) to identify potentially inactive ABNs for cancellation, and it has introduced a new automated process to allow taxpayers (or their tax agents) to confirm if their ABN is still required via a secure voice response system.

An ABN may be selected if the taxpayer has not reported business activity in their tax return, or there are no signs of business activity in other lodgments or third-party information.

The ATO reminds taxpayers that any income earned under an ABN needs to be reported in their tax return, regardless of the amount.  By keeping their tax obligations up to date, the ATO can see they are actively undertaking a business (so, therefore, their ABN should not be cancelled).

Beware of scams

Scamwatch is warning that scams cost Australian consumers, businesses and the economy hundreds of millions of dollars each year and cause serious emotional harm to victims and their families.

Cryptocurrency scams are the most ‘popular’ type of investment scams, representing over 50% of losses.  Often the initial investment amount is low (between $250 and $500), but the scammers pressure the person to invest more over time before claiming the money is gone or ceasing communication and blocking access to the funds.

All age groups are losing money to investment scams, but the over-65s have lost the most, with $24 million lost this year.

Some simple steps individuals can take to protect themselves (and their businesses) are:

  • Never give any personal information to someone who has contacted you.
  • Hang up and verify the identity of the person contacting you by calling the relevant organisation directly — find them through an independent source such as a phone book, past bill or online search.
  • Do not click on hyperlinks in text/social media messages or emails, even if it appears to come from a trusted source.
  • Go directly to a website through a browser (e.g., to reach the MyGov website, type ‘my.gov.au’ into the browser).
  • Search for reviews before purchasing from unfamiliar online traders.
  • Be wary of sellers requesting unusual payment methods.
  • Verify any request to change bank details by contacting the supplier directly.
  • Consider a multi-factor approval process for transactions over a certain dollar amount.
  • Never provide a stranger remote access to your computer, even if they claim to be from a telco company such as Telstra.

Managing business cash flow

The ATO has issued a reminder to businesses that paying regular attention to their record-keeping and reporting tasks will help them better manage their cash flow and allow them to plan for the future.

The best way to make sure a business has enough cash available to meet its tax and other obligations is to do a cash flow budget or projection.  This information will help the business to:

see its likely cash position at any time;

  • identify any fluctuations that may lead to potential cash shortages;
  • plan for tax payments;
  • plan for any major expenses; and
  • provide lenders with information.

Accounting for income and expenses can help keep a business running smoothly — by giving it an overview of when it can expect money to come in and when it may go out, and highlighting where the business may need to direct its money.

The ATO provides resources about record keeping for business, and there is also information on business.gov.au regarding how to create a budget, and how to improve a business’s financial position.

Is your super fund product rated below APRA’s benchmarks?

According to APRA, as many as 45 per cent of MySuper products, or 31 out of 69, delivered returns below its benchmarks, with the number of poor performing products reaching 60 per cent across its review.This is a staggering finding.

The latest MySuper Heatmap results (available here) found that investment returns are the primary driver of underperformance and that while fees and costs for MySuper products are declining, there remains considerable scope for further reductions. As many as 25 per cent of super product options delivered significantly poor returns, with the performance of choice products said to vary “considerably more” than MySuper products.

Interested in finding out more about your superannution account? We are currently offering “health-checks” for our clients. Please contact our office for further information.

Data-matching program: Services Australia benefits and entitlements

The ATO has advised it will acquire Medicare Exemption Statement (‘MES’) data relating to approximately 100,000 individuals from Services Australia for the 2021 financial year through to the 2023 financial year inclusively, and compare it with claims made by taxpayers on their tax returns.

Have you considered Severity Based Insurance Cover?

Severity Based Insurance Cover combines traditional Life, Total & Permanent Disability (TPD) and Trauma Cover into one policy which pays out different lump-sum amounts based on the severity of the sickness or injury. Generally, the more serious the health event, the larger the benefit, and if your health deteriorates further following a less serious health claim, another benefit may be paid.

The benefit of Severity Based Cover is that it provides a greater breadth of cover for health conditions than is otherwise included under traditional TPD and Trauma policies.  It follows a medical ‘level of impairment’ test rather than the standard – ‘in the opinion of two different legally qualified medical practitioners, are you likely to ever return to work?’.

This ‘level of impairment’ approach to assessing a claim means:

  • You can make multiple claims under the same policy, and
  • There is a higher likelihood of claim payments for partial conditions and disabilities.

For example, if you were to apply for $100,000 Severity Based Cover, the coverage would look like this:

Benefit Category Maximum Benefit ($) Example of a Successful Claim
Death & Terminal Illness $100,000 (100%) Due to sickness or injury, you are not expected to live for more than 24 months.
A Health Events $100,000 (100%) Total and permanent loss of use of both the entire left leg and the entire right leg.
B Health Events $65,000 (65%) Total and permanent loss of use of the entire dominant arm.
C Health Events $40,000 (40%) Total and permanent loss of use of an entire leg.
D Health Events $20,000 (20%) Total and permanent loss of use of one entire hand.
E Health Events $5,000 (5%) Amputation of two or more fingers at the PIP or MCP joint, one of which must be either the index finger or thumb.
Protected Amount $25,000 (25%)

What the above table means is that:

  • If you were to be diagnosed with a terminal illness or pass away, you or your estate will receive $100,000 and your cover will be reduced to $0.
  • If you were to become totally and permanently disabled (A Health Event) you will receive $100,000 and your cover will be reduced to $25,000 – the Protected Amount (explained further below).
  • And then depending on the severity of the health event, you could receive $5,000 to $65,000 and your overall cover will be reduced by how much you have received from the insurer.

To provide an illustration of the above, if you make a successful D Health Event claim ($20,000), your maximum cover will be reduced as follows:

Benefit Category Original Maximum Benefit ($) New Maximum Benefit ($)
Death & Terminal Illness $100,000 $80,000
A Health Events $100,000 $80,000
B Health Events $65,000 $65,000
C Health Events $40,000 $40,000
D Health Events $20,000 $20,000
E Health Events $5,000 $5,000
Protected Amount $25,000 $25,000

Furthermore, if you were to make a successful C Health Event claim ($40,000), your maximum cover will be reduced as follows:

Benefit Category Original Maximum Benefit ($) New Maximum Benefit ($)
Death & Terminal Illness $100,000 $60,000
A Health Events $100,000 $60,000
B Health Events $65,000 $60,000
C Health Events $40,000 $40,000
D Health Events $20,000 $20,000
E Health Events $5,000 $5,000
Protected Amount $25,000 $25,000

Lastly, the ‘Protected Amount’ protects 25% of the initial amount of cover if you need to make further claims on your policy. That is, if you make a claim that reduces the maximum amount payable for future potential claims to less than 25% of the initial amount cover (i.e. $5,000 of $100,000 in this example), the maximum amount payable for all benefit categories will be the ‘Protected Amount’ or $25,000 in this example.

Hence, if you make a successful A Health Event Claim ($100,000), the maximum amount payable for each health category will be as follows:

Benefit Category Original Maximum Benefit ($) New Maximum Benefit ($)
Death & Terminal Illness $100,000 $0
A Health Events $100,000 $25,000
B Health Events $65,000 $25,000
C Health Events $40,000 $25,000
D Health Events $20,000 $20,000
E Health Events $5,000 $5,000
Protected Amount $25,000 $25,000

Please note the following about accessing the ‘Protected Amount’:

  • You have to wait 14 days after you make the claim to be eligible to apply the ‘Protected Amount’ to your policy.
  • The Protected Amount does not apply to Death & Terminal Illness Cover, which means it will remain reduced to $0.
  • The Protected Amount can be used more than once, but it ends on the policy anniversary when you turn age 65 or when a claim for terminal illness is paid.

If you wish to learn more about ‘Severity Based Cover’ and whether it is the right type of insurance cover for you, please contact your HOC representative to discuss. 

Lastly…………………

Hughes O’Dea Corredig has a major

announcement in January 2022 – stay tuned

 

Please Note: Many of the comments in this publication are general in nature and anyone intending to apply the information to practical circumstances should seek professional advice to independently verify their interpretation and the information’s applicability to their particular circumstances

 

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