Understanding unfair dismissal

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The number of unfair dismissal applications lodged last year suggests that employers are still struggling with unfair dismissal laws.  Around 14,800 unfair dismissal claims were filed in 2015 and while most cases were settled before a formal hearing, they do create an unproductive distraction for employers.

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Bad debts with a silver tax lining

19 Bad Debts with a silver tax lining

It is an unfortunate fact of business life that sometimes you will not be paid in full for work you have done.  The silver lining is that there are some tax break that can come along with a bad debt.

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Succession Planning

 

27 Keeping it in the family succession planning

It is inevitable that a business owner will eventually leave their business.  Whether they sell, retire or leave due to health reasons, it is important to be prepared for when that day eventually arrives.

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Mortgage v Superannuation

28 Mortgage vs. superannuation

Deciding whether you should prioritise paying off your mortgage or boost your superannuation balance is an important decision and there are many factors that should be taken into consideration.

The first thing that you should think about is how likely it is that you will want to access the money before your retirement.

If you have funneled your extra cash into additional mortgage payments, then you will usually be able to redraw in case of an emergency or if you wish to restructure your finances (such as for purchasing an investment property).  On the other hand, if you have chosen to direct the extra money into your superannuation, you will have to wait until you reach preservation age before you can access it.

If you make extra concessional superannuation contributions by salary sacrificing, there can be some significant tax breaks. Currently, you can make concessional superannuation contributions of up to $35,000 (or $30,000 if under 50 years of age) that, for most people, are taxed at the low rate of 15%.  Note this is proposed to reduce to $25,000 for all ages from 1 July 2017.

The potential advantage of making extra concessional superannuation contributions over the years is that you can repeatedly capitalise on the low tax rate.  Alternatively, if you wait until you have paid off your mortgage before you start salary sacrificing, you may have limited time in which you can use the concessional contribution tax breaks.

Some individuals who choose to salary sacrifice into concessional super contributions at the expense of paying off their mortgage as fast as possible plan on using the balance of their superannuation to pay off the remainder of their mortgage once they have reached their preservation age.

While this can be a great tax minimisation strategy, there are a couple of risks you should be aware of.  There may be a change to the way superannuation is taxed, meaning that you could be disadvantaged.  Another possibility is that there will be a market downturn when you plan on withdrawing your super, meaning that the balance may not be as high as you had initially anticipated.

Testamentary trusts – an overview

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A testamentary trust is an effective estate planning tool that can provide greater flexibility when it comes to protecting assets and minimising tax when distributing assets to beneficiaries.

Testamentary trusts are established through an individual’s Will that do not come into effect until the individual has passed away.  The trust outlines a structure whereby assets are managed by appointed trustees for the benefits of the beneficiaries nominated in the Will.

There are two types of testamentary trusts with the first being a discretionary testamentary trust.  Beneficiaries are provided with the option to take part of all of their inheritance via the testamentary trust.  The primary beneficiary can remove and appoint the trustee and can appoint themselves to manage their inheritance inside the trust.

The second type is a protective testamentary trust.  This trust requires the beneficiary to take their inheritance via the trust without the option to appoint or remove trustees.  This may be useful when a beneficiary is not able to manage their inheritance due to age, disability or spending tendencies.

The main benefits of a testamentary trust are the taxation advantages it creates for beneficiaries receiving income earned from the inheritance and its ability to protect assets.

When a beneficiary accepts their inheritance in their personal name, they are required to pay income tax at their personal marginal tax rate.  A discretionary trust can provide significant tax advantages, especially when the beneficiary has a high marginal tax rate, a partner on a lower income and minor children/grandchildren.

Assets are protected in a testamentary trust since they cannot be taken out of the trust without the trustee’s discretion to distribute the benefit to beneficiaries.  Beneficiaries do not legally own the assets which protects them from creditors, waste and dissipation by the beneficiary or claims on the beneficiary’s assets in circumstances such as divorce or bankruptcy.