Oct 24, 2018 / News

Business Consulting / Taxation

Top Tax Tips - 24 October 2018

How should compensation received for inappropriate advice be taxed?

With the Royal Commission into Misconduct in the Banking, Superannuation and Financial Services Industry currently underway, many individuals may have received or may be about to receive compensation for inappropriate financial advice received from financial institutions (e.g. compensation for loss of investment, refund or reimbursement of fees or interest).

Such a compensation payment will be taxable in the hands of the recipient – and the amount of tax payable will depend on what the compensation was paid for and whether the investments were held on revenue or capital account.

For example, if compensation is received for the loss of an investment, the tax treatment of the compensation will depend on whether the individual taxpayer has disposed of the investment or not.  Therefore, if the investment is:

• disposed of, the compensation will form part of additional capital proceeds; or
• not disposed of, the compensation will reduce the cost base (or reduced cost base) of the investment.

Likewise, the tax treatment of a compensation payment received to refund or reimburse adviser fees will depend on whether the adviser fee was originally claimed as a tax deduction or included in the cost base of the investment.  Accordingly, such compensation will either:

• be included in assessable income if the individual taxpayer claimed a tax deduction for the adviser fee;
• not be included in assessable income if the individual taxpayer did not claim a tax deduction for the adviser fee; or
• reduce the cost base of the investment by the amount of compensation received if the adviser fee was originally Included in the cost base of the investment.

Super guarantee health check

Following on from our widely read Top Tax Tip on the proposed superannuation guarantee amnesty, we thought it would be a good idea to remind employers of their obligation to pay superannuation guarantee contributions - currently at a minimum rate of 9.5% of ordinary time earnings  on behalf of  all eligible workers earning $450 or more before tax in a calendar month. Employees include company directors who receive payments in their capacity as a director (and also contractors in certain circumstances). 

Ordinary time earnings are generally what employees earn for their ordinary hours of work (e.g. commissions, shift loadings and allowances, but does not include overtime payments).

Superannuation guarantee contributions are usually made quarterly via SuperStream (i.e. a system whereby contributions are made either through electronic funds transfer or BPAY) and the employer will qualify for a tax deduction for such payments if such payments are made to a complying superannuation fund. 

The penalties for failing to pay superannuation guarantee contributions are quite severe (i.e. the superannuation guarantee shortfall amounts, interest on those shortfall amounts and an administration fee of $20 per employee per quarter).  Please contact us if you have any queries to ensure that the correct amount of superannuation guarantee contributions are paid by the due date.

How can Nexia Edwards Marshall help you?

For any questions or to discuss any of the above in relation to your personal situation, please contact Grantley Stevens or your Nexia Edwards Marshall Adviser.

The material contained in this publication is for general information purposes only and does not constitute professional advice or recommendation from Nexia Edwards Marshall. Regarding any situation or circumstance, specific professional advice should be sought on any particular matter by contacting your Nexia Edwards Marshall Adviser.