Arnold & Finlay Accountants & Planners Ltd :: Forecasts :: Cashflow :: Valuations :: Southport QLD

Using Capital Gains to Increase Superannuation

Fri, 02 Feb 2024 00:54:37 GMT

Thinking of selling your business?

When a small business is sold, it is possible to contribute up to $500,000 to a super fund, without exceeding the super caps. It can be a great way of both reducing CGT and boosting super balances.

The CGT rules are complex, more so when trusts and shares are involved. If the basic conditions are met, the taxpayer has four Small Business Concessions (SBC) that can be applied to reduce or even eliminate the capital gain on sale. The taxpayer can elect to use the Concession(s) which result in the best tax outcome.

15 Year Exemption

This is the most valuable concession, as it allows a full exemption from CGT on the sale of a business. It requires that:

- The business has been owned for more than 15 consecutive years,

- The owner must be over 55 and the sale is made in connection with retirement or permanent incapacity,

- The annual business turnover must be less than $2m, or the vendor has net assets of less than $6m,

- No other SBC will be applied.

If the conditions are met, it allows a contribution of the total sale proceeds up to the CGT Cap of $1.705m for 2024 (annually indexed).

50% Reduction (Active Asset Condition)

The General Exemption is 50% of the capital gain, available as long as the asset has been held for 12 months. In addition to this, a further 50% reduction of the capital gain can be claimed (that is, 25% of the total capital gain) where the sale was an Active Asset (eg., a business, not a Passive Asset like a rental property).

If the 15 year Exemption is not available, the 50% Reduction could be the first applied.

Retirement Exemption

This SBC allows for a $500,000 reduction in the assessable capital gain. The conditions to claim it are:

- The $500,000 is a lifetime limit for each taxpayer under this Concession (if fully used, it cannot be claimed again where a second business was sold).

- If under 55, the amount must be paid into a superannuation fund.

- If over 55, it is optional to pay the amount into a fund.

Like the 15 year Exemption, the contribution can be made outside the usual caps, but here the contribution is based on the exempt capital gain and not the total sale proceeds.

Small Business Rollover

This SBC allows part or all of the capital gain to be rolled over within the next two years into another active business asset (eg., purchase another business, or equipment to start a new business). If no asset is acquired within the two years, then the capital gain arises again at this point.

This concession allows a taxpayer two years to find a new business or acquire business assets. If not, the taxpayer can then use the Retirement Exemption and contribute the amount to superannuation or elect to use the Retirement Exemption (if then over 55).

Alternatively, if a replacement asset was acquired and subsequently sold, the Retirement Exemption may be applied without retesting of the CGT Concession criteria. This allows a super contribution from the new sale where concessions may not be available.

Why Bother?

Income in a Super Fund is taxed at 15%, Nil if in Pension mode, and the Pension is also tax free.

So, there is a large saving of Capital Gains Tax, and then a saving of income tax through the Super Fund.

Other Considerations

CGT applies only to capital gains. If a business is sold and the sale includes depreciated plant, equipment and vehicles or trading stock, these are taxed under ordinary income tax (as the recovery of a cost), not as capital gains. As a result, there could be income tax to pay where the plant, etc., have been fully deducted under the temporary full expensing concessions, which were in place to 30 June 2023.

Monies must be contributed to superannuation within the times required by the Concession.

These Concessions need to be considered when selling a business and for increasing retirement savings. The contributions to super do not breach the super caps, and are a great way to increase super. The rules are complicated and it is worthwhile to speak to an advisor early in the process, to determine the availability and benefit of these concessions.

Six Changes to Super and Pensions

Mon, 10 Jul 2023 01:55:22 GMT

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Personal wealth has improved, but you must also allow for the effect of inflation. Since March 2020, average wealth per capita increased 19%, but adjust for inflation and it’s only 8%. The government has allowed for inflation, and passed indexing changes to pensions and superannuation, of benefit mainly to middle income retirees and older Australians, and worth knowing.

1. Pension Access has Improved

The Assets Test may allow access to a full or part pension. Single homeowners can have $301,750 in assets, and non-homeowners can have $543,000 before their full pension payment is reduced. Homeowner couples asset threshold increases to $451,500 and non-homeowners increases to $693,500, before the full pension is affected. (Every $1,000 in assets over the assets free amount reduces the pension rate by $3 per fortnight).

2. Even if you have ‘a lot’ in Super, more may be possible

The tax-free super cap last year was $1.7m, now increased to $1.9m. (Simply means there is no tax on the Fund paying a pension on a balance up to $1.9m, and the pension is also tax free to the recipient. Above that, tax rate is 15%).

3. Pension Drawdowns from Super are back to Normal

Since 2020, those taking Pensions from Super were only required to draw 50% of the ATO set drawdown percentage. If you take a pension, the ATO rules that from 1 July 2023 you must take 4% of the member balance if aged 65 to 74, and this increases by increments to age 95. (However, you may be able to draw and re-contribute to Super, but not if over 75).

4. Increases in Employer Compulsory Contributions

From 1 July 2023, the Super Guarantee Charge paid by employers increases to 11%. (Note: – Super can apply to personal ABN contractors, Directors, all casuals, etc. And, if super is paid late it is not tax deductible for the employer).

5. Younger Workers and Super

Inflation is applied to the contribution caps, not to Wages or CPI. That means if you want to contribute more to super, either to save tax or to increase savings, you will have to make personal contributions in addition to the employer SGC. (The maximum deductible contribution is now $27,000 – so reduce this by the employer contribution to calculate the allowable personal contribution for the year. You may also be able to make tax deductible Catch-up contributions where super balance is under $500,000).

6. Over $3m in Super?

From July 2025 there is a new tax rate on amounts over $3m in super. Based on the current caps of $1.9m, a pension is tax free, above $1.9m, the tax is 15% on earnings above this, and then above $3m, the tax rate will be 30%. On amounts up to $3m the tax applies to income earned, above that, the tax applies to unrealised gains. Tax will be paid on a growth in value each year, and it seems no benefit for a reduction in value. (This could be an issue for investors with property, or high-growth shares – certainly worth thinking about now).

Superannuation and Pensions are fiddled with by every Government. In the good old days, just about anything was possible, now the industry is very regulated. These changes need to be considered by everyone with super so you can save tax, increase your wealth, retire early, or better understand what may be possible with good planning.

Happy to help if you need to review one of these, or direct you to experienced planners who understand super, pensions, aged care and tax.

Reduce Challenges, Be Proactive

Wed, 21 Jun 2023 23:38:45 GMT

Reduce Challenges, Be Proactive

Only one week to the new financial year, and despite the past few years of difficulties, businesses still face challenges, including high interest rates, soaring energy costs, increasing operating costs, supply difficulties, and a government that does not seem to be at all concerned about such difficulties, even about causing a recession.

In this uncertain landscape, businesses need to evaluate their past performance, plan ahead, and take proactive measures to drive growth.

More Than A Twelve Month Plan

Many plans focus on the next 12 months, which breaks down into the tactics for each quarter to achieve the whole year goals. Combine this though with your personal goals, which can be ambitious, large scale aspirations that hopefully spark inspiration. Consider goals like selling the business at a premium price, expand into new markets or products, even a fundamental change in the way the business operates.

These insights into your personal long-term vision are above ordinary operating strategies, and require the investigation of possibilities, putting the infrastructure in place, and fully assessing the feasibility of the plan.

Learn From The Past

Planning and improving financial practices requires an understanding of past mistakes, the things that didn’t work for you. Analyse past financial data, decide what you need to know (like KPI’s or Benchmarks) to achieve your next year goals. Knowing what went wrong gives us valuable information that drives a better outcome in the future. Realise though that the new system may need to be tested and adapted before it works for you.

Effective Record Keeping

The least popular task for most people! Don’t keep records just to do paperwork for the tax office. Set up your records so that you have the information you need to know every day, (perhaps daily sales, average sale per customer, cash at bank, accounts receivable and due to be paid to you, sales per staff member or per sq. metre, number of new customer enquiries, etc.)

By diligently maintaining records you can ensure greater clarity and efficiency, and will make informed decisions much easier.

Forecasting

It’s difficult to forecast, ‘especially when it’s about the future’ (Yogi Berra). Costs are easy enough (rent, wages, marketing, vehicles, overheads). If we want to make more profit, we have to sell more than last year and at a better margin too. So, we can increase prices, sell more product/services to existing customers, find new customers, convert more prospects into customers, etc. (Each tactic requires its own strategy).

The first forecast is for profits, we also need one for cash flow; when will customers pay, allow for loan repayments and various tax liabilities. This forecast tells us about possible cash crises, which can then be managed because of the advanced knowledge.

Stay Informed

It is necessary to be well informed about economic trends, government policy, and trading conditions. This allows for better informed decisions and whether strategies need to be adapted to effectively deal with challenges.

Finally …

There are both challenges and opportunities in planning. It is about seeking to thrive in the face of uncertainty, by strengthening client relationships, diversifying revenue streams, seeking useful advice, and being informed about economic trends and conditions.

It is not just reacting to events or immediate financial needs but the proactive shaping of the future of your business. Allow time to plan and develop strategies, and prepare a strong foundation for the next year.

Will You Thrive in the Economic Conditions Ahead?

Tue, 21 Mar 2023 22:00:00 GMT

This morning I read an article by Nexia Accounting NZ, advising that the NZ Government has ended its support to business during the Covid lockdowns. The withdrawal of support, high inflation and low business confidence has raised pressures on NZ businesses and there has been a marked increase in inquiries on 'Insolvency'.

Is this relevant to Australia? ASIC provides weekly reports on the levels of company insolvency. What the graphs show is that the level of insolvency is increasing quite fast from around 700 a month towards 900 a month, for a total of 4,900 this financial year to date. The industries most affected are Accommodation and Food, Construction (30% of the total), Manufacturing, and Services.

The Reports though do not tell us the reasons for insolvency. Debt recovery action by the tax office would certainly be one, over 100 Director Penalty Notices are issued daily and sometimes the only recourse is liquidation, cost increases, difficulty in attracting staff or sourcing materials, slower discretionary spending, and simply 'cash flow problems'.

What we can see from this is that there are more businesses affected than usual, and at the moment the problem is more acute in certain industries. So, what should businesses do to ensure they thrive under the current and future economic conditions?

Cash is King

Businesses need strong cash flow and access to cash. Those who are struggling need to carefully assess their business model to find out what is blocking their cash flow.

Examine Lines of Credit

Look at the lines of credit extended to clients (terms, amount, etc.). It may be growing, even out of control. It may be evidence of growth but also means more stock to hold, more overheads, even quicker payments to suppliers. Perhaps change the terms of credit, and/or seek finance based on Receivables to secure a smoother or regular cash flow.

Vet new Clients

Do some background research on new clients before working together. Do they fit your ideal customer profile, are they in a stable financial position? They may owe large amounts to previous suppliers, why did they switch? If you do work, will they pay on your terms, could the payments be a preference and recoverable by those prior creditors?

Avoid Ageing Debtors

Statistics show customers taking longer on average to pay accounts. Chase up overdue accounts quickly. It is unpleasant and something we'd rather not do, but it is your money and your business that must be protected. Make allowances if genuine, but as a one-off, and re-state the future terms of payment.

Invoice Regularly

Invoice as soon as possible in the workflow cycle, full payment due on (date), or a deposit, a claim each 14 days, balance in full on delivery or completion. Much of your business cash flow likely depends on invoicing, there are no fixed rules for this function, you can have different terms for various customers (past performance, yet to establish credit worthiness, short term smaller debts, etc.).

Understand the Financials

Owners need to understand how the growth of the business will be achieved, the effects that will have on revenue, costs, debt and repayments, and working capital (stock, cash, debtors etc.,). One of the most important things that businesses can do is to create a cash flow forecast, which anticipates the cash needs and identifies potential cash flow problems before they occur.

Cash is the issue that means the survival of your business. Conduct an analysis of your processes and systems, ensure they are working properly, seek advice or support, and solve weaknesses before they get out of control. If addressed early, insolvency and those big costs are usually avoided.

If you seem to be having difficulties, contact us and discuss options that may assist you to improve the situation. It's better to do this now while there are options, rather than leaving it too late to take effective action.

Why Should you have Audit Insurance Cover?

Tue, 14 Feb 2023 22:00:00 GMT

No one wants a tax audit, and no matter how careful or experienced you are, audits or reviews of tax returns are sometimes unavoidable.

This is where Tax Audit Insurance comes in, as it covers a business for specified costs in responding to an audit by the ATO, and any State tax authority (eg., Payroll Tax).

Targets

The most likely group are businesses with a turnover between $1m to $3m. The ATO has also said after two years of relaxed conditions, that extra, tighter controls will be implemented. That includes a focus on fraud and tax evasion, as well as checks on BAS and FBT.

If it is just BAS, the ATO usually audits a Quarter, and if found to be incorrect, it may extend to the whole year, and even on to income tax and FBT. The cost can be high, depending on the extent and complexity of the review.

How to be a Target

You're careful with your records. We're careful with tax returns. No reason to expect a problem. But, have you left something out? Is your vehicle log book up to date? Do you have a luxury vehicle (over $60,000)? Are BAS lodged and paid on time, no corrections made? Do tax returns match tax office Benchmarks? Do you engage sub-contractors (and pay Super for individuals)?

Most audits occur out of the blue, with no notice or time to check. Specific information is demanded immediately, you also should make your own checks in case there are other concerns to be addressed. Demands on your time and ours, and of course costs, are usually considerable.

The Outcome

We hope you consider the option to cover yourself for these costs. We don't like audits either, it doesn't build a strong relationship with clients. We send out Newsletters warning of ATO or legislation changes (for example, in the next 60 days; FBT and private use of vehicles, Trust distributions before year end, Superannuation, Professional profit sharing, loans by companies to owners, claiming for use of holiday homes, sham not-for-profit entities, CGT and asset sales).

Benefits

For a small investment (hundreds) you avoid the costs (sometimes in the thousands) and a lot of the stress of dealing with a statutory authority who is out to obtain money from you, extra tax, penalties and interest.

It is possible to purchase cover through a commercial policy, although there may be conditions and exclusions. We recommend Accountancy Insurance, their policy covers costs up to a set limit and cover begins as soon as you pay. In the event of a claim, we only need to notify them.

So please read the offer carefully when you receive it, and call us if you're not sure and need clarification.

Claims Activity 2022

These were the most common audit activity areas for the six months to 31 December 2022:

BAS 9%

Employer Obligations (PAYG, Super, FBT) 12%

Data Matching (Omitted income, Expenses) 4%

Income Tax (Business) 18%

Income Tax (Personal Returns) 9%

Rental Property 5%

Payroll Tax 13%

Workcover 5%

Land Tax 4%

Marketing that Isn't!

Tue, 14 Feb 2023 22:00:00 GMT

Word of mouth . It's the essential of every professional and service firm's marketing program.

Is it random? Yes! Is it luck? No! Herewith, two secrets for making WOM work for you. (Of course, once they're shared they aren't secrets anymore, are they? Just don't tell anyone!)

Seeking referrals is not about chasing strangers for a sale. Rather, you are allowing the people you already know to get to know you better and, by staying in touch over time, reminding them that you are alive and still in business.

And then, when a colleague, friend, business person, parole officer etc., of theirs asks for a recommendation, your name is top of mind and they pass you along. But you need to accomplish a couple of things (these are secret so don't read out loud or even let your lips move) …..

1. You have to be known for something

Solve a particular problem, serve a particular type of business, work in a particular role. Say 'I solve tax concerns for family businesses' (not just an accountant).

There's nothing wrong with having a broad range of skills and experience, which are needed to succeed in many situations. But it is harder for a generalist, because people want to engage experts, especially a leading expert in the problem they have.

2. You have to stay visible

Especially with the people you know. it's okay to speak to a group, write a book, etc., but those people don't know you and quickly forget you.

Instead, focus on activities that are ongoing and relationship-based. Join a network group (like First Class Networking), email or call people to catch-up, send thank you notes, put out a newsletter regularly. Do anything that solidifies the connection with existing contacts.

The Point is ….

Who you know is Word-of-Mouth. It's not meant to be targeting, segmenting, prospecting, adding to the funnel, or eliciting immediate referrals from anyone.

You could perhaps achieve that, but it might be 'bad form'. It's all about making sure when they are asked that you will be the person they mention as being able to solve their problem (and can't keep a secret).

Pricing Is Never 'Just' Costing

Mon, 28 Nov 2022 22:00:00 GMT

How do you calculate a price for your goods or services? Do you charge what everyone else does? While you don't want to charge less than what you are worth, you also don't want to price yourself out of the market, so now it's about more than just 'a price'.

Costs have gone up. Labour costs could have big increases next year. Pricing is a mix of costing and research, so you need to consider these five factors when setting prices, whether just starting up or reviewing current prices.

1. Costs

You need to know the costs of running your business, while costs you have may be similar to other firms in name, they are not necessarily the same in amount.

Look first at the direct costs, which are the costs of producing and delivering your goods or services (materials, packaging, direct labour). What are the fixed costs (or overheads), these are the expenses that will come in every month (rent, insurance, power, etc) regardless of the actual sales made.

The gross margin (sales less the cost of goods sold) needs to be high enough to recover the fixed costs and make a profit.

2. Customers

What do customers expect or want from your product or service? Are they only seeking the cheapest price, or is value more important? Price may be part of the purchase decision, particularly where the customer is buying high-end goods. You may need to consider the level of service or inclusions offered, and determine whether you are targeting the right market. Moving into a new market sector could make the business more profitable because it allows a higher price to be charged.

3. Positioning

Understand who your customer is to help you position yourself in the marketplace. Are you luxury and a high-end brand, or the cheapest, or somewhere in between? Once this becomes clear for you, ideal pricing starts to become a lot more understandable.

4. Competitors

What prices are charged by other suppliers? What are their inclusions and levels of service, who are their customers, how is the competitor positioned? These give an industry benchmark and while your prices need to consider that benchmark, your costs are more important, you can't stay in business unless your costs are fully covered.

5. Profit

Often business owners look only at what others charge and set their prices based solely on that research. But an important question that may not be considered is about how much profit you want to make. You should make a return on your time (a commercial salary), your capital (a return on invested capital), and on your risk (the higher the industry or market risk, the higher should be the reward).

Many texts say you should be in business because either it is your passion, or to add value to the lives of others. However, you are entitled to add value to your own life. There is no one way of setting prices, it may start with analysis to ensure recovery of your costs, determining the profit level you want, understanding of your customer needs, and finally your market positioning and competitive strategy.

October Federal Budget (and Some Concern for the Future)

Mon, 07 Nov 2022 22:00:00 GMT

The Federal Budget was delivered last week. The good news is there was really no tax or superannuation changes that affect business. The bad news is that with interest rates still rising (expect the Cash Rate to finish around 3.5%) and labour costs higher with continuing staff shortages, don't expect any assistance from the Government.

Winners were:

- Families – childcare subsidies extended, increased benefits of Paid Parental Leave

- Pensioners – deeming rates frozen until June 2024, new measures to downsize homes using pension incentives, and income levels increased significantly for eligibility for the Seniors Health Card.

- Retirees – the Downsizer $300,000 Superannuation contribution eligibility age is reduced to 55 years.

Concern for Future Years

This wasn't the usual Federal Budget, it was about Labor winding back what the previous government had planned and to put in place its new policies.

The Treasurer and Prime Minister have expressed very negative economic expectations. Past experience tells us most estimates from Treasury are wrong, so actual economy outcomes may not be that bad. However, government debt is high, so tax increases could be made in the next Budget (May 2023).

ATO Audit and Collection Activity

The ATO has received extra funding to increase its audit activity, and to collect outstanding debt. Consider what could trigger an ATO audit:

- Being in a target industry – where cash is common and so the potential for avoidance is higher.

- Your income is low compared to ATO and industry benchmarks.

- Not declaring all income – the ATP has a sophisticated data matching system, for employment, interest, dividends, crypto, rentals, other contract sources.

- Having a lifestyle that does not match declared income.

- Anonymous allegations or tip-offs.

- Poor lodgement and payment records for income tax, GST, superannuation, etc.

ATO Ruling on Professionals and Profit Allocations

A new ATO guidance (PCG 2021/4) changes the way professional firm profits can be split among a family group, applying from 1 July 2022. A professional firm is one providing knowledge-based services, such as medical, legal, financial advisors, etc. To avoid an audit, basically, the family group needs to pay tax at a combined average rate above 35%. Our end-of-year Tax Planning meeting will be important to get this right.

ATO and Family Trusts

The ATO believes sec. 100A of the Tax Act means that distributions made on paper need to be supported by cash paid to the beneficiaries. In a recent Court case, 'Owies' case, the trustee was removed and distributions changed because two beneficiaries complained they had been excluded from distributions.

These matters need to be considered before the end of the financial year – the default beneficiaries, the purpose in the Deed, and the terms of a Trustee exercising their discretion. It nay even mean changes in the trust to provide asset protection and estate planning advantages.

Cashflow

Costs are increasing spurred on by inflation, interest, labour, and power prices. That means you need to closely monitor your profit margins and ensure prices are set at a profitable level. We think it is essential to look forward for at least 12 months, and prepare both a monthly Profit and a Cashflow forecast (timing may be different for cashflow).

This provides confidence in your business model (the way the business runs) and to ensure that pricing, operation and cashflow are working for you.

Next Steps

The Budget was not the topic for this Newsletter, it is the assumptions and scenarios underlying it that raises concerns, together with the changes to trusts and professional profits.

These can't be dealt with "eventually", but need to be considered before 30 June, and is the reason we keep stressing the importance of trusts and tax planning before the end of the financial year. We suggest we have an initial call or meeting to see if these key changes may affect you. Economic conditions, government policy, tax office activity will all be factors to watch and be aware of in the next one to three years, so please don't get caught out.

Two-thirds of directors haven't applied for a DIN!

Mon, 10 Oct 2022 22:00:00 GMT

Around 1.6 million directors, almost two-thirds, have not applied for a DIN. About 900,000 have applied.

A director of a Company including a director of a corporate trustee is required to register by 30/11/2022. Failure to do so can incur either a criminal or civil penalty.

Purpose

The purpose of the system is to prevent fraud and phoenix companies arising from the ruins of failed operations, and false identity use.

Process

No doubt one reason for the slow take-up is that directors must apply in person – accountants are unable to do so on their behalf. The fastest way to do this is online using the myGovID app to log in to ABRS online. What seems to take the most time is the setting up of the myGovID account. For instructions:

https://www.abrs.gov.au/director-identification-number/apply-director-identification-number

Step 1 – Set up myGovID

You'll need at least 2 of the following Australian identity documents that verify your identity:

- Driver's licence

- Passport (not more than 3 years expired)

- Birth certificate

- Citizenship certificate

- Visa (using your foreign passport)

- ImmiCard

Step 2 – Gather your documents

In addition to your myGovID, to apply online you will need to have information the ATO knows about you. This information must relate to you, personally, rather than to the company, registered Australian body, or registered foreign company of which you are a director. The information you supply must be exactly as the ATO records it.

You will need:

--your tax file number (TFN)

- your residential address as held by the ATO

- information from 2 documents to verify your identity.

Examples of the documents you can use include:

- bank account details (if it has been supplied to the ATO)

- a reference number from an ATO notice of assessment within the past 5 years

- a dividend statement

- a Centrelink payment summary

- a PAYG payment summary

Step 3 – Complete your application

Position if no Director ID

What would be the status of directors who fail to obtain an ID?

Remain a director Yes

Decisions made are valid Yes

Appointment as a Director after 30/11/2022 valid Yes

However, a director must also comply with their director ID obligations under the Corporations Act 2002. ABRS advised that civil and/or criminal penalties can apply. It could be expected that a warning would initially be given, and then 'firmer action', especially if a director is unwilling to apply.

Once you have your DIN please email the confirmation to veda.finlay@arnfin.net.au .

To those who have already applied and notified us of your DIN's, thank you!

Fuel Tax Credits and September 2022 BAS

Tue, 27 Sep 2022 23:00:00 GMT

The Coalition halved for six months the fuel excise on petrol and diesel to 22.1 cents per litre, which resulted in the Fuel Tax Credits (FTC) claimable by business users also being reduced. This arrangement finalises on 28 September 2022, and so fuel costs will rise and FTC can again be claimed from 29 September.

Who Can Claim FTC's

Claimants must be GST registered, and the claim can be for both vehicles and 'other use' (eg., plant and machinery). Exclusions are cars and vehicles weighing less than 4.5 tonnes on public roads (but claimable if used for business on private property, farms or mines).

FTC Rates

From 30 March to 31 July:

- Vehicles > 4.5 T on public roads Nil

- All other eligible use 22.1 cents/litre

From 1 August to 28 September:

- Vehicles > 4.5T on public roads Nil

- All other eligible use 23.0 c/l

From 29 September on:

- Vehicles > 4.5T on public roads 18.8 c/l

- All other eligible use 46.0 c/l

"Other Eligible Business Use" (Full FTC)

These include fuel for plant and machinery and off-public road travel by vehicles of any weight, such as tractors, earth movers, cars on farms and mines, and vehicles > 4.5T.

September 2022 BAS

Quarterly lodgers will have three sets of FTC rates. The rates are determined by the date on which fuel is acquired. If claiming FTC, the September BAS needs to be dissected by both date and by how the fuel was used.

Making Word of Mouth Work (for you)

Tue, 20 Sep 2022 23:00:00 GMT

This Blog is a bit longer than usual. But don't worry, I used smaller words, so it all evens out.

Is this familiar?

You're talking to someone who says 'can you recommend a …..?' One person with a problem asks another person for help in finding a solution.

It's also where the vast majority of your business as a professional or small firm comes from.

There are three things to keep in mind.

Thing One

It's not yet about expertise , more 'this person could be what you are looking for'. It may be that the referrer has no firsthand knowledge, the question is essentially about possibilities, whoever comes to mind (whomever, if you are seeking an English tutor). Vetting comes later.

Thing Two

It is not an exhaustive list , it is the person who comes to mind. It means narrowing of focus, in fact, the more specific and narrow the better. You don't have a data base in your mind (you do, but it is doubtful you could access every name right away) but if the question is specific as to the particular skill required and you are known for that skill or expertise, that specialisation tilts the response very decidedly in your direction.

Thing Three

Remember, you're not at the meeting, so you are dependent on your referrer. No one can remember your positioning statement as a specialise in "cross-collateralised discrepancies, yada, yada". There is a problem to be solved, the referrer does not need to know how you solve problems, the precise words of what you do really don't matter. It's about being easy to remember , that's all that counts for now.

The Bottom Line

The vast majority of people with whom you interact every day are not potential buyers of your services. Not today. Not ever. Hard, but true.

But … all of these people are capable to tell other people about you, whenever the question arises 'do you know someone who can …..?' (Ahem 'Improve family business profits, cash flow and tax!').

Your job is therefore to make word of mouth work for you, to describe your work using words – simple, narrow, specific, easy to remember words – that line up with the problems people commonly have.

Director Identification Number (DIN) Update

Sun, 18 Sep 2022 23:00:00 GMT

SUMMARY

- All company directors must obtain a DIN (a unique 15 digit number which is kept forever).

- Directors appointed before 31 October 2021 must apply for a director identification number by 30 November 2022 .

- Individuals now seeking to become a director MUST obtain a director identification number before they can be appointed. The purpose is to prevent the use of false identities, for regulators to trace directors' relationships with companies, and to eliminate possible unlawful activities such as phoenix activity.

Every Director must have a DIN

- Director of any company

- Director of a trustee company (eg., for an SMSF)

- Director of a foreign company operating in Australia

How to Apply

All directors must apply for their own DIN. A third party, such as an accountant, is not permitted to do this for you, but we can help you understand the new requirement and assist you if you require it. There are three ways. You can apply through Australian Business Registry Service at https://www.abrs.gov.au/ which directs you to myGovID (below).

1. Online

You need to set up a myGovID ( Note: this is different from myGov, go to mygovid.gov.au), and provide information to prove identity (Passport, Drivers Licence, Medicare Card) and answer 2 ATO questions (eg., home address on tax return, recent ATO assessment umber, bank account).

2. Phone 136 250

To apply by phone you need your TFN, and residential address as given to the ATO, and answers to the same ID and ATO questions.

3 Paper Application

Details on the ABRS website.

Notify Us

When you receive your DIN, please advise it to us so that we can add it to our Company Register system.

Using a DIN

Initially, DIN's are only to be disclosed by ABRS to governments, courts and tribunals. Eventually, the register may be made searchable. ABRS is managed by the ATO but ASIC will prosecute offences.

A failure to have a Director ID when required to do so is an offence under section 1272C of the Corporations Act, penalties up to $1.1 million and criminal penalties up to $13,200 apply.

Changes to QBCC Reporting

Sun, 11 Sep 2022 23:00:00 GMT

The Australian Accounting Standards have recently changed, and anyone in the 'Construction Industry' and reporting annually to QBCC must now comply with these Standards. It is the change of Standards that is responsible, not a change in QBCC reporting rules.

Contractors are required to lodge key financial information for the most recent reporting year by 31 December to show the business is financially sustainable. The type of information depends on the financial category, there are nine categories, and these are defined by the maximum revenue earned and the net tangible assets needed to support that revenue.

However, a Minimum Financial Requirements report (MFR) is mandatory where either turnover will increase by more than 10% over the 'annual allowable turnover', or net tangible assets of the firm reduces by more than 20%.

The two standards that must be followed are:

AASB 2020

Presentation of Liabilities (Current and Non-Current)

AASB 1060

Removal of Special Purpose Financial Statements, and use of General Purpose Financial Statements.

The Standards require an independent accountant to sign off on the financials, and to prepare Profit and Loss, Balance Sheet, Statement of Cash Flow, Creditors' Report, and Notes and Accounting Policies. In the past, not all of these may have been required, or not to this standard.

The change is likely to impact many builders and contractors as their circumstances have fluctuated in the recent challenging economic conditions, so they may also have to lodge a Minimum Financial Requirements (MFR) report to show the business remains solvent and financially capable of taking on new work.

Annual Reports are due by 31 December, which could require compliance with these standards, so more time may be required depending on the state of the records and financial reports. It may be necessary to also prepare an MFR report where the expected annual turnover increase will be more than 10% of past turnover, or net tangible assets have reduced in value, (which means reduced turnover limits will apply). June accounts can't be used in December and must be more current, being not more than 4 months before the date of the Report is signed. The MFR may require verification work.

In summary, allow more time for preparation of the financials and reports for QBCC, and because of the detail now required more checking and disclosure may be necessary:

1. Test the June financials now to ensure the solvency tests are met for the 2022 Annual Return.

2. Consider the net assets required if expecting an increase in annual turnover for 2023.

3. Allow extra time to prepare the financials to the required standard.

More Than Just Advertising

Mon, 05 Sep 2022 23:00:00 GMT

I'm not an advertising expert, which is really just one part of marketing. Advertising can be gratifying, 'See ad, click/check ad, go to web site/shop, buy!'.

It would be great it if was that simple. It also says nothing about kickstarting a campaign; the budget, testing responses, following guidelines and standards, and the upward trend of ad spending due to market saturation.

So, ads can be great, but only when they're used the right way and when you've performed the work needed to run a well planned campaign. Simply, ads aren't the answer, they are just a tool, a piece of the greater picture.

Social media, paid ads, etc., put you in the hands of Meta and so conforming to their way of doing things. It is necessary to take back the power and build a business not dependent on ads.

What are the three Components of a successful marketing program?

Attention

Simply getting people to notice you. You're creating awareness of something interesting or important. Ads can be useful, but use also content to show expertise, email and affiliate programs to show data bases, podcasts, etc.

Affection

Once you have their attention, the goal is to connect and create a relationship that makes them feel comfortable buying from you. This could include sales pages, email sequences, brochures and social media, all of which means the prospect is being nurtured.

Retention

Even if this person did not purchase, they have shown interest in some form. They might not be ready to purchase, or never buy but they may refer someone to you. This material to keep their interest includes emails, Facebook, podcasts, blogs, etc.

Ads are an important piece of a market strategy but they are only once piece of the bigger picture.

It takes time and effort to make the process work, and that means all three Components are needed.

Business Boost Grant - Round 2

Thu, 04 Aug 2022 23:00:00 GMT

These $15,000 grants are to assist small business to 'improve efficiency and productivity'. The grant is paid after completion of the project.

Funding is available for projects with a value exceeding $10,715 in any of these areas:

- future planning

- specialised and automated software

- staff management, development and planning

The maximum grant receivable is $15,000, even if the projects exceeds this.

The expected outcomes are to:

- increase turnover, profit and employment

- improve business confidence and resilience

- improve survivability

Previous Grants have been used for an inline booking system, to redevelop a website, for staff training, and to improve workplace safety.

Eligibility criteria are:

- Qld based

- Fewer than 20 employees, registered for GST

- Turnover between $300,000 and $600,000 in 2020/21

- Applicant to provide 30% of the project cost.

Relevant dates are:

Stage 1: Registration of Interest – 12 August 2022, closing 19 August 2022

Applicant name and agreement to Conditions

Stage 2: Selection by ballot and invitation to complete a full application – opening 29 August 2022 and closing 12 September 2022.

Process

Visit https://www.business.qld.gov.au/starting-business/advice-support/grants/business-boost for guidelines, FAQ's, eligibility criteria, and forms. If you are selected to apply, supplier quotes must be included (max. of 2) plus a Statutory Declaration that the information is true and correct.

Are You On The Marketing Couch?

Thu, 14 Jul 2022 23:00:00 GMT

Because of two years of pandemic, some standards may have changed; the standard of dress (casual Friday a couple of days a week), fewer meetings, long periods of marketing inaction. That inaction can lead to problems for your business.

You Need to Remain Visible

There is a very simple marketing mantra:

'Stay in front of the people you know, over and over again, in a way that positions you as a likeable expert'.

Is that all? Not quite, but live up to that rule and things can happen for you.

People stumble on the 'over and over' part, but they don't forget to be likeable or an expert.

What happens most is they stop marketing, either too busy, or distracted, or complacent.

Stop marketing and eventually the phone stops ringing too.

A Bit is Way Better Than Nothing

If you want people to remember you and refer you, you need to find some way to stay top of mind.

There are other, even small, ways to stay visible:

- A regular newsletter or blog

- Send emails to people you know, keep them informed

- Show up at networking events on a regular basis so people get to know you better

- Post updates on Linked-In, comment on other posts

- Send birthday cards, meet for coffee and talk, don't sell

- Do something!

Would More be Better?

Sure. It's certainly better to train for a marathon than occasionally walk around the block. However, the walk is still way better than just sitting around.

Marketing works the same way. If your program vanishes for months at a time, you might too.

Here's the Bottom Line (finally!)

Marketing is messy and unpredictable, where results may arrive some time down the track. It can even be ignored for a long time without noticing a negative impact.

Until, one day, you have a problem.

So, if your strategy is to sit around hoping for something to turn up (hope is not a viable strategy), look for ways to be and stay visible.

It's easy to do and as you start to see results, who knows, you may be inspired and even develop a grown-up marketing program, or train for a marathon.

Employer Super from 1 July 2022

Tue, 07 Jun 2022 23:00:00 GMT

Increase in Super Guarantee Rate

From 1 July, employer superannuation increases from 10% (for 2021/22) to 10.5% (for 2022/23).

The percentage applies to Ordinary Times Earnings : which includes salary and wages, commissions and bonus', directors fees, and some allowances and leave payments.

Payments to individual labour-only contractors , who are considered to be an employee, also require that super be paid.

Abolition of $450 Threshold

Also from 1 July, employees must contribute super for all employees , removing the previous threshold where earnings less than $450 in a month were excluded.

Choice of Super and Stapled Super

Employees can direct superannuation to their choice of fund (Standard Choice Form), and since 1 November 2021, if the employee does not notify a choice the employer is required to contact the ATO to determine if there is a ' stapled super fund ', which is an existing super account linked to the employee.

Penalties

If super is not paid on time to the ATO, within 25 days of the end of each Quarter, the penalty can be as high as 200% and the super when paid as a Super Guarantee Charge is not tax deductible .

Payroll System

All employers must use Single Touch Payroll (STP) compliant payroll software. Ensure that the system is updated to 10.5% for all employees from 1 July 2022.

STP Phase 2 commenced on 1 January 2022, but some software is yet to be updated and deferrals have been granted (check with your provider). Phase 2 reports information on employees to other government agencies. For information - https://www.ato.gov.au/Business/Single-Touch-Payroll/News,-events-and-resources/?=redirected_STPresources

Uncertainty Impacts Customer Behaviour

Tue, 31 May 2022 23:00:00 GMT

Behavioural science is about simplicity of application, not only doing what you usually do but also doing it better. It has even changed Economics, which always assumed the response of a 'reasonable man', who often acted in a way entirely unexpected. By combining economics and psychology we hope to better understand how and why people behave in the real world, and perhaps predict with more certainty how they may react.

People, meaning customers, look for certainty. That is also a good assumption when it comes to influencing customer behaviour because in times of uncertainty people seek stability and become more risk averse.

While the likelihood of something happening does impact customer decisions, the decision eventually made often depends on whether the outcome may be either positive or negative. Simply, it's not only the certainty of an outcome, it's also whether that outcome may be good or bad for the customer.

To influence a customer to do business with us, our approach may need to change. For example:

Certain the outcome will be positive

The customer is highly motivated to proceed and could be scared of missing out. For example, you have stock and can guarantee supply when required (a positive outcome), or a tradesperson who turns up on time receives more referrals based on their reliability.

Uncertain whether the outcome will be positive

If the outcome is more likely to be positive, customers are likely to proceed but perhaps subject to whether the effort seems worthwhile. If they are 'take it or leave it', make it easier to decide. This could be a discount offered only now, or an easy sign-up process.

Certain the outcome will be negative

Here, the customer is looking for ways to avoid or minimise the result, making them more open to take a risk and to give something a try. Perhaps customers may seek you because no one else offers a solution to a complicated or difficult matter, so you need to emphasize that challenges are welcome.

Uncertain whether the outcome will be negative

If the situation seems uncertain and the outcome might be negative, the customer seeks ways to protect themselves from a possible bad event. They will pay to get peace of mind, for example, the insurance industry.

In 2020, another study found customer satisfaction and sales could be increased by using more specific language rather than abstract descriptors. The specific words make it more real and familiar, impacting satisfaction and willingness to buy.

For example, don't 'try to solve it' but father 'fix that issue', or a waiter says 'anything else?' could be improved by the more tangible 'would you like coffee or tea?'.

Whether the situation seems stable or shaky it is possible to change customer behaviour which can in turn improve the sales meeting outcome.

Independent Contracting (Again!)

Tue, 15 Feb 2022 22:00:00 GMT

The High Court has delivered two judgements that can be expected to have a major influence on independent contracting in the future. There were two cases . Jamsek and Personnel Contracting.

Jamsek ( Employer Win )

This looked at Truck drivers who had been employees for years and changed to contractors in early 1980's, purchased trucks and plant, and operated in partnership with their wives. The Federal Court found they were in fact employees (the company had day to day control, they had to work particular hours, they used the employer logo, etc) and so super and other employment benefits were payable.

The High Court overturned the ruling because the contractors possessed a) significant assets, and b) operated as a partnership, like a business.

Personnel Contracting ( Employer Loss )

A labour hire company engaged an individual as a contractor. He worked on building sites under supervision and control, worked regular hours, and followed company directions. The high level of employer control and lack of business characteristics led to the determination he was an employee.

What does it mean for business?

In these cases there was as much focus on the specific terms of the contract as the post-contractual conduct. However, the label parties give to the relationship are not really relevant, that is, their rights and duties characterise the relationship.

What now?

1. The contract must be in writing and the terms that define a worker's status must be agreed at contract formation. These must be as robust as possible to avoid employment claims in the future.

2. Post-formation, all factors relevant to the ongoing contractual relationship will be considered to determine a worker's true status.

3. In Q'ld, an independent contractor is included for WorkCover and Payroll Tax.

4. An independent contractor is entitled to superannuation under the Tax Act (The ATO can go back indefinitely).

5. Fair Work will investigate any claim for underpayment, so ensure the contract terms are clear, retain all worker claims for payment (for hours, times worked, use of own equipment, details of payments, etc.).

It seems to me that the "usual" type of sub-contractor arrangement, of an individual ABN and an invoice showing an hourly rate won't succeed in the future, and claims for under-payment and superannuation are highly likely. If you intend to engage sub-contractors, ensure the contract is comprehensive and precise and signed by both parties. Keep all documentation. Bear in mind it costs an employee nothing to lodge a claim to FairWork, Superannuation, or WorkCover, the employer has to prove the person is a true contractor.

Why Does My Business Have No Money?

Wed, 26 Jan 2022 22:00:00 GMT

'What are we doing wrong?'

This is a common question but it might not be that you're doing anything wrong, the issue may be due to a combination of factors. The following are the usual culprits, but there may be others to consider too. The focus is always on tracking and measuring profit and how it has been applied, not just turnover.

1. Are the Figures Right?

Accurate financials allow you to make informed decisions, so check them regularly. Sometimes the errors are to do with the bookkeeping or processing, and sometimes are due to errors of principle. Have a good look at them and ensure they are right (bank reconciled monthly, debtors and creditors correct and balanced, loans recorded, personal expenses are not written off as business costs, costs correctly allocated, etc).

2. Understand the Reports

It's important that you have at least a basic understanding. Too many owners are overly concerned about tax, whereas the emphasis should be on making sound profits. Tax planning can probably get you a bigger benefit than merely charging a personal item to the business. Assets go in the Balance Sheet (and they can be written off in the tax return), Repayments reduce loans and are not a cost in the Profit & Loss Statement. Also, because you invoice a sale doesn't mean you have the cash in your bank account as yet.

3. Manage Debtors

Issuing an invoice means a sale and profit when the sale occurs, but you have to ensure customers pay accounts promptly to manage cash flow in the business. Follow up customers when payment is due.

4. Has Every Sale Been Invoiced?

All sales need to be recorded, not only for tax. From Sales we can determine the Gross Profit Margin, consider Pricing, reduce Waste and Shrinkage, etc.

5. Eliminate Waste in the Business

This could be in product (breakages), excess materials used in manufacture, surplus labour, or bad systems. All waste need to be minimised, so eliminate errors or low productivity. Ensure systems and processes are efficient so there is no duplication or time lost on solving problems.

6. GST

Allow for GST in your prices, ensure your software is set up to calculate GST on sales and costs. Incidentally, most BAS are prepared on the Cash Basis (GST on sales collected, costs paid) but Financials should be on the Accrual Basis (the true profit, not just cash in and out).

7. Focus on the Profit Drivers of the Business

The key profit drivers are Sales, Gross Profit, and Overhead. You can't grow a business by a small reduction of overheads, the growth and profit will be from Sales (new leads, conversion rate, new customers, retention of customers, price), and reducing Cost of Sales (or cost of product or cost of manufacture). A small change in each of these can significantly increase profit, perhaps many times over.

8. Pricing must be Right!

This is so important. When you quote (or set a price) do you allow for cost of purchase, plus freight, plus storage, plus direct and indirect labour, overheads, and a profit margin? Price strategy also needs to consider competitors prices, the perceived value, and even what the market will pay. It is up to you to determine your fee structure, and if you communicate excellence and value, there should be little opposition to perhaps a higher sale price difference.

So if you're not showing enough profit and cash for all your hard work and investment, the first step is to make sure you're measuring what's important. Start with these factors. The big improvement is likely to be from concentration on the Key Profit Drivers, No 7. If you'd like to see how a few small changes can make such a big improvement, we'd be happy to show you with some software we use. Most people see a solution that suits their needs very quickly.

Avoid Underpayment of Wages!

Tue, 16 Nov 2021 22:00:00 GMT

Even the big companies get pays wrong – CBA, Bunnings, Woolworths, 7 Eleven. Not only did it cost those companies money, there was a loss of reputation plus significant costs of rectification. In Queensland, 'wage theft' is now a criminal offence (for intentionally failing to pay or underpay employees).

How Does Underpayment Occur?

There are six main events or causes of underpayment:

1. Awards are complex and it is possible to choose the wrong award or misinterpret requirements on allowances, overtime, penalty rates, loading, and pay grades;

2. Award increases have been missed or incorrectly entered into the payroll records;

3. Hours worked are wrongly recorded, so incorrect application of pay rates and penalties;

4. Tax Withholding is wrongly calculated;

5. No regular evaluation of pay grade or classification;

6. Incorrect engagement of individual sub contractors at an agreed or nominal rate (these are more likely to be permanent part time, and so receive super, workcover, leave loadings, etc.).

Detection of Underpayment

There needs to be regular internal checking and pay system reviews; even annually is a step forward.

How to Rectify

This can be a labour intensive task, there is so much that may need to be checked. An employee can bring an action for recovery for up to six years after an underpayment occurred, so check for more than just a few months. Keep people informed and tell them the plan for adjustment, you need to prevent complaints to Fair Work or even escalation to a criminal complaint. It is not only the underpaid wages to consider, there is also superannuation, perhaps payroll tax, and also PAYG Withholding.

Do you Need Help?

We are seeing underpayment complaints to Fair Work (especially by underpaid 'sub-contractors') and to the ATO for superannuation (mostly from individual 'sub contractors'). These take considerable time to resolve (however, the cost is usually covered by Audit Insurance).

We can help interpret and to qualify any possible exposure or costs. If you would like to do this yourself but don't now where to start, please reach out to us.

Avoid Errors in Employees vs Contractors

Tue, 12 Oct 2021 22:00:00 GMT

The Current Tax Landscape

The ATO and State Revenues are now far better at identifying and pursuing non-compliant employers. Knowing the difference is important because it impacts Tax Withholding, Superannuation, Fringe Benefits Tax, WorkCover, Payroll Tax and Pay Awards.

Failure to comply can result in back pay or adjustments, penalties and interest. It is critical to understand these employment/tax rules and obligations, and take steps to manage them.

Key Differences

No single factor is determinative of the relationship, it is necessary to look at its real substance. The major factors to consider are:

Control – a contractor runs a business, usually engaging their own employees or subcontractors

Payment Basis – employees are paid for time, contractors are remunerated for the completion of an agreed result

Independence – an employee is part of the employer's business, but contractors are free to take on other work and have the flexibility to decide what work they will do, and when

Risk – a contractor is liable for defects and to rectify the work at their own cost

Equipment – contractors provide the equipment and Plant to carry out the work.

Common Misconceptions

An ABN does not make a person an independent contractor

Using the name or even having a written agreement also does not suffice

Even though a person consents to be engaged as a contractor it does not remove the financial and legal liabilities of the employer

'Everybody does it' is not sufficient cause

Definitions are not always the same for different tax purposes (eg., an individual contractor is entitled to superannuation and WorkCover).

Consequences of Getting it Wrong

The Fair Work Act refers to 'sham contracting', making the employer liable for substantial penalties (up to $63,000)

Disgruntled contractors make claims with Fair Work for underpayment, the ATO for superannuation entitlements (no statute of limitations applies), and WorkCover for injuries

Where a contractor is determined to be an employee, Fair Work acts for them to claim back pay, leave and other entitlements. The employer is liable to shortfalls of wages etc., and often substantial penalties. Directors are personally liable for unpaid PAYG Withholding and Superannuation under the Director Penalty Regime, and the ATO will recover from their personal assets.

Superannuation is a key audit risk for the ATO, and targets arrangements where it should have been paid. The ATO often goes back for 3 years, but there is no limit on time.

Get It Right

Review existing arrangements, look carefully at contracts especially with individuals, and ensure they are compliant and effective. The ATO website has an online tool to determine employee or contractor, at:

https://www.ato.gov.au/Business/Employee-or-contractor/Difference-between-employees-and-contractors/?=redirected_calc_ECDTSGETDifferenceEmployeesContractors

Current Situation

We are starting to see more audits in this area, the ATO and Fair Work are aggressive in determining the situation. Consider taking audit insurance, this could protect you for costs although won't protect you for the findings and penalties.

'Contracting' may initially save you some paperwork but remember, the employer is the liable party. We'd be happy to go over your arrangements and discuss your concerns.

Single Touch Payroll from 1 July 2021

Tue, 29 Jun 2021 23:00:00 GMT

For those of you keeping count, we made a mistake!

We advised in a Blog this week that STP had been deferred to 1/1/2022. Unfortunately, that is not correct, it is only the additional reporting that has been deferred to January next year.

STP Required from 1 July 2021

All employers, regardless of size and payroll type, need to use a Single Touch Payroll (STP) system from 1 July 2021. The exemption for closely held employees (those related to the entity paying salaries, or any other form of remuneration eg., family members, directors, shareholders) ended on 30 June 2021. STP reports pay details every pay day. The BAS are the means of paying the withholding tax.

Closely Held Employees

Closely held employees do not have to be reported every pay day or month, but are required at least quarterly. These can be actual payments or a reasonable estimate quarterly; the ATO has requirements on determining what is a 'reasonable estimate'. We can assist you with setting this amount and avoiding penalties.

Complying with STP

Because you update the ATO records each pay, the employer is not required to prepare Payment Summaries for employees at the end of the year (they log-on to their MyGov to obtain the information). The employer has to ensure compliant reports are lodged each pay day, and the online payroll software systems do this well.

Software

If you are using accounting software, like XERO, MYOB, or Quicken, these are already STP enabled. For instance, XERO Standard ($52 p/m) includes payroll for 2 people and XERO Premium ($67 p/m) has payroll for 5 people.

If you have from 1 to 4 employees and do not use accounting software, XERO for $10 a month has a Payroll-only Plan (our preference but not the only choice). There are around 200 providers of a low-cost (less than $10 p/m) plan, the ATO provides an approved list at: https://softwaredevelopers.ato.gov.au/product-register .

We mention XERO because we use this software and can provide some assistance if a payroll problem is encountered.

Process

Work out how you will report through STP

- Use existing accounting/STP enabled software, or one of the payroll software packages ('product register') if between 1 and 4 employees.

Check your existing software

- Older software may not have been upgraded, check with the provider.

Set up the files

- Enter the required information for each employee; the software calculates the tax to withhold, superannuation and leave.

Start Reporting Checklist (if DIY)

The ATO can only receive STP reports once it is connected to your STP enabled software. Direct connection can be through a software ID, which is displayed by the software during set-up and provided to the ATO through 'access manager' https://www.ato.gov.au/general/online-services/access-manager/ or phoning 1300 852 232 (you may need to call the supplier to find out how their solution connects to the ATO).

After sending a report, check for 'send successful'. You may need to ask the provider about correcting errors, and then amend the report https://www.ato.gov.au/business/single-touch-payroll/in-detail/single-touch-payroll-employer-reporting-guidelines/?anchor=BK_5Correctingapayeventreport . The ATO also has a 'trouble shooting' information section.

Alternative

If you are ready to give up you may prefer to use a [payroll service provider to report on your behalf. This can be a bookkeeper, BAS agent or tax agent. Yes, we can help, no, it's not expensive. Call Kirsty on 5532 7244 to work out what is needed for you to use a service provider.

Sorry for the longish list but this system is now required by the ATO. It's easy with the major accounting software or products. We will help you where we can (hint: we suggest XERO).

Budget 2021-22

Tue, 11 May 2021 23:00:00 GMT

This Budget is a balancing act between a far-less than expected deficit, prospects of an early election (November?), and the need to invest to be able to compete in the world over the long term. It is interesting that the Treasurer assumes international travel and migration will remain low to mid-2022.

Plenty of money will go to special interest groups, especially aged care, mental health, women's economic packages, and disability. A cynic could say these are voter focused.

Personal Tax Changes

Low and Middle Income Tax Offset

Extended to 30 June 2022, providing a reduction in tax of up to $1,080 for individuals with incomes between $48,000 and $90,000 and reducing by 3% in the dollar between $90,000 and $126,000. The offset is triggered when the 2022 tax return is lodged.

Tax Residency

A new framework, where the primary test is for a person to live in Australia for more than 183 days in a year. If this test is not met, secondary tests can be applied.

Business Taxpayers

Temporary Full Expensing

The cost of new and second-hand assets can be fully deductible in the year of acquisition, and has now been extended to 30 June 2023. The limit on cars remains at $59,136.

Loss-carry back

Losses in any of the years 2019/20 to 2022/23 can be carried back to reduce profits (and the tax paid) for years 2018/19 to 2021/22. Companies not electing to carry back losses can still carry losses forward as normal.

Debt Recovery for Small Business

Small business (including individuals) can apply to the Administrative Affairs Tribunal to pause or modify ATO debt recovery actions where the debt is being disputed in the Tribunal. Currently, the only remedy is through the courts.

Storm and Flood Grants received in 2020/21

Will be made exempt from tax for primary producers and small businesses.

Superannuation

No Work Test for Non-Concessional Contributions

Individuals aged 67 to 74 can make non-concessional (not deductible) contributions without meeting the work test. To claim personal contributions though requires the work test to be met (40 hours over not more than 30 consecutive days in the income years).

Downsizer Contributions (Sale of principal residence owned for 10 or more years)

The age limit is reduced from 65 to 60 allowing one-off non-concessional contributions up to $300,000 per person.

Threshold for Super Guarantee

All income payments to employees now require SG contributions by their employer, previously no SG if less than $450 per month minimum income.

Super Guarantee

From 1 July 2021, increased to 10%.

Super Timing - Warning!

The measures are to take effect from 'the start of the first income year after Royal Assent', so may not be available before 1 July 2022.

Insolvency

Further streamlining of insolvency laws, including a review of trusts under insolvency, a review of the safe harbour trading provisions (which allow distressed businesses to trade out of debt), introduction of a moratorium on creditor enforcement while a scheme of arrangement is being negotiated, and an increase in the limit from $2,000 to $4,000 for the issue of a statutory demand on a company.

SUMMARY

Our concern and newsletter as always concentrates on the key business and tax initiatives to be aware of. We've only provided a quick overview, but if you have an interest we can get more detail to you.

New Small Business Grants

Sun, 09 May 2021 23:00:00 GMT

The Qld Government has three new small business grants, worth $25m over two years.

These grants target specific groups and assist at different stages of the business lifestyle.

A warning! Grants can close very quickly, some have reached the allocated monies the same day, so it pays to prepare, obtain all the information and quotes that may be needed, and be ready to submit as soon as applications are accepted.

Business Basics grant, up to $5,000

For new and emerging businesses to increase core capabilities and adopt current best practice. Applications open 31/5/2021.

Business Boost grant, up to $15,000

To assist businesses to improve their efficiency and productivity through organisational development and upgrades of automated software and CRM systems. Grants can be used for website development and upgrades, strategic marketing, training and coaching, advisory services, and planning for business succession. Applications open late July 2021.

Business Growth grant, up to $50,000

To allow businesses to buy highly specialised equipment to accelerate growth opportunities. Includes, but not limited to production equipment, advanced manufacturing or digital equipment and systems, and logistics systems and equipment. This is for high-growth businesses with business plans and funding in place. Applications open 11/5/2021.

Details of Guidelines and Eligibility are on the Business Qld Website. Go to:

https://www.business.qld.gov.au/starting-business/advice-support/grants/schedule?ref=home-feature

The website shows:

- Grants Schedule (opening and closing dates)

- How to prepare and write a grant application (all applications are on line)

- Building a case to support the application

Before starting the application understand the guidelines and eligibility, what is asked for in the application, read any accompanying documents (conditions, tips) , and ensure you address all the stated requirements.

If you would like to apply for a grant we would be happy to offer guidance, or to critique your application before submission, or even prepare the application. Grants are competitive and can close quickly, so allow enough time to get the information required and do the job properly.

Tax Deduction Opportunities with Super in 2021

Tue, 16 Mar 2021 22:00:00 GMT

Superannuation will become an important source of your income on retirement. That's one reason why it is a good idea to add to super while you are working. Of course, the benefit now is tax savings.

In the lead-up to 30 June we want you to be aware of opportunities to save tax this year with superannuation.

Tax Benefits from Concessional Super Contributions

Concessional (before tax) super contributions include employer super contributions made on your behalf, any salary sacrifice contributions you make, or any personal contributions that you claim a tax deduction on in your tax return. These contributions are taxed at 15% when they are received by your super fund (up to a limit of $25,000 per year), provided you earn less than $250,000 annually.

Personal super contributions are especially useful for people who are on higher marginal tax rates or if their employer refuses to set up a salary sacrifice arrangement. The annual limit is still $25,000, so deduct employer contributions before topping up with a personal contribution. Contributions above the $25,000 limit are taxed at higher rates, so there is no tax benefit.

The people who would benefit the most are those who earn above $45,000 per year, as this is where the marginal tax rate plus Medicare Levy rises to 34.5%. Claiming a tax deduction on super contributions effectively makes your tax rate only 15%. That's a big tax saving!

Catch Up Super Contributions

From 1 July 2018, people can make "carry-forward" concessional super contributions if they have a total superannuation balance of less than $500,000. People can access their unused concessional contributions caps on a rolling basis for five years. Amounts carried forward that have not been used after five years will expire.

How Low-Income Earners are Taxed

If your income is below $37,000 per year, the low-income superannuation tax offset ensures that you don't pay a higher rate of tax on your super contributions than your income tax rate. The offset will be paid directly to your super account and the payment will be equal to 15% of your concessional contributions for the year, capped at a maximum of $500.

Individuals who earn between $39,837 and $54,837 during the 2021 financial year may also be eligible for super co-contributions from the government of 50 cents for each dollar, up to a maximum of $1,000 in non-concessional (after tax) contributions.

How High-Income Earners are Taxed

If you earn more than $250,000 a year (including super), your concessional contributions are taxed at an additional 15%, bringing the total tax on these contributions to 30%. However, this is still less than your marginal income tax rate of 47%. This extra 15% is known as Division 293 tax. Only the concessional contributions which make your total income exceed $250,000 are subject to the additional tax.

If your concessional contributions exceed the concessional contributions cap of $25,000 per year, the excess is included in your tax return and taxed at your marginal tax rate (less an allowance for the 15% already withheld by your super fund). You can choose to withdraw some of the excess contributions to pay the additional tax.

Next Steps

Please contact us ASAP if you would like to discuss saving tax with super contributions. There are many things we need to check for you to ensure you don't exceed your super caps, you may need to seek the advice of a licenced financial advisor, you have to get the paperwork right, plus the timing of your contributions is crucial to entitle you to a tax deduction in the 2021 year.

Contact us today! The sooner we get started, the sooner we can help you save tax - well before 30 June 2021 allows enough time to implement tax saving strategies.

Imagine what you could do with your tax saved:

- Reduce your home loan

- Top up your Super

- Save for a holiday (when we can all travel again!)

- Deposit for an Investment Property or

- Pay for your children's education

- Upgrade your car

Loan Guarantee Scheme

Mon, 15 Mar 2021 22:00:00 GMT

Aviation Support

JobKeeper finishes on 28 March, and is unlikely to be extended. The just-announced 800,000 subsidised air tickets for use in Australia is meant to help the travel industry now, until international travel is available (Alan Joyce of Qantas says October?).

That date may be optimistic for now; it seems to be based on the rollout of the vaccine, but the harder hurdle may be convincing people it is safe to travel. We'll see. The subsidised tickets should succeed for the 13 locations so far; a good policy which will have direct and immediate benefits.

SME Recovery Loan Guarantee

This is an update to the SME Loan Guarantee Scheme which was first rolled out about this time last year. The federal government guaranteed the lender up to 50% of the loan, and the banks took on the other 50%. This Phase 2 facility is still available until 30 June 2021.

However, versions 1 and 2 didn't hit the mark (only $3B of the allocated $40B was paid). There were eligibility restrictions and an unwillingness from lenders to take on any risk (even with property).

The new terms include:

- The government will increase its guarantee to 80%, so the lender only has 20% of the risk.

- Loan term has been doubled to 10 years, and the first 24 months payments can be deferred.

- The scheme can also be used to refinance existing loans, or purchase commercial property.

- Loans will be available from 1 April 2021 and must be approved by 31 December 2021.

- The Scheme is only available to JobKeeper recipients for the January to March quarter. (The Phase 2 loans of 50/50 are available to 30 June for non-JobKeeper recipients.

We wouldn't be sure the banks will support this version either; they are financing carry-on working capital and they will need to be convinced that there is a viable future for the applicant. Past financials help, but expect to provide current accurate year too even if only management accounts, plus a strategic plan on how new turnover and profits will be obtained, profit and cash forecasts for at least 12 months, and a Scenario Analysis (which creates the numbers for the forecasts and the strategic plan and shows the lender why these numbers are reliable).

Reduce Your 2021 Tax

Wed, 10 Mar 2021 22:00:00 GMT

With the end of financial year approaching quickly, NOW is the time to consider the actions you can take before 30 June 2021 to reduce your tax and also grow your wealth.

Many business owners needing to save cash reduced expenses and also reduced their 2021 PAYG instalments to Nil during the COVID-19 period. Because JobKeeper payments are taxable you may find that you have generated profits for tax purposes, which means you may have tax to allow for.

For 2021, key priorities are likely to include:

- Maximising superannuation contributions without exceeding the deductible and non-deductible limits

- Bringing forward deductible expenses

- Deferring taxable income to a following year

- Managing capital gains

- Using a Family Trust or a "bucket company" to cap your tax at a lower tax rate

Consider this from your own point of view and imagine what you could do with your tax saved:

- Reduce your home loan (take advantage of current low interest rates)

- Top up your Super for a better retirement

- Save for a holiday (when we can all travel again!)

- Deposit for an Investment, whether property or equities

- Pay for your children's education

- Upgrade your car

NEXT STEPS

Right now, nothing needs to be done. We'll contact you soon with some thoughts and our own minimisation guide, which is a list of around 50 tax saving strategies. We don't expect you to work through it yourself though.

We'll then estimate the tax payable without any planning, discuss strategies suitable for you, vary 2020/21 tax instalments if we can, calculate the tax benefits from the planning, and explain how to implement the strategies before 30 June. If the May Budget has tax changes, we'll update the Plan. Finally, in July/August, we'll prepare a forecast of Cash for the next year, including tax payable projections so there are no surprises.

ATO is Increasing Collection Action and Audit of Returns

Tue, 23 Feb 2021 22:00:00 GMT

Last year, the ATO paused its debt recovery, audit and lodgement activity at the height of the Covid-19 concerns.

There has been a slow restart to compliance action since the end of 2020. However the ATO reports tax and debt outstanding of $53 billion, so there is likely to be more collection and audits over coming months.

There are reports of stronger enforcement on lodgements (BAS, income tax, SMSF's), calls to set up payment arrangements or to remedy payment defaults, and intention to audit GST and income tax returns.

While government assistance continues perhaps a business may be left alone, but from the end of March that could change.

We have recently completed an ATO audit of a client's business for a previous year, it was essentially a systems audit to ensure BAS and tax returns were prepared from reliable records. The ATO requested the full ledger for the year, bank statements and chattel mortgages, selected documents it wanted to see, sighted log books for vehicles and the payroll records, and required explanations and proof for adjustments and errors. BAS and tax were mostly right so there was very little tax to pay, but the cost was more than the cost of preparing the returns in the first place.

The point is, consider audit insurance which is valuable and very reasonable. In the case above it paid for the whole cost (but not the tax due). Some insurers also cover any statutory returns, whether federal or state. The insurer we recommend is Accountancy Insurance (Audit Shield), and offers have just been sent out for the next year coverage. It is a low cost in relation to the costs of a full GST or tax audit.

The message is to expect more compliance and collection action. If the ATO does contact you (a real call, not a scammer) please call us right away.

What's a Downsizer Contribution?

Mon, 16 Nov 2020 22:00:00 GMT

The downsizer contribution can be used to build up the balance in superannuation.

Why make this Contribution?

This can be useful for those who cannot make contributions because of age (no maximum applies), do not meet the work test (40 hours in 30 days), or may have a super balance of more than $1.6m.

Because there are so few restrictions, it allows more capital to be in super, where earnings are not taxed below $1.6m of capital and any pension paid from the funds is tax free to the member on up to $1.6m of capital. If the earning rate is 5% the tax benefit is significant. (Yes – 5% is possible!).

Qualifying Requirements

The requirements are:

- The person entered into a contract to sell their home after 1 July 2018

- The home must be in Australia

- The person must have owned the home for at least 10 years and be exempt or partially exempt from CGT

- The person must be at least 65 at the time the contribution is made, and there is no age limit

- The contribution must be made within 90 days of settlement

- The limit per person is $300,000, and can only be made on a once-only basis and on one main residence. If the whole amount is not used any balance is lost.

How does the Super Fund treat the Contribution?

It is not taxable even if the person's super balance exceeds the cap of $1.6m at the time of contribution. However, once contributed it adds to the total super balance and if it then exceeds $1.6m, they may not be able to make additional non-concessional contributions.

Election

Download the form from the ATO website and complete it. If the election is not made the ATO could assess the amount at the rate of 45% as a non-concessional contribution.

Centrelink

The asset test excludes the main residence, but when contributed to super the contribution is then included in Assets. This can reduce the age pension paid, which is a disincentive for downsizer contributions.

Replacement Home?

There is no requirement to move into a smaller home, nor any home at all.

Updated Tax Tables for 2020/21

Sun, 25 Oct 2020 22:00:00 GMT

The tax withholding tables have now been updated, and reflect the personal tax cuts announced in the 2020 federal budget.

The tax cuts apply to the current 2020/21 financial year, and apply retrospectively to 1 July 2020. However, tax withholding from 1 July to the start of the new table is not adjusted in the table but will be adjusted and refunded in the taxpayer's personal 2020/21 tax return.

Some information on the adjustments:

- Businesses have until 16 November 2020 to implement the changes in their payroll

- The benefit is not significant for lower incomes, but of more benefit for middle income earners

- The Low Income Tax Offset also increases (to $700) from 1 July 2020 and is reflected in the tables

- The schedules/calculator can be downloaded at https://www.ato.gov.au/rates/tax-tables (if you use STP these should have already been updated.)

Will 30 September be a 'Cliff' for Business

Tue, 15 Sep 2020 23:00:00 GMT

Whether JobKeeper will cease or continue for you after September it is important that you take similar steps to avoid a possible crisis when the support stops. Predictions have been published of 1 in 6 (by Economists) or 1 in 10 (Statistics) businesses closing before December. You need to look at several key areas in order to survive if not collecting JobKeeper, because being in a business in a recession is made much worse by politics where communication is about power but only one-way, although it is an essential for fostering trust.

1. Collect Debts

If you are owed money you need to collect it. Don't be aggressive, honey works better than vinegar, but don't ignore a problem. Perhaps the customer is just strapped, so offer a repayment plan. Make sure you have the arrangement in writing, such as you confirming it with an email. If you have to go to Court after the December moratorium ceases you will need documents to prove your offer or arrangement. Could you also secure the debt using the Personal Property Securities Register?

2. Remove Waste

Look at your business and your own circumstances. Compare the Profit & Loss Account for the last two years, what can you cut or reduce? Often there is waste in goods purchased for resale (there is also a cost in holding excess stock), are production staff efficient and productive, avoid duplicate or ineffective systems and people using your time on FaceBook or personal matters, are you sure your people clearly know what you want them to do, and look at your personal spending and consider if all is really needed.

3. Don't Rely on JobKeeper

Wage costs have been assisted for 6 months and when it stops, what will have to change for you to stay open – reduce staff, drop unprofitable customers, cut your service levels? Look at this another way, if your customers lose JobKeeper, will that then affect you? What could be needed to deal with this; could they close owing you money, will they expect discounts or longer terms to keep buying from you, can you review your Service Agreements?

4. Consider how you do Business

OnLine is no longer a novelty or a passing phase. People's buying habits have changed and the virus accelerated this, however they may not have the same discretionary spending power as they had last year. If you operate in one sector or location or perhaps with niche customers, you may need to be flexible and find another market (another customer, another locality, new products or services).

5. It's all about Cash

Cash flow is critical, so collect from your customers, avoid waste, be efficient. Review your debtor terms (deposits, progress claims, payment terms, credit checks, follow-up when due). Ensure your own credit scores are okay – pay on time, don't make applications for finance unless you need it. Forecast your expected Sales and Expenses for a year. Then forecast Cash for the same time, plus include finance payments, personal drawings, GST, and taxes. Profits may look good on paper but Cash is the lifeblood of a business.

6. Manage Inventory

If you sell goods, the general rule is that the lower the number of days sales are held in inventory the more efficient you are. A good Inventory Turnover ratio is between 5 and 10 (times a year), the number of times a year that your inventory is sold (so 5 is inventory turned over in 73 days; 365/5). Holding stock has a cost (interest, storage, deterioration), so the faster you can sell the quicker it turns back into cash. You also need to consider how long it may take to source new stock from suppliers, especially now, which may mean that more stock on hand may be temporarily required.

7. Customers and Competitors

A business loses 68% of its customers due to perceived indifference, or when a customer believes the business appears not to care whether they purchase or not. You must market well, provide great (or better) service, and stay top-of-mind with your customers.

8. Get it Right

Know what you want to achieve, get your marketing right, and ensure your systems are effective and that you are accountable for decisions. Focus on what is important or a priority. Businesses need to be right more often, avoid costly mistakes, test and measure often, go after opportunities, and keep learning. Ensure you have the information needed to make decisions, don't rely solely on gut feelings.

Actions Required

- Do some 'what if …' scenarios, to look at the best and the worst outcomes, manage for the best but ensure you have a plan if the worst happens

- Refresh your website, SEO, Linked In, etc., improve your Sales Closure Rate

- Update your marketing plan every Quarter, improve one aspect of your marketing each time and monitor the results

- Look for alternatives in decisions, look at every decision from both a sales and a savings point of view

- Budget for each quarter, not just what expenses need to be paid, but also aim to improve sales and margins

- Re-do your policies, procedures and checklists (are they customer friendly, are they effective?)

- Make calls to customers, not to sell, but to be in contact, give insights or information and ensure you remain their preferred supplier.

Are You Only Focused On The Short Term?

Tue, 11 Aug 2020 23:00:00 GMT

When I look around I see leaders who are not looking far enough into the future. We have all now gained experience of fairly chaotic times and so thinking needs to be directed beyond 'I hope things get better' to 'What if things are this way for another year (or two)?'. So much depends on responses from Governments, and based on actions so far it is possible to surmise that business consequences are of less concern.

Even if there is a vaccine quite soon it will still take some time to reach production, and what if it doesn't work as it is expected? Business still has to operate, so what will work for your business?

This is a painful conversation, so the key question to ask is, 'is it worthwhile?' Google is not stupid (that is certainly not one of the things Google is) and has announced its employees will not return to the office before July 2021. Perhaps this needs to be seen as a leading indicator of where things might be for the rest of us.

It could be worthwhile to look at even a 2 to 3 years horizon, it's possible any economic bounce back will not be even and there are likely no seamless and simple solutions. Five steps to get you moving:

- Start preparing for a different future

- Take some time to reimagine your future before it becomes urgent and critical. Stop being always in 'to-do mode'; decide between what is urgent and what is really important

- Consider different scenarios, the 'what if' questions. What is the best-case scenario over the next 12 months? Or the worst-case? What could be the most likely scenario?

- Do some research. Talk with customers, industry groups, think tanks (eg., Banks, research institutes). Develop your theory on the insights you gather, because being better informed will assist in decision making

- Review the scenarios and consider what is needed or common for each. What do you need to do to address situations that may possibly occur?

There's nothing simple about being a leader at anytime, but it can be very helpful to keep things as simple as possible. Don't get bogged down in the details by 'analysis paralysis'.

There are some great tools to make the plan and forecasts easier to use. Ask for help if you need some guidance, even Where do I start? What document(s) will I have at the end? How do you do a forecast (or a scenario)? We can help with the Tools, advice, or do the whole thing or somewhere in between.

Is Tax Planning a Sport?

Tue, 09 Jun 2020 23:00:00 GMT

It's not (unfortunately), but there are rules and boundaries, a biased umpire (in the ATO), and a time limit (30 June) when the game ends.

Why Tax Planning is SO Important

Tax is a cost, like any other expense of the business, so can be managed and a better result achieved. However, it must be achieved within the rules and boundaries to be effective and it is a key part of forward planning and strategy.

The recommended method for planning is:

- Bring the financials up to date and estimate taxable income for the year.

- Consider the strategies you wish to implement for the next year or two (key goals, strategies for sales and profit growth, necessary capital expenditure, where you want the business to be, etc.)

- Model those strategies and understand what the numbers are saying – trends, margins, etc.

- Attend to the tax planning for end of the current year and save or defer where legally possible.

- Implement the plan for next year, and apply the tax saved towards working capital for the new plan.

- Track progress regularly and make changes as needed.

Tax Planning for Individual Tax Payers

Tax planning is not only for businesses and there are benefits which can reduce personal tax payable. The most popular strategies are:

Superannuation contributions

Whether through salary sacrifice or personal contributions the maximum deductible contribution is $25,000. There is a top-up concession where the last year maximum was not used and the balance of super is under $500,000. Also, watch the near and long-term returns achieved by your Fund and their charges. Consider a change to a better improving Fund because a little better now can significantly increase the balance for retirement. However, before changing check whether you have Insurance held within the fund. (Ask us for a recommendation if you are unsure).

Negative Gearing

Not a lot of benefit to implement at the end of a financial year but consider for the next year, whether in property or equities. The loss (income less direct expenses, interest, borrowing expenses, depreciation) can be offset against other income.

Costs re work

This could include work clothes, laundry of those clothes, use of your car for work, cost of working from home, purchase of tools or electronic equipment, software, interest and telephone, fees for memberships, attending courses, and professional development costs.

The rules are simple; make sure the costs were necessarily incurred for work, that you have the documentation, and that the costs were not reimbursed by an employer.

Tax Planning for Businesses

The first step is understanding the current profit and cash positions. The strategic decisions taken will impact income tax now and for the next year. You should also consider factors like future borrowing needs so profit may need to be higher to access the loan required.

This is a Summary for reducing tax (in broad terms):

Reducing assessable income

- Avoid deriving income before 30 June (eg., cash received before the service or products are delivered)

- Derive capital rather than income

- Is any income exempt or tax free (some grants, capital settlements)

- If a capital gain, are Concessions available?

Increasing deductions and offsets

- Maximise deductions (excluding non-deductible expenses like entertainment)

- Claim immediate write-offs ($30,000 up to March, $150,000 to 31 December)

- Accrue expenses, where the cost is known and will be paid shortly after 30 June

- Use Federal Budget concessions where available.

Reduce the rate of tax

- Consider tax offsets

- Spread the income across entities where the tax rate is lower

- Move income producing assets to another entity where the tax rates are lower

- Consider the use of tax entities (partnerships, companies, trusts, using tax losses, superannuation esp. SMSF's).

Stocktake

The Tax Act requires each business that buys or manufactures product to do a stocktake at the end of each financial year. As well as meeting tax obligations a stocktake results in accurate financial reports, helps you understand your stock levels, (clear the excess or buy more), improves cashflow by identifying slow moving stock, analyses your pricing strategy, and is important to planning a business improvement strategy.

However

Tax planning can usually save some tax. Even if the saving is not big, you al least know what the tax payable will be and when, and you can provide for it and so avoid the worry when it is due but there won't be enough to clear the tax due.

Also, there may be other concerns that are just as big as tax, like asset protection, borrowing for a new home or investment, succession issues, cash flow and working capital. Bear all of these in mind, and get the result you want, or as near as possible. It's about getting a better tax outcome but there may be other issues to consider and are just as important for you.

Finally, we are good with numbers and the financial modelling that helps you make the right decision before you take action, we can assist to articulate goals and strategies, project profits and cash flow, and keep you on track with tax planning. It's a small investment for a lot of benefit.

Don't Make a Big Mistake!

Sun, 07 Jun 2020 23:00:00 GMT

DON'T MAKE A BIG MISTAKE!

Did you make some resolutions for 2020, way back on 31 December? No doubt profit and cash and getting ahead were in there. Then, along comes The Virus and now you might as well just give up.

Okay, not going there! You still have goals and you need to focus on being more positive in your outlook.

The Goal is More Sales - Plan how to get the sales you want

A revenue goal (because that's where everything starts) is a destination, and you can get there early with a plan. The Actions needed to achieve sales goals faster are:

Measure your sales activities

What is measured, improves. Choose 3 or 4 metrics and monitor them closely, perhaps: time on prospecting per week, number of appointments, number of appointments that convert to a sale, (average) value of a sale, etc. See how you can improve them.

Monitor your Funnel/Pipeline

Always have some prospects, distant, nearing, ready, or however you define prospects. It can now take 11 contacts to get a sale. Watch the funnel to see where you most need to focus to stay on track.

Improve your Close Rate

The higher the close rate the fewer new leads needed to reach Goals. Look for ways to improve the rate.

Reduce the length of your sales process

Look to qualify opportunities throughout the sales process, and follow up frequently. This could save time lost on prospects who you're sure won't buy. Don't discard them but keep in touch until they are ready.

Increase your average sale

Simply, "Would you like fries with that?". Offer something extra in the proposal, an item they might find valuable based on their needs.

Align with people who can bring you leads

Make a list of those who interact with your prospects and network with them. Work with these 'centres of influence' for mutual advantage.

Ask for referrals

Referrals are a great way to get more clients, and have little cost. Have a goal of asking clients for say two referrals a week, and make sure they know your preferred client type.

Don't accept a first 'no'

Persistence pays-off, stay in touch with different content or offers. It might not be a 'no', but really mean 'not yet'.

Prospect consistently

You always need new opportunities, so schedule time every week for prospecting, whether traditional or digital. Follow up leads quickly, network, even cold call to create awareness.

Look forward to prospecting and sales

It might not be fun, but your attitude determines your altitude, and your overall 'can do' confidence could influence prospects to want to work with you.

Another year is about to start, make the most of it and use these actions to achieve your sales goals.

Marketing to a preferred/desired customer

PS: There are three main customers in the Customer Pyramid and you need to match your marketing to the customer class it works best on:

A) The Perfect 10

Super and high value clients (meaning high-value to you). These customers need a deep relationship and the establishment of your credibility with them, so the marketing needs to be very customised.

B) The 'Dream 100'

Medium-sized clients. A well planned but more standardized campaign, aimed especially at the needs of this target client.

C) The Wider Audience

Lots of much smaller clients. More automated and generic.

Pick the right marketing and follow-up strategies for the type of client you are seeking to attract. We'll follow this up soon on fast ways to improve profits and increase cash.

Lockdown, a Recession, but Better to Come?

Wed, 22 Apr 2020 23:00:00 GMT

A RECESSION WITH A DIFFERENCE!

The last recession was in 1991 (Keating's "the recession we had to have"!). March is likely to be negative and June could be a big hit due to the business shutdowns. One resulting factor will be higher unemployment, and it will also be harder to switch jobs. That leads to lost income and falling wages, which reduces consumer spending power. On top of that, confidence will be low and uncertainty could stay high.

However, interest rates will stay down for quite a while yet, so it will be cheaper to service loans. Residential property prices could fall (10% ?), although perhaps not for long if demand returns quickly. No doubt there are many other factors we could consider, this is not the point of this letter, there will be more negatives but there are also positives.

This recession is different . It is not the result of a bust after a boom, nor is it cyclical or structural, it was induced because of a health crisis. The government acted (surprisingly) quickly with meaningful financial support so more normal functioning is likely to return in a faster time than is usual from recessions. Other countries are providing business support too, and the IMF expects growth next year above the average of the past few years because it expects demand will quickly return.

Certainly businesses have been hit hard, both large and small, and some sectors harder than others. However, it is now time to look beyond survival and plan to thrive when the lockdown is over.

THRIVE, NOT JUST SURVIVE!

There are probably five key steps to work through:

Review your Financials

Revenue has taken a hit, some sectors even have no revenue at all. Consider:

- what expenditures can be cut (be drastic)

- can rent be deferred or renegotiated?

- can tax be deferred?

- what can you do without, no longer need, or could sell? (children? husbands?)

- what government assistance may be available?

- what financial reserves do you have?

- are there loans or finance repayments that can be deferred?

- can you legally access your superannuation?

Cash Forecast

Be harsh in your review, and after you have completed this create a monthly forecast of revenue and outgoings for at least 6 months. What can be done so your reserves are not depleted? You are probably already looking at the worst position so to avoid that result the next step is to increase income and cash flow.

(Ask us for a template for a Cash Forecast – or help to prepare one).

Keep in Touch With Customers

Just because there is a lockdown don't assume people won't want your services now. Even if they don't need your services just now, you want them to remember you when this is over. Provide information that is relevant to your services and useful to your customers, but don't sell hard or be trite (like telling them how to wash their hands).

Provide content that is informative and useful, and a good reason why you should be their preferred supplier.

Re-Imagine Your Business

Is it possible to do more business online or on the phone? If your service requires contact how can you reassure customers you haven't got the plague?

Look forward, how do you want to operate in the future? What will be your business model? What needs to be done to be more than competitive?

Consider the strategies and actions that will be needed to improve your business, perhaps online training on sales or marketing, or read books on business. Focus on what would make your business better and bring you customers. What would you need to do to improve the business value drivers (increase sales, raise prices, increase sales per customer, improve conversion rates, etc.).

Prepare to start again

Business may not be quite the same again and so don't assume it will be. Will your customers have changed their buying behaviour? Will there be new opportunities in the market and will your new strategies be effective to target them?

Plan for a relaunch, tell your customers about your new services or processes, how these have improved productivity and will reduce costs and prices (if they will).

Lay out the steps, and consider the resources and the support you will need. There will never be a better time to prepare, everyone is starting at the beginning again.

Finally –

If you'd like to run through some ideas, give us a call and we'll tell you what we know (might not take long). We're great fans of 'What-if' planning/scenarios, one page plans, strategy development, operation planning and the three or four action steps needed to achieve required strategies. Lenders take notice of a well thought-out plan.

Qualifying for JobKeeper

Mon, 13 Apr 2020 23:00:00 GMT

The JobKeeper legislation has now been passed, and the detailed rules set out in that legislation make some of the previously published information obsolete.

Qualifying for JobKeeper

The two issues to now qualify for JobKeeper payments are:

- Pay your employees the pre tax minimum of $1,500 per fortnight

- Determine whether you believe the 30% decline in turnover will occur.

Paying Eligible Employees

You must keep paying eligible employees.

There are 13 fortnights in the program, commencing from Monday 30 March, and you qualify for JobKeeper on a fortnight-by-fortnight basis. To qualify, a particular employee in any fortnight must be paid the minimum pre-tax $1,500 in that fortnight (or whatever the payroll period may be).

If the employee is not paid each fortnight then the employer will not qualify for JobKeeper in the first place. This means the employer may need to fund two or possibly even three fortnights' worth of wages from 30 March before receiving any JobKeeper money in early May.

If you don't qualify for some reason you can't claw back the wages paid. If you decide to pay less than the $1,500 or intend to pay when the JobKeeper is either confirmed or received, you may not receive JobKeeper (and also may lose the employee too).

Decline in Turnover

Firstly, ignore the previous Fact Sheets and FAQ and Media announcements, the actual rules will operate differently.

There are two parts to the decline in turnover requirements.

1. Determine the percentage decline threshhold that applies to you, and

2. Determine if you will suffer that percentage decline.

For most businesses, the turnover decline threshhold is 30%.

What constitutes turnover is sourced from the GST rules; being the revenue excluding GST and GST-free income. Ignore non GST income like interest, dividends and residential rents.

Then, compare a month or even a quarter now against the same month or quarter in 2019. This does not have to be the same as a GST month or quarter; you choose the time-frame to compare, for example mid March to mid April. The months are March to September (this year to last year) or the quarters ending June and September (this year to last year).

You only need to establish the decline in turnover once, it is not a continuing requirement.

Forecast of Turnover Decline

Your turnover for March may already have fallen the 30%, and this information will be provided in an ATO application form (which is yet to be issued).

You could be expecting April to decline at least 30%, perhaps due to cancelled orders, or being closed, or lack of new orders. That would meet the requirements for the two fortnights in April (ending 12 ^th and 26 ^th April).

Perhaps the 30% decline won't show in April, so you could instead compare the predicted June 2020 quarter to the June 2019 quarter.

The ATO has been given discretion to determine alternative ways of measuring turnover decline, but this has not been released as yet.

What if Actual Turnover Decline is not less than 30%?

It does not automatically mean repayment of JobKeeper amounts. The onus is on the taxpayer to show the prediction was reasonable when made (a list of cancelled orders, a daily list of total orders received, or perhaps daily enquiries). Then, show the new strategies that were successful in improving sales, which were not evident or succeeding at the time the prediction was made.

Principals who do not take a Wage

A business can nominate one person for JobKeeper where that person is active in the business although not recorded as an employee, and who perhaps receives payment by trust distribution, dividend , share of profit etc., instead of a wage.

Compliance

The program is subject to ATO compliance and audit, and it will undertake activities to identify multiple or ineligible payments to individuals. There will also be integrity rules to prevent employers contributing to get inappropriate access to payments.

There are large penalties for those trying to illegally access benefits under the program.

Steps Now

1. Register for JobKeeper if you have not done so already, at:

https://www.ato.gov.au/general/gen/JobKeeper-payment/

2. An application should soon be forthcoming, with Single Touch Payroll data, or a form if not using STP.

3. Compile evidence to support your turnover (eg., March, or April, or March to June quarter).

4. The deadline to submit the application is Sunday 26 April 2020 (form yet to be released)., and for the same period last year.

How's Your Crystal Ball?

Wed, 01 Apr 2020 22:00:00 GMT

I've had quite enough of being in a Twilight Zone! (Although not that much can be done.)

Jump from the problem – no control – to the key aspect of a solution – how long will this last? Does anyone know? Of course no one knows but one good indication is a chart from the Health Department showing 'New and cumulative confirmed cases by notification date'. (I know, who reads this stuff, but can anyone suggest something else to do that's as much fun, bearing in mind my NBN internet hasn't worked for two weeks?)

This graph peaked in the period 20 to 25 March, and has been declining rapidly since. So why is this useful?

One of the key tenets in planning is having a time scale to consider, the longer it is the more variables to consider and guesses to make. It seems the Federal Government is working to six months, Queensland doesn't seem to have one so it's more about panic. Virgin says it needs a Government bailout, but may actually have enough cash for nine months.

But what if the problem is overcome in April? I've seen forecasts from reliable economists etc., that the peak may be early April. The Health Dept graph supports those views. I'd like to see more reasoned comment from the USA, most seem to be talking heads having their few minutes of fame, but what if the US peak is also not far behind, say the end of April?

If US investors see the curve flattening, the equities market will move in the right direction, up. The stock market however is not the economy but it is a good indicator for consumer and business confidence.

That's not my point though. We're all concerned as to how long these business conditions will last (you may well ask, what bloody business?). It is tricky to plan in uncertain times, you need to understand your sales, your costs, repayments, personal expenses, where you can source loans, and how long will these assumptions apply?

Scenario planning means you look at the worst, the best, and perhaps the most likely. But in these conditions concentrate only on the worst , focus on how you could handle that scenario, and any other scenario will be a bonus.

What to do now:

1. Get your records up to date, including 2019 (needed for all loan applications)

2. Construct a financial forecast, not so much a forecast of profits but more a cash flow forecast, over say six months

3. Ruthlessly examine your costs for savings that can be made

4. Check for measures available from the Government and elsewhere (Cash Boost in BAS, loan deferrals, other loans, JobKeeper). None of these will be quick sources of cash

5. Get advice on whether these measures apply to you (hint – don't assume 'entitlement' as suggested by the media, some measures are complicated and conditional and at the Tax Commissioner's discretion)

6. Make applications, preferably with expert help

7. Don't forget your marketing , you need to be top of mind when customers appear again.

The point of all this is not to let you know I've got nothing better to do but to convince you to assume the worst for a number of months yet and plan for that, then closely monitor and manage your forecast/budget. If I am out in my best guess of the end of this lockdown, (say six weeks), at the least you have a practical plan to get you through this.

JobKeeper Payment

Mon, 30 Mar 2020 22:00:00 GMT

This morning we have been inundated with enquiries from clients with regards to whether their business will qualify for the JobKeeper payment, released as part of the Third Stimulus package.

As at this morning we do not have as much information as we would like with regards to qualifying, implementation, and substantiation, however, we wanted to get some info out to you as quickly as possible hence we are forwarding the available information to you now. As we receive further updates we will forward them to you.

We need to have more information regarding the sole trader provision, because this is not totally clear and we don't want to give you incorrect advice. However, the Government has announced that eligible businesses, including self employed individuals, will need to register an Intention to Apply on the ATO's website ( Ctrl + click to follow link ) ( https://www.ato.gov.au/general/gen/JobKeeper-payment/ ) . We recommend that even if you are not certain that your business will qualify for the payment, you should register your intent regardless as soon as possible.

For those people who have already emailed us this morning please bear with us, we will respond as soon as we can. And, as usual, please call or email if you have further queries because we're all in this together.

Stay safe, stay well.

BAS and Cash Flow Assistance

Wed, 25 Mar 2020 22:00:00 GMT

Small and medium-sized businesses and not-for-profit entities that employ people, with an aggregated annual turnover of less than $50 million (usually based on their prior year's turnover), may be eligible to receive a total payment of up to $100,000 (with a minimum total payment of $20,000), based on their PAYG withholding obligations, in the following two stages:

WARNING

The above payments are only available to employers who held an ABN and were registered as an employer before 12 March 2020 .

Eligibility for the above payments is subject to a specific integrity rule that is designed to stamp out artificial or contrived arrangements that are implemented to obtain access to this measure. In particular, if an employer or an associate enters into a scheme with the sole or dominant purpose of obtaining or increasing any of the above payments for a particular employer, for a period, the employer will not be eligible for any such payments for the relevant period.

Wages subsidies for apprentices and trainees

Employers with less than 20 full-time employees, who retain an apprentice or trainee who was in training with the employer as at 1 March 2020, may be entitled to Government funded wage subsidies equal to 50% of the apprentice's or trainee's wage paid during the nine months from 1 January 2020 to 30 September 2020. The maximum wage subsidy over the nine-month period will be $21,000 per eligible apprentice or trainee.

Employers can register for the subsidy from early April 2020. (Email us for the contact). Final claims for payment must be lodged by 31 December 2020. Employers will be able to access the subsidy after an eligibility assessment is undertaken by an Australian Apprenticeship Support Network ('AASN') provider.

PAYG Instalments

Business will be allowed to vary to zero the March 2020 PAYG Instalment (paying tax in advance for 2019/20). The business can also claim a refund for any Instalments paid for September and December 2019. Please contact us if you receive an Instalment, time limits apply to variations.

The Instant Asset Write Off - what is it and how can your business utilise it?

Wed, 25 Mar 2020 22:00:00 GMT

A key feature of the 2015/16 Federal Budget (and subsequent Federal Budgets since) was the $20,000 Instant Asset Write Off scheme for small businesses – a scheme which has proven to be very popular with Small Business Owners. The $20,000 Instant Asset Write Off scheme allows business owners to immediately write off depreciable assets that cost the business less than $20,000.

Due to the recent coronavirus pandemic, the Federal Government is expected to bring forward decision to bring forward the instant asset write-off and increase it from $30,000 to $150,000.

The Morrison Government confirmed on Thursday that the write-off threshold would be lifted to $150,000 and extended to businesses with a turnover of up to $500 million, from $50 million.

The cut-off date to take advantage of the increased limit is June 30. New equipment, computer hardware, office fit-outs, furniture and vehicles are amongst the potential assets, that can be written off.

This new measure is expected to decrease taxes paid by Australian businesses by $2.5billion over the next two years.

What does this actually mean?
As you know, deductions are typically available for purchases that are made by your business, for your business. The purpose of the $150,000 Instant Asset Write Off is to accelerate the speed at which you can make deductions for those purchases.

Since the commencement of the scheme, small businesses have been able to instantly deduct business assets that cost $150,000 or less. This allows business owners to claim a deduction for that asset in the same income year as the asset was purchased. This deduction is then able to be claimed on the business's tax return for that income year.

How is this different to the previous Asset deduction rules?
The main difference is that until May 12th, 2015, businesses were only able to instantly write off assets up to $1,000. Assets that exceeded $1,000 were only able to be written off partially every year, in accordance with the relevant depreciation rate for the class of asset.

Since the introduction of the $150,000 Instant Asset Write Off, businesses can now write off the cost of the asset (providing it is $30,000 or under) in the same financial year as they bought it instead of the ongoing depreciation rules that previously applied (and still do apply to assets that cost greater than $150,000).

What about items that cost more than $150,000?
Assets that you have purchased in this income year that are greater than $30,000 can be allocated to a pool, and then be depreciated and deducted – albeit at different rates. Check with your Accountant or Tax Advisor for more information on your individual circumstances.

Does this mean I get a $150,000 tax refund for each asset?
No. The $150,000 Instant Asset Write Off scheme means that you can reduce the amount of tax that your business has to pay. This means that if your business is structured as a "company", the most you would "get back" would be the current company tax rate of 27.5%.

What about Assets that are also used personally?
If you buy an asset for your business that you also use personally, you can only write-off the equivalent percentage that is used for business purposes. As an example, if you were to buy a $1500,000 piece of machinery for your business, that 80% of the time was used for business purposes, and 20% of the time was being used for personal purposes, you would only be eligible to write off $120,000 (the 80% of the total asset cost).

Additional points to consider before rushing out to purchase Assets

Assets must be ready to use: To be eligible to write off your new assets, they must be either installed and in-use, or purchased and ready for use in the same financial year as it was purchased. This means that you can't claim the $30,000 Instant Asset Write Off for a purchase that was finalized in June 2018, but that won't be installed or operation until September 2018, for example.

How long will the Instant Asset Write Off be available? Initially launched in the 2015/16 financial year, the Federal Government has continued to extend the scheme on a year-by-year basis.
There is no guarantee, however, that the Government will continue the scheme in the 2020/21 financial year, so this could be the final year of the increased $150,000 threshold before being reduced back to the original $1,000 cap.

Does every "Small Business" qualify? The write off is only available to small businesses with an aggregate turnover of less than $50,000,000. Further, the entity that is purchasing the asset must be trading business – meaning that the entity conducts business in its own right.

Is every business asset eligible to write off?
No. Whilst most assets are, there are a number of asset classes or types that the ATO has excluded from the scheme. These include capital works assets, horticultural plants (including grapevines) and more. Check with your Accountant or Tax Advisor for more information on your individual circumstances.

Is it wise to invest now to take advantage of the $30,000 Instant Asset Write Off?
It may be wise for you to take advantage of the $30,000 Instant Asset Write Off if your business has the cash flow to support the purchase/s, and that you can have the asset either operational or ready for use in this financial year.

Reducing the Minimum Drawdown Amounts for Superannuation Pensions

Wed, 25 Mar 2020 22:00:00 GMT

The Government will be temporarily reducing the superannuation minimum drawdown amounts for account-based pensions and similar products by 50% for the 2020 and 2021 income years. This basically means that the total minimum annual pension amount that a superannuation fund is otherwise required to pay to a member receiving a pension from the fund (e.g., an account-based pension) will be reduced by half for these two income years. Under the superannuation rules, the total minimum pension amount that a superannuation fund is required to pay to a fund member receiving a pension (e.g., an account-based pension) from the fund in an income year is generally calculated by: multiplying the member's pension account balance at the beginning of the year, by the relevant drawdown percentage. The current minimum drawdown percentages, together with the reductions for the 2020 and 2021 income years, are outlined in the following table. Recipient's age Current Minimum drawdown Reduced drawdown for 2020 and 2021 income years Under 65 4% 2% 65 to 74 5% 2.5% 75 to 79 6% 3% 80 to 84 7% 3.5% 85 to 89 9% 4.5% 90 to 94 11% 5.5% 95 and above 14% 7%

Personal Checklist

Wed, 25 Mar 2020 22:00:00 GMT

While it's important that your business can get through these tough times, it's essential that you are personally in a position to weather any storms and protect your family in these uncertain times.

This is our Checklist to work through:

Early Access to Superannuation Benefits

Wed, 25 Mar 2020 22:00:00 GMT

Under the existing 'compassionate grounds' conditions of release, an individual can access their preserved superannuation benefits (as a lump sum), subject to any cashing restrictions, on a number of different (specific) grounds where certain conditions are satisfied. For example, an individual who satisfies certain conditions could access their superannuation entitlements under this condition of release in order to pay for certain medical treatment, or to enable the individual to make a repayment on a home loan in order to prevent the mortgagee selling their home.

The Government will introduce a new compassionate ground of release that will allow individuals to access their superannuation entitlements where those benefits are required to assist them to deal with the adverse economic effects of the Coronavirus, but only where one or more of the following requirements are satisfied:

(a) The individual is unemployed.
(b) The individual is eligible to receive the Jobseeker Payment, Youth Allowance for jobseekers, Parenting Payment (which includes the single and partnered payments), Special Benefit or Farm Household Allowance.
(c) On or after 1 January 2020:

Under this new compassionate ground of release, eligible individuals will be able to access as a lump sum, up to $10,000 of their superannuation entitlements before 1 July 2020, and a further $10,000 from 1 July 2020 (but subject to the six-month time frame noted below).

Eligible individuals who are looking to access their superannuation entitlements under the above new ground of release will be able to apply directly to the ATO through the myGov website (at www.my.gov.au ) and certify that the above eligibility criteria is satisfied.

An individual will be able to apply for early release of their superannuation entitlements from mid-April 2020. However, note that no application may be made after the end of the period of six months from the day on which the new compassionate ground of release commences.

Increasing The Instant Write-Off Threshold For Business Assets

Wed, 25 Mar 2020 22:00:00 GMT

Broadly, the depreciating asset instant asset write-off threshold will be increased from $30,000 (for businesses with an aggregated turnover of less than $50 million) to $150,000 (for businesses with an aggregated turnover of less than $500 million) until 30 June 2020.

The measure applies to both new and second-hand assets first used or installed ready for use in the period beginning on 12 March 2020 (i.e., the date on which this measure was announced) and ending on 30 June 2020.

More specifically, the above measure will apply to apply to Small Business Entities and Medium Business Entities, as follows:

(a) Small Business Entities ('SBEs') (i.e., with turnover of less than $10 million).

SBEs will be able to claim an immediate deduction for depreciating assets that cost less than $150,000, provided the relevant asset is first acquired at or after 7.30 pm (by legal time in the Australian Capital Territory) on 12 May 2015, and first used or installed ready for use on or after 12 March 2020, but before 1 July 2020.

Additionally, SBEs will also be able to claim an immediate deduction for the following:

(b) Medium Business Entities ('MBEs') (i.e., with turnover of at least $10 million and less than $500 million).

MBEs can immediately deduct the cost of an asset in an income year if the asset has a cost of less than $150,000 and it was first acquired in the period beginning at 7:30pm, by legal time in the ACT, on 2 April 2019 and ending on 30 June 2020, and used or installed ready for use for a taxable purpose in the period beginning on 12 March 2020 and ending on 30 June 2020

Additionally, MBEs can also claim a deduction for certain amounts included in the second element of the cost of a depreciating asset, where the amount of the second element cost is less than $150,000, and is incurred on or after 12 March 2020 but before 1 July 2020.

As with the current instant asset write-off concession, the threshold will generally be applied to the GST-exclusive cost of an eligible asset (i.e., assuming the relevant business is entitled to an input tax credit for any GST included in the acquisition cost of the asset).

Importantly, this increased threshold also continues to operate on a 'per asset' basis, which means that eligible businesses can immediately write-off multiple assets (as long as each of the assets individually satisfy the relevant eligibility criteria).

Currently, the instant asset write-off threshold is due to revert to $1,000 for small businesses (i.e., those with an aggregated turnover of less than $10 million) from 1 July 2020

Income Support for Individuals

Wed, 25 Mar 2020 22:00:00 GMT

From 27 April 2020, the Government will introduce a Coronavirus supplement of $550 per fortnight (payable to individuals currently receiving certain eligible income support payments) and will also temporarily expand access to certain income support payments, over a six-month period.

The Government will also provide two separate $750 tax-free payments to certain social security, veteran and other income support recipients, and to eligible concession card holders.

1.1 Introducing a new Coronavirus supplement
A new Coronavirus supplement at the rate of $550 per fortnight will be paid to individuals who are currently eligible for certain income support payments, including:

According to the Government, anyone who is eligible for the Coronavirus supplement will receive the full rate of the supplement of $550 per fortnight.

Furthermore, it appears that this new (additional) supplement will be paid to eligible individuals as part of their existing income support payments (e.g., Jobseeker Payment and Youth Allowance).

1.2 Expanding access (and eligibility) to certain income support payments
For the period that the Coronavirus supplement is paid, the Government will also expand access to certain income support payments (e.g., the Jobseeker Payment, the Youth Allowance Jobseeker and the Parenting Payment) for eligible individuals. For example:

(a) A new category of Jobseeker Payment and Youth Allowance Jobseeker will become available for eligible individuals who are financially impacted by the Coronavirus and satisfy certain requirements. According to the Government, this could include, for example, permanent employees who are stood down or lose their employment; sole traders; the self-employed; casual workers; and contract workers who meet the income tests, as a result of the economic downturn due to the Coronavirus.
(b) Asset testing for the JobSeeker Payment, the Youth Allowance Jobseeker and the Parenting Payment, will be waived for the period of the Coronavirus supplement. Income testing will still apply to the person's other payments, consistent with current arrangements.

Also, reduced waiting times will result from the waiver of a number of traditional waiting periods

1.3 Tax-free payments of $750 to eligible recipients
The Government will be providing two separate $750 tax-free payments (referred to as 'economic support payments') to social security, veteran and other income support recipients, and to eligible concession card holders, as follows:

(a) The first $750 payment will be available to individuals who are residing in Australia and are receiving an eligible Government payment, or are the holders of an eligible concession card, at any time from 12 March 2020 to 13 April 2020 (inclusive). Also, where an individual has lodged a claim for one of the eligible payments or concession cards at any time from 12 March to 13 April 2020 (inclusive), they will also receive the payment if the claim is granted.

This payment will be made automatically to eligible individuals from 31 March 2020.

(b) The second payment will be available to individuals who are residing in Australia and are receiving one of the above eligible Government payments or are the holders of one of the above eligible concession cards, on 10 July 2020 (except for those receiving an income support payment that qualifies them to receive the $550 fortnightly Coronavirus supplement).

This payment will be made automatically to eligible individuals from 13 July 2020.

Note that, an individual can be eligible to receive both the first and second support payment. However, they can only receive one $750 payment in each round of payments, even if they qualify in each round of the payments in multiple ways.

Each of the $750 payments will be exempt from income tax and will not count as income for the purposes of Social Security, the Farm Household Allowance and Veteran payments.

Temporary Insolvency Relief

Wed, 25 Mar 2020 22:00:00 GMT

Directors will now be temporarily relived of their duty to prevent insolvent trading with respect to any debts incurred in the ordinary course of the company's business, with the measure set to run for six months.

According to Treasury, egregious cases of dishonesty and fraud will still be subject to criminal penalties. Any debts incurred by the company will still be payable by the company.

Further, the government will increased the current minimum threshold for creditors issuing a statutory demands on a company under the Corporations Act 2001 from $2,000 to $20,000 for six months.

The statutory time frame for a company to respond to a statutory demand will also be extended temporarily from 21 days to six months.

Likewise, the threshold for the minimum amount of debt required for a creditor to initiate bankruptcy proceedings against a debtor will temporarily increase from its current level of $5,000 to $20,000.

The time a debtor has to respond to a bankruptcy notice will be temporarily increased from 21 days to six months.

Backing Business Investment – Accelerating Depreciation Deductions For New Assets

Wed, 25 Mar 2020 22:00:00 GMT

Broadly, a new time-limited 15-month investment incentive (which will be available up until 30 June 2021) will also be introduced to accelerate certain depreciation deductions for businesses with an aggregated turnover below $500 million, in respect of eligible depreciating assets.

This incentive basically allows a deduction equal to 50% of the cost of an eligible asset, with existing depreciation rules applying to the balance of the asset's cost.

More specifically, the amount that an eligible entity (other than an SBE that is depreciating assets in its general small business pool) can deduct in the income year in which an eligible depreciating asset is first used or installed ready for use for a taxable purpose is:

Different rules will apply where an SBE is using the general small business pool (i.e., for assets that do not qualify for the instant asset write-off). In this case, the SBE may deduct an amount equal to 57.5% (rather than 15%) of the business-use portion of the cost of an eligible depreciating asset acquired by the entity in the year is it allocated to the pool.

Which depreciating assets are eligible assets?

An eligible asset is a new asset that can be depreciated under Division 40 of the ITAA 1997 (i.e., plant and equipment and specified intangible assets, such as patents), where the asset satisfies all of the following conditions:

Note that this measure will not apply to second-hand Division 40 assets, or buildings and other capital works that are depreciable under Division 43 of the ITAA 1997 (i.e., the building write-off).

This measure also does not apply to an asset if the asset's depreciation is worked out under a low-value or software development pool, or in relation to primary production depreciating assets such as water facilities, horticultural plants, fodder storage assets and fencing assets.

A depreciating asset is also not an eligible asset where a commitment to acquire or construct the asset was entered into before 12 March 2020 or where the asset would not be in Australia.

Economic Stimulus Package

Thu, 12 Mar 2020 22:00:00 GMT

The government announced yesterday a package of temporary measures to support the economy. These are in 4 parts and are aimed mostly at small to medium sized businesses. Some measures are immediate and some retrospective to 1 January 2020 (they do require legislation, which means they could be held up or amended in Parliament, the next sitting is 23 March).

Business Investment Support

- Instant Asset Write-off threshold increase from $30,000 to $150,000.

This applies to depreciable assets acquired from 12 March to 30 June 2020 , for all businesses. The asset can be new or second hand and the equipment could be financed, and the item must be installed ready for use by 30 June. The threshold says less than $150,000 net of GST credit (eg., $149,999, not exactly $150,000).

- Accelerated Depreciation deduction

If not applying the Instant Asset write-off, perhaps there is a tax loss for the year, depreciation deductions from 12 March 2020 and before 30 June 2021 will be allowed for 50% of the assets cost in the year of purchase, in addition to the normal amount of depreciation. This means that the cost will be deducted over a shorter period than usual. This will not apply to second hand assets or buildings and other capital works expenditure

Cashflow Assistance

- Boost to Employer Cashflow

Businesses who employ staff between 1 January and 30 June 2020 will receive one or more payments totalling between $2,000 and $25,000, and is tax free. The payments will be 50% of the tax withholding on the March and June quarterly BAS's. For those lodging monthly it applies to the March to June BAS (March to be multiplied by 3, then take 50% - which adjusts for January and February). This continues each BAS until the $25,000 limit is reached.

For example, if the March PAYG Withholding is $19,000, the business only pays $5,000 and a credit is subsequently given for the difference. If the credit would create a refund for the BAS, refunds will be made after 28 April 2020 (due date for lodgement of the March BAS).

TIP : If you don't presently pay salaries for principals and want to receive the $25,000 benefit, pay some PAYG Withholding for principals in March through to June, and get 50% of it back as a tax-free windfall.

- Apprentices and Trainees

Where fewer than 20 staff are employed, the business can apply for a wage subsidy of 50% of the apprentice's wage for those is training at 1 March 2020, for up to nine months from 1 January to 30 September 2020. This benefit is limited to $21,000 per apprentice, or $7,000 per quarter.

Stimulus Payments to Households

A one-off payment of $750 commencing on 31 March to pensioners, and social security recipients. this is tax free and won't count for means-tested benefits.

Affected Business Sectors

Sectors and regions hit harder by the coronavirus, such as tourism, agriculture and education will receive special support. This includes a waiver of certain fees if located in National Parks, assistance to locate alternative markets or suppliers, and measures to promote domestic tourism. There will also be administrative relief for some tax, including deferral of tax payments for up to four months. This will be provided on a case-by-case basis and businesses will need to apply. These details should be available shortly.

These are the measures announced and legislation is needed, but likely that should be passed on 23 March, although it is possible some amendments could be made.

Nothing needs to be done to claim the Instant Write-Off for asset purchase after 12 March and before 30 June, except to ensure the item is installed ready for use before 30 June. For the Tax Credit, businesses should lodge BAS or IAS sooner rather than later, and the tax credit will be processed on the BAS or IAS (for Principals, the salary and tax need to be planned to get the best outcome). For the support for certain industries, details should be available soon.

Have you paid your Employee Super for past years?

Thu, 27 Feb 2020 22:00:00 GMT

The Super Guarantee Amnesty Bill has been passed by both houses (only took 2 years, opposed by Labor and the Greens).

Employers will have a six months amnesty to pay SG contributions for super owing between 1 July 1992 and 24 May 2018. The employer will be able to claim these as a tax deduction, with no administration charges or penalties. Normally, if super is paid late it is not tax-deductible and charges and penalties can be significant.

Those who do not take advantage of the one-off amnesty, if (or when) found, will not be able to claim the super as a deduction and will pay full penalties, a minimum of 100% on top of the charge, plus admin charges. The ATO does not have a discretion to remit penalties and charges; they are specified in the Act.

The amnesty window is retrospective to the original announced start date of 24 May 2018 and ends six months after the Bill receives Royal Assent (so perhaps assume start in April). So, if you have paid already in good faith, you are covered by the Amnesty.

Don't wait for the Bill to receive Assent, six months is fairly short, so the forms need to be done and the payments made in that time, there will be no extensions. If you are betting the ATO won't notice, don't count on it, the ATO matches up all Payment Summaries to what the employer has claimed, and what super has been paid to a Fund. It's a big job that takes some time to gather the information, but can identify under payments easily. Also, the ATO receives thousands of calls on non-payment of super, and follows up all of them. Finally, the ATO doesn't have to do the work, it can request a reconciliation and proof of payment from the employer.

So, if you think this could apply to your business, talk to us soon.

Have You Got Control of Your Super (or SMSF)?

Tue, 25 Feb 2020 22:00:00 GMT

Superannuation is fast becoming a large asset for most people, but many ignore the simplest requirements, like succession, compulsory payouts on death, insurance in the Fund, and an appropriate investment strategy. The ATO hasn't.

Wills

Super is a trust and is a function that needs to be dealt with separately from a Will. Many assume it forms part of their estate.

In terms of an SMSF, the trustees of the fund make a determination as to where the super should be paid, taking into account the beneficiaries and their financial situation. Even in public super funds the situation is the same, but the trustees don't know your intentions and still decide where benefits will be paid.

Two simple strategies; ensure there is a Binding Death Benefit lodged with the Fund, or appoint a child (over 18) or independent person as a director as they should act in your interests.

Cashing Out

A member's benefits must be cashed as a lump sum as soon as practicable after the date of death. A pension can be made to revert to a beneficiary.

This becomes difficult when an SMSF does not hold sufficient cash. A Fund asset may have to be sold to meet this requirement, which may be difficult or costly if it is property or equities in a falling market.

Insurance in the Fund

One way of providing cash is for the Fund to put death or incapacity policies in place. (The Fund owns the policy and insures a specified beneficiary; the premiums are paid by the Fund).

This is a complicated topic but it is a good way of having cash available for a possible payout (see Cashing Out). The Super regulations require the trustees to consider insurance.

Investment Strategy

The ATO has just released guidance for trustees around SMSF investment strategy. The old style 'broad sweeping statement' of asset ranges (eg., 0% to 100%) is not a valid strategy. The investment strategy must be a plan for making, holding and realising assets consistent with the Fund objectives and retirement goals.

Where the Fund is invested mainly or in one significant asset or asset class, the ATO requires documentation that the trustees had considered the risks associated with a lack of diversification and addressed those risks (see Insurance).

Investment strategy needs to be considered at least annually, and perhaps after events such as a market correction, admission of a member, and when a pension is commenced. The ATO requires that auditors check that an investment strategy is in place, the investments are in accordance with that strategy, and the strategy has been reviewed during the year.

Superannuation needs to be managed responsibly and the obligations understood by the trustees. The ATO has warned that it intends to ensure trustees carry out their duties, and if not, it will impose fines or close the Fund. Also, these four issues in particular need to be addressed to ensure you get the maximum performance and benefits from the Fund.

If we can assist in any of these areas, please ask us. None of the matters are rocket science (which is why we understand the issues), and they can be fixed with some due diligence and discussion of alternatives. It's is a lot easier to deal with the issues now than when the auditor qualifies the Fund (and brings the ATO down on you) or a payout has to be made. It's your money, ensure it is handled wisely.

Paying Dividends to Clear Division 7A Company Loans

Wed, 05 Feb 2020 22:00:00 GMT

Loans by Private Companies to Shareholders

The ATO has been looking at the process of private companies paying dividends, and considers that some of the current practices might not be fully compliant with tax and corporation laws. This is most evident when companies require repayments of previous year advances to shareholders and associates by year end, referred to as Division 7A loans.

What is Division 7A

Division 7A is an anti-avoidance measure designed to prevent private companies making tax-free distributions of profits to shareholders or associates in the form of payments, advances, loans, debts or financial accommodation and which are not repaid within a given time limit. That is, the loan needs to be repaid in full by the due date for lodgement of the tax return for the year in which the loan was made. If not repaid there must exist a complying loan agreement for repayment over the following seven years and the taxpayer must pay principal and interest to the company each year on the outstanding balance.

Paying a Dividend to Reduce the Loan

Often, these repayments are commonly made after the end of the financial year in the form of a journal entry rather than by the cash payment of the dividend. The journal represents the payment of a fully franked dividend equal to the amount required to be repaid by Division 7A. Dividends are subject to the rules under Corporations Law and the Tax Act. This includes how the dividend must be duly declared by 30 June, the decision reflected in a minute within 30 days of the meeting, and a distribution statement provided to the shareholders within four months of year end.

Dividend Process

If no dividend was declared by 30 June, the journal entry is ineffective for Div 7A purposes, so this results in a shortfall and a deemed un franked dividend, which means more income and tax, but no tax credit. A journal entry is just a record, it is not the transaction. That is the key issue.

Calculating the Required Dividend

A dividend increases the taxpayer's income and the marginal rate of tax. It is possible that the taxpayer has made repayments during the year, so the dividend paid to clear the Div 7A requirement for the year could perhaps be reduced. This would take a little time to resolve, which means some further cost. As the Div 7 Loan Agreements set out the required payments in future years, the dividend required can be determined with reasonable accuracy before year end, and any cash repayments would represent a reduction of principal debt.

Possible Penalties

This process meets the legal requirements and avoids the illegality of back-dated documents. The alternative of preparing documents after the end of the year exposes the taxpayer to tax on unfranked deemed dividends and likely penalties, and the company to breaches of tax and corporations law, and possible prosecution.

No court would accept as a defence 'it was a bit hard', or 'this is how it is done in the real world', or 'there was no intention to evade tax and there is no loss to revenue anyway'. So in practice, this is another matter that needs to be resolved by companies before the end of each financial year.

EOFY Planning

More and more, EOFY planning is not just about measures to save tax, but also about proper documentation of decisions taken and in attending to statutory requirements. So, we need to ensure Division 7A loans are correctly handled, as part of our pre-30 June review.

More Income! More Risk?

Tue, 03 Dec 2019 22:00:00 GMT

Everyone knows term deposits now earn less than 2%. I expect that this may even fall further next year, so if you are retired you either change your life style or you seek investments paying higher returns.

Does this necessarily mean more risk? It certainly means having to invest in equities, or hybrids, bonds, fixed interest, mortgages and property trusts (REIT's).

Past performance has been good for these classes for a while, some even great, but in the event of a recession or stock market fall they may be affected, meaning perhaps some reduction of income and/or loss of capital. And the old rule holds true; the bigger the promised return, the more risk.

But, there is another approach. It is possible to earn higher returns and the risk can largely be managed with diversification. That simply means not all the investment capital goes into one investment or even one class of investment.

It does mean though you need to be diversified into top quality assets. A portfolio can be put together that gives a regular return of 6% or better, and the investments selected from a number of classes so that there is negative correlation (if shares go down, fixed interest will likely go up and balance out the portfolio), or investments are defensive, or equities held are minimal, etc.

If this appeals, the next decision is which investment(s), and consider the costs (should be under 1%pa), what is the investment risk, what if market conditions change, etc. You will have noticed I have not made things simple and just listed out several investments. There are two reasons.

The first is simple, accountants can no longer give financial advice unless registered for this, and secondly, as some financial planners do a great job in this area we prefer to refer the work to them. For example, one planner has just proposed the investment of $500,000 to earn more income, previously all in bank deposits. The income increases from 2% to 7%, and the portfolio is so defensive it is hard to see any capital risk. And they review the investments at least quarterly and rebalance if needed.

The message is: if you need more income but you are not prepared to accept significantly more risk consider diversification and we suggest don't do it yourself, use a good planner – call us for a recommendation or introduction. Please note, we never receive any fees or commissions, the planners are selected on merit and performance.

ATO Audit Activity

Mon, 29 Jul 2019 23:00:00 GMT

You probably know that we started offering audit insurance a few years ago. We could see the trend of the ATO increasing the number of audits/reviews each year, either due to concern over the industry (history of 'cash only'), an anomaly over KPI's (eg., GP not high enough, so cash must not be reported), selection based on data matching (over 800M transactions in 2018), or from public tips and dob-ins (a whole new ATO department set up for public information provided).

A report has just been released showing claim trends over the last twelve months, and you can see claims are made not only for 'Tax'.

Employer Obligations (20% of Claims)

The most frequent claim, due to problems in payroll reporting and superannuation payments.

Super Guarantee

The unpaid SG by employers is increasing. Even with STP commencing this year underpayment is a big concern from previous years. With STP requiring super contributions to be reported (compulsory from October 2019), those not paying will be quite obvious, which may also be taken as an indication of previous year lack of compliance. Further, super is now a personal responsibility for directors and the ATO will issue Director Penalty Notices (for which there is little defence).

BAS Reviews (13% of Claims)

Have decreased slightly, probably because of the closer attention given to Employer Obligations. Often starts with a request to see the 'GST Detail Report' from XERO (or the software used), compared to the lodged BAS, and then to supporting invoices and bank statements. If not satisfied with the Quarter, the audit is usually extended to the whole year.

Payroll Tax (12% of Claims)

This is a State based tax, and also considers grouping, contractors, employees in other states (the thresholds vary), and director remuneration. Data sharing with other agencies (like Workcover) often raises red flags.

Personal Income Tax (9.5% of Claims)

Covers a vast array of ATO audit activity, especially due to data matching, expense claims made, the level of income reported (below basic standard of living), and lifestyle & income.

Work Related Expenses

The ATO has an extensive data base on expenses based on occupation, and returns are also cross referenced with what other taxpayers are claiming. The ATO will often ring employers and ask if the expenses are necessary for the job, before contacting the taxpayer for evidence of the claims, like invoices, receipts, bank statements and seeking justification for the claim. It must be a cost of the job and not a personal choice (eg., home office use).

Audits cost you money a) to respond to the request for information and can become more complicated and costly if the ATO is not satisfied, b) to pay the tax, plus penalties of up to 100% and interest too, and c) can even result in criminal prosecution if the behaviour is serious.

We can say with a fair amount of certainty that the agencies will continue to find new and innovative ways to verify returns. As long as reviews and audits remain prevalent, a good course of action is to have Audit Insurance. These can be offered through insurers, and we recommend Audit Shield Insurance. For a few hundred dollars a year at least the professional costs are covered. Audit Shield is renewed in February each year, but can be started at any time. Call us if you would like to know more about this.

Personal Liability Under Director Penalty Notices

Mon, 22 Jul 2019 23:00:00 GMT

The tax office is able to recover from the directors' a company's unpaid PAYG tax and superannuation, by issuing any or all of the directors with a Director Penalty Notice (DPN).

There are two types of DPN .

1. A 21 Day DPN (non-lockdown) – for PAYG Tax or Super Unpaid but where Returns have been lodged within 3 months of the due dates.

That is, if the BAS were lodged within 90 days of the due dates but the PAYG Withholding and Super have not been paid, a DPN can be issued to directors. The directors can avoid personal liability if:

- the PAYG or Super is paid, or

- the company is placed in liquidation or administration within 21 days of the date of issue of the DPN ( not from the date received).

2. A Lockdown DPN – for PAYG Tax or Super Unpaid and Returns not lodged within the required time.

If this occurs, the directors are automatically personally responsible for unpaid PAYG tax and super. When this happens:

- The ATO will issue a DPN to the directors

- Even placing the company in liquidation will not avoid the director liability. The ATO does issue DPN's after a company is placed in liquidation.

- The ATO can also estimate the company liability and issue a DPN based on the estimate.

Super Due Dates

From 1 May 2019, new legislation changed the date from when directors become personally liable for superannuation.

Super is due for payment 28 days after the end of each calendar quarter, and if not paid by that date, SGC statements must be lodged within 30 days after that. For example, the June super must be paid by 28 July and if not, must be reported to the ATO on an SGC Statement by 28 August.

How can a DPN be Avoided?

Once the dates have been exceeded there is not a lot that can be done, so it is better to avoid the liability upfront:

- Lodge BAS and SGC on time, or at worst within the time limits. If lodged but not paid the directors have 21 days to appoint a liquidator and avoid personal payment.

- Make sure directors' postal addresses are up to date in ASIC records because DPN's are issued to those addresses. Non-receipt of a DPN due to a change of address is not a defence to an ATO claim.

- A liquidator must be appointed within 21 day of the DPN date, not when the DPN is received by the director.

- Get professional advice quickly. Even better, if the company is having financial difficulties, obtain professional advice on the prospects and options available.

What can be done if a DPN is received?

If one is received:

- Promptly obtain advice on the DPN

- Negotiate a personal payment arrangement with the ATO. It is possible the ATO will want to be satisfied that the company position can improve, so consider a Profit Improvement Plan and Cash Flow Forecast.

- If there are other directors seek a contribution from them towards the debt. The ATO does not have to pursue all directors, it may just issue a DPN to those who are in a better financial position, and it can pursue old and new directors and those who were directors at the time of the debt.

- Consider a Personal Insolvency Agreement or Bankruptcy petition.

Defences to a DPN

There are few defences to DPN's and they need to be exceptional to succeed.

Options for the Company

Several options are available, assuming liquidation can be avoided:

- Negotiate a payment arrangement for the amounts owed by the company (and so perhaps avoid the issue of a DPN)

- Restructure and turnaround the business

- Obtain further finance or new capital.

Risks of Liquidation

Liquidation has other risks, including:

- personal guarantee claims

- builders lose their licence and may not be allowed to trade for several years

- potential for an insolvent trading claim to be pursued against the directors by ASIC and the liquidator, recovery of preference payments, loans to directors being recoverable by the liquidator, and also assessable as unfranked dividends by the ATO

- prosecution under Phoenix Trading laws if the business is illegally continued in another entity.

DPN's are frightening and need to be dealt with promptly on receipt. There are no loopholes or absolute defences. The best defence is to deal with the financial problems of the company early so that there is no reason for the ATO to rely on DPN's.

Super Thoughts Before 30 June

Tue, 25 Jun 2019 23:00:00 GMT

There is more to super than just getting a tax deduction!

As the financial year is about to close (Friday is the 28th), there are some actions that can be taken before then.

1. Claim a tax deduction by maximising contributions

The concessional cap on contributions is $25,000. This includes the employers Super Guarantee of 9.5% and salary sacrificed contributions.

If the total contributions this year to date is less than $25,000, a personal contribution can be made by the taxpayer to bring the total contributions to the $25,000 cap. There are two caveats; the taxpayer must be under 65, or if between 65 and 74, pass the work test of 40 hours in a 30 day period, and to not exceed the cap.

2. Make non-concessional contributions

These are contributions for which a tax deduction is not claimed. The maximum contribution is $100,000 a year, the total super balance at 1 July 2018 must be less than $1.6 million, and the taxpayer be under 74 and meet the work test (40 hours over 30 days). One purpose of these may be to build up the balance in the SMSF.

If under 64 at 1 July 2018, the 'bring-forward rule' allows a contribution in this year of $300,000 (and then nothing in the next two years).

3. Access the Government Co-Contribution

The Government will contribute up to $500 if a non-concessional contribution of $1,000 is made.

The person's taxable income must be less than $37,697 (cutting out at $52,697), they must be under 71 at the end of the year, at least 10% of income must be earned from employment, and they can't exceed the $1.6 million super balance cap.

4. Claim a tax offset for a super contribution for your spouse

Where a spouse earns less than $37,000 and you make a spouse super contribution of up to $3,000, you can claim a personal tax offset of 18%, or $540. The tax offset phases out on a $ for $ basis, up to $40,000.

Spouse income includes assessable income, fringe benefits and reportable employer super contributions (eg., salary sacrifice).

The contribution must be received by the Fund before 28 June, and the taxpayer must also notify the Fund of the contribution and receive an acknowledgement in order to claim the deduction. This can be done on a standard ATO form, or even online with the Fund.

The Confusing Economy

Mon, 17 Jun 2019 23:00:00 GMT

Sometimes I get confused. Things that seem to make sense at the time, then get combined with other information so it doesn't make as much sense any more.

It all started with a statement from someone in business; things have been pretty hard for several months, but he's not only hoping but expecting a good year to come. That's quite a leap of faith, but is it supportable?

In 2005, academic Steven Levitt published 'Freakonomics', in which he showed that at root economics was the study of incentives or how people get what they want and need. It was a freaky way of looking at the underlying issues and causes, and proposed new ways to solve problems. For example, Levitt sought to understand why so many gang member drug dealers lived with parents. Simply, most of the money went to the key people, gangs were often too big to have the power to operate efficiently and the leaders did not have vital leadership skills, so little money trickled down to the ranks. Levitt found members joined not to earn money but for fulfilment of the psychological needs of belongingness and esteem/prestige (Maslow's Hierarchy of Needs).

So, how is the Australian economy confusing? Four surveys came out last week;

- The Westpac Business Conditions slumped from 3.3 to 0.6. What it shows is that the current business situation has not been good for several months.

- The NAB Business Survey saw business confidence shoot up, surging from 0 to 7, the biggest jump for six years and the highest reading for ten months.

- The AIG Services Index (PSI) rose by 6 points to 52.5 points in May, the biggest increase since December 2016 (above 50 indicates expansion of services sector activity).

- Employment rose by 42,300 in May, and 43,100 in April. Most jobs were part-time, probably due to employer fears of a Labor win because its policy was to sharply increase wages. Employment has continued rising for twelve straight months.

Overall, those all look pretty good. We also know business profits are up 7.8% for the year and have been positive for seven quarters in a row, forecast capital investment is up 12.8% which is the biggest increase for seven years, the Manufacturing Index is still expanding at 52.7 points, house price falls have slowed and auction clearance rates are on the rise, and interest rates have just been reduced with perhaps more to come.

Balance those against media reporting. Media tends to seize on a number in isolation and assign the worst interpretation of it. It has been a bad twelve months if you focus on broad media reports about economic growth slowing, falling house prices, a trade war, high debt, fears of a Labor win, and slow wage growth. That could explain why consumers have been fearful of spending money.

But the numbers published over the last week indicate that business is gaining confidence, they're hiring and investing. More people employed in turn pushes up consumer confidence, so with promised tax cuts and lower interest rates consumers should tend to spend more on housing and other needs, which again pushes along economic growth and job creation.

More factors are becoming positive so it follows the economic outlook also should be more positive. But yes, we still need to be concerned about a trade war between US and China, and the possibility of a debt meltdown, and mismanagement by central banks.

The next question is will things be better soon? Unfortunately, economies don't turn around in an instant. But increased government spending on infrastructure and services, increased exports of resources, stimulation of the construction sector, and tax cuts will add to growth. These are expected to lift economic growth to 2.2% this year and towards 3% next year. A 3% rate is high growth.

Put it all together; likely a bit tough for a few months more, then expect things to improve, even for a few years. The next economic crisis point would seem to be around 2025. So, if you're doing a forecast or budget for the next twelve months, allow for much of the same for a few months, then for conditions to improve.

However, as 'Freakonomics' determined, always be watching for a factor that could drive the business situation for good or bad.

Minimise Tax Deductions This Year

Sun, 16 Jun 2019 23:00:00 GMT

TAX PLANNING MUST DO'S BY 30 JUNE 2019

With the end of the financial year close, it's time to think about tax planning options. We've put together a list of things to focus on, especially for businesses.

So, why would you go to a bit of trouble? Tax is just a cost too so can be legally managed, and in the end it's all about the benefits for you. If you save tax what could you do with the savings?

- Pay off your home loan earlier

- Set more aside into savings or superannuation for retirement

- Have a holiday

- Acquire an investment

- Improve your home or lifestyle.

Some things must be done by 30 June , if not, deductions cannot be claimed this year, especially:

- Superannuation contributions

- Instant asset write-off (now up to $30,000)

- Write off bad debts in Accounts Receivable

- Resolution by a Trust to distribute profits

- Defer the billing to or receipts from customers until after 30 June.

Every year when we receive your tax records we run through a list of items with you to see if they may be available to claim, which will reduce taxable profits. They may have been paid from another account, or could be accrued at year end, or be an immediate write-off, etc. We don't have to know about them before 30 June so haven't dealt with them here. This is only about the several items which to get a deduction must be paid by 30 June (actually the 28th, because the 30th is a Sunday).

To keep it simple, we'll keep it short and only what can be done, not the reasons why. If you want to know more or why, give us a call anytime.

If you are going to use any of these strategies and you are uncertain or confused, please call or email us and we'll go over your plan. Better to be certain!

Small Business Instant Asset Write-Off, or, What is the Tax Benefit?

Wed, 29 May 2019 23:00:00 GMT

Nearly the end of another financial year. The TV ads have started, 'Beat the tax man', inciting you to buy something from them and so save tax. Accountants then get calls like "Should I buy this before 30 June and save lots of tax?"

It depends!

If it is really needed now, there is an argument to make the acquisition before 30 June, but it is also necessary for businesses to understand the total cost of purchasing equipment. Items not particularly needed now, especially if financed, should be evaluated by a cost/benefit exercise, which is a bit more complicated than knowing how much tax is saved.

Tax

This issue has become relevant because the April Budget provided that items costing less than $30,000 can be immediately deducted or written off against profits in this year (and will continue through to 30 June 2020).

Many business owners are motivated to spend because it will be a "tax deduction". Some have a belief that they receive a refund of a dollar for each dollar spent, sometimes hinted at by the sales person, which is simply not correct.

The tax value of the purchase depends on the marginal tax rate of the payer; a company is 27.5%, individuals with incomes under $87,000 are 32%, and between $87,000 and $180,000 it is 42% (incl. Medicare). So the tax saved on $30,000 is between $8,250 and $9,600. That is a fairly modest tax saving for the amount spent.

Cash Flow

It's also not an instant benefit. It just reduces the tax to pay when it is due 10 months after the end of the year, or even perhaps the final PAYG Instalment due in July.

That is, it's also important to look at the effect on cash flow, as well as the tax aspect. (I said it gets complicated).

If the purchase is financed, the deal is important; term, interest rate, fees upfront, penalty for early payment, etc. Take a $20,000 purchase over 60 months at 9% (plus fees). The repayments are $415 a month, so a total $24,910 over the term. The tax saved is $6,850 for a company at 27.5%, a little more for an individual paying 32%. (The saving is 27.5% on the interest paid of $4,910 [$1,350] plus 27.5% on the immediate deduction claimed of $20,000 (or $5,500).

So the total cost of the purchase over the term of the finance contract is:

Purchase $20,000

Plus, Interest _ 4,910

24,910

Less, Tax saved _ 6,850

After tax cost $ 18,060

And, we could also model the time value of money (didn't I say it can be complicated?) but at current low interest rates it is not going to make a material difference in this example.

Questions to Answer

The answer to the question of whether to buy before 30 June is not just how much tax is saved, but about the overall picture, considering:

- Is it value now (could it be purchased at a better price after 1 July)

- Is it needed now, and will it help improve profit in the future

- What is the tax rate likely to be for the current year

- If financed, what is the rate payable including fees

- Is cash flow next year (and beyond) sound enough to allow repayments without stress.

The Incentive has its place but its benefit is not just as a tax deduction, and as much about the expected cost and the return on investment on the money spent.

Business is not always easy, but some principles are simple

Wed, 22 May 2019 23:00:00 GMT

To be better and to succeed, you really need to focus mainly on two areas.

1. Be very clear about the 2 or 3 things that actually increase your revenue (also called sales or turnover or income)

Most owners spend most of their time doing activities that simply do not grow the business, things like administration, meetings, handling customers. All are necessary for a well functioning business but are not likely to increase how much money you make.

So, what does increase revenue?

Testing new marketing methods

- Split testing of current marketing methods (the detail, placement, offers, urgency, etc.)

- New product lines

- Contacting potential buyers

- Generating positive PR

- Systematically generating referrals

- Re-contacting former customers or old leads

Learning about business development systems.

It is necessary to be clear about the 2 or 3 activities that actually create more revenue for you, otherwise you could commit many hours to exercises that won't make much difference to Sales Income. Of course, you need to test and retest to see what works best for you, and is also capable of being set up as a system.

2. Focus as much time as required weekly on those 2 or 3 things.

You now know the few activities that have been determined will increase your revenue. But, there are so many demands on your time you can't get onto revenue generation. Or, you 'major in minor things'.

Could you spend a day a week on new revenue generation activities? It could mean having an assistant (make sure they have a list of what they should be doing so they are not always waiting for you for work), delegate some of your work to staff who can do that work (it could mean training, checking for a while, and getting regular reports to read when you receive them), or perhaps eliminate some of the 'busy work' (get rid of 'that's the way we always do it' if it has no significant value to operations.

Simple?

That's it, only two steps.

Everyone is short of time from 'busyness'. Learn to use your time more effectively, the result is likely to transform how much profit you make.

It's really basic:

- Get clear on the handful of activities that actually increase your sales.

- Focus obsessively on those areas, every week.

Yes, it is easy to say, and may be a little harder to do. But, it is very, very possible that it will make a big difference in income and profit.

Single Touch Payroll - You Need to be Ready!

Mon, 20 May 2019 23:00:00 GMT

All employers are required to report each payroll to the ATO from 1 July 2019. However, there is a phase-in period to allow a start on 30 September, for example, where software needs to be acquired.

What is STP?

STP requires businesses to report employee payroll information to the ATO each time a salary or wage payment is made. The BAS reports total wages and withholding each quarter, STP reports the amount paid to each employee, and at the end of the year replaces the issue of annual Payment Summaries to each employee (which will now be shown in their MyGov account).

Who Must Comply?

All employers, regardless of the number of employees or payroll.

Why is STP Required?

The official explanation is that it will streamline business reporting, and give greater control and transparency over PAYG and Superannuation due.

Is Payment Required each Pay?

No, it is reporting only each pay, and tax withheld and superannuation will still be remitted as usual – taxes paid in each quarterly BAS, and Superannuation by the 25th of the month after each calendar quarter.

Is Software Required?

Some of the accounting software providers (eg., Xero, MYOB, Quicken) already have a payroll function, and businesses may only need to upgrade to ensure the program will handle the number of employees on their payroll, eg., Xero Standard ($50 p/m) has Payroll for 2 people, and Premium 5 ($65 p/m) has payroll for 5. All of these suppliers should now have the software ready to report to the ATO.

The ATO recognizes many small businesses do not use commercial payroll software but rely on spreadsheets and pay books. It is working with a number of software providers to develop low cost reporting solutions, less than $10 p/m, and most of these have advised their software will be available to use from July.

What is Reported?

Each time an employer completes a 'payroll event' (a pay or holiday pay, etc) the information must be electronically reported to the ATO the same day. The information to be reported includes:

Gross payment and allowances

PAYG withholding

Salary/Wages for super guarantee purposes (Ordinary Time Earning)

Superannuation paid, showing SG Contributions and salary sacrificed amounts.

Concessions for Small Employers

Concessions apply to small (less than 20) and micro (up to 4) employers:

? Micro employers can use a registered tax agent or BAS agent to report quarterly for the first two years;

? Small employers can commence reporting any time between 1 July and 30 September 2019;

? No penalties will apply for mistakes or occasional missed reports, for the first year.

Payments to Directors/Principals

The ATO accepts many Directors do not draw a regular wage and draw against income throughout the year.

For 2019/20, no reporting of salaries to 'closely held payees' is required, and payment summaries can be used and lodged up to the due date of your 2019 income tax return.

From 1 July 2020, closely held payees are to be reported quarterly in the BAS, on the same principle as current PAYG Instalments (that is, either same as the last year, or actual drawings, or variations for current year estimate of income).

Software Providers

You don't need to purchase accounting software. The ATO has authorised a number of software suppliers to provide a payroll program for less than $10 a month. Most of these will be on-line this month or next.

See the ATO list at:

https://www.ato.gov.au/Business/Single-Touch-Payroll/In-detail/Low-cost-Single-Touch-Payroll-solutions/

Assistance

If you want guidance on selection of software, or assistance with set up of payroll, call us and discuss your situation and we'll find a solution for your needs.

Learning from Failure

Mon, 21 Jan 2019 22:00:00 GMT

I know I tend to labour the point on business planning, but it can have such a successful outcome for so small an effort.

To illustrate my point I have summarized a report by the University of South Australia, which recently surveyed 650 CEO's of small and medium sized businesses about their experience with a business failure. More than 20% had been involved with a collapsed business, and many had experience with a business in severe difficulties. In total, 253 reasons for failure were offered, not the generic results we see from ASIC ('difficult conditions, ran out of cash, etc'),

The reasons were:

- Inadequate leadership and management (inability to react to changing conditions) (13%) and poor planning and execution of strategy (25%)

- Insufficient market research, and inadequate marketing and sales skills (17%)

- Poor financial management, including excessive cash drawings by owners (13%)

- Wrong strategy selection, poor implementation, inadequate financial reporting, poor people management skills, and lack of delegation (13%)

- Wrong governance structures (poor decision making) (11%)

- Product and service problems (7%)

One thing I learned while doing an advanced MBA and from following small business studies over the many years, those who succeed invariably plan in some depth for the year ahead. They take stock of the present situation and also ask themselves the questions to be able to develop plans and tactics in order to grow:

- Are we prepared to move forward this year?

- Where do we want to be in 12 months?

- To get there, what do we need to do?

- What action plans are needed quarterly (monthly and weekly) to support out strategies?

- Do we have processes and systems to measure progress?

- Do we have the resources needed (funds and cash flow)?

- Who will keep us accountable?

To me, accountability means testing the business plan with forecasts of profits and cash, measuring results regularly against KPI's and milestones, interpreting financial results, and using someone to bounce ides off or just to check with when problems get tough.

Remember, there are really only a few ways to grow a business and increase profits:

- Generate more leads

- Improve the conversion rate

- Increase the customer retention rate

- Improve the average project value

- Increase the number of projects

Each one has a number of action plans (I have a Chart with over 400 strategies on it, so its not hard to find several that work for you) to get the desired outcome. It has been proved that an increase of just 3% in each of these can double profits.

Take a few minutes and reflect on the last year. Then, start building your plan with a new sense of vigour for the next 12 months. Benjamin Franklin said, 'If you fail to plan, you are planning to fail'.

2019 - A Soft Landing!

Thu, 20 Dec 2018 22:00:00 GMT

Last Blog for the year, a bit of crystal balling.

Nearly didn't put the '!', was thinking it could be an '?', but too many factors are lining up to be too negative.

As you no doubt have far better things to do, but knowing you'll be spending time over the next couple of weeks thinking about your strategic plan for 2019 (you will, won't you?), here is a short(ish) look at a number of the relevant external environment factors.

1. Politics

An election always results in stuff-all happening before and for a little while after. The deficit is down, some new ideas may help, but matters economic should improve after. Not sure by how much as political parties are about rhetoric, not good policy, but the local housing market is a key factor. (see 3)

2. Two speed economy

Most growth has been due to public sector spending, population growth, and debt. Businesses are making profits, paying dividends, not investing, not growing employment or paying higher wages. Most economic indicators are fairly ordinary, or even slightly down.

3. Housing Market will be Two Speed too.

Sydney and Melbourne were over-done so further falls are likely, another 10% is possible. The factors that drove prices in those markets haven't happened elsewhere, including SEQ. Some marking time in 2019 but then gradual increases through to the end of the next cycle (2025?).

4. Wages

Very little growth, held back by automation, digitalization, internet, globalization, etc. These factors keep profits down, which in turn results in ceilings on wages. A tight year for middle income households.

5. Confidence and Perceptions

With housing prices falling, low increase in wages, little faith in politics, and negativity in the media consumer confidence is not improving. However, it's also not dropping either.

6. Interest Rates

Unless the private business sector takes off, which is unlikely, interest rates won't rise. More likely to see further cuts in the Cash Rates, although it may not flow through to mortgages (banks raise money overseas where interest rates have increased, so the cost of capital has gone up).

7. Population Growth

SEQ will continue to grow, with a bias towards economic refugees and retirees. Housing prices won't lift much unless private investment is much higher. You need more private sector jobs, and higher paid ones too, to make property values jump rather than just increase a bit.

8. Land Supply & Housing Demand

In SEQ development land is in short supply. Demand exceeds supply (it has for years) but there must also be jobs, and better paid ones too. There will be significant demand from first home buyers, downsizers and retirees (same comments as above – confidence, jobs, better pay, interest rates are key).

9. Tax Policy

Especially negative gearing. If Labor allows this for new builds only, then more investment homes will be built. As NG would not apply to resales, prices should fall, so investors will seek higher rents to compensate for lower capital gains. Councils don't seem to have policy for dual occupancies, granny flats, etc., so single tenancy owners will have to pay more, but without better paying jobs etc they can't, so house prices could fall to result in the required investor return.

The expected economic outlook for Australia is for overall growth around 3%, so no recession for 2019. Recessions are also unlikely in China and the US, so the big fear of 'a housing collapse' is unfounded. (That's not just me – also the IMF, OECD, Treasury, RBA and a large number of the better economists).

A Quick Summary:

- 2019 will be harder than 2018, but probably not as bad as the media threatens regularly.

- Plan, check, then plan some more so you are always on track.

Finally, may Santa bring you everything you'd like, and the New Year all you plan for (the great US football coach Vince Lombardi said 'Hope is not a strategy').

Good Planning is Always Worthwhile

Tue, 27 Nov 2018 22:00:00 GMT

This Blog was going to be written as two or three Blogs, but now it's one because the subject matter overlapped. (Which means I get extra credit – because I planned to do more). It emphasizes the need for business planning, and there is one particular Grant to help pay for it (must apply before 13 December 2018).

Research Project on Business Failure

The University of South Australia surveyed 650 executives and small business owners to ask whether they had ever experienced a business failure. One in five had!

The reasons for the failures were sought; not like the generic ones you see from ASIC (ran out of cash, legal issues, the bank wouldn't lend anymore, etc.), but the core reasons were:

- Insufficient leadership and management (13%) and poor planning and execution (12%)

- Inadequate research into markets and sales (17%)

- Poor financial management, including insufficient accounting and lack of meaningful reports (14%)

- Underestimating the effect of externalities (downturn, credit squeeze, aggressive discounting) (13%)

- Poor governance structures (to ensure leaders understand their job and what to do and when) (11%)

- Product or service problems (7%)

- Poor management of people (6%)

- Wrong strategy or poor implementation (5%)

- Others, incl. drawing too much cash out for personal use, poor management of tax compliance, etc.

In the late 1970's Michael Gerber wrote in 'The E-Myth' that most businesses were started by a good technician who had an 'entrepreneurial seizure' and therefore believed he could also run a good business. Gerber said that it does not necessarily follow that the business will succeed, mostly because being a good technician doesn't actually mean business management skills were also good, and part of the solution was to have systems that told you when things weren't going right (sometimes easier said than done).

Getting Ahead in 2019

Depending who you listen to, or read, 2019 might be a disaster or even not too bad. I agree there are some big external problems looming (trade wars, oil prices, government policy, interest rates, etc.) and it is wise to consider how these events could affect your business – 'what if' type thinking. But it shouldn't be an excuse to avoid thinking how your business could be improved.

It's so important to nail a winning strategy (can do in five steps/allow a few hours), and to ensure your marketing program will be effective (also a few steps/and a few hours).

What's the point? Successful strategy draws on a depth of expertise and knowledge to elicit worthwhile planning on how to ensure a particular result, and to assist in leveraging your other products and services.

Will it be perfect first time? No, but you'll have a better understanding of what you want to achieve and what you need to do to get that outcome. Regularly, you review progress against the plan, test new ideas, and make adjustments until you get the right outcome.

Is it hard? No, not if you follow a logical process, perhaps these:

- Goals for year (3 or 4)

- Strategy (2 or 3 only)

- Actions (2 or 3 for each Strategy)

- Marketing Plan

- Profit & Loss Forecast

- Cash Forecast

Small Business Entrepreneur Grants

This particular Grant, from Queensland, is to help new businesses (up to four years old, based in Qld, less than 20 employees) access professional advice and support in the early stages of establishing a business. It closes on 13 December 2018.

It provides matched funding up to $5,000 to engage an advisor or business coach for up to 3 months. The advice must be for at least one of these:

- coaching

- business and strategic planning

- professional business advice (IT, legal, financial)

- marketing strategy (branding, digital strategy, research).

Applications are prioritised on the:

- extent to which the services support the business development, or enhance the owner's skills and abilities

- potential business improvements

- likelihood of jobs growth

- value for money.

If you'd like to know a bit more, give me a call.

Even if you don't meet the criteria for this Grant, there may be other Grants available. And even if not available right now, why not look towards a better 2019 anyway? If you'd like some help, please call me. You just need to have an outline or be pointed in the right direction, or some assistance only when you need it, or even completely done for (or with) you.

Do You Know How to Defend an Unfair Dismissal Claim?

Mon, 29 Oct 2018 22:00:00 GMT

Last year there were over 13,000 claims for Unfair Dismissal. I don't know how many had a sound basis, but I'd guess many were settled to avoid the work, worry, and ongoing cost. (I've also read the 'average payout' is around $6,000).

If you are sent a copy of an unfair dismissal application by the Fair Work Commission you have seven days to respond, using a Form F3.

One of the first questions on the F3 asks if "… you have any jurisdictional or other objections to the application". At its simplest, the employer is being asked whether they consider if the employee has a legal entitlement to pursue a claim.

There are a number of requirements that must be met before an employee becomes entitled, and so the employer now has the opportunity to challenge the claim's legal validity. There are seven grounds of objection.

1. Was the claim lodged out of time?

The claim must be filed within 21 days of the dismissal taking effect, unless the employee can prove there were exceptional circumstances justifying an extension.

2. Was the applicant an employee?

Only employees are protected, not contractors.

3. Was the applicant actually dismissed?

The employee must have been dismissed at the employer's initiative, so a resignation cannot be grounds for a claim.

4. Was there a 'genuine redundancy'?

The Fair Work Act sets out the terms of 'genuineness', and if so, is not an unfair dismissal.

5. Was the minimum employment period met?

An unfair dismissal claim cannot be lodged against a small business (one with fewer than 15 employees) unless the employee was employed for at least 12 months. If the business has 15 employees or more, the employee must have been employed for at least 6 months.

6. Was the applicant paid more than the High Income Threshold of $145,400?

Their income must fall below this level, which excludes superannuation.

7. Was the termination consistent with the Small Business Fair Dismissal Code?

If the procedures for dismissal as set out in the Code are followed, the claim is quite easily defended.

The Small Business Fair Dismissal Code came into operation in 2009, but based on the number of claims, it would seem very few employers (and perhaps also employees) have actually read it. Because the items in the Code are an important part of Fair Work's evaluation of the employer's assertion that there is no legal entitlement for a claim. Please contact us for a copy of the Code and Checklist , which ideally should be completed at the time of dismissal and filed away. It records the reasons for dismissing an employee.

Understanding the seven key grounds for objection to an unfair dismissal claim can save employers a considerable amount of worry, time, and money!

Have you ever been held at Ransom?

Wed, 26 Sep 2018 23:00:00 GMT

I read an article this week (Kellog School of Management), [and no, it was not on the back of a packet of Corn Flakes] saying employers should allow more slack for unethical behaviour by employees. The case involved an employee guessing the costs of his expenses, he was too tired to search for the invoices, so he estimated a bit more than actual costs.

The article considered that staff could be tired, or stressed due to making decisions, so some allowance should be made. However, the authors came to their senses at the end of the article and considered even if lapses may be due to causes other than intended dishonesty there must still be consequences for ethical violations, even if those violations are small or relatively uncommon.

There is no real lesson to be learned from this, but it shows where academics sometimes depart from the real world. It also did not consider the result when the employer had to rely on that employee and the numbers were much bigger, would you trust them to do the right thing by you?

Along the same lines, many business owners are nice people, trusting, busy, perhaps naïve, don't know their rights, or sometimes just unlucky. So they are often taken advantage of, whether by employees, or suppliers, or even customers. I think the list below are about the top five, so you may need to take action to resolve a current problem, or perhaps a potential one.

1.Difficult Staff

They're different than when you engaged them, bullying, demanding, and even toxic. They have to be handled head on, as early as it starts. There is a right way to manage these people out of the business, otherwise you can be held liable for an Unfair Dismissal claim.

Having good staff means recruiting well; interview; test; check references (and Face Book – amazing what some people reveal!). Make sure they know your policies and procedures.

2. Passwords

All staff should provide you with their passwords as soon as they set up (this should be compulsory Policy, no exceptions). Test that you can access occasionally. Change the passwords before a potentially messy termination, and don't forget other records like XERO or MYOB.

3. Suppliers

Don't sign any contract, agreement, paperwork, form (whatever nice terminology they use) submitted by a supplier without reading it, understanding it, and having your solicitor also review it. The cost is minor compared with the cost of litigation. Websites are often a concern, and some can even refuse to allow you to use another designer or a competitor of the current designer. Yes you can fight it as unreasonable, but there will be legal costs and delays.

4. Customers

Not just the slow payers, but those who you have done work for, but not been paid to this point, and then they expect you to do more work and 'they'll fix it up when you're finished'. Particularly common in the Building industry, and big amounts can be involved. Clearly set out your terms of trade upfront, also put them on the contract and each invoice, and bill regularly. For additional protection use a Retention of Title clause and enter your customer on the Personal Property Services Register, this makes you a secured creditor if they go into liquidation. (Call us if you want some details on this).

5. Hackers and Ransomware

One of your staff opens a simple email and this releases a virus which locks up your computer files. They tell you to buy a number of Bitcoin ($1,650 each at the moment) and they will release your files. Good luck in getting your data or money back.

Have a policy, tell people to be on the lookout for suspicious emails. Engage a good IT person who installs good protection software and firewalls and backs up your files daily (if you want a recommendation, see PBIT at Nerang, ask for Andre). Obtain cyber insurance, which covers the cost of recovery and the costs of losing confidential client data. (If you would like a recommendation, call us or see Agile Insurance at Burleigh, ask for Lucy).

You don't need to tolerate these situations. It starts with being clear up front, acting honestly and being fair, and never assuming because you won't do the wrong thing that others won't either. Expect such situations to occur and have strategies and policies in place for handling them.

Casuals and the right to Holiday Pay!

Mon, 10 Sep 2018 23:00:00 GMT

On 6 September 2018, the Full Court of the Federal Court decided that a casual employee was entitled to holiday pay (WorkPac v Skene).

Quick Background

Skene was a casual employee from April 2010 to July 2010 and again from July 2010 to April 2012, when his employment was terminated. He worked set hours based on a roster at a remote mine. He was paid a loaded rate which was argued was a base rate plus a casual loading.

The Decision

The Court held that Skene was not a casual, and that annual leave had to be paid and at the loaded rate. There were two key issues in the decision:

1. That 'casual' takes its meaning from decided legal cases and not the National Employment Standards under the Fair Work Act. The Court considered casualness meant the lack of advance commitment as to duration of employment or the days or even hours to be worked. The essential factors are "irregularity, uncertainty, unpredictability, intermittency and discontinuity in the pattern of work".

2. That an employer cannot determine status by making an arbitrary declaration. Whether a person is a casual is still objectively determined by the 'essence of casualness' as in para. 1.

The Implications

There are two concerns.

1. Fair Work recognises that there can be 'a long term casual employee', but this decision considered that the regular and systematic basis of employment applied to the engagement as much as to the hours of work.

2. The loaded rate plus the annual leave means there is 'double dipping'. The Court considered that the employer had erroneously presumed that the employee was a casual and so not entitled to payment of annual leave. Even if a loading was paid this is not a legitimate basis for construing an employee was not entitled to annual leave under the NES.

In a Nutshell

If employees do not have the "essence of casualness", determined by 'irregularity, uncertainty, unpredictability, intermittency, and discontinuity in the pattern of work', the employer may face claims that its employees are permanent employees (or permanent part time).

This may go to the High Court, or may even result in legislative change. However, it is also possible that it may result in compensation claims being made in the near future.

Actions to Take

1. Consider whether to convert casual employees (based on the "essence of casualness" test) to permanent part-time or full-time arrangements. Depending on the hours involved there may even be a saving in annual pay.

2. Show the payment of casual loadings separately from base pay rates, rather than as a combined loaded pay rate. This may result in holiday pay only being paid on basic rates and not the loaded rate (however, this is sure to be a matter for the High Court and so may be challenged).

We have maintained for some time that this problem was coming, either as a concern that casuals should be properly classified as permanent part-time (partly because employees have regular and set hours), and that there were savings possible by not paying at a loaded hourly rate. It may be months before a decision comes from the High Court, and so it could be advantageous to assume that a change should be considered now, not after a decision which may result in back pay.

If you would like to discuss the implications for your business or seek assistance in working through the actions required we would be happy to assist.

Are you in an Industry classed as High Risk?

Thu, 23 Aug 2018 23:00:00 GMT

Most people wouldn't know. That's not a criticism but a comment, because that information is not easy to find. You'd also ask why does it matter? Understanding the reasons why certain industries have 'bigger problems' may assist you in avoiding the common pitfalls, and to overcome finance difficulties.

The Top Five

The industries with the most liquidations are:

1. Building and construction

2. Accommodation and food services

3. Retailers

4. Transport and warehouses

5. Business services

(These were supplied by a specialist insolvency practitioner).

Building and construction

The problems of builders and subcontractors are well known, and usually well publicised. What are the key business risks?

- They pay for services and supplies before they are paid by their client. So if there is a dispute and the claim is unpaid or reduced, extra capital is required to continue funding the job or others. This often means some contractors are paid in priority to others, or the more important jobs receive priority

- It is a very competitive industry, resulting in underquoting and lower margins in order to win work, so there may be little or no profit. After retentions there may be no free capital to start a new job

- Because there is a high rate of failure, many are caught out by the failure of a major contractor, resulting in the failure of subcontractors and suppliers in turn

- Expansion can be too rapid, made worse if the builders have insufficient resources for growth

- Poor record keeping and financial management means problems may not be known about at an early stage

- QBCC monitors the industry and sets required liquidity ratios.

Accommodation and Food

Some of the key business risks in this industry are:

- High wages

- High rents or premises cost

- High vulnerability to economic cycles, and changing trends and preferences

- Excessive competition and discounting

- High set-up costs, low worth after just a couple of years.

Retailers

Key risks are:

- High award rates and penalties

- High rents and set-up costs

- Lower cost of online products

- Digital disruption and falling physical attendances

- Vulnerable to economic cycles, changing consumer trends and preferences, over-shopping (too many centres and outlets)

- Overly competitive nature of the industry.

Transport

Always has been seen as high risk, including:

- Extremely competitive, so underquoting and low margins. It can assist cash flow but means little profit.

- High overheads, especially fuel, wages and subcontractor costs, cost of premises

- Large capital investment and high interest on borrowings

- Poor financial management and record keeping.

Business Services

This includes all businesses providing services to either other businesses or customers.

It includes a wide range of businesses, so no single factor can be identified as a key risk. However, their issues are similar to the other major industries above; high wages, high cost of premises, changing cycles and trends, digital disruption and poor marketing practices, competition and discounting, and poor financial management.

Options and Solutions

You can see the key risks in each are broadly similar, so what could be done?

Before starting a business, prepare a plan and forecasts and allow for contingencies. If you are already operating, prepare forecasts for at least a year based on scenarios like slow, good, and average. Know your weekly breakeven, and what you have to do to obtain the results you want.

Financials and reporting are not just to pay the BAS and income tax. Prepare often using a competent and knowledgeable bookkeeper, monitor regularly, and compare to forecasts and benchmarks. If things don't feel right or there are signs of financial difficulty, please seek professional advice early .

Steps we would consider include:

- Consider the trends over time

- Compare to benchmarks

- Examine financial reports

- Prepare forecasts and KPI's

- Prepare a plan to turn things around, and the actions required

- Seek finance (if available)

- Improve reporting

- Regular monitoring and accountability.

If you have any questions, concerns or are struggling financially please call us. Hopefully, the solution(s) may be simple and not costly, certainly a small cost when compared to financial failure.

Hmm! Bitcoin?

Wed, 11 Jul 2018 23:00:00 GMT

I've had a number of calls about Bitcoin and cryptocurrencies. Is it taxed? Yes, under CGT. Can a SMSF own them? Doubtful, the Sole Purpose test may be failed. How much should I pay? (Insert deep and meaningful sigh).

It's not just that I'm grumpy or difficult but I'm somewhat concerned that so many well-meaning people keep telling me how wonderful cryptocurrencies are. I read the analysis from some of the smartest people in their field, and most seem to regard cryptos as hype (nicest word I could use).

Don't misunderstand me, I have read a lot on Distributed Ledger Technology (aka the Blockchain) and I can see how revolutionary and innovative it is, and how it is likely to disrupt many industries in the future. And, cryptocurrency is just one use of the Blockchain.

However, as a currency I have concerns. In fact, cryptocurrencies are primarily a medium of exchange which means to me they are likely to become regulated or controlled. Logically, why would governments want to miss out on some sort of fees or revenue? Once that happens the price is likely to fall. Joseph Stiglitz, who won a Nobel Prize in economics, said recently that "… you cannot have a means of payment based on secrecy when it is necessary to have a transparent banking system".

I can't see them as an investment either, the price is driven mostly by irrational speculation not any underlying value. We're still talking about the cryptocurrencies here, not the Blockchain, where I think there are some amazing inventions close to release. A few of the 1,400 odd cryptos may have an investible proposition, but perhaps their 'brands' are not as well known yet as Bitcoin.

Warren Buffet and his business partner Charlie Munger are not deniers but they fail to see how something like currency can be valued like a business. There is no underlying asset, so if price falls it is due to a factor of speculation rather than some change in the quality of the business or its assets.

Again, I defer to Buffet. His philosophy is basically that if it is too difficult to understand, then one should not invest in it.

Some months ago I read there were over 1,400 cryptocurrencies, and Bitcoin is no doubt the best known. Hacking is a constant risk and once enough problems, concerns, or bad publicity occurs, their 'industry' is likely to face regulation. And that may be enough to stop the market rising, or alternatively cause prices to plummet.

I recognise there are alternative views. Some people have made good profits (the early adopters to use marketing-speak), and there are opinions by other sources (eg., Winklevoss of Facebook, Krawisz of FX Empire) that Bitcoin particularly is on its way to domination of currency. One commentator said ordinary money will face 'hyperbitcoinization', which sounds terribly awful if you catch it (it's not in my Oxford Dictionary either, so I don't know what it really means).

My view at the moment is that the acquisition of cryptocurrencies is basically speculation, and so no investment should be for more than you can afford to lose. Any loss is a capital loss and would only offset against taxable capital gains, so there will not be an income tax benefit or saving.

What's Happening with Marketing?

Sun, 17 Jun 2018 23:00:00 GMT

OR, WHY DOESN'T OUR MARKETING WORK ANYMORE?

This is not about what types of marketing to do, or the '20 rules for a perfect website', or anything too deep or specialised. What I am talking about are the three relentless trends I see disrupting all marketing strategies.

1. People are Busy, with less time than ever before

Everyone has less time available, they're busier than ever. The result is that customers withdraw from a lot of activities that used to bring them into contact with vendors/professional services/suppliers/etc. They are less keen to 'discuss their needs', or attend meetings with us to see if there could be something useful to come out.

A few years ago, networking events (Chamber of Commerce, etc.) sometimes resulted in an encounter with a few interested people, perhaps not resulting in business right away, but worth a follow-up or two. It's rarely worth attending these meetings anymore; no time. (We also know from research it may need to be nine contacts now to get noticed; so certainly no time).

Offering these early discussion meetings, to these prospects, is less effective as a marketing approach. All the technology supposed to save us time has resulted in us 'working in, not on' the business.

2. People are Resistant, even Resentful, of being 'sold to'

Customers don't want to be pushed, rushed, or manipulated. A salesperson who tries to control the sale process is likely to find that is a sure way to lose the sale.

It means that cold calling and advertising that interrupts the customers and pushes the sale are both hard work and less effective.

Customers are in control of how they decide and buy, thank you to the internet, and that experience of control over the online buying process has made them expect it everywhere. Sellers who interrupt and manipulate find out pretty quickly those techniques just don't work anymore. Then, the only strategy left to them is price, which is hard if you have expensive rent and overheads.. For instance, look at Harvey Norman running almost continuous sales at low prices, to compete against Kogan, who is wholly online.

3. There is so much more Choice Available

More the visibility of choice, it's so easy to find what's available, what to ask for, price, terms, be reassured by testimonials, etc.

Perhaps only 20 years ago it was often a leap of faith to commit to a purchase, where you mainly relied on reputation or references. Then, guarantees became so vital, offering to fix the product or project until the customer was completely satisfied, or even to refund in full. It wasn't the creation of customer loyalty so much, but more that the other purchase options available then seemed far more risky to the buyer.

In many ways it is not about doing a good job, because that is expected by the customer, has made 'good work' even a basic commodity, and this is now not nearly enough to guarantee a sale.

These three forces , no time available, resistance to the sale process, and decreased loyalty, are major disruptions (like uber and taxis, amazon and retail, etc). On the face of it they look like big risks for the vendor.

But, they're also a huge opportunity too. Look at the marketing strategies of competitors, or the industry you are in, it's likely they're probably ineffective. That means if you can show how you are differentiated from your competitors and why customers should do business with you (emphasize the benefits and outcomes, not the features), identifying the strategies necessary to reach these prospects is not that difficult.

Important Changes to be aware of! (Wages & Super)

Mon, 04 Jun 2018 23:00:00 GMT

(And, some options to consider)

Wages

The minimum wage will increase by 3.5% from 1 July 2018, lifting weekly rates by around $24.30 to $719.20 per week (might vary slightly according to the applicable Award). The minimum wage is set at 60% of the median wage (statistically the "middle value of a series of values arranged by size").

The Fair Work president said the increase is not inflationary and unlikely to "have any measurable negative impact".

If this increase applies to your business you should also look at the effect it may have on your business and profit. Suppliers charges and expenses will be increased as it is not likely that both big and small business will be able to absorb the extra cost, and your own wages costs will also increase. There is a limit to cost cutting, so you need to consider increasing your prices.

If your present margin (gross profit over sales) is 35% and you increase prices by 4%, total sales could decline by 10% before your gross profit would be reduced. Alternatively, if your costs rise by 4%, you must increase sales by 13% in order to maintain the same gross profit margin of 35%. What this implies, and research supports, is that you are unlikely to lose 10% of your sales volume.

One easy (sort of!) way of discovering more profit is with a Profit Improvement meeting/plan. Amazing the difference an hour can make, to look at the combination of prices, margin, and costs over twelve or more months. It's worth it to have a meaningful goal and knowing how to achieve it, as well as for the peace of mind from having fewer problems and more cash. Call me if you'd like to know more on how this can be achieved.

Superannuation Amnesty

The government plans to introduce a 12 months amnesty for employers who have not met the superannuation guarantee requirements in the past. It is to apply from 24 May 2018 until 23 May 2019.

Various reports have estimated that up to a third of employers either fail to pay the 9.5% levy, or make mistakes in calculation and payment. The introduction of digital reporting and payment may have reduced this somewhat, but potentially there is still a big shortfall from prior years.

The legislation proposes:

- The employer can claim a tax deduction for payments of the SG amounts made during the amnesty period. (This is a huge concession, normally payments made late are not tax deductible).

- Certain penalties and fees that would otherwise apply in relation to historical SG non-compliance will be reduced to nil, such as the additional administrative components and penalties for failure to lodge SG statements on time.

To qualify for the amnesty, employers must make a voluntary disclosure during the amnesty period of an amount of SG shortfall and make payment of the SG amounts. An employer qualifies for the amnesty if it discloses in the approved form the SG shortfall, and the ATO has not before the disclosure informed the employer that it is examining its SG situation.

This is a major concession, especially where multiple years may be involved, for tax deductibility and reduction of penalties. Forms should soon be available, but no doubt it will be similar to the Quarterly SG Report. The ATO has been allocated additional funds to recover unpaid super and will likely target shortfalls in its audit activity, which would then be not deductible.

Please check past payments and if you believe there may have been a shortfall, consider applying during this amnesty. Remember, individual contractors can be covered by superannuation, as are company directors and casuals. Please contact us if you would like to discuss this concession.

Personal Superannuation Contributions 2017/18

Legislation has just passed that will allow personal superannuation contributions in 2017/18 as a deduction against salary and wage income. Previously, a taxpayer could not claim a deduction if more than 10% of his personal income was received from employment, and this condition is now removed as at 1 July 2017.

The conditions for deduction are:

- Maximum contribution for the year is $25,000 (including employer and other contributions, from all sources)

- Be under the age of 75, and meet the work test if between 65 and 74

- Paid to a complying fund before 30 June, and completion of a 'Notice of Intention to Claim' to the fund before the tax return is lodged.

Marketing and Profits

Wed, 02 May 2018 23:00:00 GMT

… or, The Mathematics of Profit.

Maths might be one of your pet hates, but I promise to keep it simple. (Secret – I'm not that fussed on it as a subject either).

Too many businesses confuse turnover/sales and profit. The basic formula is: Sales less cost of goods sold = Gross Profit. Simple! Turnover is a fact, nice to know, but doesn't really tell us much about how well the business is doing. Gross Profit (GP) tells us a lot more.

Gross Profit is Sales less all the variable costs (those which vary with volume of sales) of selling those goods, including buying the goods, freight in and manufacturing labour. The simple equation is:

Gross Profit = Number of Sales x (Sale Price – Unit Cost)

That's the Maths! Now we switch to marketing.

This formula indicates there are 4 ways to increase profit :

1. Increase the number of customers, or the number of times they buy, or the number of goods they buy (or a combination)

2. Increase the Price

3. Reduce the Cost of Goods Sold (buying price or manufactured cost)

4. A combination of the above.

Whatever combination of the above strategies, the primary focus is usually either about volume (selling more) or margin (improved prices).

A volume strategy is about marketing, getting more people through the door. Simple economics tells us that selling in volume is mostly achieved with lower prices. This doesn't work well for small business because SME's rarely have a cost advantage, or achieve economy of scale, or a unique process.

A margin strategy is focused around its competitive advantage or unique selling proposition or point of difference (essentially all the same thing) in a smaller or specialised niche. This suits small business; sell less but at higher margins, so profit is higher.

Let's look at an example:

A business sells 100 items at $10 (so Sales - $1,000), with a cost per unit of $6, so GP is $400 or 40%. Then:

a) It could reduce the price to $8, so unit sales increase to 150 and Sales are $1,200, costs are $900, and GP is $300 or 25%;

b) Or, increase prices to $12 with more effective marketing but unit sales decrease to 90, and Sales are $1,080, costs are $540, and GP is $540 or 50%. In this example, sales volume could even fall by about 20% and the same profit would be made as before.

Apple uses b) . It has about 15% of the market but earns 80% of the profit (I read last year its cost of manufacture is around $46 per unit). Customers buy into Apple's values and culture of innovation and are happy to pay its price and be part of that perception.

The maths means you do the sum for each strategy and choose the one that maximises the profit. The next step requires comprehensive marketing planning as to how the required result can be achieved in practice.

Any business can get its strategy right with these steps.

1. Choose the profit strategy that would seem to best suit your way of running the business.

2. Develop the marketing strategy to achieve that level of sales volume.

3. Finish off the Business Plan to make sure nothing critical is overlooked. (This is the Top Down Approach, or as Stephen Covey said 'Begin with the end in mind').

See, the maths isn't hard! If you want to maximise your profit, will you seek more customers, or put prices up, or reduce your costs (or do all of these strategies?). The order for doing thee could be:

1. Increase Prices (3% now, and 3% in 6 months)

2. Acquire more customers (marketing takes a few months to get the balance and message right).

3. Reduce Costs (ask for discounts from suppliers and even change suppliers if need be, reduce waste, etc.).

Do You Run Marathons?

Tue, 10 Apr 2018 23:00:00 GMT

Good for you! (Stop bragging).

Whether yes or no, there is a lesson to be learned from those who do when it comes to marketing yourself.

First a story. The Boston Marathon is coming up, on 16 April. This is one of the biggies on the marathon circuit. I occasionally email a marketer whose office is near the start in Hopkinton, and he says eventually nearly everyone local decides to give it a try (although he hasn't).

He says you can't help but bump into someone who has decided to run, at least once anyway. All they want to talk about is their training regimen, how much they eat, sleep, run, how they warm up or cool down, the clothes they wear, shoes they prefer.

Sometimes though, rarely, there'll be an answer that's soooo laid back "Oh no, no training, sometimes I have a bit of a run if I feel like it." Yep, know someone like this, just enters and guts' it out.

However, the message is that most runners have a system and all of them have a level of commitment that almost guarantees they'll be on the start line.

Interestingly, relationship marketing is like training for a marathon, it also requires both a System and a Commitment. (You just knew I'd eventually get to the point.)

Here as well, the results won't be as great if the process/system amounts to simply doing what you feel like when time allows and when the spirit moves you.

That's the bad news : you need a system and you have to keep doing it, and unlike the marathon, it never ends.

The good news though, is that it's really not that hard. In fact, if you do it right, you won't even break into a sweat.

Try this (system):

1. Compile all contacts into one list , eg., could be in Excel, note cards, 'Contractually' (cost $69 a month). The technology doesn't matter; you just need a way to keep track of who your contacts are and when you last connected.

'Contacts' are not only clients and prospects, but includes people who would recognise your call.

2. Contact a tiny portion of the list every day.

Two or three a day … enough so that you go through the list a few times a year. This is not to sell or promote anything, just to connect and keep the relationship alive.

That's it. Could you do more? Sure.

You could also do a newsletter (with interesting content), go to networking meetings (formal, but effective), send hand written snail-mail notes ('thank you's', articles of interest), post on social media (useful stuff, not how cute your breakfast, or the server, was), and on and on.

If you're not marketing yourself now, the place to start is always with the people you already know . These are the people who are most likely to talk about you, help you, recommend and engage you. Keep these relationships alive before you go off looking for new connections.

Here's the bottom line (for those who skipped the excellent content above – shame on you). Relationship marketing isn't hard and it doesn't take a lot of time. But, it does require a system and a commitment to showing up, day after day. If you don't have both, the result will be a bit blaah, so if you don't need new business you won't even need to lace up your shoes.

Article FBT 2018

Tue, 13 Mar 2018 22:00:00 GMT

The Fringe Benefits Tax (FBT) year ends on 31 March. We've outlined the key hot spots for employers and employees.

- Motor vehicles – using the company car outside of work

- New safe harbour for utes and commercial vehicles

- Car parking – are you really declaring the true cost of parking?

- The living away from home allowance – the common errors

- Salary sacrifice or employee contribution – where employers are getting it wrong

- Housekeeping essentials – FBT rates and how to save some time

- Not registered for FBT – the areas where the ATO's view might differ

- Crackdown on salary sacrifice calculations

Motor Vehicles – using the company car outside of work

Just because your business buys a motor vehicle and it is used as a work vehicle, that alone does not mean that the car is exempt from FBT. If you use the car for private purposes - pick the kids up from school, do the shopping, use it freely on weekends, garage it at home, your spouse uses it - FBT is likely to apply. While we're sure the old, "what the Australian Tax Office (ATO) doesn't know won't hurt them" mentality often applies when the FBT returns are completed, it might not be enough. The private use of work vehicles is firmly in the sites of the ATO.

Private use is when you use a car provided by your employer (this includes directors) outside of simply travelling for work related purposes.

If the work vehicle is garaged at or near your home, even if only for security reasons, it is taken to be available for private use regardless of whether or not you have permission to use the car privately. Similarly, where the place of employment and residence are the same, the car is taken to be available for the private use of the employee.

Finding out that a car has been used for non work-related purposes is not that difficult. Often, the odometer readings don't match the work schedule of the business. These are areas the ATO will be looking at.

Utes and commercial vehicles – the new safe harbour to avoid FBT

When an employer provides an employee with the use of a car or other vehicle then this would generally be treated as a car fringe benefit or residual fringe benefit and could potentially trigger an FBT liability.

However, the FBT Act contains some exemptions which can apply in situations where certain vehicles (utes and other commercial vehicles for example) are provided and the private use of the vehicles is limited to work-related travel, and other private use that is 'minor, infrequent and irregular'.

One of the practical challenges when applying the exemption is how to determine if private use has been minor, infrequent and irregular. The ATO recently released a compliance guide that spells out what the regulator will look for when reviewing the use of the exemption.

The ATO has indicated that in general, private use by an employee will qualify for the exemption where:

• The employer provides an eligible vehicle to the employee to perform their work duties. An eligible vehicle is generally a commercial vehicle or one that is not designed mainly for carrying passengers. The requirements are very strict and guidance on this is published on the ATO website .

• The employer takes reasonable steps to limit private use and they have measures in place to monitor this – this might be a policy on the private use of vehicles that is monitored using odometer readings to compare business kilometres and home to work kilometres travelled by the employee against the total kilometres travelled.

• The vehicle has no non-business accessories – for example a child safety seat.

• The value of the vehicle when it was acquired was less than the luxury car tax threshold ($75,526 for fuel efficient vehicles in 2017-18 and $65,094 for other vehicles).

• The vehicle is not provided as part of a salary sacrifice arrangement; and

• The employee uses the vehicle to travel between their home and their place of work and any diversion adds no more than two kilometres to the ordinary length of that trip, they travel no more than 750 km in total for each FBT year for multiple journeys taken for a wholly private purpose and, no single, return journey for a wholly private purpose exceeds 200 km.

If you meet all these specifications, the ATO has stated that it will not investigate the use of the FBT exemption further. However, the employer will still need to keep records to prove that the conditions above have been satisfied and to show that private use is restricted and monitored.

If these conditions are not met then this doesn't necessarily prevent the exemption from applying, but you can expect that the ATO would devote more time and resources in checking whether the conditions have actually been met. Employers who do not take active steps to check the way commercial vehicles are being used are at high risk of significant FBT liabilities.

Car parking

We all know how expensive commercial car parks can be. The ATO has noticed that where car parking benefits are being declared (that is, where an employer provides parking to an employee), the value of what is being declared is significantly less than what you would expect to pay.

Common errors include:

- Market valuations that are significantly less than the fees charged for parking within a one kilometre radius of the premises on which the car is parked;

- Using parking rates or facilities not readily identifiable as a commercial parking station;

- Rates charged for monthly parking on properties purchased for future development that do not have any car parking infrastructure; and

- Insufficient evidence to support the rates used as the lowest fee charged for all day parking by a commercial parking station.

Living away from home allowances

Living Away From Home Allowances (LAFHA) continue to cause confusion for both employers and employees.

A LAFHA is an allowance paid to an employee by their employer to compensate for additional non-deductible expenses they incur, and any disadvantages suffered, because the employee's job requires them to live away from their normal residence.

As a starting point, FBT applies to the full amount of the allowance that has been paid. However, if certain strict conditions can be satisfied the taxable value of the LAFHA fringe benefit can be reduced by the exempt accommodation and/or food component.

Common errors include:

• Mischaracterising an employee as living away from home when they are really just travelling in the course of their work. The ATO has released updated guidance in this area in TR 2017/D6 .

• Failing to obtain the declarations required from employees who have been provided with a LAFHA.

• Claiming a reduction in the taxable value of the LAFHA benefit for exempt accommodation and food components in circumstances that don't meet the criteria.

• Failing to substantiate accommodation expenses and, where required, food or drink. Verifying accommodation expenses is important as the ATO will look closely for scenarios where employees are paid an allowance but go and stay with friends or relatives or stay somewhere cheaper and pocket the difference. The expense actually has to be incurred and substantiated.

Salary sacrifice or employee contribution?

One issue that frequently causes confusion is the difference between the employee salary sacrificing in order to receive a fringe benefit and making an employee contribution towards the value of that fringe benefit.

Salary sacrificing for a fringe benefit

To be an effective salary sacrifice arrangement (SSA), the agreement must be entered into before the employee becomes entitled to the income (e.g., before the period in which they start to perform the services that will result in the payment of salary etc.).

Where an employee has salary sacrificed on a pre-tax basis towards the fringe benefit provided – laptop, car, etc., they have agreed to give up a portion of their gross salary on a pre-tax basis and receive the relevant fringe benefit instead.

As a starting point, the taxable value of the fringe benefit is the full value of the expense paid by the employer. The salary sacrifice arrangement doesn't actually reduce the FBT liability for the employer.

The employer recognises a lower cost of salary and wages provided to the employee as their 'cost saving', which results in lower PAYG withholding and superannuation contribution obligations, but they still recognise the full value of the fringe benefit as part of their taxable fringe benefit which is subject to FBT.

The employee recognises that they have a reduced amount of salary and wages, and a non-cash benefit in the form of the fringe benefit.

What is an employee contribution?

An employee contribution is made from post-tax income and will often form part of arrangements relating to car fringe benefits. The employee recognises the gross salary and wages as income in their tax return. However, the payment of an after-tax employee contribution would generally have the effect of reducing the taxable value of the fringe benefit that was provided to them by the employer.

The employer would still be subject to the 'standard' PAYG withholding and superannuation contribution obligations in relation to the gross salary and wages amount.

The ATO is looking for discrepancies with contributions paid by an employee to ensure that these have been treated consistently for income tax and GST purposes as well as on the FBT return. This is really an issue for the employer and a discrepancy may mean that there is an FBT exposure or that the employer has paid less GST or income tax than what they should have.

Housekeeping

If your business has cars and you need to record odometer readings at the first and last days of the FBT year (31 March and 1 April), have your team take a photo on their phone and email it through to a central contact person – it will save running around to every car.

FBT rate change

The FBT rate decreased on 1 April 2017 when the 2% debt tax on high income earners ended on (Temporary Budget Repair Levy) 30 June 2017. The FBT rate was brought into line with the Debt Tax to discourage high income earners from using the FBT system to lower their taxable income.

Remember to review salary packaging arrangements to ensure they remain effective.

Should I be registered for FBT?

If you have employees (including Directors of a company) then it's possible your business needs to register for FBT. Generally, your business needs to register for FBT if you are providing any benefits to employees that are not exempt from FBT. So, if you provide cars, car spaces, reimburse private (not business) expenses, provide entertainment (food and drink), employee discounts etc., then you are likely to be providing a fringe benefit.

There is a list of exemptions that are considered exempt from FBT, such as portable electronic devices like laptops and iPads (although there are rules around how many), protective clothing, tools of trade etc. If your business only provides these exempt items, or items that are infrequent and valued under $300, then you are unlikely to have to worry about FBT.

Crackdown on salary sacrifice calculations

A loophole in the superannuation guarantee legislation allows unscrupulous employers to reduce their superannuation guarantee (SG) obligations when employees salary sacrifice contributions into superannuation. The loophole occurs when employers calculate SG on the post salary sacrifice earnings base. This method of calculation may reduce the contribution being made by the employee.

Legislation currently before Parliament will prevent contributions made as part of a salary sacrifice arrangement from satisfying an employer's SG obligations by specifically including salary sacrificed superannuation in the base for calculating an employer's SG obligations.

Do You Need to Lodge Fringe Benefits or Single Touch Payroll?

Thu, 08 Mar 2018 22:00:00 GMT

You may not be affected by either of these (yet), but it pays to be aware of obligations. This is a reminder of two ATO matters coming up; lodging payroll data electronically to the ATO, and fringe benefits tax. If you claim an expense covered by FBT (eg., cars, parking, entertainment) tax may be payable on the value of the benefit. It is quite simple to determine, but returns can be complicated.

Single Touch Payroll (STP)

From 1 July 2018 employers with 20 or more staff (inclusive of casuals – it's determined by headcount) are required to attend to payroll functions electronically. All pay information has to be sent electronically to the ATO each pay run. This direct connection to the ATO means all payroll systems need to be upgraded.

As the ATO then has all employment information, employers benefit because payment summaries and TFN forms will be eliminated. However, the ATO can also quickly follow up that super is paid, and tax and welfare fraud will be reduced because all employees must have a MyGov account.

If you have less than 15 people on 1 April 2018 you do not have to use STP until 1 July 2019. But, start thinking about it now. It is not a straight forward process and quite a bit of preparation is needed. We have a Payroll Checklist to help you with preparation by 1 July 2018. (Just call and we'll send you a copy).

Remember also that the number of employees makes you a medium sized business, so you also need to consider other employment issues like compliance with Awards, payroll tax (due monthly), fringe benefits tax (due from 1/4/18), WorkCover, employee or contractors classification, and superannuation. You may also need to look at upgrading your computer hardware and software. If you're not certain about any of these matters we'd be happy to help or refer you to reliable suppliers. Note – even if you're not a bigger business, it may be worth your while to review these issues before there is a need to.

Fringe Benefits Tax (FBT)

Just a reminder that businesses are required to submit FBT returns by 31 May 2018 for the 12 months 1 April 2017 to 31 March 2018.

FBT is not well understood and it is an area of concern for the ATO so it plans to audit more business income tax returns this year, particularly where an employer has not lodged an FBT return. The major areas of FBT concern are:

- private use of cars (log books required every 5 years)

- private use of commercial vehicles (log book of private use)

- entertainment

- living away from home allowances

- car parking costs

We are currently preparing Questionnaires and Instructions. The replies determine whether FBT returns are required. This tax is not one you can ignore nor opt-out of, so a reply will be required. If there is an ATO audit in the future, the Questionnaire should be sufficient to show that a return was not necessary this year.

What Next?

- If less than 15 employees on 1 April, STP is not required this year (but start planning for next year)

- When our FBT Questionnaire is sent to you, set aside some time to answer the questions (we're hopeful few will have to register, we consider as we do tax returns how to avoid FBT).

FBT and Private Use of Commercial Vehicles

Tue, 13 Feb 2018 22:00:00 GMT

Generally, a fringe benefit arises where a business or employer makes a vehicle available to an employee for private use. However, it may be an exempt benefit if the employer limits the use to work-related travel and private use that is 'minor, infrequent and irregular'.

The Tax Office says its experience shows inconsistent methods are used by FBT taxpayers and 'to reduce compliance costs' a draft Guideline explains what it regards as private use for purpose of the car-related exemptions. This applies to vehicle benefits provided from April 2017 to 31 March 2018.

This is usually an ongoing problem for fleet vehicles, that is, when is a private benefit provided? The Guideline particularly relates to commercial vehicles, like Utes or vehicles carrying less than 1 tonne because the common salesman myth is that 'all utes are FBT free'.

The draft Guideline can be relied on each year if you are claiming that private use of the vehicle (car, ute, etc) was in these circumstances:

- a car/ute/less than 1 tonne vehicle was provided to an employee to perform his work duties

- the employer takes reasonable steps to limit private use of the vehicle and has measures in place to monitor such use (a daily log book or diary, odometer reading on 30 June every year and compare to expected home to work travel)

- the vehicle has no non-business accessories fitted

- the GST-inclusive value at acquisition date is under $57,581 (luxury car limit)

- the employer only uses the vehicle to travel between home and work and any diversion adds no more than 2km to the usual length of that trip

- no more than 750km for each FBT year for all private usage

- no single journey for a wholly private purpose exceeds 200km

What this means is that a log book, required to be kept for 12 weeks in the first year still needs to be kept, and may be suitable to calculate a claim for business and private use. Additionally, it will also be necessary where it is claimed that any private use is "minor or infrequent" (where the vehicle is a ute or a commercial vehicle carrying less than 1 tonne) that there are records kept throughout the year of private use, as set out in the Guideline.

I am not sure how you can keep these records for the last year when the Guideline was only issued this month, but will be retrospective to 1 April 2017. Perhaps this is a case-by-case matter – call me if you're out of ideas.

The Blockchain Thing - and Tax

Tue, 06 Feb 2018 22:00:00 GMT

Blockchain is the technology behind bitcoin and other cryptocurrencies. The essential benefit will be the disruption it will bring to industry. For example, the ASX is preparing to use blockchain to replace its Chess system (and eliminate brokers), Banks are looking to reduce documentation and service levels (no comment!), and it will reduce the need for solicitors and conveyancers.

This does not deal with trading in digital currencies, we leave that to others to comment, but the tax concerns.

Cryptocurrencies (CC's) are just one use of the blockchain, there are at least several others. And, naturally, these have attracted the attention of the tax office. The ATO says that digital currencies, there are over 1,300 now, are a "form of property".

ATO opinion is that any financial gain from the purchase and sale of CC's are subject to Capital Gains Tax. (Note: there must be a purchase and sale, fluctuations in value are not income). That means if the contracts for purchase and sale are dated within 12 months, 100% of the profit is taxed at the taxpayer's marginal tax rate (taxable income in excess of $87,000 is taxed at 40%), and if sold beyond 12 months, only 50% of the profit is taxed.

However, it is possible that the courts may see cryptocurrency investors as speculators who purchase "with the intention of profit making by sale", and so gains would be fully taxed as income, even if held longer than 12 months. One argument is that CC's do not provide a regular dividend and there is also no underlying backing or value, price is driven essentially by supply and demand and most recently has largely been driven by the 'fear of missing out'.

It is also possible to speculate on how a loss would be treated. It is doubtful that the taxpayer would be a trader unless there is a large volume of trades, so a loss would not be deductible against other income. That means it is likely to be treated as a capital loss and can only be offset against a capital gain, in the current year, or carried forward to a following year.

There is also an opinion from senior counsel that CC's should not be owned by an SMSF because this would cause the Fund to fail the 'sole purpose test' (providing for retirement). This would certainly be true if there was any personal expenditure of the CC while in the name of the Fund.

At this time, there is no definitive answer on taxing bitcoin, or other Coins. A tax Ruling could be delivered in the next few months. Even if there is no Ruling before the next tax return is due, the profit should be included in the return. If not, a penalty, perhaps 50% to 100% of the tax could be imposed, even if the law is unclear and presently a grey area.

Better Conditions Ahead but also Clever Scams

Sun, 21 Jan 2018 22:00:00 GMT

Welcome to 2018! To set the tone for the year I'd like to consider 3 issues, and show how they fit together.

Consumer & Business Confidence

Consumer confidence is at a 4 year high (best since 2013). (Westpac - Melbourne Institute) . Business confidence is on the rise too (Roy Morgan) . And why wouldn't confidence be high? House prices are holding, interest rates are low, official unemployment rates are low, and stock prices are strong (good for superannuation returns).

These are encouraging, and there are several positive factors driving the numbers. For business though, will this sentiment translate into consumer spending? It's up to businesses to provide the best offerings to win over hearts and wallets. Good products and service are always key to attracting customers, but in the end, spending will be contingent on family finances, and Confidence Indices can be useful for predicting future demand and determining business strategy.

Scams

Totally Workwear in Brisbane just lost $76,000. Scammers infiltrated their accounting system and changed the banking details on a number of their suppliers so the remittances went to the scammer's account. Luckily, TW was covered by insurance, otherwise there was no chance of recovery. The banks are not responsible, the major fault is the customer's system (however, did the banks have proper ID checks to open an account for the scammer?).

The ATO has put out another notice advising of more scams/fake messages purporting to be from the ATO. Some aren't a scam but if they ask you to 'urgently' download something or clink a link, it is likely to result in the download of malware, which could lock up your computer (requires a payment in Bitcoin to release, but no certainty it will happen) or instal malicious software. The ATO has a special area on its web site for 'Scam Alerts'. Check here if uncertain:

https://www.ato.gov.au/General/Online-services/Identity-security/Scam-alerts/

CryptoCurrencies (CC)

I can't do justice to this subject in just a couple of paragraphs. CC's have had an astounding run lately in recognition and price. However, CC's are just one part of the Blockchain (which seems to be amazing technology and likely to cause great disruption in many industries).

The point here is that trading in BitCoin and any of the other 1,100 odd CC's is certainly taxable (tax is based on purchase and sale contracts, not growth in value) and seems at this time to be essentially speculative (prices appear to be based on supply and demand and even fear-of-missing-out, not the underlying business proposition of the Coin issuer).

I have read of a number of scams and failures in this area already, it is so unregulated it has to be a prime target. It's not possible to change the blockchain record (I've read that the system behind distributed technology is reliable and one of the key points of competitive advantage), but the risks seem to be around the settlements and exchanges. Know what you're doing and who you're dealing with.

The broad message is that confidence is the best it has been for some years and this should be good for business this year. But always be alert for scams and malicious software, check everything, arrange insurance, back-up computer files. The grubs will certainly be seeking to take advantage of better conditions.

The Paradox of Business Growth

Mon, 11 Dec 2017 22:00:00 GMT

The Growth Paradox is annoyingly simple. It is the belief that as you grow a business and take on more clients, team members and business systems that things should get easier. (Note " should "!) What happens is that things will get more complicated/difficult/harder (choose one, or all!).

Why? Consider the numbers. Just one team member, one key product, perhaps only one client. Now, make it ten or many of each and suddenly the interrelationships become enormous.

This complexity is like an anchor, holding you back. Many owners give up because the pressure to slow down is more than the pressure to expand. Even perhaps 'paralysis by analysis'!

The solution is to focus on these three fundamentals:

1. Leadership (for the vision) and Strategy (how will we get there)

2. Effective Marketing (how do we sell more stuff to people at the right prices)

3. The Team : the right people doing the right jobs the right way (scalable infrastructure).

What are the main steps?

1. Get your accounts in order, accurate financials are essential, and ensure your understand what they mean

2. Where do you want the business to be (goals for 90 days, 1 yr, 5 yrs)

3. How could those goals be achieved (4 or 5 key strategies that will lead to more sales, better margins, lower costs)

4. Decide which marketing will be effective (online and other/offline)

5. Model the Plan (Forecasts of Profits and Cash)

6. How will progress be measured (key indicators)

7. Get the right structure, systems, and people

8. Ensure finances are in order, and/or arrange loans.

A study earlier this year showed that entrepreneurship increases quality of life significantly more when compared with staying in the same job. Yet, switching to entrepreneurship meant, on average, a significant reduction of income. Remember Michael Gerber's "Work ON the business, not IN it".

Deciding to succeed and to grow require the same fundamentals, which have never changed. Thinking through the ramifications of success isn't just about being optimistic or hoping things work out. You can make it happen! If you're looking for a better year next year, would you like some help around the process or the numbers?

A few doubts on the Qld Election promises

Wed, 22 Nov 2017 22:00:00 GMT

I can't let this election pass without some comment. Not on the candidates or the parties or promises or debt (although Queensland has the biggest State debt now). I'll stick to jobs, because both the majors assert they are the best at job creation, although the numbers don't support the promises.

Statistics tell us regional unemployment is higher than in the south east corner. Research shows that big projects, like coal mines and roads, bring only a temporary boost to employment and do little for skill training or building bigger local small businesses. Same comment applies to the cross river rail bridge too.

Unemployment Numbers

1. Over 40,000 people are unemployed in the eleven Queensland regions, an official unemployment rate of 7.2%. Just 1,200 new jobs have been created in these regions in the last five years.

2. Around 100,000 are unemployed in SEQ, an unemployment rate of 5.8%. Around 86,500 new jobs were created in SEQ, and I believe around 50% of these were in the public service.

We have heard forecasts from all Parties this month of 188,000 new jobs for Qld, of which 75% will be in SEQ. This sounds optimistic, but let's see if it is supportable, or just like Homer Simpson who said "84.6% of statistics are made up".

Businesses

3. In the last Survey, Qld had almost 425,000 businesses. Of these, 61% employed no other person (sole operators), 27% employed between 1 and 4 people, and only 613 businesses employed more than 200 people.

4. If we look at the types of businesses in Qld, construction comprises 73,000 or 17% of the total, real estate is 50,000 or 12%, and insurance and financial services has 35,000 or 8%.

That is, 37% could benefit directly or the most from new construction projects.

Incomes

5. The median (50% of numbers are above this and 50% below) household income in regional Qld is $67,500 and it's $80,000 in the SE corner.

6. Over the next few years, perhaps 10% of new jobs in the regions will be higher paying jobs, and around 75% in lower paying positions. In SEQ, over 50% could be expected to exceed the median income.

The "Projects"

There will certainly be businesses that will benefit directly from new construction, and there could be increased incomes from them too (the ones mentioned by the Premier are heavily unionised so no doubt there will be higher pay even before they start).

No surprise then that the projects announced are larger than the average. But, no doubt there must be a lot more debt for the Government in providing the start-up assistance. There are never any explanations given for the huge (read incredible) economic and social benefits promised, and the estimates of budget and costs just don't stand up to examination, assuming you can get access to the detail.

Finally

I don't know if you ever watched an ABC series called "Utopia". It was about a Federal government department that was supposed to identify big projects for the nation, but nothing ever happened apart from wasting of public money and photo opportunities for politicians. Hmmmm!

Queensland largely has small businesses, and many of the people have limited or smaller incomes. The outlook promised is more than questionable, especially regarding income growth, or better paid occupations, or number of jobs.

This is not a rant against mining, or resources, or building more empty buildings. Why can't Queensland take control of projects that will have better payoffs, and not allow foreign residents to control state infrastructure yet demand taxpayer subsidies for their (probably very profitable) projects?

Much of the argument I have heard from politicians asserts that the boom times will continue, there can be no bust while they are in control because big projects have such incredible benefits, more debt will improve everything (didn't work for John Keynes in the depression though!), and the other lot are probably worse than the speakers' mob.

For me, small business needs to be encouraged and allowed to flourish, which will create more jobs and better incomes. Big projects are just pie in the sky for most businesses and workers.

I really doubt the voters are as stupid as the politicians think, so it is possible there could be a large protest vote in this State election, and probably also for the next Federal election.

Need More Working Capital? No Property?

Tue, 21 Nov 2017 22:00:00 GMT

Understanding working capital needs is one of the keys to unlocking the growth potential of a business (forecasts of profits and cash are also important) but being able to access enough working capital can be tricky. Traditional lenders want security, preferably property, to secure a business loan, so if property is not available, SME's can be locked out of finance. But, there are solutions!

What exactly is Working Capital?

The working capital of a business is calculated by deducting its current liabilities (amounts payable within 12 months - including accounts payable, accruals, taxes, loan repayments, etc) from its current assets (stock, accounts receivable, bank and cash). It is a measure of efficiency and short-term financial health; in monetary terms it shows how much free cash a business has to meet its regular operating costs.

It is often shown as a ratio: current assets divided by current liabilities. A ratio of 1.0 to 1.0 means the business should be able to adequately meet all of its short-term obligations. However, most analysts (lenders) will want to see this number slightly higher (say 1.2 to 2.0) which shows a cash cushion against unexpected costs and funds for reinvestment of growth. A ratio below 1.0 can indicate current assets are insufficient to cover short-term costs, so more cash is required to bridge the time between debtor collections and payments to suppliers and for cost.

Is this New or Common?

SME's are under increasing pressure. Some recent research:

1. XERO found in most months that about half of all small businesses are cash flow negative, where more money leaves the business than it receives.

2. Cash flow is particularly difficult from late December to February (holiday pays, superannuation, tax payments, the holiday period shutdown, supplier payments for additional stock needed, etc.).

3. Digital Finance Analytics' survey showed the average debtor collection period exceeds 60 days, and this has been rising each year.

4. Around 66% of SME's don't have sufficient equity in property, and 57% of SME's would seek more working capital if they could.

5. Unsecured loan applications have a 74% rejection rate from major lenders, up from 67% last year.

6. The biggest 'cause' of bankruptcies in the last financial year was ATO applications.

When to get a Working Capital Loan

These loans are not for investments, expansion, refinance, or long-term asset acquisition, but rather to cover short-term needs like covering accounts payable, wages, tax payments, seasonal needs, quieter sales cycles. Examples are:

- To Pay Employees

During quieter periods, cash for wages, superannuation, holiday pays, or perhaps long service leave or a redundancy.

- Short Term Inventory

Extra stock for an anticipated busy season, a special offer or larger than usual stock buy.

- Operational Costs in Quiet Times

Collections from debtors may be slow during quiet times, so additional cash may be needed to meet everyday expenses.

- Tax Payments

Catch up on Super or PAYG Withholding (Directors have personal liability for these so pay these first), pay GST, PAYG Instalments, and Income tax.

- Busy Times / Slow Debtor Collections

The cash flow cycle (time from purchase of stock to sale and finally collection) can increase if accounts receivable are delayed, so additional funds may be needed for supplier payments.

Cash Flow Lenders - Terms

There are many lenders besides the Banks, and they don't require traditional security like property. The advantages are:

- Short time between application and settlement (just days)

- Flexible in both loan terms and funding amounts (usually $25,000 to $250,000)

- No hidden costs, reasonable interest rates

Loans (roughly) are calculated as the average of 1 month's turnover in a six month period.

Because the borrowings are not for acquisition of long-term assets, repayment terms tend to be shorter (generally, from 3 months up to 3 years).

Requirements

Lenders have an algorithm that they use to determine repayability and the possible amount available. However, this is the process we work through to assist clients with an application.

1. Make sure this is the sort of loan you need, (perhaps trade finance may be more suitable to buy or import inventory and manufacture, or buy in larger quantities; or a line of credit for stock acquisition; or factoring of accounts receivable).

2. Ensure financials are reasonably up to date, and bank statements for up to 12 months are available.

3. Prepare a Forecast of Profits and Cash for a year, to help determine your overall needs. (see 1)

4. Requirements include ABN, in business for a year (this can vary), average monthly sales consistent with the loan needed.

5. Develop a Strategy/Plan to manage working capital going forward, and retire debt.

Happy to talk about unsecured loans, just call or email me.

Thinking About Interest Rates?

Thu, 09 Nov 2017 22:00:00 GMT

The cash rate didn't change at the Reserve meeting on Tuesday. Banks make billions in profit, apparently more when interest rates are low. So, what will happen next?

Text books say that a neutral interest rate setting is when the yield curve is at 0.05% (when long term rates are higher than short term rates). When the official rate is above this difference, interest rates are likely to rise, and when below, the cash rate is likely to remain stable or even fall.

A Yield Curve plotted for short term (2 year bond rate minus the 90 day bill rate), medium (5 year outlook), and long term is very interesting (no, I don't get out much). The only one I could find is Copyright, so I can't include it here.

However, what it shows is that long term rates may be about to rise. The official explanation is that trade balances, various crises, government support for the economy, etc., are inflationary. I don't quite get it, but there it is. ( PS : I also don't understand that if debt is bad for an economy, how more debt is good). But, read on!

The medium term view is subdued, largely falling just below the 0.5% level, and suggests there should be little change in these official rates. Any rise could therefore be minimal.

Short term rates though suggest steady rates and very possibly a reduction in official rates . I say 'official' rates, which are set by the RBA, the banks set their own rates based on the cost of capital.

Impinging on RBA thinking are factors such as inflation (still below the preferred 2% to 3% target range), low wage growth, low employment growth (part time and casual is becoming the norm, and they say they are not getting enough hours anyway), high personal debt levels, and concerns about 'the economy' (low savings, risk in investment, and frequent changes to superannuation). I think you could also add no faith in the political parties to be responsible or achieve anything (apart from spend more money that they don't have on dreams which they hope will keep them elected). Perhaps a tad cynical?

I read a quote recently by a respected commentator, who sums this up as under:

"Debt is consumption brought forward. Growth is the assumption that consumption will continue to increase. So, something has to give (to keep the treadmill going), and for me that will be interest rates".

So, what to make of this? The economy could become far more challenging next year and with no high growth sector to lead it out of a possible recession, interest rates may need to be reduced for stimulation (whatever turns you on!), probably resulting in a resurgence in the building sector from 2020 through to say 2025. If interest rates are reduced early next year, a sharp downturn may even be avoided, (and don't forget there's a federal election in 2019).

How do you Differentiate?

Mon, 23 Oct 2017 22:00:00 GMT

This is the factor that makes you stand out from the crowd. However, because most of us operate in mature markets, that can be really, really difficult.

To stand out in a market, you have to promise a core benefit. That usually means 'we're cheaper', or 'ours are better', or perhaps 'our service is good'. Wow! All good reasons why you'd want to do business with them, and so unique! (Sarcasm's over now).

There are three ways to differentiate, and in most businesses only one will work . It is possible to differentiate only on price, on quality, or on service. Let's look at each one.

Differentiating on Price can be a losing battle

If your prices are lower than your competitors, the customers are likely to flock to you! What usually happens though is you end up in a price war, so the winner will be the one with the deepest pockets. Look at the supermarkets, liquor outlets, airlines, hotels, hire cars, etc. So … Wrong! Price is not a great differentiator. (Looked it up; yep, it's a proper word!)

Differentiating on Quality can work (but mostly doesn't)

A superior product does not guarantee that customers will come only to you for it. However, goods can be replicated easily and the copier can likely deliver at a much lower cost (lower development cost) and retail price. Works for some (Ferrari, Rolex, Versace) but it's best not to compete on this strategy.

Service is a great way to differentiate

Think Richard Branson. A few flops in his record of business, over 100 in which he's involved but service is always outstanding, even amazing.

He selects high demand, high margin industries where the service is terrible and provides amazing service at reasonable prices. So can it be that simple; just provide awesome/great/or even just better, service?

Why do businesses fail at service?

It means being more than just nice, too many businesses can't even do that. Two things (only two?) go wrong:

1. You can't go from woeful to wonderful on one leap. It takes time to develop your standards, train, and build consistency.

2. Sometimes you can change the layout or décor, but 'fancy before fundamentals' usually won't work.

Here's one way to do it right:

1. Know what the two or three critical service factors are – from the viewpoint of your customers (ask them what they like about you, over a few days). It could be the speed of service, cleanliness of premises, staff attitude, the way their questions are answered, or even something else.

2. Once you're pretty sure what these factors are, deliver on them 100% of the time. No exceptions, no failures. If there are, over-compensate as fast as you can.

3. After you're sure consistency is right, find ways to surprise and delight your customers. People want to feel special and they'll be delighted why this treatment is happening to them, resulting in referrals for you.

Beware of "Phishing" - financial fraud

Tue, 19 Sep 2017 23:00:00 GMT

I know we just sent you a Blog, but there is another problem that needs to be brought to your attention; financial fraud.

Phishing scams are more prevalent, so it pays to know a bit more about them and how you can protect your business. At my networking meeting this week, almost everyone had been targetted, and some know associates who had lost a lot of money to pretty clever scammers.

It could start off as a scammer asking you to confirm personal details (how did they get them anyway?), or to alert you to suspicious activity on your credit card. He (always a he) may quote your credit card but ask you to quote the 3 or 4 digit on the back of the card 'to verify code' (then they'll run up purchases of several thousand dollars in a couple of hours). Subsequently the poor supplier will then have the sale cancelled and the funds recovered by the credit card supplier.

Phishing attacks are designed to look/sound genuine, it can involve very official-looking emails with instructions or perhaps which direct you to a website that looks very similar to the actual/true website.

How to Identify a Scam

Signs include:

- Some form of communication to 'update or verify personal details'

- The website you are directed to appears slightly different, and/or the URL address is slightly changed eg., the authentic address is www.realbank.com.au , but the scammers is www.real-bank.com.au .

- The communication is too generic in that it does not refer to your name or account details, and includes stilted wording, or grammatical errors and misspellings.

- Another version targets business owners or people in charge of finance. The scammer sends a personal email to a particular senior person, and may refer to a crucial problem (legal issues, or complaints, or an urgent purchase). It could direct you to a website or ask you to download a file, or request a password or request payment to a supplier you use (they may know you purchase from www.Smith&Co.com.au and direct you to www.Smith&Co.com ). If they send you a file, or a .zip file, don't open it as it may contain malware or ransomware.

Characteristics to Look For

- An email that is 'urgent' and refers to legal issues, complaints, or immediate payment required, and usually doesn't read 'quite right'.

- Includes a file attachment or a link to a website – don't open them or click through.

- The email address may look okay, but look more closely for a slight variation.

Anticipating Cyber Crime

These scams won't stop (in 2012 Australian businesses and consumers lost $469 million). So what can you do:

- Warn your team about the problem – "don't open, question and check, don't give out personal information, etc."

- Make sure you have good IT support, who will recommend good anti-virus software, IT support, and regular and off-site back-ups. (If you'd like someone who understands data management, we can recommend André Minnaar at Premium Business IT Pty Ltd, http://pbit.com.au/ )

- Talk to your insurer about Cyber Insurance. There are a lot of policies, but make sure it covers your needs (eg., pays if you lose money to a scam). Again, if you'd like to talk to a specialist in this area, call Matthew Denehy at Agile Insurance on 0409 396 355.

'Things to be aware of' - especially Government Grants

Mon, 11 Sep 2017 23:00:00 GMT

Not a complete single item Blog, more of a 'things to be aware of' Blog, especially Government Grants worthy of your consideration.

Surveys

The NAB surveyed small businesses (turnover above $100,000) and found 44% don't understand the tax system (no surprise there) and more than 75% did not know all of the obligations they needed to comply with for their industry. Almost 70% said 'too much red tape' made it hard to focus properly on their business. XERO also did a survey and found only 50.7% of businesses had a positive cashflow in June this year, just marginally up on last year (businesses paying GST, tax, tax instalments, and super can identify with this!).

Director Identification Numbers

Even though there is too much red tape, the Government intends to 'rein in dodgy practices by rogue directors' and issue directors with a Director Identification Number (DIN). Small Business Ombudsman Kate Carnell hopes this is not just more red tape (?). The Government says it will be better able to track 'tax liabilities and a range of other uses' (now it becomes clear!). One use is to stamp out phoenix companies; these shut down leaving heaps of debt but the principals/directors just restart in another entity. There is no date given for a start, or even when legislation will be available.

In another ministerial statement, Morrison said Directors will be made personally responsible for all unpaid GST (currently only unreported PAYG Withholding and Superannuation).

Single Touch Payroll (STP)

On 1 July 2018, employers with more than 20 employees are required to report salaries and wages, PAYG Withholding, and Super electronically direct to the ATO, at the same time as payments are made . The benefit is no end-of-year payment summaries to issue as all information has been reported every payday.

Those with less than 20 employees do not commence until 1 July 2019.

Use of STP will be mandatory, so software providers (MYOB, XERO, etc.,) will soon update their packages (and no doubt increase their subscriptions as you must use payroll software specified by the ATO).

Qld Government Grants

Most Grants are often not worth the trouble to apply. However, there are a number worth a look. Many of these are based on the merit of the application and the competitiveness of the business itself.

Accelerate Small Business

Turnover must be over $500,000 to apply, for up to $10,000 (matched $ for $) to engage business mentors or an advisory board for 12 months. The business must have the potential for high growth in the next 2 years.

Innovation Connection

Turnover must be over $1.5m (less in remote areas) for new technology. The grant is up to $50,000 (matched $ for $).

Incubator Grant

Directed towards regional development, for projects worth $20,000 or more. It's to 'facilitate innovative start-ups'.

Digital Grant

Opens again soon. Up to $10,000 ($ for $) for digital technology or services (including digital coaching) that will enhance the digital capability of the business and allow it to be more competitive and employ more staff.

These are just a few available. Grants generally fall into the categories for Business Support, Innovation, Accelerating Commercialisation, Entrepreneurs, Recovery (eg., floods), and Start-ups (high growth potential). If you'd like to see what could be possible, give us a call and we'll see what may be available (Grants come and go, some quickly).

Capital Raising & Loans

If you're looking for investors, the Early-Stage Innovation Company legislation is suitable for businesses with high growth, and allows investors to claim a tax deduction for the amount invested (up to set limits) and on sale the capital gain may be tax free for the investor.

ESIC may be more suitable for businesses than Crowd Sourced Funding. However, if you target the right audience and the presentation is appealing, Crowd Funding may work.

There are many new lenders in the market. These evaluate your past performance, some will do start-up and are based on your Plan and Forecasts, and lend on an 'unsecured basis' – no property but likely security over the business itself and personal guarantees. Available for working capital, import/export, trade finance, to pay tax or super contributions. Interest rates are higher but acceptable, fast approvals, repayments in some cases must be made over 12 months, and all sorts of terms are available. (We've just helped a manufacturer get $250,000 to fund an increase in completed stock, for faster delivery to buyers).

All of these require a good presentation. Happy to help if we can.

Critical Tax Issues when Selling a Business

Mon, 21 Aug 2017 23:00:00 GMT

There are many taxation issues that need to be considered when selling a business. There is no magic formula either, it's a case of understanding what is being sold (the business assets, or the shares in the business), what the contract says, timing of the sale, etc. There are some key points though that can be big money-savers, but they need to be part of the negotiations, not an afterthought, and agreed before the contract is signed.

Asset Values

Agree the total value of assets being sold – stock, plant, office equipment, goodwill, etc. The purchaser always wants more on these (to claim depreciation or a deduction where available) but the vendor must pay tax on recouped depreciation.

Avoid attributing set values to each class of assets in the contract. Each party can attribute their own value to those assets based on their reasonable apportionment of the total transaction. This allows each party some flexibility to optimise their respective tax positions.

Contract Date

For capital gains tax (CGT), the sale takes its timing from the contract date, not the settlement. So, if you delay signing the contract from June to July it will defer any CGT or tax payable for 22 months, rather than 10 months.

Pay Accrued Leave

Usually this cost is adjusted at settlement against the sale proceeds, which reduces the CGT. If the payment is made by the seller to the employee it will be tax-deductible. The income tax benefit is likely to be greater than a CGT saving.

However, if the payment is made not to the employee but you are selling your entity to the purchaser so it is continuing with the employees (and so the leave liabilities take their timing from the original employment start date), the payment may no longer qualify as an accrued leave transfer payment.

Tax Losses

Tax losses attach to the entity that incurred the losses so the purchaser must purchase the shares in the entity. There are conditions in the loss recoupment rules that must be satisfied for the losses to be available to the purchaser.

If the purchaser is reluctant to purchase the entity, which means he takes over the historical trading risks of the business (tax, super liabilities, unpaid group tax, unpaid suppliers, etc), you could perhaps offer warranties in the contract for a finite future term to provide indemnity to the purchaser.

GST

Under the 'supply of a going concern' GST-free option, if you sell everything that is necessary for the purchaser to continue the operations, it is likely the business sale will not attract GST. However, this can be complicated so the sale needs to be structured to enable the vendor to access the exemption (see an accountant and solicitor before signing the contract).

It is always advisable to incorporate a GST recovery clause in the contract so you can recover GST from the purchaser if the tax office decides for whatever reason that the exemption was not available.

CGT and Small Business Concessions

The most common concession is the 50% general Discount, halving the capital gain as long as the asset has been held by an individual or trust for at least 12 months before a sale (this one is not available to a company).

The small business CGT concessions have the potential to substantially reduce or even eliminate the CGT, but there are strict conditions. To start, Aggregated Turnover (of a group) must be less than $2m and aggregated net asset value under $6m, but excluding the main residence and superannuation benefits.

Special rules apply with equity in companies and trusts, which are complex and prescriptive. The ATO checks most claims to access the Concessions, so they need to be correctly applied. While a Company may use some of the Concessions, when these profits are paid out to the shareholders they are treated as an unfranked dividend (so a company can end up paying full tax on a sale).

The sale of a business may seem reasonably straight forward, but this may not be the case when the detail is carefully examined. In particular, all draft contracts and agreements should be reviewed before signing to ensure you legally minimise your tax liability and maximise the return on your efforts in building the business for sale.

Do Casual Workers have the right to demand a Full Time Position?

Mon, 31 Jul 2017 23:00:00 GMT

The Fair Work Commission (FWC) has proposed that casual workers have the right to request permanent employment, if they work regular and systematic hours over 12 months. FWC will take submissions until 2 August 2017 and hold further hearings before making a final determination.

Similar provisions already exist in most Awards although the existing process is a bit vague, so employees will have 'the right to request' but not be entitled to, a permanent position. (Incidentally, 20 years ago there were 4 full time workers for every part-time, it's now 2 full time to 1 part-time, and within 10 years it's expected to be 1:1)

The proposed conditions to 'make a request' are:

· A qualifying period of 12 consecutive months

· The casual employee must have worked a pattern of hours on an ongoing basis over those 12 months which could continue to be worked on either a full-time or part-time basis, without significant adjustment.

An employer can refuse if:

· It means a significant adjustment to the employee's hours of work

· It is reasonably foreseeable that the casual employee's position will cease to exist, or the hours of work will significantly reduce within the next 12 months, or there is a reasonable ground based on facts either known or reasonably foreseeable.

What does this mean for employers?

There is also a proposal by the FWC to enforce a daily minimum engagement of four hours. Employers using casuals to regulate peaks in customer demand and to manage employment costs, such as periods of notice, potential redundancy payments, and outlays for unfair dismissal, need to review their policy on the use of casuals.

· Rethink rosters and whether this could be carried out by full-time of part-time workers, rather than casuals.

· Identify roles that could be carried out by full-time or part-time workers so there is a 'foreseeable reason' that the casual hours will be reduced.

· Calculate the added cost of loadings for casuals against the cost of full-time or part-time within entitlements.

Although this is not yet legislation, no doubt it will come in some form. So, think about the reasons and cost/benefit for employing casuals, in the end it may be more expensive as a policy.

Looking forward to the New Financial Year

Thu, 20 Jul 2017 23:00:00 GMT

Yea! A new financial year! Assuming this time you really mean to make sure this year will be better than last year, what would you improve, where would you start? Here are my suggestions:

1. Do a financial de-clutter

Sit down with your key people including advisors/accountant, and review last year. Were objectives/targets met (did you have any?), was there waste or inefficiency, was planning pushed or just allowed to happen, are you better off now than 12 months ago, do you have useful information for decision making, what can be learned from last year (2 or 3 key findings)?

2. Systems

Do you just do enough to lodge quarterly BAS, or do you get reconciliations, useful regular reports, financials that explain what is happening in the business and compare actual to forecast, or produce spreadsheets if these are more useful to you? These are not a nuisance, knowing what has happened and fixing problems is your key job.

3. Projections

Provide for at least the next 12 months, preferably 2 or 3 years. It's not about having sales go up 3% and expenses up 2%; look at the growth drivers (where will the sales come from, sales conversion rates, average sale prices, add-on sales and new products, gross margins per product, expense savings). Also, consider capital expenditure, industry and economy trends, tax payments, etc.

4. Planning and Strategy

The projections tell us what we'd like to achieve. Doing a 'One Page Plan' as well tells us what's needed to make the numbers happen. Issues to consider are the target market and the solutions they need, our sales channels and marketing strategies, revenue sources and major cost areas, main targets to be achieved, resources required. Who will be responsible for driving the growth strategy?

5. What about the Unexpected?

Consider a few 'what-ifs'. Where would the extra working capital come from if sales took longer and also increased, what if banks won't lend without more property security, would the ATO require prompt payment every BAS, a recession starts, the stock market has a major fall? Plan for the unexpected and consider scenarios for each; balance optimism and realism.

6. Balance 'Big Picture' and Efficient/Effective

Big picture thinking has its place. But, everyone gets busy in the details, like chasing sales, finding the money every week, removing obstacles. Keep an eye on the big picture, make sure things are attended to efficiently and effectively, watch for where the problems keep occurring (could be a someone, or a system error).

7. Well-Being

Everyone's most hated job, managing people. People don't want to get involved in others private lives, but when it's at your workplace and your money you may have to take a stance. Listen to the grape-vine, listen to how people are feeling, encourage people to tell you their concerns. Handle these confidentially, constructively and proactively.

This might seem like a big deal, but really it's not. It's all about making sure you'll be better off next year. Not everybody though wants to spend time on things 'unless they get a fast result'. So let's break it down to a few steps:

1. Look at the financials for the year just past, and the trends too over 2 or 3 years. Are things improving, more cash available, taxes paid, do things feel okay?

2. Work through a one-hour 'Complimentary Review' with us – no charge for this (useful for the de-clutter and systems).

3. Work through a 'Business Profitability Improvement' with us. This provides huge value at little cost, and results over a few hours in a plan to make things happen, and modelling of profit and cash forecasts.

4. Regularly monitor the key areas; like monthly sales, number of new customers, prospects, marketing strategy for effectiveness, quarterly financials (especially target and actuals), what's needed/who is responsible for getting it done.

How To Trigger a Tax Office Audit!

Tue, 18 Jul 2017 23:00:00 GMT

It does not need to be about doing anything wrong, it can be simply that the transaction is of interest to the ATO. Audits are more frequent and they can be disruptive and expensive, so it is best to avoid one where possible. And remember, the ATO does not have to prove it is right, you have to provide the records to show the ATO is wrong.

These are the most common reasons for an audit:

1. Benchmarks out of line with the industry

The ATO provides some small business benchmarks, but there are other providers too. The ATO analyses business tax returns against benchmarks, past performance, trends, etc. Even small variations can be seen as indicators of unreported cash, transfer pricing, overclaimed expenses, etc.

Remedy: check financials to benchmarks and explain anomalies.

2. Variations between tax returns and BAS

Reconciling the information reported on BAS to the tax return is crucial. Large variations between the BAS (sales, wages, tax withholding, etc.) and the numbers in the tax return are likely to trigger at least a review, or even an audit.

Remedy: balance BAS reported and paid to the financials

3. Poor lodgement history

The ATO considers all compliance obligations; BAS, employee reports, FBT, income tax, tax payments. A good compliance history can be helpful in improving the ATO's perception of a business.

Remedy: improve reporting to 'on-time'.

4. Consistent operating losses/big fluctuations

The ATO regards three loss years over five years as a concern, as well as big fluctuations in either financial position or certain expenses in the tax return.

Remedy: analyse losses and material changes, and document reasons.

5. International transactions

A big concern. The ATO tracks all transfers to and from Australia, whether through declared tax havens or other countries. Keep all documentation that explains the transaction; perhaps, develop transfer pricing records if overseas transactions occur regularly.

Remedy: have documents for all transfers to or from Australia; prepare transfer pricing strategies.

6. Ownership of vehicles but don't lodge FBT returns

The ATO has records from all States on purchases and sales of vehicles, and it has an expectation that there will be some private use for cars. If no FBT return is lodged for that private usage, a review is possible.

Remedy: keep vehicle log books, conduct an annual (March) FBT review, show a contribution towards private usage in the financials (the 'actual cost' method).

7. Ignore superannuation for employees

If employees complain about non-payment, or the ATO sees payments were not paid on time (which are not tax deductible), or the ATO sees individual 'contractors' and no super, this is sure to result in a super audit, even over some years. These can start as a super guarantee check, but escalate to GST, FBT and income tax matters depending on systems and findings.

Remedy: pay super on time, keep super records with wages information.

8. Capital Gains

In order to access the small business CGT concessions there are basic conditions that must be met. The concessions can reduce, or eliminate, the capital gain made on the sale of business assets or interests in companies and trusts. There are specific tests required for the asset being sold, meeting conditions for net assets and turnover of the taxpayer and connected entities, and how the interest is held in the business. The rules are complex and complicated, and the tax can be significant, so the ATO invariably checks to ensure all the conditions have been properly met.

Remedy: plan well in advance, understand the rules especially when buying assets, expect there may be no simple yes/no quick answer.

9. Be noticed

A major transaction (sale of a property) or a legal dispute (divorce proceedings and financial disclosures) can attract the attention of the ATO.

What these triggers show is that tax compliance, that is preparing annual tax returns, is not just a routine process to fill out forms. We are looking to get the best tax outcome, and that means these other areas have to be considered at all times and managed with a proactive tax risk management process.

Negotiating a Complex Payment Arrangement with the ATO

Mon, 29 May 2017 23:00:00 GMT

This could be a company or business owing a large sum for tax or GST to the ATO, or where the company has defaulted on a previous arrangement, or the offered arrangement has been refused.

Appointment of a liquidator or voluntary administrator may not be the best option, especially if the business is trading profitably, or where this may create potential problems for the directors with loans or guarantees.

These are the strategies and steps we usually work through:

- Review the company's circumstances with directors.

- Determine whether the company can trade profitably in the future, consider steps to improve profits, and prepare realistic forecasts for profits and cash for at least twelve months.

- Consider the risks to directors, such as the liabilities under personal guarantees or Directors Penalties (unreported PAYG Withholding and Super).

- Work through options:

arrange finance for working capital

refinance debt

negotiating payment arrangements with creditors

implement trading improvement strategies (more sales, more profit, reduced costs)

sale of the business, or part of it, and/or sale of surplus assets

appointment of a liquidator or administrator

Negotiating With the ATO

The ATO's Annual Reports show that it receives less than 5 ¢ in the dollar, so if it can get a better result, it will listen. By the way, there is no 'best' way, every situation is unique.

We estimate the likely return from liquidation, and also from a payment arrangement as turnaround strategies have effect. We ask for a reduction in the interest and penalties. If the offer of an arrangement is accepted, the profit improvement strategies must be addressed immediately. The ATO will expect regular payments, probably monthly, and likely reject long term or deferred instalments.

Monitoring

The ATO is only interested in being paid and meeting its legal standard of care, so it is up to the directors to ensure the money is available every month. Apart from the negotiations with the ATO, we can assist with the forecasts of profit and cash, preparing financials every month to compare actual to forecast, proposing strategies to increase sales and reduce costs, and keeping directors accountable (the things that have to be achieved, the date for completion, who is responsible for which tasks).

If you think you may have a problem, call us and we'll look at the options with you. Once legal action starts, any arrangement becomes more difficult.

Why Worry about Tax Planning?

Mon, 22 May 2017 23:00:00 GMT

Have you ever been to a party or BBQ, and there's always someone who's rabbiting on about how little tax they pay? Even a little scratch of the surface tells us the simple reason: they're not making much money.

There are those who say that taxpayers benefit from their contribution to society, you know, a warm Fuzzy Feeling. But we all remember Kerry Packer who said "… if anyone is paying more tax then they should, they want their heads read ….." If you recall, he also said the government was wasting money. Nothing changes!

Unfortunately though, too much focus is put on the tax, rather than on the real issues, profit, value, and return on investment. Then tax. Tax is a significant outlay share of your earnings, so it makes sense to manage the amount you pay. But there are people who maximise their minimising, and perversely can even end up spending more than the tax just to save a little.

For companies, the tax rate is 28.5%, reducing to 27.5% for 2017 if the Budget is passed. For individuals earning between $37,000 and $87,000 the tax rate is 34.5% (including Medicare), from $87,000 to $180,000 the rate is 39%. And above that 49%, plus levies.

So, it doesn't make sense to spend a dollar to save perhaps 34%. Spending should be about income generation – for working capital for growth or the purchase of assets that earn income and will also grow in value.

If all you want is a tax deduction, we can bill you, because accounting fees are deductible. If you don't think that makes good sense, spending just to get a tax deduction, then don't look at a more costly outlay that won't add value. We guarantee to deliver value in planning, ensuring clients receive more return than the small cost.

Benefits of Tax Planning

We don't advocate spending money just to reduce tax, but we are certain there are definite advantages to legitimately reducing liability to tax overpayment, and to managing the cash flow of tax obligations. This is best done with an accountant committed to these principles, rather than a salesman using the end of financial year as a sales strategy.

What are the major benefits of tax planning, before year end?

1. There are some matters that must be completed before 30 June to ensure deductibility. At the end of the planning year you know the likely tax obligations and the earnings achieved for the outlays.

2. It's also a good time to review current year BAS and perhaps errors made in preparation, tax debt, and other returns required by the ATO etc., (subcontractor reports, PAYG Summaries, super, workcover, payroll tax, etc.)

3. Because the tax obligations are now known for the next year, it is possible to prepare useful forecasts of profit and cash.

4. You can take advantage of government incentives, or manage any potentially negative impacts of tax and other changes.

5. It is also a good time to consider wealth creation and other matters. This certainly includes superannuation contributions at year end, retirement planning, preparation for sale of the business, and ensuring financials are suitable for borrowing and loans.

We have found over many years that the benefits and value of planning usually exceeds the small fixed cost many times over. So, tax planning is certainly worthwhile for you. In fact, we will guarantee that if we don't save you tax, there will be no cost.

Please, book a short but beneficial tax planning meeting with me now.

The Budget - Notes

Tue, 16 May 2017 23:00:00 GMT

Personal Income Tax Measures

1. Limit on Depreciation of Rental Properties

From 1 July 2017, plant and equipment included in a property purchased after 09/05/2017 will not be depreciable. Investors purchasing such items after this date can depreciate those items over their effective life.

2. No Deduction for travel to inspect residential properties

From 1 July 2017, an investor can claim the cost of meeting with property managers, but not for those costs if self-managing.

3. Medicare Levy

From 1 July 2019, the Medicare Levy will increase to 2.5%.

4. Higher Education Debt (prev. HECS)

From 1 July 2018, the minimum threshold for repayment is 1% at $42,000, up to 10% repayment at $119,882.

Small Business

1. $20,000 Immediate Write-Off

To be extended to 30 June 2018 for all businesses with turnover up to $10m.

2. CGT Concessions

From 1 July 2017, concessions can only be accessed for assets used in a small business (less than $2m turnover, or business assets less than $6m).

Superannuation

1. First home superannuation saver scheme

From 1 July 2017, First home buyers can make voluntary contributions up to $15,000 and up to $30,000 in total into an approved super fund. Can be withdrawn after 1 July 2018 for a first home deposit and will be taxed at the taxpayer's marginal rate less a 30% offset.

2. From 1 July 2017, the amount of borrowings (LRBA's) in an SMSF will be included in a member's total balance in the fund, to prevent a member exceeding the contribution caps.

3. Over 65's can sell their home if held for more than 10 years and put $300,000 (each) into superannuation. ( Note : at this time that would be included in the assets test, so no advantage for now).

GST

1. GST on new home construction

From 1 July 2018, purchasers of newly constructed residential properties must pay the GST directly to the ATO.

Foreign Investors

1. Main residence exemption

From 9 May 2017, foreign and temporary tax residents will not be eligible to use the CGT main residence exemption.

2. Charge on underutilised residential property

Foreign owners of residential property who neither rent or live in the property for at least six months a year will be required to pay a charge of $5,000.

3. Restricting foreign ownership in new developments

There will be a 50% limit on foreign ownership of new developments.

4 . Foreign resident CGT Withholding

From 1 July 2017, purchasers from foreign residents must withhold 12.5% of the contract price where the contract exceeds $750,000 (prev. $2m).

Affordable Housing

1. Increased CGT discount for resident individuals investing in affordable housing

Qualifying housing is that let to low to moderate income tenants at a discount to the private rental market. The property must be held for at least three years, and the discount increases from 50% to 60%.

ATO Funding

1. Taxable payments reporting extended from 1 July 2018 to couriers and cleaners.

2. ATO audits to be increased to better target the black economy, small business, and non-lodgers.

The 'Gift' of Disruption

Wed, 26 Apr 2017 23:00:00 GMT

Last week I received a newsletter from the US, titled 'The Fall of American Retail'.

What got my attention were the numbers of store closures over the past six months; J C Penny (138), Radio Shack (552), Payless Shoes (400), Macy's (68), Sears and K Mart (150), and several others I hadn't heard of, about 180 stores. Since the end of October 2016 more than 89,000 retail workers have been laid off. (I had also read 'Walmart' planned to close nearly half their stores).

The writer says the cause is obvious – competitive pressures brought on by the advantages of e-commerce, convenience and customization. I agree that the 'bricks and mortar' business model is under attack, but you also have to look at other examples of business disruption too.

Amazon has pretty well destroyed book shops (remember Borders?), you can download music so goodbye local record shops, and Uber destroyed the taxi industry. Digital self-selling entities like Purplebricks and BuyMyHouse offer a way to sell property for a fee at a fraction of a real estate agent's commission. The property management sector is under attack too, Rentberry is starting in Australia.

It's possible to argue none of these are as good as the old way, and agent service is important but a growing proportion of consumers clearly will exchange service for price. These digital alternatives are returning power in the transaction to the buyer.

Now, more than even before, businesses must find a unique point of difference in a competitive market. Previously, the POD was built around amazing customer service, or fantastic product knowledge, or aggressive pricing, or leverage through social media.

Obviously these are all relevant, and many consumers will respond to an increased level of service and creativity that will demonstrate the suppliers value in achieving stronger results for the vendor. Of course, not all agents will bother and write off self-selling entities as a passing fad. Ask a taxi driver if it is a fad, one who just saw $500,000 for a taxi plate wiped off his investment. What it will do to the value of rent rolls?

The lesson in this, whether retail or service industry, means paying attention to these factors:

- Avoidance of high-cost structures, which makes it difficult to complete with leaner, more efficient, or better capitalized competitors. Look at your costs, now! (Cost of goods, wages and productivity, and expenses).

- Don't expect your brand or reputation to save you. Yes, these are helpful in an internet research world, but brands can quickly become irrelevant and reputations can fall apart too (eg., United Airlines).

- Examination of the current business model because it will likely not last forever.

If there is good news in this technological onslaught it may be that it is possible to align with this progress (or, choose your own word) and to adapt with a new and better business model. Not every customer will just want the lowest price, but they will if you are not providing service and relevant value.

Buyer's Regret (or How Ample is Your Sample?)

Tue, 25 Apr 2017 23:00:00 GMT

We buy things and later regret it. That same fear or behaviour can prevent a prospect from buying your service/product. So, here are two (really good) suggestions for overcoming this reluctance.

My chair has been with me for about 10 years, but I've been seeing warning signals for a couple of years. It squeaks, the arm rests are torn up and pinch me, every now and then the height control fails & I sink down to eye level with the desk. (We'll get to the point soon, just stay with me).

I've worked out something's not right (I'm good, not quick). I'll have to get a new one, so I Googled. I don't like what's available so I'll go to a supplier and have a test drive (or, sit) of the ones I don't like the least.

I begrudge the time because everything's the same, I can't really tell what it will be like until after I buy it, and that's not a test but ownership. What if I hate it?

This is just like choosing a service provider, which has the same limitation: how can you know before the engagement begins what the relationship will be like after?

That's not good news for professional service providers, or really anything where there is no tangibility.

Prospective clients and customers are slow to decide, and the tools we rely on to build trust and gain attention have their limits. Tools like testimonials, bios, service descriptions, case studies, and web site layout are only symptoms of what it's like to work with you, not like a sample of you.

How do you get past this limitation and let people who might hire you check you out in a meaningful way? Remember I said there would be two really good suggestion ?

(Spoiler alert – here come two really good suggestions!)

1. Let them actually sample you.

Supermarkets let you try things, like canned crocodile with crushed capers, before asking you to buy a case. So, you can do that too! (Not crocodile!). Offer an assessment of their strategy, or a trend review, or a needs analysis, or a few options.

It doesn't matter what it is, people get to 'sit on you' (not literally) for a long enough engagement that they can see first hand what it would be like to work with you. That makes their buying decision easier (and frankly, also gives you an out in case you'd rather not continue).

2. Create and share lots of original content

This is not as good as actually working with you but it's not a bad guide to who you are and how you think. However, what you say has to have enough content that there is a sense of the real thing. This becomes part of your overall marketing mix.

Here's the bottom line. Hiring a professional/service provider is risky because people put money down on an experience before they actually experience it. That requires quite a leap of faith.

Your job in selling, whatever the actual product is, is to make that leap as small as possible. (Even if the person telling you is sinking below the level of the desk).

Alternatives to Liquidation

Wed, 22 Mar 2017 22:00:00 GMT

Sometimes, a business/company may not survive. There are many reasons why a company can no longer pay its debts when they are due, that is the company is considered to be insolvent. If a company trades while insolvent, the debts incurred after the company became insolvent are recoverable from directors. Of course, it can be difficult to determine when insolvency actually occurred (liquidators 'assume' as far back as possible).

There are several alternatives to the appointment of a Liquidator or Administrator, the disadvantages of which include:

- Can be significant cost

- Trading activity stops, contracts may be cancelled, guarantees may be called up, lease is terminated

- The appointment damages relationships with suppliers and customers

- Directors can be pursued for insolvent trading and their debts owed to the company, and are still liable to the ATO for unreported Super and PAYG Withholding (Directors Penalties)

Possible alternatives are:

Develop Turnaround and Profit Improvement Strategies

This concentrates on the drivers of sales and profits. It considers the components of profit and expenses, savings in costs, improving sales and gross profit, breakeven sales, opportunities in the market, developing new customers or revenue streams, and utilising initiatives in marketing and technology.

Negotiate Payment Plans

Go direct to creditors and negotiate an acceptable payment arrangement. This can succeed if the problem is explained, the solutions being put in place, the offer is clear, the company financial position is disclosed, and the likely outcome if a Liquidator were to be appointed.

Obtain Finance or Capital

This is an option when the problem is well understood and that there is a solution, otherwise it may just be throwing good money after bad. Perhaps refinance the home and lend the funds to the company, or borrow against Accounts Receivable (Factoring). However, security should be taken at the time funds are advanced by you, and the security entered on the Personal Property Securities Register (improves your position in the event of liquidation).

Sell the Business

It may be possible to sell the business, although the price may need to be discounted to induce a buyer to contract. However, it is likely to be more then a Liquidator may achieve, especially after deduction of their fees. A business can be sold to a related party, and as long as the sale is at fair market value on commercial terms and the proceeds are dealt with appropriately that is not 'phoenix activity', so there should be no recovery action by the Liquidator or prosecution by ASIC.

There is no guaranteed solution, every situation is different. The steps we work through are:

- Review the circumstances and the current position

- Consider whether the business can trade profitably in the future, and evaluate the 3 or 4 strategies to be taken to improve results

- Evaluate the risks of each alternative and whether those risks can be mitigated

- Compare the various options, outcomes, prospects of success, and costs.

If you suspect that your company is in trouble, take action early and evaluate the possible options that exist at that time. We can help you evaluate your options, and even introduce you to experts in this area.

Financial Statements are just the START of Analysis

Mon, 20 Mar 2017 22:00:00 GMT

A lot of emphasis is put on financial statements. A critical question for a business is this: 'Based on the information in the financial statements, what should be done differently in the future?'

To determine what action to take owners need to know things like:

- Why is there less profit this year?

- Is this good, or bad? How am I, compared to others?

- How much should the gross margin be?

- Am I spending enough on marketing?

- What is the average cost per day? (or per metre, per employee, etc.)

- Are there changes that would improve the business?

- Could I borrow using these financials?

- Do I need more people on my team?

However, financial statements are not enough for questions like these; there are no actionable strategies just from the financials.

So, more information is needed to help owners understand the connection between actions and financial results. There are accountants who can interpret the results using benchmarks and analysis tools (ahem!), and there is software available too.

What we are looking for are insights that lead to changes in behaviour and actions and to improve results. These help us develop leading indicators (not lagging, like financials); such as daily number of visitors or calls, average daily sale, number of responses to advertisements, etc.

Using software (because it's faster), we can interpret and explain complex data. Then we can compare to Benchmarks, which exist for many industries (even from overseas – the currency may be different, but the percentages/relationships are often the same). It also helps to analyse the changes to be made with the "Growth/Profit Equation". This tells us that to achieve revenue targets and positive operating cash flow the business must generate a profit, which can be accomplished by increasing prices, and/or obtaining more customers, and/or having those customers purchase more or more often, and reducing both direct (cost of goods) and indirect (overheads) costs.

Financials are just the first step in responding to the key questions that need to be answered. Thirty minutes with "The Growth Equation" will provide the strategies to improve any business' profit and cash flow. It costs very little to work through a comprehensive profit improvement plan but the value can be immense.

The Most Asked Question about Retirement?

Mon, 27 Feb 2017 22:00:00 GMT

"How much do I need to retire?"

Although it seems straightforward, it's not the right question at this stage.

In financial planning, a 'safe withdrawal' is the 4% rule. Limit drawings each year to 4% of your investment portfolio and there is very little likelihood of depleting your capital and running out of money (although you could starve to death!).

But, focusing on an asset value rather than the income stream itself is putting the cart in front of the horse. It's income that pays your bills, not the size of your bank account and investments.

However, depending on the condition of equity markets, this may not matter. Assume that the share market continues to make gains, you could realize some gain and sell off some of the portfolio to supplement your income. Depending on your current view, that may seem risky; the market is stretched, there could be another run (or a drop of up to 50% - depends on who you read), so you might prefer not to be heavily invested in equities at this time.

Step 1

Estimate the income you will need in retirement; run a car, pay rates and insurances, medical benefits, living expenses, a holiday, presents, entertainment, house hold costs, etc. Don't worry about tax yet; tax only becomes payable once each retired person's income exceeds $28,900. Let's assume the income you need is $45,000. (A recent study found the median pension paid from Super was $34,000 a year).

Step 2

Add 20% to your budget as a buffer or for contingencies. That increases the income required here to $54,000.

Step 3

Subtract any 'guaranteed' income sources; like Centrelink (but allow for recent reductions in the asset value threshhold), a private pension, or other regular source of income (an investment property).

If your assets apart from your home are under $750,000 a couple can still receive some Centrelink pension, and access Pensioner and Senior Benefits (which could be worth over $5,000 a year). For the sake of this exercise, let's assume annual Benefits of $5,000.

Step 4

This results in income required of $49,000 ($45,000 + $9,000 – $5,000).

Step 5

Calculate the capital base required to generate this income at an earning rate of x% pa (49,000/.04 and then .05 and .06, etc.) The return rate is dependent on your risk profile, so more conservative, a lower rate. Be realistic, you may need to draw some capital each year. Do a calculation of how long the capital will last if the return is 4% and you need to draw $49,000 a year. https://www.moneysmart.gov.au/

Step 6

Determine where the capital will come from, and estimate how much you will have. Add up the amount in superannuation, other savings, investments, proceeds from the sale of a business, even downsizing your home with the balance for investment. Let's assume investment capital is a total of $700,000.

Step 7

This is where it gets hard for us. New rules from 1 July 2016 mean only a licenced investment advisor is permitted to give advice and recommend investments, for which a fee must be charged. Mind, I've seen Statements of Advice from banks and others that seem to me more like selling their own product, but, there are also some that are really effective at professional financial planning. (Please ask us for a referral).

Let's assume that you are conservative, cautious with where your capital is invested, and a bit nervous of having too much in equities.

Step 8

As the annual income generated will only be $35,000 ($700,000 x 5%) which is $14,000 less than the amount needed, so it is time to review. Consider some of the possibilities:

- Can some of the living costs be reduced?

- If you drew the amount required, how long would the capital last? (about 16 years)

- Can the rate of return be improved, bearing in mind your risk profile?

- If there is tax, could this be reduced (eg., invest through super as pensions are tax free; however, contributions are reducing from 1 July 2017 and the Work Test must still be met after age 65)

- Could extra super be contributed before retirement (for tax savings each year, and to build the capital base)

- Would it be possible to sell the business for a higher amount (needs a strategy & good figures for 3 years, but improves the selling price).

It's not hard to get a better outcome. It just needs some planning, time, and the right strategy. Apologies to the meerkats – it's not 'Simples'!

Why Worry About a Director Loan?

Mon, 13 Feb 2017 22:00:00 GMT

A company in financial trouble can affect a lot of people, and the closer to liquidation, the more hazardous for the directors.

One big concern lies in 'director loans' .

What is a Director Loan?

Usually this is a result of a director paying personal expenses from the company bank account, borrowing from the company, or drawing money that is not accounted for as a salary.

If not classified as a wage, and PAYG tax remitted to the ATO, then the amount is recorded as an asset on the Balance Sheet as a 'Director Loan Account'. It is then recoverable as a debt due to the company, and is immediately repayable on demand.

So, What's the Problem?

If the company is solvent and the directors are also shareholders (or associates), the loan falls under the Division 7A provisions of the Tax Act. This requires a loan agreement to be put in place and the loan plus interest be repaid over 7 years (to prevent the ATO taxing the loan as a deemed, unfranked dividend).

But, if the company has financial troubles or worse, is in liquidation, the loan amount is recoverable from the director by the Liquidator. If a judgment is obtained, the director can be bankrupted. That's the problem!

Is there a Solution?

It's best to take care in accounting for payments made to or on behalf of a director. Once recorded though, ensure a Division 7A Loan Agreement is executed and followed up each year (or it could be taxed by default as an unfranked dividend).

There are a few ways to deal with the loan:

- Offset the loan against any amounts owed to the director by the company

- Repay the loan

- If the company has Franking Credits declare a dividend and credit the dividend to the loan account. It is still income received but the franking credit will assist with the tax payable

- Credit a bonus or extra salary against the Loan account rather than draw the cash. Again, that is income received but PAYG has been paid.

A caution . Never just make it 'disappear' off the financial statements. There can be serious legal consequences and the loan would still be recoverable.

What's next?

This is an issue for every year ; the Tax Office looks for Division 7A loans and the Agreement for repayment. In the drive to get the best tax outcome it is worthwhile to spend an extra few minutes and see how a loan problem can be fixed, especially if there is a concern about the company's solvency.

Division 7A is an important tax matter. It is not an afterthought or something that can be ignored.

As we carry out tax planning for the end of the year we also consider loans and solvency, and seek to address any concerns early. However, if you have any concerns now about solvency and there either are or could be director loans, please call us soon.

Essential Financial Checks to Survive and Thrive

Mon, 23 Jan 2017 22:00:00 GMT

These several checks help you to see how your business is performing, and to anticipate issues before they become problems, So, you stay on top of your finances, have control of your strategy, and base decisions on facts rather than guesswork.

Accounts Receivable (or who owes you money?)

An aged debtor report is part of any standard accounting software. It tells you how much you have invoiced, which customers have not paid, and when those moneys are due for collection.

Check this weekly as it will tell you what is likely to be collected in the next few weeks, easing some of your concerns over cash flow, and also who has missed payment. Chase these early using a process that works for you; for repeat offenders it may be time to reconsider whether you should do business with them at all.

Cashflow Activity

Look over your cashflow regularly, at least monthly. It gives you a good overview of what was received and spent. It's not perfect, but it tells you that you're covering your costs and what's left over.

Each year, you should prepare Profit & Cash Forecasts (two different reports). Compare your Cash Forecast to the actual cashflow from your software; you can see if you have enough cash in the bank for quarterly GST and Superannuation, tax instalments, capital expenditure, perhaps a reserve. Update the Forecast for apparent trends. You may also need to generate more income in the short-term if actual results are behind plan.

Profit & Loss Report (P&L)

The P&L shows sales and costs, it may be on the cash basis, but it may also be prepared including sales on account and purchases on credit (Accrual basis). Accruals allows a detailed look at the business's profitability, and can be compared to your Profit Forecast.

If profit (income less all costs but excluding income tax) is below forecast or lower than you'd like, investigate options like cost-cutting, raising prices, review your marketing, reducing waste, buying practices, etc. We're looking for patterns or trends that tell us things are on (or off) track so we can confidently plan ahead.

Stay on Top of Tax(es)

BAS (GST), IAS (Instalments of income tax) and employee super are payable quarterly. These outgoings need to be in your Annual Cash Forecast, and monitored monthly in your cashflow review to ensure the money is available to pay them when due.

Income tax is due around May each year, less Instalments paid. If profit improves, set aside some additional tax (or even contribute it to your super, why just give it to the tax office?). If profit falls, vary your Instalments if the measures to turn profits around will take some time.

Know which Projects/Clients are worth your time

When you quote make sure you know what your costs are (from Profit & Loss and Profit Forecast) and also allow for a contingency. When you're doing the job, ensure all costs are taken up. Otherwise, the job might look profitable on paper, but the cashflow won't 'look' right.

If you don't record all of the costs and overheads, you'll never know which projects are worth going after or are likely to be a drain on your resources. Use a spreadsheet or software for quoting/job control/analysis (eg., see the add-ons in XERO).

Accounting Software

Everyone was forced into software when GST was introduced, and it seems a lot of the software is only used to compile BAS for the tax office. Too many bookkeepers are just processing paperwork in order to comply with BAS requirements. If the information is not accurate, it may not be corrected until the income tax returns are finally prepared and then you may find out there was a serious problem. Don't just do things to give the tax office money, use the power of the software to get accurate, timely and useful reports.

How to Become a Secured Creditor

Sun, 15 Jan 2017 22:00:00 GMT

You may have heard that the Cullen Construction Group collapsed at the end of December (their main project is the 129 unit 'Boheme' at Robina).

The Queensland Government wants an enquiry into why there were so many unsecured creditors-principally subcontractors and suppliers. No doubt the bank will be okay though, so no need to worry about them.

The current issue is not the Government seeking to blame someone, because this won't achieve anything for the suppliers now, but it may result in toughening of the conditions of the QBCC. It certainly won't recover any money for anyone from this situation.

The essential issue is how the supplier of goods can improve their chance of recovery of monies owed by their customer.

There is a simple, effective and affordable system in place already, through the Federal Personal Property Securities Act (PPS).

All businesses who supply goods and certain property or services can, after issuing an invoice, register the customer's account on the PPS Register. A once-only registration and payment of a small fee can give a business lifetime cover in the event of a customer default. If the customer goes into liquidation, the debt due becomes secured . Registration also prevents the liquidator from claiming ownership of the goods already supplied.

The PPSR works because the debt is elevated in priority; first are employees, then lenders secured by a mortgage, the PPSR then puts you before the liquidator, and finally unsecured trade creditors. Priority depends on the timing of the PPSR registration date; those registered earlier have a higher priority.

Of course, it is never quite as simple as 'just registering'. It is imperative with all supply of goods or property on account that a valid PPSR registration be in place within the set time limits and that there is an appropriate clause in customer invoices and agreements (the 'retention of title' condition).

This is only general information and not meant to be a 'how to do' list. If you would like to discuss the PPSR and see whether it could help you, please call me.

Why do experts charge more?

Wed, 11 Jan 2017 22:00:00 GMT

Let's start with a different question.

How do you know if all or any of what someone advises or tells you is true?

Many things are subjective matters and not easily evaluated. So, when you hear perhaps that relationship building is critical, or you should package your products, or that desperate prospects are always trouble, how do you determine if that's good advice?

The simple answer is, you don't. What you look for is some form of proof or validation, even if that proof is subjective or biased or based on not-very-scientific factors. This could include –

- a bio that inspires confidence

- compelling testimonials

- the writing style seems 'experty'

- the writer's photo (and you perhaps decide this guy could not succeed on his looks alone).

All of these are not proof of expertise.

Here's the point, though, in most fields of endeavour or business, expert positioning is so important but has less to do with what you know and much to do with how you look .

To sell their expertise, experts therefore need to look like experts .

And, because experts can usually charge more, convert prospects more easily to sales, and easily attract more prospects, this suggests some work on your marketing (he said, expertly).

Remove red flags

You need to look good. Re-do your web site so it doesn't look like a school project for your teenager, get more contacts on LinkedIn, make sure your last blog was not when Kevin Rudd was ruining the country (yes, you read that last one right!).

Express some (strongly-held) opinions

"Tax increases are bad." "The right way to do A is to do B. " Experts believe in things and are not afraid to share them. Some people will disagree with you, but it's either that or fall back into the cluster of other equally hard-working, capable, experienced business people in your field.

Don't hedge

You need to speak and write with confidence, but avoid arrogance (he said modestly). What you're really selling is not the work or product, but the advice – what may have the best result or the highest impact, or more likely, what they can't figure out on their own. What's needed by the customer is your depth of understanding and access to your years of experience.

This is not the 60's type advice 'fake it till you make it'. You've already made it from a technical point of view because you are capable and qualified in your trade, profession, calling etc. So, if you're really providing advice, your customers want to believe that you know what you're talking about. (Heart surgeons mustn't be wishy-washy).

So, if something is holding you back in your positioning as an expert it's not likely to be your ability or experience. More likely, the limiting factor is your presentation or evidence of the strong beliefs you hold regarding your knowledge and expertise.

(Unless of course, I just made that up?)

Are You Affected by Pension Assets Test Changes?

Tue, 13 Dec 2016 22:00:00 GMT

Pension changes were announced in the 2015 Budget and apply from 1 January 2017 .

The Assets test and the Income test are the two tests, and the one that produces the lowest Age Pension applies.

We discuss the Assets test here, and a number of simple strategies that may improve the pension entitlement from 1 January 2017.

Upper Asset Limits

Around 300,000 retirees are expected to lose their Age Pension from 1 January 2017, because the value of allowable assets for homeowners reduces from $1,178,500 to $816,000 (couples), and from $793,750 to $542,500 (singles).

For non-homeowners, the threshold for couples reduces from $1,330,000 to $1,016,000, and singles from $945,250 to $742,500.

Lower Threshold

A full pension is now available for assets below these thresholds (excluding the family home):

homeowner non-homeowner

couples $375,000 $575,000

singles $275,000 $450,000

Rate of Pension Reduction

Once the minimum level of assets is reached, pensions reduce by $3 per fortnight for every $1,000 of assets above the lower threshold.

Possible Strategies

1. Invest in Lifetime Annuities

These are classed as long-term income streams that are not subject to deeming and have a reducing asset value.

2. Re-Contributing to Super

If one spouse is below pension age, withdraw a lump sum from the older person's super and re-contribute to the younger spouse, as super is exempt in the accumulation phase until pension age is reached.

3. Change Investments

If you have assets above the threshold (lower or upper), it may be worth reviewing those assets and seeking a better return on them. (You still have the same value of assets but you earn a higher return from them, which could partly compensate you for the loss of pension under the Assets test).

4. Change or Improve the Family Home

As the home is exempt from the assets test, purchase of a more expensive home or making improvements can result in reduced assessable assets.

5. Making Gifts

Gifts up to $10,000 a year or $30,000 over 5 years can be made without affecting the assets test.

Don't blindly jump into making changes. Get good advice on your options. Under the new Financial Planning rules. Accountants can no longer give specific advice, but through licenced associates we can refer you to competent advisors.

(The above is general advice, and made without reference to individual objectives, financial situation or needs. It should be seen as a general resource, not as a sole source of information. To obtain advice particular to your situation, please contact your financial advisor or ask us for a referral to one we recommend.)

Avoid Mistakes When Purchasing Property in a Super Fund

Mon, 28 Nov 2016 22:00:00 GMT

More investors are purchasing property in an SMSF. This is an investment strategy approved by the ATO as long as the legislation is complied with. Naturally, there are some common mistakes to avoid.

1. Approved Property

A Fund can purchase residential or commercial property as an investment. However, it is prohibited from purchasing residential property from a member or associate. Commercial property though can be purchased from a member, provided it is at market value and the rent paid is also at the going rate.

2. The Wrong Name

If a loan is required, you must acquire the property with a Property (or Bare) Trust with its own corporate trustee. This trust will be the purchaser on the contract and the legal owner of the property on the title. We have seen agents use the SMSF or even the member as the purchaser. This can trigger a second payment of stamp duty to correct the error. (Also, keep the contract and all bank statements and records as the SMSF must prove it has made all the repayments as the beneficial owner, then there will be no further stamp duty when the property is transferred to the SMSF after the debt is cleared.)

3. Renovations and Leverage

If the property acquired requires renovation or capital improvements and borrowing is intended, the changes to the original asset could trigger the "replacement asset" rules and accordingly, the asset would no longer be exempt from the general borrowing prohibition. Even if the fund utilises its own capital, this section can be triggered if the improvement results in the asset becoming a different asset (eg., building on a vacant block of land). It is also not possible to use the equity in an investment to use as a deposit to purchase another property.

4. Life Insurance

It is usual that on the death of a member their fund balance must be paid out. You can't 'part sell' a property, and if it is an old deed, not only may the member's proportion of the property have to be paid out but the life policy proceeds as well. Review and update the deed, and use the appropriate life policy to allow the property to remain in the SMSF.

5. Rollovers from retail/industry funds

Don't be surprised if the rollover is less than your last statement; the fund may have to sell some assets and this may trigger CGT. Also, consider the insurance in the industry fund, it could be at a fair price. Check out the cover with a responsible agent. If it is value, leave some moneys in the existing fund and contribute enough each year to pay the premiums.

Buying property in an SMSF can provide benefits and comply with the 'sole purpose test'. It is not just a matter of checklists or getting around the regulations, but ensuring it's the right strategy for you and correctly structured.

The material and contents provided in this publication are informative in nature only. It is not intended to be advice and you should not act specifically on the basis of this information alone. If expert assistance is required, professional advice should be obtained.

The Small Business Digital Grant

Thu, 24 Nov 2016 22:00:00 GMT

It's not often we can tell you about the Government being generous (well, a bit generous).

The Small Business Digital Grant, a Qld Govt. incentive, pays 50% of the cost, up to a maximum of $10,000, towards the 'purchase of hardware, software and services (such as digital coaching)'. The criteria include that the business must show that it will enhance their digital capability, be more competitive, employ more staff, and be value for money.

This funding round opened on 8 November and closes on 9 December. Very short notice unfortunately. However there will be two more rounds, one in March and one in June, next year. Only one application per year will be accepted from successful applicants.

The key eligibility requirements are:

- fewer than 20 employees at the time of application

- have an ABN and be registered for GST

- be Queensland based.

The service or coaching must be in one of these priority areas:

- digital marketing and social media

- digital content - web pages, mobile apps, media, etc.

- receiving payments or selling online

- specialised technology or business specific software

- digital planning and advice or training.

The process is simple. Apply, be approved, pay for the service, and reimbursement will be made in about 4 to 6 weeks. The business must make a report on completion detailing how the funds were spent and the impact it has had. Businesses will also be surveyed 12 months after completion of the project.

The Application Form is fairly simple, only several pages. Only 200 words are required on each of the expected benefits and a description of the project. Go to:

https://www.business.qld.gov.au/business/support-tools-grants/grants/digital-grants

This is not just about getting government money. Its more about growing your business and cashflow. That means thinking about goals, needs, strategies and actions. The actions include a marketing plan, including a website, using a database, getting and converting leans, SEO, etc.

So, if you've been thinking about using social media, a mobile app, or having training in online marketing and sales or using a video on your website, the program may help. If you want someone to advise and run with your project or concept, contact us for a referral to people who are very good in all these priority areas. If you want more information or help with the application, please call me. It is likely the first round will fill fast.

Complexity in Awards and One Complex GST Rule

Mon, 21 Nov 2016 22:00:00 GMT

Awards

Australia's workplace laws are complex, and there are always difficulties in interpreting the 122 Modern Awards.

So, many employers pay an annual salary. Problem solved!

Not quite. There was a recent decision in WA under the Clerks-Private Sector Award. The employer issued a contract confirming the salary of $78,000 included all entitlements which may become payable. The Award for a Level 5 employee is $47,008.

So, that means this particular employee received $31,000 more than the award entitlement. However, Award-covered employees receiving an annualised salary is fairly risky, in part because many of the Awards impose very strict rules about annualised salaries.

From that Clerks Award an employer is permitted to pay an annual salary for provisions including the minimum weekly wage, allowances, overtime, penalty rates, and leave loading. However, the employer , must advise in writing which of the provisions will be satisfied by the annual salary.

Because this condition was not met, and even though the employee was paid well above the award, she was allowed to pursue a claim for underpayments relating to overtime and meal breaks.

The message is: Have employment contracts drawn up and/or checked for possible breaches (perhaps "overtime is limited to X hours per week"). Your solicitor could provide this, and there are some other suppliers who sell employment and contractor agreements (call us for details).

GST Attribution (when you can claim a GST credit)

Generally, attribution depends on whether the enterprise is on a Cash basis (claim GST when the item is paid for) or Accruals basis (claim when the goods or services are acquired, not necessarily paid for).

However, whichever basis is used, a tax credit cannot be claimed unless a tax invoice is held when the applicable BAS is lodged. If one is not held, when the taxpayer eventually obtains the tax invoice, it can claim in that subsequent BAS, but only up to the four year limit.

If a taxpayer simply overlooks an invoice for a BAS, it can either go back and amend the relevant BAS, or claim in a later tax period.

Why an Elevator Statement Doesn't Get You Clients

Mon, 14 Nov 2016 22:00:00 GMT

Ask any small business owner, especially services based, and ask them where their best clients come from and most will say the same thing. "Word of mouth!"

That usually means referrals or even networking. So how do we make sure we get more of this wonderful thing?

Let's start with a game. List a few people you've had a conversation with (not customers) in the past few days, not necessarily deep and meaningful, but more than just 'hello'.

Here's some I've had:

- Chap in the lift when I dropped my gym gear back in the car. (He jumped in to the lift which was going down, not up)

- Sales assistant at the corner shop when I picked up Saturday's paper (Oz Weekend Magazine missing again so I had a grizzle)

- Fellow at the gym said he was amazed I can dead-lift 80kg (so am I!)

- Guy whose dog was taking him for a run in the morning (the dog was winning easily).

How many of those on your list are potential clients? In my case, and probably yours too, most likely none. No surprise there.

Most of the people we meet, day in and day out, are not prospects – and never will be.

Most conversations are with random, never-gonna-buy people we barely know. So the traditional response to 'what do you do', the elevator statement – highly polished, full of benefits, well-rehearsed, seeking to impress or generate interest – are mostly a waste of time.

Sure, they can be useful if you're networking because that is what's expected in that situation. However, the vast majority of people you interact with every day will probably not be looking to engage you; not today, not tomorrow, not ever.

Here's an idea. Make sure you have the elevator statement for the right occasion, but also figure out what to say during the frequent, casual conversations you have every day. You know, when somebody asks "what do you do?"

This one is not about generating interest or impressing someone. It's about this, and nothing more: getting them to remember what you do so they can tell other people. That's how true word-of-mouth works.

Then, when they're asked ….. "Do you know someone who can help me with ….?" That's when they remember you with your super-simple specific statement ( spoken sibilantly ).

People don't look for solutions 'in general'. They have specific needs, specific situations. So, when a Buddhist and a dictator are talking in a bar and one asks for a "results-oriented, well-rounded service professional, with an enviable record of enhancing growth … (blah, blah)", it's unlikely you will be first choice.

However, it could work better as:

- I help new businesses find the right location for their Plan

- I make sure business web sites generate leads

- I sort out business tax problems.

(Does anyone know someone who does the last one?)

Are they oversimplifications? You bet they are. But, they're easy to understand and remember. The people you chat to won't remember detail, and people only want to be pointed in the right direction.

You want to be at this stage - the pointee.

Here's the bottom line (sorry it took a while). Sales skills, experience, credentials, and data-specific client result examples are important in getting somebody to hire us. But it is up to the prospective customer to make that judgment when they meet with us.

An engagement won't happen from a casual conversation with perhaps a near stranger, which takes place well before the selling starts.

So, the pointee needs to simplify the description of what he does so that other humans can understand it, remember it, and pass it on when the opportunity arises.

PS: If you're travelling up in the elevator and you give your elevator statement in order to get hired in the future, would the result if going down be to travel back in time? There's a question better referred to Stephen Hawking; I only sort out tax problems. (Too subtle?)

Changing Business Structure

Wed, 09 Nov 2016 22:00:00 GMT

Many businesses start off as a sole trader (little cost, heaps of risk) and later move to another structure for a good reason (perhaps more tax efficient, asset protection, better CGT advantages, reduced personal risk). So, what are the steps to change structure?

1. Decide on the principal and secondary advantages you want.

(We use an entity/benefits matrix to assist this process, and PS: there is no perfect structure!).

For simplicity, lets's assume it will be a company (a Trust will be similar).

2. Decide on Ownership and Office Holders.

There may be more than one shareholder for dividend purposes, but it only needs one director and secretary. Directors can be held responsible for debts incurred by a company and may have to sign guarantees for suppliers, premises, loans, etc. (Consider one partner as director and the other owning the private assets).

3. Incorporate

Use a service or your professional provider. Search the name first on ASIC to ensure it's available. You may be able to incorporate using your existing business name (you give yourself 'permission' on the application form). Apply to the Tax Office for a tax file number, ABN and GST registration, employer registration. You may also need to change Domain Names.

4. Consider your Business Terms and Conditions

No doubt the business is growing which is one reason to change structure. A growing business needs systems, controls and efficient reporting. Look at your terms of trading with customers; will customers have to provide a guarantee, can you speed up collection of outstanding accounts with new terms for payment, when do you pursue an overdue debt, who is responsible for ordering stock, who will be paying accounts, etc.

5. Advise your Customers and Suppliers

Customers need to know the new bank details to pay their accounts. To be effective, contracts with customers and suppliers may need to be changed and re-signed.

6. Insurance

Inform your broker or insurer and ensure cover is appropriate and correct. Obtain Workcover, and also register as an employer with super funds.

7. Employees

Employment needs to be transferred to the company. This could mean not just informing them but completing new employment contracts (all rights and benefits carry forward to the new employer). Request new TFN Declarations (and lodge to ATO) and Choice of Super Fund (keep copies in your files).

8. Transfer Assets to the Company

While there was a change eliminating CGT on restructures from 1/07/16, State Stamp Duty may still be payable. Document and value what is being transferred; debtors, work in progress, stock, vehicles and plant, goodwill, property, etc. Stamp Duty at conveyance rates is payable (between 3% and 5.5%).

9. Accounting

Your business is now more complex, and you have more legal responsibility. Make sure your accounting records are appropriate, preferably cloud-based with good security. If you don't understand the accounting reports, have a regular meeting with someone who can analyse and interpret. Also, prepare a 12 month forecast of profit and cash, and compare regularly against actual results.

Changing structure is complex and not just about saving some tax. If you were starting a business, the right structure from day one may eventually save a lot of trouble and cost. If you do need to change structure, first consider the advantages sought as a means for selecting the preferred entity, get professional advice on possible legal and tax issues, and then work through the steps.

Coping with a Cashflow Squeeze

Wed, 02 Nov 2016 22:00:00 GMT

Christmas is usually a challenging time for the management of business cash flow. It is a key trading period, so demands on cash are high. However, collections can be slow as your customers try to cope with their own cashflow problems. Then, add in the traditional trading slow down in the first two or three months of the new year plus the payment of BAS at the end of February.

These are several of the most common problems encountered around debtors and stock:

- Slow debtor payments – as these don't pay you on time this can harm your ability to grow sales and profits, and could lead to a breakdown in customer relationships.

- Debtor insolvency – the customer may become insolvent and the debt not be recoverable at all.

- Stock acquisition – you need to import or purchase extra stock, so too much cash is locked up in unsold inventory and/or slow debtor payments.

- Loans – can be difficult and slow to access from the usual bank lenders, requiring security and a proposal for use and clearance.

- Overtrading – the business could have too many orders but this level of trading cannot be sustained by available finance, so the business runs out of working capital and becomes insolvent.

Ten point checklist to improve cashflow:

1. Invoice early, ask for deposits, obtain credit references

2. Deal with slow payers now

3. Review your systems for receivables management problems

4. Clear slow stock now to obtain cash

5. Offer early settlement discounts to encourage prompt payment

6. Prepare an accurate Sales Forecast, Profit & Loss Forecast, and Cash Forecast with assumptions based on best case, worse case and most likely

7. Analyse the forecasts and identify periods of high cash usage and consider how to deal with concerns

8. Consider priorities – delay other investments and personal spending until cash flow will improve

9. Analyse outgoings and reduce costs where possible

10. Look at finance to fund working capital needs.

There is no magic solution for working capital finance, but consider the following:

- Bank overdraft or line of credit – apply early, have your forecasts available to show the need and the capacity to pay, and expect that the bank will require security.

- For import stock – trade finance may be a solution

- For a quick source of cash from accounts receivable – consider factoring or invoice discounting

- For export stock – trade finance or export finance may be available

- For cash for working capital – loans may be available from the specialist 'financial technology' firms (these look at your average monthly sales and lend a percentage of your turnover over say 6 months)

The cost of using these specialised lenders is not prohibitive, and if it helps you fix a problem or get the outcome you want, is acceptable value. If you'd like some help with anything in this Blog – identify the problem, fix a problem, forecasts, or working capital finance – give us a call. We can put you in touch with the right people.

Are you ready for Superstream?

Tue, 18 Oct 2016 22:00:00 GMT

Small businesses, up to 19 employees, must adopt Superstream by 28 ^th October. This was extended from 1 July 2016 because about a third of businesses were 'not ready'.

Superstream requires employers to notify and pay super contributions for employees electronically (this is not an option from the end of the month, payments must be made electronically – except for the principals SMSF).

After 28 October, the ATO will review all super lodgements and will contact those that are not compliant. It could impose penalties if no effort has been made to comply. Of course, late contributions will be easier to identify too.

It is not difficult. Employers can send to the Fund(s) used, or use Superstream, which is operated by the ATO. For example, the employer will send the report of how much super is due, the names of the employees and their chosen funds, and remit the total contributions. Superstream breaks down the detail and sends the cash and reports to the various super funds.

You can set up by contacting the super fund and ask for their online system details, or use the ATO's Superstream. If you need some detail or information on Superstream, go to:

https://www.ato.gov.au/super/superstream/employees

For an ATO checklist (how to set up):

https://ato.gov.au/super/superstream/employers/employerchecklist

For an ATO decision tool (which solution suits you):

https://ato.gov.au/uploadedfiles/content/SPR/downloads/superstream_decision_tree

This is the start of the Simplified Reporting systems. All payroll is likely to be handled by electronic reporting, perhaps next year, and eventually the software you use (MYOB, Xero, etc) may be connected directly to the ATO.

Passing on Assets could create 'Problems'

Mon, 17 Oct 2016 22:00:00 GMT

One problem with passing on assets to children is knowing who will actually receive them. That is, the Will is made now but it is not possible to know the children's circumstances at some future time.

Once assets pass on death to a nominated person they then become available to a liquidator or bankruptcy trustee, family law court, former partner, or to a household with drugs or violence. These are vexing questions, and ones a traditional Will may not properly handle.

The solution may be a Testamentary Trust (T/T). Here, the assets do not go to the beneficiary but to a trust. There is no capital gains tax or stamp duty as these vest through a Will.

The children get control, but not ownership. Because the asset is not specifically theirs, a bankruptcy trustee or family court has no access to the asset. They are free to sell or change assets and share the benefits within their family group (but cannot remove the assets from the trust), whereas a normal Will restricts the benefits only to the new owner.

If the T/T has income or capital gains and those are directed to a minor beneficiary (child), the income is not taxed in their hands at penalty rates of 60% but at normal tax rates.

A T/T must be part of the Will when the Will is prepared. The T/T comes into existence by the executor handling the estate. The bulk of the Will may stay the same, the T/T is an additional matter. An executor cannot set up a T/T unless it is included in a Will.

This sort of treatment can even occur between spouses to protect their assets for their children. If the surviving spouse remarries and dies, assets can be retained for the original children and not the new partner and his/her family.

Use of a testamentary trust should be discussed with your solicitor, and if decided, have them amend your Will.

Why write a one-page marketing plan?

Tue, 20 Sep 2016 23:00:00 GMT

Usually, a Marketing Plan is part of a Business Plan. Business plans are often beautifully written but hardly ever referred to after they are printed, so can be a waste of opportunity. Every business needs to look for opportunities and take advantage of them, and a Marketing Plan reviewed regularly achieves this. A business plan can be written in a One Page format, and a one page format can be used for the Marketing Plan too.

A marketing plan doesn't have to be the size of a phone book, it just needs to be responsive to the market.

It really needs to address four essential points:

· What makes me different

Why should customers buy from you? What makes your business stand out, or what is your Unique Selling Proposition or Point of Difference?

· Who are my customers

Who are your most important customers, and what are their defining qualities? What problems do you solve, or what needs/wants are you satisfying.

· What needs to be said to customers to win or retain customers.

How will you solve their problem? What is benefit of your solution?

· How will you reach these customers.

How do they want to be reached, where are they now, how can they find you?

Once the core elements are worked out, determining the tactics is then much simpler. And, as with any plan, you should not throw money down and hope things work. You do need to research, test and continue to improve your marketing. Always measure the return on your investment; that could mean the number of visitors or leads, the number of conversions, the spend per head, etc.

If you need some help with planning, we can help you to analyse the problem, or we could refer you to people who specialise in these areas, including effectively using social media.

Not Superannuation Again!!

Mon, 19 Sep 2016 23:00:00 GMT

Treasurer Morrison has thought through the 2016 Budget proposals on super and revised the package. In summary:

· The $500,000 Cap is out, but an annual cap of $100,000 is in

This applies to non-concessional super only and the $1.6m cap on tax-free pension funds will stay. The annual cap has been reduced from $180,000 and it is still possible to contribute three years in one.

· Catch-up concessional contributions to start 1 July 2018

This allows those who haven't used their $25,000 annual concessional contributions over a five year period to make a catch-up contribution later.

· Reversal of work test

The work test will stay for those between the ages of 65 to 74, requiring them to work 40 hours in a 30 day period to be able to make contributions.

· Concessional cap $25,000

From 1 July 2017, the maximum annual concessional contribution will be $25,000, irrespective of age.

To put this in some context, did you know these facts about super?

· The average balances for 45 – 54 year olds are $151,000 for males, $91,000 for females. For those aged between 55 and 64 the balances are $322,000 and $180,000.

· most people don't get serious about retirement planning until about three years before they plan to retire

· the majority of retirees draw a pension, only 30% of benefits are taken as lump sums (mostly used to pay off a home or debt, invested elsewhere including bank, annuities or other super scheme, purchase a car, or for a holiday)

· the average pension drawn is about $33,000 a year, or about 7% of the fund balance

· over 50% of superannuants over 65 receive more than 50% of their income from government pensions or allowances

· a man who turns 65 today can expect to live another 22 years, and a woman 24 years.

So how do you pay the bills for another 20 plus years?

· Work out what you need a year

Say that's $60,000, which is not a lot. Calculate the capital required assuming an annual earning rate of say 5%. Remember to allow for inflation, which can halve the spending power of a fixed-rate pension over 15 years. Where will the capital come from? There are tables that calculate these; just call us if you would like a link to one.

· Even better, get some quality advice.

Every bank or insurance company will happily take your money and promise to achieve the result you want. Remember, it's not just about the return on your capital, it's also the return of your capital. You need to factor in the proceeds of selling your business, perhaps downsizing your home, can you get more into super under the new rules, does it all have to be in super to get the best tax result, what government benefits might be available, consider the costs and management fees, etc.

There are some caring and knowledgeable financial planners who actually give quality unbiased advice, rather than sell the company's product. (Ask us for a referral.)

· Don't procrastinate.

It might be daunting to have to look at your financial prospects but the sooner it's done the more time there is to make the changes to better your situation. Ignoring it is not an option.

Now you know what the Government's going to do, you know the average earnings and situation of retirees, and the benefit of quality planning. Under the new financial planning rules accountants can't give financial advice (you can get a report for a considerable fee from a bank computer – good luck with that result!), but we can help you with the planning outline (how much do you need a year, how much capital is required, etc), and an introduction to a trusted planner . We'd love to help you get the result you want for yourself.

Tax Office to take action on overdue tax debts

Mon, 29 Aug 2016 23:00:00 GMT

In a Newsletter earlier this month we referred to the ATO's expanded use of Director Penalty Notices (DPN's) for recovery of certain unpaid taxes, especially to collect PAYG Withholding and Superannuation. DPN's are a concern because there is no real defence, the company debt becomes a persons debt as a result.

The tax office has said that it is now intending to take 'more timely and stronger action' against small businesses with outstanding tax debt. This will include garnishee notices, DPN's, and even insolvency proceedings.

The primary purpose is to collect the debt but is also to prevent those who don't pay from trading insolvent. Insolvent trading causes financial distress for suppliers, customers and employees and gives those firms an unfair competitive advantage. (Is that really a concern for the business, or is the Government just missing out on its share ?).

Collectible tax debt of businesses is almost $34 billion, and collection agencies have warned many businesses are presently struggling to break even, some surviving only because interest rates are low, and quite a number are close to collapse. (It is possible that the economy could continue like this for a couple of years, so if you haven't already, develop a strategy to deal with tight conditions.) There is no specific debt threshold at which the tax office could begin insolvency action but it says it will consider the asset position of the business, the size and nature of the debt, the future income of the business and the risk to revenue, and the cost and likely success of undertaking collection action.

Couple this information with the action to prevent 'pre-insolvency activity' by ASIC this month in raiding offices of several firms specializing in reorganization to avoid liquidation, a nice way of saying phoenix trading which is illegal (move the assets to a new company, allow the old one to go under and creditors get nothing, new one continues in a similar name).

So, what do we expect:

- The ATO should be approached early for a payment arrangement. It is likely that the debt will be required to be paid over 12 months, but the current policy allows for flexibility and 'being reasonable'. Usually the ATO is quite helpful. (Or, call us to attend to this for you.)

- If staff super can't be paid on time (by the 25 ^th of the month after each calendar quarter), lodge a listing of the super due to the ATO (call us for the form) and avoid a DPN.

- After 31 October, all super has to be lodged and paid electronically (say, using Superstream), so this may take the place of the paragraph above. At least lodge and avoid a DPN.

- Beware of trading insolvent. Prepare profit and cash forecasts for 12 months to ascertain that the business is profitable and can pay its debts as and when due. (We have software that makes this much easier to do).

- Prepare a One-page Plan and a Profitability Analysis – these will highlight the 3 or 4 strategies that will make the biggest difference in the next year. This usually requires up to half a day.

Why worry about a Director Penalty Notice?

Mon, 15 Aug 2016 23:00:00 GMT

Many people operate through companies, or companies as trustee, believing they are personally protected by limited liability. Not completely!

What is a DPN?

DPN's have been around for years, and these allow the ATO to collect unpaid PAYG Withholding tax and superannuation not from the Company but from the directors, or even just one of them.

Why is a DPN significant

The directors are no longer protected by the corporate structure for these particular debts.

How does a director become liable?

- If BAS are lodged within 90 days of the date due and the liabilities are unpaid, the ATO can serve a notice giving the directors 21 days to take action (the 21 days runs from the date of the Notice so addresses need to be up to date with ASIC, the wrong address is not a defence). The actions are to pay, including make an arrangement to pay, or seek administration or liquidation. If one of these actions is taken there is no personal liability.

- If the BAS were not lodged within 90 days and the PAYGW and Super are still unpaid, the director is automatically subject to a DPN and becomes personally liable for those debts. There are no other options, only payment.

Is it possible to avoid personal liability?

The smart answer is make sure these are paid, and ensure all BAS are lodged within 90 days of the due lodgement date. That gives time to set up a payment arrangement, or liquidate if need be. This way, the director avoids personal liability.

Does the ATO always issue a DPN?

The short answer is no. There does not seem to be any hard policy, it is a discretionary power. It does seem to be used where the company has a history of non-payment, and other factors can include the amount of tax, compliance history, perhaps the age of the debt, and even the financial position of the director(s). The ATO is required to make commercial decisions.

In Summary

Lodge BAS on time, seek a payment arrangement. If you need help for either, call us early.

If any notice is issued the Directors need to act quickly, and get good advice which is relevant to the circumstances.

Don't be Caught!

Tue, 09 Aug 2016 23:00:00 GMT

Another day and another scam!

Cybercrime is estimated to affect around 700,000 Australian businesses, 60% target SME's, and costing around $1.6 million in the past six months. One of the biggest culprits is 'ransomware'.

You might know the type – the Post Office, you owe the ATO, the Bank has lost your details, ASIC has received a complaint about your business, etc. There is a new one; "The Federal Circuit Court sends you a subpoena". All these scams typically ask users to click through to a website or to open an attachment. The ransomware also looks for other devices to attack, such as attached USB, Network drives and even Cloud drives accessible from that computer.

What happens once you do click through is that your computer and networks become encrypted and you can't access your files. You must pay a ransom to get a key to release the files (if you're lucky).

How do you protect your business or yourself (individuals get these too)?

1. Don't click too fast

Read the notice, be suspicious, look for the language and requests not sounding quite right. Ask yourself 'why would the …….. want my information?' Don't click on the URL in the email, go to the normal (bank, etc) website and check with them. Tell your team to be careful too.

2. Keep security up to date

Ensure that security applications are kept up to date, preferably automatically. Use an anti-virus application that has a good reputation, and will protect from attacks from emails.

3. Back up!

This may be your best defence. Have a back-up of all systems, preferably remote from your computer. However, basic back-up services may not protect you either, not if they simply upload the encrypted files and overwrite your backups. You could use backups that keep previous versions of your files, so if an encrypted file is backed up you can go back a bit further to access an unaffected backup. Restoring can take a little while but the cost will be less than paying a ransom, or losing everything because of the loss of all your data.

4. Training and Support

Tell your team to be careful and to stick to safety procedures. Have your data backed-up professionally, it's not expensive, and use an IT service you can rely on to respond. (If you don't have someone or would like to look into this, call us for a referral.)

5. Take out Insurance

This doesn't prevent an attack, but you can insure for backup and losses caused. If your broker has not offered this, call us for a referral.

Ransomware attacks are becoming more sophisticated and harder to detect. You need to have a strategy for protection and response.

Where to for interest Rates?

Thu, 28 Jul 2016 23:00:00 GMT

Every month the RBA has a reason why interest rates don't need to be changed. The text books tell us that interest rates should fall when unemployment rises, housing and consumer demand falls, and inflation is low (the core inflation rate is 1.5% - this removes all volatile price moves).

The same texts tell us that the 'natural unemployment rate' is 5.4%. The ABS has the current rate at 5.8% but Roy Morgan says 9.6%. Both ABS and Roy Morgan also say around 8.3% are underemployed (looking for more hours). Depends if you believe ABS figures, but let's say up to 1 in 10 are looking for work and a further 1 in 10 want more work. That means 20% of potential workers have insufficient income to spend, which may raise consumer demand.

And we also know that new dwelling starts nationally are down 9.1% on last year, and apartment approvals are down 18.2%. Also, core inflation is 1.3%, well below the 2% to 3% targeted by the RBA.

So, why doesn't the RBA stimulate the economy by reducing interest rates and influencing people to spend and businesses to grow? Don't know the answer to that, their releases don't really explain how they get to an answer.

The best way I've found to forecast interest rate movements is to watch the Yield Curve . This is the 10 year government bond rate less the 90 day bank bill rate. Neutral policy seems to be for 90 day rates to be around half a percent lower than the 10 year rate. An Inverted Yield Curve is where the long-term instrument has a lower yield than the short-term (also a predictor of economic recession).

As this 0.5% increases towards a 1% difference, monetary policy is regarded as loose and so interest rates increase. However, if the bill rate falls so there is little difference between short and long term rates, monetary policy is seen as too tight and the Cash Rate is reduced (which then reduces the bank bill rate).

The YIELD CURVE is a pretty good forecaster of likely interest rates. At the moment, the Curve is showing that monetary policy is too tight, so it is reasonable to expect the Cash Rate to fall at least another .25% next month. (It is difficult to see how that will make a big difference to unemployment and housing, so 0.5% may be better, but that is politically not likely – I forgot, the government can't influence the RBA). So, perhaps expect another 0.25% about November/December anyway.

As the global economy heads towards deflation, the Aussie dollar is likely to fall which should mean a further drop in interest rates. It might not be unreasonable to expect the Cash Rate to be 1% in the first half of next year.

Does it really matter much? It does if you're relying on a higher interest rate for an investment return. Has it resulted in an improving economy overseas? Consider Japan and those countries with a zero or negative rate, and the answer is no. However, it could succeed because it forces investors and businesses to spend or to seek higher returns than available from banks and deposits. That changes one of the basic investment rules – look for the return of the capital rather than only the return on the capital. That's another story.

The point of today – the Yield Curve is a good bellwether for the trend of interest rates, and perhaps for a recession.

Ten Common GST Mistakes

Mon, 18 Jul 2016 23:00:00 GMT

These are the ones we see often and the ATO says occur most regularly.

1. Double Dipping

When a vehicle is purchased, the accounting entry is to put the cost to an asset account, claim the GST paid, and record the loan as a liability. As repayments are made each month, these reduce the loan, so no GST can be claimed on the payment.

2. Incorrect tax codes

Codes are nominated when the chart of accounts is opened, and determine if GST is to be claimed or paid. It is worthwhile having this code checked, especially if you are opening new accounts.

3. Collecting GST on all Sales

Most services and products are subject to GST; however, medical and health care are not, nor education, nor basic food.

4. Claiming GST on all Expenses

Some categories do not include GST; like vehicle registration, bank charges, ASIC fees, interest paid, salaries and director fees, and council rates.

5. Excluding capital sales from G1 (Total Sales)

Equipment sold (vehicles and office equipment) need to be included in Sales (for GST purposes).

6. Including Wages and Super in G11 (Non-Capital Purchases)

Salaries and Wages are recorded in W1 (Wages) so must be excluded from Purchases G11. Super is not part of Gross Wages so is not included in W1.

7. Claiming GST on private expenses

It is possible for the business to pay for items for private use, but the cost and GST should be charged to a Loan Account. Because the company paid for the item it does not make the GST deductible, eg., private travel, entertainment, a non-business vehicle.

8. Reporting capital items under the wrong tax code

If it is being written off in the same year, report these at G11 (non-capital purchases). If over this term, it is a capital cost and so goes under G10 (capital purchases).

9. Claiming GST from suppliers not registered for GST

Check the invoice to see it if is a 'tax invoice' or to see if GST is shown. If in doubt, go to the ABN Lookup website and enter the suppliers ABN, to verify that they are registered.

10. 'Overlooking' the recording of cash sales and cash purchases . It is surprising how many businesses forget to claim for small cash purchases (petrol, hardware, stationery, tools, tolls). These add up and there can be a lot of GST. So, reimburse yourself so there is a record, pay by credit care, or try a service like: https://www.shoeboxed.com.au/ . On the other side, all cash sales have to be shown too; if you discount, amend the invoice or register tape.

With the quality of software now, keeping good records is not difficult. But, if it takes too much time or is too difficult, use a good bookkeeper or accountant. We provide this service for many clients now as a fixed cost, and we can refer you to capable bookkeepers.

GST is really quite simple, but there are always industries or circumstances that are not straightforward, like property. A really quick email or phone call (we don't charge for these) could save a lot of anguish later.

Buying a Vehicle - more than a pretty paint job

Wed, 13 Jul 2016 23:00:00 GMT

A vehicle is a major purchase, so you want to know you're getting it right. Business decisions should be grounded on the numbers, not on impulses.

So, what can you do to make sure the purchase is wise, strategic, and contributes to the bottom line?

1. Consider its primary use

All vehicles are a long-term asset and likely acquired with a loan, which is a long term liability. That is, the expenditure or payments match the term of its useful life.

Determine how the vehicle will assist you to make a profit. Trades need a work vehicle to carry equipment. A car to deliver documents may only be used to save on courier costs, so a second-hand small sedan may be best. So, eliminating unnecessary features that add to the cost may give you a better idea of how the vehicle will perform as an asset, and perhaps which to buy.

2. New or Used?

New means a higher price, better reliability and longer warranty, latest features, and a higher residual. Second hand is lower cost, less reliability and shorter warranty, and a lower residual.

The decisive factor is probably its primary use and how long you will keep it. If the vehicle will be used over the long term, even longer than the loan term, then it makes sense to buy with a higher residual value and at the start of its lifespan. If acquired only for occasional use and not much business (see Tax) or hard use, a used car may make more sense.

3. Image

Sometimes this is relevant. A customer may make a decision to buy based on how they perceive you. A van that is polished, no dings, and professionally sign-written tells the customer that you care about the small things too. A doctor in a 1972 rust-bucket should make you cautious, but in a 1972 car immaculately restored would be okay.

4. Tax

A small business (annual turnover less than $2m) can use accelerated depreciation rates and write a vehicle off over 4 years. Alternatively, it could be depreciated over its useful life, which could be around 8 years.

Until 30 June 2017, if its cost is under $20,000 excluding GST, the entire purchase price can be immediately written off. (The 2016 Budget also allows this for businesses up to $10m too, although the legislation has not as yet been passed).

However, if it is a car (carrying capacity less than 1 tonne), a log book of business use must be kept for 12 weeks in the year it is acquired. Only the business proportion of the GST, depreciation or write off, and expenses can be claimed.

5. Finance

This is a long term liability, and needs to be carefully considered. The most common vehicle loans are chattel mortgages or asset purchase, and hire purchase. A chattel mortgage gives you ownership, while HP means the lender retains ownership.

The loan can be tailored to the business cash flow and requirements. Often 100% can be financed over 4 or 5 years, sometimes with a substantial residual, depending on vehicle age. This reduces payments, but not interest. The GST is claimed in the next BAS, and then (subject to log book), the depreciation and interest is claimed in the next tax return.

Who you deal with for finance is important. Car yards can be okay, but there is probably a good commission in the rate you pay, so ask for their best rate upfront. Your bank knows you, so that could make approval easy. We suggest finding a good broker and stay with him. He is working for you so will get you the best deal. Yes, he earns a commission, but he's saving you time and gets you the best rates and conditions. You need also to consider fees and penalties for early payout. A no-interest deal means you are paying full price for the vehicle, so look at the overall deal from each dealer (cost and interest over the term). If you don't have a broker, let us know and we'll recommend a reliable one to you.

Golf and Relationship Marketing

Mon, 04 Jul 2016 23:00:00 GMT

Do you play golf? I don't, its appeal is lost on me.

I could perhaps learn to like it but I see no reason at this point to cultivate a new, expensive habit that would likely only serve to annoy my wife. I've got enough old habits that do the job just fine.

Where does golf fit in? Somebody recently sent me an email where golfers are on a driving range – where there is a net a couple of hundred metres long and fifty metres high – and on the other side of the net is the parking lot. Can you sense there's something bad about to happen?

A ball travelled 150 metres, went through a small hole, and smashed a car windscreen. I'm willing to bet that the best golfer (I have no idea who that could be) couldn't have made that shot even one in a hundred tries. (I also don't know why there is film of someone achieving it by luck? Would you film every player hoping one would get lucky?)

Here's the point of this. What if we had a thousand golfers, a thousand cars, and a thousand holes in the net? I would expect a lot more hits because the chances go up so much more. (Even if I could calculate the Probability that's half an hour of my life I'll never get back).

At its best, this is how relationship marketing works. In other words, it's not about closing the perfect client with the perfect offer on the perfect day. That would be great if you could do it all the time. I doubt there are few who can.

Relationship marketing is like having the 1,000 golfers working on your behalf. It's a numbers game and the more numbers working in your favour, the more likely it is that somebody, somewhere, is likely to send a prospect your way.

What matters therefore is keeping in touch with enough people, regularly and repeatedly, and in a way that helps them understand what you do.

That means …….

1) Keep all your contacts in one place, accessible, accurate, informative . If you don't know who you know how do you know if you're keeping in touch?

2) Simplify your explanation of what you do . Not a lengthy elevator statement, but a brief, simple label that the world can quickly grasp. ("I get the best tax result for people in business").

3) Work at it every day . Building a relationship is like exercise; it's easy and fun (although not at the gym I go to, but they say it will be eventually). Long periods of inactivity limit results and can cause a lot of pain.

4) Here's the bottom line. You can build your business sequentially and all by yourself, targeting people and companies that seem like desirable prospects and going after them in some way. Or, you can focus on expanding and maintaining your relationships. Do that well enough and often enough and before you know it, all kinds of people will start hitting the ball for you through the net.

Test Questions:

1. Do you play golf? (For extra points …….. why?)

2. Have you ever had a perfect day at work?

3. How do you stay in touch with your relationships?

End of Financial Year - 4. Tax Strategies

Thu, 16 Jun 2016 23:00:00 GMT

Nothing is ever simple with tax. Rather than just one confusing email with several ideas on minimising tax this year, we have sent out three, though hopefully not confusing, and explaining key issues to consider in a bit more detail (Superannuation, Legal changes from 1 July 2016, and Tax Office concerns & hit list). If you don't have these, give us a call and we'll send you a copy.

This is a little long, but in detail so is understandable and not complicated. Superannuation must be paid before 30 June to be a deduction this year, some things need to be thought about (stock, log books, accruals and prepayments), and some things we will provide (resolutions for trust distributions, directors fees, and Division 7 loans).

So, here are 12 top tips for EOFY 2016.

1. Superannuation

This is first because it has to be paid by 30 June to be deductible this year.

The maximum concessional (tax deductible) contributions this year are $30,000 (for those under 49) and $35,000 (49 – 75). Between 65 and 75, to claim a super contribution the taxpayer must pass the work test, which requires 40 hours work over 30 days.

There are also benefits in transferring surplus cash (or even assets) into a fund, where earnings are taxed at a lower rate of 15%. The annual cap on non-concessional (not tax deductible) contributions is $180,000, but it is possible to bring forward up to three years worth if under 65. However, the 3 May Budget says the limit for all non-concessional contributions since 1 July 2007 is $500,000. Even though there is no legislation, it is perhaps best not to exceed this (retrospective) limit.

2. Employee Superannuation

The June quarter SGC payments are not due until 25 July. However, they are tax deductible this year if paid to the Fund before 30 June.

Also, employers must make contributions after 1 July by electronic means, for example, the ATO's Super Stream. Funds won't be able to accept them otherwise. So if you are not set up on this facility, perhaps pay before 30 June.

3. $20,000, Instant Asset Write-off

For businesses with a turnover less than $2m, any individual item purchased where the cost is less than $22,000 including GST can be immediately written-off, in full. Above this, the asset must be depreciated. However, the item must be installed and ready for use by June 30.

Next year, businesses with turnover up to $10m will be able to write off the whole amount too, so it could be worth delaying any acquisition until after 30 June.

This measure needs to be considered using common sense; you are spending the full 100% but the tax benefit is your marginal tax rate, which for a company is 28.5% and most taxpayers 34%.

4. Dividend and Interest Income

Make sure interest and dividends received are declared in this year. These are taxed when received (even if matured and re-invested), and franking credits must be applied to gross-up the dividend actually received.

5. Defer Income and Capital Gains

Businesses on the cash basis pay tax on income actually received. A simple end of year tax strategy is to delay receipt of the money until after 30 June. Businesses on the accrual basis could defer income by delaying the sending of invoices to customers until after 30 June.

Capital gains take their timing from the contract, not settlement, so delay signing until July. As long as the asset has been held for more than 12 months, the gain is reduced by the 50% general discount, and the tax not payable until May in the following tax year. The Small Business Concessions could reduce the CGT further, but business turnover must be less than $2m for the year.

6. Manage Capital Gains and Losses

You may have made a capital gain this year. There may be capital losses from past years that can be offset against the gain, or you could have assets that have an unrealised capital loss, like shares, and reduce the gain with their sale before 30 June.

7. Distributions from Family Trusts

The distribution needs to be documented by 30 June in a Resolution or Minute. The requirements will be in the Deed. If not, the trust can be taxed at the marginal rate of 49%. We hope to have Trust Resolutions set out early next week, for signing and return to us.

8. Trading Stock Valuation

All businesses have the option of valuing trading stock at year end at the lower of cost, market, or replacement value. You can use any method for any item, and also change from year to year. If you have obsolete stock, write it off or perhaps use a notional clearance market price.

Ensure you keep the stock sheets; the ATO can ask to see them.

9. Motor Vehicle Log Books

Review log books to ensure the entries are not older than five years. The log book is necessary to claim GST, manage FBT, and claim the right percentage of costs for tax.

10. Claim Deductions for Expenses not Paid at 30 June (Accruals)

All businesses are entitled to claim an immediate deduction for expenses 'incurred' (irrevocably committed to paying) even if not paid by 30 June but paid within a reasonable time after the end of the year. Including:

- Wages

Claim for the number of days employees work up to 30 June, but did not pay until the new financial year

- Directors Fees

Claim for directors fees if in a Resolution approving payment. The director is not taxable until paid or the amount is put into a loan account or drawn

- Staff Bonuses and Commissions

Also deductible if 'definitely committed' to payment, are quantifiable, and should also be in a Resolution

- Repairs

Claim for equipment or vehicle repairs being undertaken

- Plant Write-off

If items are no longer working, scrap them and write the balance off as Depreciation adjustment

- Bad Debts

These must be actually written off before 30 June, some effort having been made to recover them, and best evidenced in a Resolution.

11. Prepayment of Expenses

Provided the prepayment does not exceed 12 months that ends in the next income year, a deduction can be claimed. Common prepayments include rent, lease payments, interest, business travel, insurance and subscriptions. You might do this if next year may not be as profitable, so the deduction may save you more tax this year than next.

12. Division 7A Loans

These are advances to directors or associates, and can be treated by the ATO as an unfranked dividend. To avoid this, a Loan Agreement must be in writing and in place before the current year tax return is lodged (which we do with the Tax Return). Loans are repayable by principal and Interest over 7 years. Another simple measure is to repay the Loan before 30 June.

In the new financial year, we would like to consider the following issues with our business clients; to improve profits and perhaps tax outcomes:

- A review of the business structure to ensure it is still appropriate

- How to achieve the best results from the business, whether profit, cash flow, or tax outcomes, and understanding the business financial drivers.

In all planning, whatever is decided or put into action, it needs to be well considered, the tax treatment be reasonable, and must be supported with evidence.

If something is not clear or you want to know about anything for year end or otherwise, please call us.

End of Financial Year - 3. Tax Office Concerns & Hit List 2015/16

Wed, 15 Jun 2016 23:00:00 GMT

The Tax Office has been provided with extra money in the last three years, primarily to crack down on tax avoidance. This year $670m is to be used to set up a new Tax Avoidance Taskforce, whose role is especially to ensure compliance. Legitimate tax planning is not under attack, but it must be properly documented and executed.

These seem to be the major areas of concerns and attention, likely to be reviewed on the lodgement of 2016 Returns.

SMSF's

- Illegal early release of benefits

- Related party investments and loans

- Receiving income from trusts, and from salary sacrifice of Personal Services income

Trusts

- Review of trust deeds for rights of distribution of income and capital, and the streaming of dividends

- Resolutions for trust income distributions, which must be made before 30 June each year

Rental Properties

- Claiming interest on dual purpose loans with no apportionment (home + investment on one loan)

- Capital expenditure or renovations claimed as repairs

- 100% claims on holiday homes (no apportionment of costs for private use)

GST

- Developers not paying GST on new constructions

- Errors or deliberate understatement of GST owing

Data Matching

- Real property transactions are being checked back to 1985 (start of CGT)

- Motor vehicle transfers, sales and registrations (for GST, FBT and income tax) are being checked for the past 10 years

- Share transactions and transfers to or from foreign countries (for foreign income, undeclared income, tax evasion)

Employers

- Misuse of contractor agreements to avoid employer liabilities (awards, superannuation, FBT)

- Failure to pay superannuation guarantee

CGT

- Entitlement to access the small business concessions

- Misclassification of transactions as capital rather then income (esp. property developers)

- Undeclared gains (see Data Matching)

Cash Economy / High Risk Industries

- Focus on building contractors, cafés and restaurants and takeaway businesses, bakeries, car retailers. (Ensure the tax return of your industry falls within the guidelines of ATO Benchmarks)

- Gold Coast businesses – at least 250 businesses to be visited, especially, cafés and takeaways, hair salons and nail bars (verifying income, paying cash wages with no accounting for them, not paying superannuation, state of record keeping). If not satisfied, ATO intends to move on to a full audit.

Work Related Deductions

- Particular attention to car expenses, deductions for home office, telephone and IT claims (log book required). The ATO says it will cross reference claims to its data analytics tools, to highlight large or unusual claims.

Actually, the list is not so different from past years, so the ATO no doubt is still finding significant errors and wrong returns (deliberate or otherwise). The penalties and interest can be significant, so it pays to check everything carefully and get good advice.

End of Financial year - 2. Legal changes

Tue, 14 Jun 2016 23:00:00 GMT

Quite a number of matters come into effect on 1 July 2016, all not just for tax purposes.

1. Increase to the minimum wage

The minimum wage will increase by 2.4% or $17.70 an hour, to $672.70 a week.

2. Personal tax rates

The 32.5% rate applies between $37,001 and $87,000 (prev. $80,000). Medicare is 2%. The 2% Budget Repairs Levy applies on any income above $180,000.

3. Superannuation payments

Businesses are required to advise and pay superannuation contributions electronically, eg., by using the ATO system SuperStream, or others offered. Super must still be remitted at least calendar quarterly.

4. Tax relief on change of business structure

The legal structure of a business can be changed without incurring capital gains tax (however, state stamp duty may still apply). There will be an option or rollover provision to allow active assets in a business to be transferred to another entity as part of a genuine business restructure. However, the 'economic ownership' must not change.

5. Small business asset write-offs

This measure continues to 30 June 2017. It allows the immediate write-off for businesses with turnover under $10m for assets costing less than $20,000, excluding GST.

6. Company tax rates

Companies with an annual aggregated turnover less than $2m have a 28.5% tax rate for 2015/16, but for 2016/17 the rate reduces to 27.5% for all companies with a turnover under $10m.

End of Financial Year - 1. Superannuation

Mon, 13 Jun 2016 23:00:00 GMT

With only a few weeks to 30 June, it's worth reviewing your superannuation. Because super must be contributed by 30 June to be deductible and the Fund has to be compliant as required by the ATO, we have listed key issues that need to be considered.

1. Deductible Contributions

This year, the maximum contributions are $30,000 (under age 49), and $35,000 (age 49 and over). Those between 65 and 75 must pass the work test (40 hours paid work over 30 days).

From 1 July 2017, the maximum contribution reduces to $25,000. Consider making the maximum contribution this year where a) the cash is available, b) a deduction for super will save you tax this year, and c) whether you need to get more into you superannuation for your retirement.

2. Non-Deductible Contributions

From 3 May 2016, the lifetime cap on non-concessional contributions is $500,000, including after-tax contributions made since 1 July 2007 (previously allowed $180,000 a year). If you do plan to top up your super, you first need to know the total of after tax contributions since 1 July 2007. If less than the $500,000 you can contribute up to that amount. If you had contributed in excess of this before 3 May 2016, you do not have to withdraw any excess.

3. Super Pensions

Transition to Retirement Income Stream (TTR)

The earnings from funds assets from which a pension is paid are exempt from tax in the fund. From 1 July 2017 this tax exemption will no longer be available, the fund paying tax at 15%, the same tax rate applicable to a fund in accumulation.

Other Pensions

Ensure the minimum level of pension is drawn (eg., for 65 to 74, the rate is 5% of your member benefit). If not fully drawn, the pension is treated as a tax free lump sum and the Fund pays tax at 15% on its earnings.

4. Pension Cap

From 1 July 2017, the maximum balance for a Pension will be $1.6 million, the balance remaining in Accumulation. The Pension balance earnings will be tax free, and the tax rate for Accumulation remains at 15%.

Those members in retirement must transfer any amount above $1.6m to accumulation by 1 July 2017.

5. Borrowing from Members

From 31 January 2017, any loans from members or related parties must be on arm's length terms.

6. Investment Strategy

Trustees of an SMSF are required to review their investment strategy on a regular basis. The review should include:

- The investments of the Fund, the returns and the investment risks;

- Whether retirement goals have changed;

- Will returns obtained match these retirement goals;

- Are insurance policies required in the Fund, and do they comply.

7. Valuation of Assets (property, Equities, etc)

SMSF's are required to value assets at least at 30 June every year. This annual valuation does not need to be by an independent external valuer as long as it is based on objective and supportable data, but the ATO considers it is reasonable to have an external valuation at least every 3 years.

8. Role of Trustee

There are several penalties for trustees who breach their duties, eg., make loans to members or relatives, withdrawing super without meeting a condition of retirement, don't meet the 'sole purpose' test, and acquire residential property from a member. That is one reason why we take extra care with advice and reporting for super funds, use auditors who consider the interests of our clients and are respected and experienced, and send out so much information on super.

So, can you spend a few minutes now to consider your superannuation – tax deduction, topping up the balance in the fund, its investments, and compliance. If you'd like to go over a concern re super, call us (things can usually be resolved quickly.)

Are you ready for EOFY?

Sun, 12 Jun 2016 23:00:00 GMT

Less than three weeks! Don't panic – yet!

This year we're approaching things a little differently, so hopefully there won't be any unintended consequences or nasty surprises. If some are triggered, there may be time to make adjustments. We can't possibly cover everything in one Blog (you'd be bored and confused) so will work in small doses (see 1).

Today, an overview of what our approach is for this planning, and the benefits to you.

1. Topics

Each day for the next few days a different matter will be looked at and in a little more depth, which may allow you to consider your planning with confidence:

1. Superannuation

2. Legal changes from 1 July 2016

3. Tax office concerns & hit list for 2016 Returns

4. General Tax Tips for 2016 end-of-year

5. Trust Minutes & Resolutions (required before 30 June)

6. Key issues 2016 for Companies, Trusts, Partnerships.

2. Benefits

No one likes paying tax, and you can't just opt out. However, the Tax Act allows for a range of deductions and options which a taxpayer can utilize for his benefit. Common strategies include deferring income, maximising and accelerating deductions, elections, reduction in the rate of tax or deferral in the payment of tax, concessions (eg., CGT), and 'other' (tax losses, Div. 7A loans, structure, etc.)

3. Our view

It's not only about tax. Businesses need to make sure they have the information to run profitability and efficiently. That's why we look at the financial trends, tax to pay and instalment amounts and timing, objectives and strategy to improve results, forecasts, and analysis and regular reviews.

With that in mind, have you considered these issues:

- What has worked well this year?

- What didn't work so well, and what could be done differently?

- What should you stop doing, or do less of?

- What should you start doing, or do more of?

So, don't be surprised if we ask you about any of these, or suggest some steps to help you take your business forward. You might be happy to have a big tax problem next year! And, if you've got a specific tax problem or need, call us anyway because we might not cover it in one of these papers.

What you need to know about Super before 30 June 2016

Tue, 17 May 2016 23:00:00 GMT

You probably noticed we didn't send out a summary of the Budget this year. I think I received about 30 reports from all levels of commentators, and there was a common approach from all (but one). All had the same facts but little useful analysis and many missed the point of the Budget, really important for thinking about investment and strategic planning. I'd also like to see legislation before taking some decisions, although this is unlikely before August/September and depends to a fair degree on who wins the July election.

The message behind the Government and the Reserve Bank approaches; interest rate cuts, income tax cuts, superannuation, negative gearing, accelerated asset write-offs, innovation subsidy, employment initiatives, are all aimed at encouraging more investment, especially in the property sector. This is the only market likely to keep the economy growing or at least out of recession, hopefully until the mining sector recovers.

Superannuation

The changes proposed send a mixed message; almost "if you put too much into super, which will ensure you will never obtain a pension, you'll also get less generous tax treatment now than if you become a tax avoider and negatively gear a property". The answer no doubt lies in the political thinking rather than the economics, because it doesn't make much sense otherwise.

Super is too important to try and cram everything here into several bullet points. We'll send out a separate newsletter on this because whoever wins, the changes in super are likely to go through.

For end of 2015/16 financial planning these are the three key issues to consider:

• The maximum concessional (tax deductible) contributions for this tax year are $30,000 for those under 49, and $35,000 if over 49. From 1 July 2016 the maximum annual contribution for any age will be $25,000.

• It is still possible to make non-concessional (not tax deductible) contributions to super, but there is now a lifetime cap of $500,000 and must take into account all non-concessional contributions since 1 July 2007.

• From 1 July 2017, if the total in super exceeds $1.6m (each member) only the pension on this amount will be tax free to a retiree, and the excess above $1.6m will be taxed in the fund at the super fund rate of 15%.

There are other issues to consider for future years, but for this year a) consider maximising concessional contributions, b) be cautious with non-concessional contributions if you have made others since 2007, and c) it could be time to review your retirement strategy.

BAS

One of the interesting changes was to the BAS. One survey this year showed SME's spent $14b a year complying with GST. There are substantial bookkeeping costs most of which seems to be aimed at GST compliance rather than useful information for operations or business financials, plus owner time, plus accounting time to determine codes or classifications.

Only a small item in the Budget but from 1 July 2017 the ATO will reduce the amount of GST information required for the BAS, reporting only GST on Sales, GST on Purchases, and Total Sales. All other GST items should be removed.

Year End

Can we suggest super is so important you should spend some time with us before 30 June, as part of the end of financial year planning? In our year end review, we plan to cover profit, tax to pay, deductions, tax benefits, cash flow needs, super and perhaps a couple of my bad jokes too. We'll be in touch soon to show you where you can benefit.

Why do the Numbers Matter?

Mon, 16 May 2016 23:00:00 GMT

When you're in business it's easy to get carried away with the everyday tasks, especially those including looking after customers. After all, that's where the money is supposed to be!

But, you shouldn't ever ignore the underlying numbers, because these can make or break you. You should love the numbers and spend some time with them because it will repay the effort many times over.

Here's seven good reasons to love numbers:

1. They allow you to make smart decisions about how to grow. Sometimes you just have to use your instincts in situations, but it can be very helpful to have numbers to back up what you feel is needed.

2. Numbers tell you quickly if your current business strategy is working. Invaluable in pricing your products and services, they will tell you if you are growing profitably or losing money which alerts you fast that you need to change your pricing and/or costs.

3. You'll avoid stressful situations, like BAS and tax instalments. You think you're okay, you forgot the BAS is due tomorrow, and the bank account is short. (A properly prepared cash forecast is one solution).

4. You won't waste time on things that aren't working. It could be that one of the products is no longer profitable, so either dump it or make changes that will improve the return (price increase, better buying, control of waste/loss, reduce discounting, more sales training, etc).

5. Numbers keep you focused. It's so easy to be distracted by too many opportunities or issues. However, numbers are a great leveller and highlight what you should focus on (usually it's sales).

6. You'll know when your hard work has paid off. One purpose of having a business is to benefit your personal life. The numbers will tell you if the stress and long hours are paying off for you (not just cash in the bank, but also trends of improving sales and margins, higher profits, assets that convert quicker to cash).

7. Numbers are a fact of business and you can't ignore them. Being across the numbers is a positive, a representation even of you and your business, and they actually enable you to be free.

Some suggestions:

- keep the numbers up to date (at least monthly)

- know how to interpret them (look at the important key indicators, compare actuals to the forecasts)

- use them to assist strategic decisions (sales needed to break even, sales per customer, cash required for growth).

The latest statistics are out on business failures, they're up quite a bit, and when you analyse the reasons/excuses given, a lot of the time the real reason is a serious lack of understanding of what the numbers were telling the business owners.

We've worked with a number of our clients in the past twelve months to help them get on top of their financials. Not just tax, but what they want to do with the business (personal and business goals), how they'll get there (forecasts and strategy), and monitoring regularly (up to date financials, one page reports, analysis of financials). Please think about how these, or even come of them could benefit your lifestyle.

Considering the RIGHT business structure

Mon, 18 Apr 2016 23:00:00 GMT

Every business needs a solid foundation, and structure is a critical aspect of that.

It's not just "which one do I set up", but questions around asset protection, income tax efficiency, access to the small business concessions in capital gains tax, and perhaps expansion or succession in the future. If things go pear-shaped, the wrong structure can leave you in a difficult position.

There is no perfect structure (sole trader, partnership, company, trust). Each has advantages and limitations. When we consider this question we review several important factors, including:

- Ownership and funding

- Control

- Costs of establishment, maintenance and wind-up

- Risk Management

- How the business needs to operate (management, finance)

- Tax efficiency

- Return to owners (capital growth, changes in equity, access to gains)

It is not possible to know the future, but you can plan for "must haves", so the key factors to consider are usually:

Asset Protection

This includes protecting the family home from direct action or from the obligations of a director (creditors, guarantees, employment obligations, ATO director penalties for super and PAYG deductions).

Income Tax

Considers minimising of tax rates, allocating income to non-members and other entities, protecting losses, passing on tax credits, access to tax concessions and grants.

Capital Gains Tax

The small business concessions can mean no tax is paid on the sale of a business. It is not an automatic right, there are many conditions to be met and these can't be arranged at the last minute.

A couple of essential thoughts on structure.

- Seek professional advice on the pros and cons of various business formats

- Don't make a decision for 'cheap', you need a structure that will achieve the key factors above.

PS: From 1 July 2016, new legislation allows for the rollover of assets into a new structure, without any income tax or capital gains tax. However, State stamp duty is still payable. It maybe a way to fix up some aspects of your current structure if you have concerns. We'd be happy to discuss this if you want to see how it may help you.

DON'T PANIC! ....... (just yet)

Mon, 04 Apr 2016 23:00:00 GMT

Superannuation 30 June 2016

The deadline for registration by employers to be able to report and pay superannuation electronically is 30 June 2016 . It is compulsory to be registered by that date, and use the system from that date.

'SuperStream' systemises how employers make contributions for employees, requiring the employer to send all super payments and employee information electronically in a standard format.

The options include using a payroll system, a super fund's online system, and a super clearing house. Even if you don't use software for payroll, there is a SuperStream option.

The ATO has laid out the whole super process, just go here:

https://www.ato.gov.au/Super/SuperStream/

PS: This is the first stage of Standard Business Reporting SBR – the next stage requires electronic payroll, probably in 2017.

Log Books for Cars

From 1 July 2015 either the cents per km or the log book method can be used to claim car expense deductions. Usage must be recorded for 12 continuous weeks. This means if you want to make a higher claim for vehicle costs (business percentage x total car costs), a log book must be kept. If not, the claim is limited to 66 ¢ per km x 5,000km. (We have a format on Excel if you need one). A log book must be kept once every five years.

Fringe Benefits

FBT returns are due for the 12 months to 31 March 2016. Employers must pay FBT on cars used in the business unless either an employee contribution is paid or the employer claims only the actual business use, based on the log book. We suggest the actual method.

Most clients won't have an FBT problem, but we still need to lodge an advice to the ATO that 'no return is required' for the year. To refresh, the major benefits are usually:

- Cars

- Living away from home allowances

- Car parking (only if there is a commercial parking station within 1 km of the business)

- In-house benefits (eg., staff discounts or gift cards)

- Meal entertainment.

Most will not have incurred these costs. If you did, just let us know.

We will assume log books have been kept so the actual cost claim method can be used (no FBT to pay then).

Do you know why people join a gym?

Mon, 21 Mar 2016 22:00:00 GMT

It's not just fitness, or weight loss, or wanting to look good in lycra (this one could just be me). The real reason is accountability.

When you're in a situation where other people have similar goals, the result is that you work harder.

Really serious people join a gym and use a personal trainer. That means support from the group and a person who's dedicated to making sure you keep showing up as well as continuing to get better. Otherwise, left to your own devices, would you increase the weights and repetition every session, or push the cardio work to maximise the value of the session?

While I'd be hopeless as a gym personal trainer, I can be an effective assistant in your business. Look on me as a personal trainer (minus the muscles, hair, and marginally inappropriate gym shorts).

We start with a Review to discover your essential concerns. They might be profit improvement, business conditions, marketing, processes, your team, financials, risk management, succession and retirement planning, and even tax and structure. It's not about the name of the service (like a "cash flow forecast"), but seeing what the underlying issues to be solved are.

That will tell us the two or three things that are critical to you getting what you want.

We'll work out how this can be done, regularly monitor the results with you and keep you accountable (just like the gym, where you still have to do all the work though).

So, here's my promise : If you're passionate about that you want, I'll do everything I can to make sure you keep showing up and steadily improving. And , that you'll accomplish more in the next six months with me than you would in two years working alone.

Each plan is personal and unique, so we can't run too many of these. Give me a call and we'll see if it's right for you.

Tax Deductions for Website Costs: Do you know the rules?

Mon, 14 Mar 2016 22:00:00 GMT

Most businesses have a website. Consumers are turning to online sources for shopping as well as research, especially prices, and it's now a big part of the process of doing business. It's important to not only get the online strategy right, but also understand the tax issues.

Building or improving a website costs money, but there are rules regarding tax deductibility. The ATO has recently released guidance on claiming for website costs, an indicator that this is a concern for the ATO.

If costs were incurred on building a website before business activities commence, the cost is on capital and claimed equally over five years, commencing in the year business commences.

A small business, defined as where turnover is less than $2million, can choose the simplified depreciation rules. If the cost is:

- below t he instant write-off threshold of $20,000 excluding GST, the full amount can be claimed in the year in which it is incurred;

- above that, it can be added to the general depreciation pool and claimed over three years.

The cost of commercial off-the-shelf software is generally deductible in the year of purchase. However, if the business is developing in-house software, the cost is deductible over five years (nil in year one, 30% each year from two to four, and 10% in year five).

Other costs, such as for running or maintaining the website, are likely to be deductible outright. This includes domain name registration fees and annual service fees.

There are traps to be aware of when claiming tax deductions for website costs. The ATO is developing a public ruling on it, no doubt clarifying the timing for outright deductibility once the instant write-off expires on 30 June 2017.

End of Financial Year is Closer than you Think!

Tue, 08 Mar 2016 22:00:00 GMT

I've said it 43,726 times (give or take). Don't be complacent about your tax affairs, the end of the financial year is only 3.5 months away.

There are two reasons for me sounding like your mother and harping on this:

- Plan to achieve the best tax outcome, and

- Present the business financials in the best possible way.

These are not exactly complimentary though.

You should have the 'best' financials if you want to borrow (preferably for two years) or you decide to sell the business (preferably three years). You also have real figures for the business and can make plans and set benchmarks and milestones for the next year, by months and quarters.

If these are not relevant for you for a couple of years yet, saving some tax may well be. It is now an ideal time to prepare to save tax. These are some areas to consider:

Sales

- Will you receive deposits before June but not deliver until after 30 June? These are not taxable until the goods are supplied.

- Review Accounts Receivable and write off by 30 June any debts not able to be recovered.

Expenses

- Consider purchasing, waste and value of stocks at year end.

- Review expenses for possible savings, and plan to pay by 30 June staff super, insurances, needed repairs, loan interest, prepay for business travel or seminars, etc.

Plant and Equipment

- Any equipment to be scrapped? It must be disposed of by 30 June.

- Any new equipment or vehicles needed? Remember, items costing less than $22,000 inclusive of GST can be claimed as an outright deduction this year.

Superannuation

- Super is deductible on an age basis; up to $30,000 for those under 49 on 1/07/15 and $35,000 if over 49 on that date.

- Super must be received in the Fund by 30 June.

Grants

- Some grants are available for taking on and training staff, so if you need more people, this could be helpful.

- Export Market Development Grant

If you are looking to export, the EMDG reimburses up to 50% of the cost of marketing (not selling though) your product, for travel, samples, trade fairs, advertising and PR, communications. Applications open on 1 July and must be lodged by 30/11/16.

R & D Tax Incentive

This is a refund of 45% of the cost of development or improving productivity and generating new knowledge in the form of new or improved materials, products, devices, processes or services. There are conditions, like the keeping of records for R&D, trusts cannot apply, the minimum expenditure for a first claim is $20,000, and the documentation of experimental activities.

Don't just crunch out numbers to do the BAS; use them for improvement and planning. It's not too late to make a positive difference to profit and tax for this year, so see this as an opportunity to plan and be rewarded.

Beware of New Tax Rules on Cars

Tue, 02 Feb 2016 22:00:00 GMT

From 1 July 2015, claiming deductions for cars has been simplified (although that is a term that doesn't really fit in the same sentence with 'tax').

There used to be four methods for claiming car expenses, but from 1 July 2015, two were abolished, leaving only the log-book method and the cents per kilometre method.

Cents per Kilometre method

The rate has been standardized at 66 cents per kilometre, irrespective of engine size. This method doesn't need a log book but there must be a means of showing how the business use was calculated, such as a diary of work-related trips. This method limits the claim to a maximum 5,000km a year, and if you wish to claim more, the log-book method is required.

If the rate paid to an employee is more than the ATO set rate of 66 cents (many Awards specify a higher rate), the employer must withhold tax from any amount above the 66 cents.

Log-Book Method

Keeping a log-book results in a higher claim, although there are more requirements because the claim is based on the business use percentage of the actual total of the car expenses (fuel, repairs, reg'n and insurance, depreciation).

To work out the business use, the taxpayer must keep a log-book of the odometer readings for a continuous period of not less than 12 weeks. This must be performed once every 5 years, or when the usage materially changes (more than 10%). Written evidence is needed for all expenses, other than fuel. Fuel can be claimed based on either actual receipts or an estimate based on the odometer readings at the start and end of the year.

Log-book requirements are for cars, not commercial vehicles. Generally, if the vehicle has a one tonne carrying (not towing) capacity it is commercial (most 4WD's are not; the ATO publishes a list of those that comply). At any audit, whether GST, FBT or income tax, the ATO asks to sight log-books. If not available, out of date, or not properly kept, the ATO used to reduce the claim to the (now abolished) one-third of actual expenses method, so probably will now use the cents per km.

On a car, the cents per kilometre could give a maximum claim of $3,300 (5,000km x 66 ¢ ), and the log-book method would be the business percentage of total expenses including depreciation. If we assume those costs are $10,000 a year any claim in excess of 33% business use would exceed the cents per km method.

So, for the current financial year ending 30 June 2016, claiming car expenses is simpler, but not necessarily simple.

It's been a tough month for Rock 'n Roll

Wed, 27 Jan 2016 22:00:00 GMT

First, David Bowie, then Eagles guitarist Glenn Fry. Bad things come in threes (says my Mum). Listening to the radio one morning I heard Creedence songs on three different stations, so I feared the worst. "Not John Fogarty too?".

But don't be alarmed. The good news for you, and probably John Fogarty as well, is that he is alive and well and still ranting about how their manager got all their money (no one bothered to read the contract before they signed?).

That set me thinking on how little information it takes for reasonable people (I've included me here) to make assumptions and jump to conclusions. That's probably Lesson 1 of Survival 101; don't wait for a ferocious predator to pounce before you react.

You know who else makes assumptions and jumps to conclusions (apart from my wife)? Your prospective customers/clients!

They use little bits of information, which could be unrelated or even biased, to make decisions about who to pay attention to, who to refer a contact to, who to hire. Is it fair, even logical? No.

It is, in a word, marketing, which helps people to see you and your work in a particular way. And, like it or not, they are unlikely to try very hard or dig deeper in order to uncover whatever truth lies beneath these superficial clues.

So, to avoid being counted out from the start, try these simple suggestions:

1. Review and Redo your web site

It should feel right, it doesn't have to be fancy, but it shouldn't look like it was put together by a high school student rushing to finish homework and get back to his Xbox.

2. Update your LinkedIn

Your opinion of social media is not the point. A buyer will check you out, it doesn't have to be spectacular, you just don't want to be dismissed out of hand. Make sure you explain why people should deal with you. And, what about Twitter, Facebook, etc.? I personally think it's not necessary. Perhaps a lack of involvement may represent a missed opportunity, but it seems to me (based on current content) that there is little sign of intelligent life out there, based on content and the quality of spelling and grammar.

3. Invest in professional Design

The package must look right, if it looks amateurish, many people won't bother going further (see social media above). Do this for the website, business card, letterhead, brochures, etc.

Here's the bottom line. It's frustrating that people aren't selected based on capability. The look of the package as a means of selection is superficial, but not dealing with it is sure to get you overlooked.

Discussion Thoughts

1. Can you say 'superficiality' three times, really fast?

2. Me neither.

3. What else do you consider essential for you to grow this year?

Look back before you move forward

Tue, 26 Jan 2016 22:00:00 GMT

I think some famous screen cowboy (whose name I can't remember) said "you shouldn't look back unless you're going that way". That was probably profound to the other cowboys but of no value to the cows who liked the grass better in the last valley and voted to go back there.

This is not about cowboys but planning, and sometimes it pays to look back. Last time we talked about the barriers to improvement – grow your people, have sound processes, and ensure effective marketing. These can be addressed simply using a one-page plan, however before we can put pen to paper some reflection is required by the plan preparer.

We all want 2016 to be 'the best year yet'. That might be a tad difficult if all the bad economic threats predicted by the media over the news-quiet holiday season come to pass. But ignore all that noise, perhaps not totally ignore it, but ask yourself if Greece defaults on its debts how will that affect your customer who needs to buy a birthday cake. Perhaps it would be worthwhile to look soon at several relevant factors to watch this year, ones which could have a local economic effect?

So, before you look forward take a look back and consider these four issues:

What did we do well last year? Why?

What were the actions that achieved these great results? Can we do more of these?

What did we do badly last year? Why?

Where did the stuff-ups occur, why did we lose focus on our customers needs, etc.? Specifically, what contributed to these problems (not who)? Let's not do those again, which is the essence of true accountability.

What were our goals last year? Which ones weren't achieved? Why?

They may have been important last year, so consider why they weren't achieved. If we want them as a goal again, why will it be different this time? If it's just feel good or not a priority, drop it from the list this year.

Why is ours a winning team?

The Make-up of our people changes regularly, so too do the skills, capabilities and behavioural strengths of the team. Make sure you understand your team and what actions, targets and rewards could work for you.

Jump the Growth Barriers

Sun, 24 Jan 2016 22:00:00 GMT

Finding a routine can unlock the growth potential of a business. To establish a routine, one way is to write a 'one-page plan'. By keeping it simple, and you have to admit that just one page is about as simple as you could get, goals are very clear. On the other hand, goals are worthless if there is no change or things don't start to be done differently.

A one-page plan does not have to be complicated. Its purpose is to focus on strategy because SME's are facing around two to five times more competitors than past years. Whether the market is local or overseas you can be sure that the competitive landscape has changed, hence the importance of routine and repeatability for the organization.

What are the three main barriers to growth or improvement?

1. Growing the people, or The Right People doing the Right Things Right .

In any size organization, all of the wisdom does not reside at the top (true, even at mine), so everyone needs to know what you want to achieve (say $1M turnover), the few key initiatives to achieve it ( x new customers, explain and sell value not price, y new products or services, etc.).

2. Get the processes right , and ensure these are scalable.

Systems are reasonably simple, but ensure you consider the work needed to use the system. Larger businesses have systems and the people to run them; don't tie up your productive people just to get data to do your GST returns, the data gathering and systems must help your people to achieve the goals (and also do the BAS).

3. Be effective in marketing .

Nothing happens until you sell something, and to make a sale, it is the function needed to attract customers, convince them you provide value, and ensure they return. Your marketing must be aimed at the right target market and tell them what they need to know; it's not just the media you use, but also the message and the 'feeling' it leaves.

Let's not bog down using a one-page plan (yet); we'll first have a look at how to look forward by looking back, and then why your marketing needs to be about putting your best foot forward. (And, really, you wouldn't read it anyway if I put it all in one article!)

The Three Rules for Making Decisions

Mon, 11 Jan 2016 22:00:00 GMT

When I was doing my MBA every Case Study was about making decisions, often under uncertainty due to incomplete or missing information. There just had to be a quick decision (not only due to the lecturers wanting to leave dead on time).

There is a need to choose between options in everyday situations. They may be equally attractive or differently attractive, so trade-offs or compromises may be needed. Mundane decisions can even be a drag on our time and energy, for example, choice of a salad (healthy) , salmon (protein) or ravioli (tasty but heavy on carbs).

Organisations have bigger needs, perhaps matters such as dropping a product, or who to hire or remove, or initiating a difficult conversation. An infinite number of other questions follow, like when, can I do this by email, should I share the information, and on and on ….. Sometimes, we don't have all the information and if the matter seems 'very important', we just defer to obtain more information. But often, this is more about procrastination than getting more complete information.

Harvard Business Review says research shows decisions can be made more efficiently.

1. Use habits to reduce routine decision fatigue (only Universities can find the hardest way to say something simple!) I struggle with lunch everyday, so I always have a salad. Boring yes but I can avoid the decision entirely and save energy for other things (should I have tea or coffee for elevenses?). This works well for the predictable and routine, but what about unpredictable ones?

2. Use 'if/then' thinking for putting some routine into unpredictable choices. This is a decision also based on habit or behaviour. For example, if in a meeting the other party constantly interrupts me or wanders off-track, the if/then rule is that if the person interrupts two times without a valid or relevant point, then I will say something.

These two techniques – habit and if/then, help streamline routine choices.

3. Use a Timer for more strategic decisions or where the results are harder to predict. These could be matters where there is no clear, right answer. So, people collect more data, excessively weigh pros and cons, solicit additional opinion, and delay in the hope there will be an evident answer. If the issues have been reasonably vetted, several choices seem equally attractive, there is still no clear answer, and if not possible to test on a small scale, just make the decision; 'We will decide this in 30 minutes!'.

But, what if ……. you protest? Yes, if you spend more time on it, a better answer may emerge. However, you've wasted precious time waiting for a burst of clarity, and that eventual clarity influences you next time to again linger fruitlessly.

However, all of these are usually decisions where there is no clear or right answer. Perhaps, questions on how do we respond to a competitive threat, which product lines should we invest more in, reducing a budget, or organising reporting relationships. Write down the question, several key possible decisions, set a time limit and make the best decision you can in the moment. This reduces anxiety and the feeling of being overwhelmed; make a decision and move forward!

These are not critical issues, like tax or investment decisions, where advice or corroboration are going to be worthwhile. In these, we determine the facts and the outcomes of choices, and then decide the most attractive choice or perhaps mitigate an unattractive position.

However, I still struggle with tea or coffee; that's just too important to rush.

Four ways to find your passion in the New Year!

Mon, 21 Dec 2015 22:00:00 GMT

(No, this isn't a Mills & Boon novel)

December can be a month of extremes. You can be incredibly busy, or quiet; burning with enthusiasm or just burnt out. Even the extremes can change from week to week.

So, how do you find inspiration, reignite your passion, keep your motivation high, stay enthusiastic, etc., as you face another year?

1. Switch off

While I plan to do business development and forecasts and marketing strategy, because it's a time when distractions are at a minimum, I know it's important to take some time off and switch off. (I'm not the best example of switching off, so do what I say, not what I do!)

Amazing things happen when you put distance between you and your business. Your perspective changes, passion reignites, problems are often easily solved, and the ideas you were too busy to listen to before can come at you like a flood.

2. Go back to the roots

Remember why you originally started your business, what needs you aimed to fill, the impact you wanted to make, the outcomes you hoped for.

So often we lose track of our mission when we are stuck in 'business as usual' mode. Recalling your business roots helps you remember why you do what you do and also provides the opportunity to realign day-to-day activities with what you want to achieve.

3. Connect with your customers

When the business starts you have much contact with the customers, but as it grows, many tasks are outsourced and so you often have much less contact.

But customers are a source of learning, where we see their needs, find patterns and identify opportunities to innovate. Get back in touch with them.

4. Get out of 'in'

Now it's time to work on the business and put your big ideas into action.

Often it is the big picture activities and innovation plans that generate the most results so working ' on not in ' the business must have a priority in your future schedule.

Remember, it's you that is the ultimate source of energy, leadership and direction for your business. The new year is a great time for new working habits and making changes to your schedule.

This is the last epistle from us for this year. I hope you find our newsletters interesting/helpful/useful.

From all of us, have a great Christmas break, tolerate your relatives (they might leave you something), let the ideas flow (use alcohol if they don't), and look forward to one of your best years ever.

Marketing doesn't have to be complicated (or expensive)

Wed, 16 Dec 2015 22:00:00 GMT

Why is marketing planning seen as difficult? Coming up with a budget and a step-by-step approach to marketing is simpler than you would think, and removes the complications.

Forward planning is essential for every part of a business and marketing is no different. Planning allows you to allocate your cash in a strategic way so that your money achieves the best result. According to a recent study (perhaps funded by an advertising agency?) around 8% of turnover is about right for marketing expenditure. Hmm?

It is important to know not only how much you have to spend but just as critical how you spend it. That's why the "hmm"! The 'old rule' was 4%, and I question 8%. It is hard to not only find but to get the customer's attention, and the study seems to conclude that if you're marketing everywhere you must be noticed.

Nope! Know the target market, where is the target market, define your competitive difference, test and find out what works in reaching your market, analyse results, and then continue what is giving you a Return on Investment. Targetted marketing beats a shotgun approach every time.

Prepare a 12 month marketing plan, not too big or too small, just the right size. If you don't have a template, call us, and we'll provide you with one. Assume there are three objectives for your marketing; to acquire more leads, to improve conversion rates from leads to customers, and to retain more existing customers. There will be a different strategy for each area.

If you'd like some suggestions on the how-to for strategies and tactics, our free Business Growth material is really practical. It's internet based, over 70 practical guides on 'how-to' on just about every marketing issue, download or print what you want, and absolutely no cost. I don't know anyone else who provides this material, it is available free for our clients, and it works as long as you don't FTI ('fail to implement').

A marketing plan is different for every business, it depends on a combination of goals, what you're trying to achieve, and your resources. Also, it's not just about a website and social media, direct mail can work well, so can advertising in selected media, seeking referrals, and networking. For example, 36 marketing concepts are recommended for accountants, but four or five work well, so we don't use the rest at this time.

Measure your spending and the results achieved from each program. Test small samples first, then analyse why one activity succeeded and another did not. Be patient and follow through on all your marketing efforts.

When it is time to worry about the value of your business?

Mon, 14 Dec 2015 22:00:00 GMT

We live in an interesting time, which is not just a Chinese curse. Baby boomers (born between 1946 and 1964) are now looking to sell and retire, and so the number of businesses on the market will increase significantly in the next five to ten years. There will likely not be sufficient buyers for these businesses, and so the oversupply will lower prices. Those relying on the proceeds to fund their retirement will therefore need a plan to ensure they obtain the highest price. That's obvious, but easier said than done.

Hence the question: When is it time to worry about the value? The answer is always! To achieve a higher price requires changes, and you may need 2 to 3 years to make all the changes necessary. A good business should aim to improve profit, cash flow, and valuation, every year. These are essential benchmarks anyway.

The valuation process is not all that complex. Certainly the methodology is important, including the appropriate profit multiple, the value of hard assets (plant, vehicles, fixtures & fittings etc.,) and the future maintainable profit. Expected future profit needs to consider factors such as the industry, economic conditions, the market, and special issues for this particular business.

However, don't get bogged down on complicated concepts, use a simple 5-step approach:

1) Work out the EBITDA for last year

2) Adjust for significant circumstances, like payment of a market salary to the owner, add backs like the cost of running a car used privately, an unusual cost such as a one-off bad debt, maximum owner superannuation, accelerated depreciation, etc.

3) Select a profit multiple that the business should sell for, perhaps 2 or 3, or even more if the business has a strong competitive advantage

4) Value is EBITDA x the multiple

5) Subtract any external debt.

The result in 4 is the value, and in 5 what the owners are likely to have left over. Compare to book value, and if less than book value, the business is destroying value (insufficient profit for the level of debt). Also compare to business broker web sites, and if the value is more than comparative businesses, it could be because you have significant differentiation (but it could simply be your multiple is too high).

Focus on the 7 Drivers of a business for improvement, which are:

Price Volume Direct Costs (purchase goods)

Overheads Debtors Stock

Creditors

Often it is the focus on just one or two areas that result in the major benefits.

When you know where to focus, it makes the task so much easier. We use a couple of pieces of software to model how small changes can make a big difference to the results. We'd be happy to show you too – part of our Complimentary Client Review service.

Why does a business need a financial health check?

Sun, 06 Dec 2015 22:00:00 GMT

Why does a business need a financial health check? And, could you use a Complimentary meeting to do this?

Don't leave this key function to the end of the financial year.

Did you know one of the most common New Year resolutions made is 'save more, spend less' (and also most broken too)? But business finances rarely get a look in because this task is usually left until the end of the financial year, or worse, when the tax returns are done, which is often well after the end of the year.

Postponing until there is more data, or for whatever the good reason may be, leaves little time to implement any corrective changes necessary to pricing, marketing, services, cost savings or processes (procrastination could cost you quite a lot over the next six to nine months).

Analysing the major aspects of your business now sets you up for a good New Year by telling you, for example, that a product or service may in fact be losing money.

Think like a customer

Consider what they may want, what they are actually asking for, and that you understand their problems. Compare this with what you are currently offering and see if there is a Service Gap.

In your analysis, you need to be able to understand financial reports, to update your budgets and forecasts, avoid expanding above capacity, and even talk to someone who can do the analysis and simply sum up what is needed. (see 'Our Offer' below). This is not "set-and-forget", actuals should be reviewed each quarter against budgets and key strategies updated regularly.

For Cash-Flow, Efficient Billing and Collections

Invoice early

December/January are difficult cash-flow months. Invoice upfront or on terms of say 50% on account, request the money before someone else does. Chasing money after the work is done is time consuming and stressful.

Get agreements in writing

Ensure customers agree to services in writing; use a contract of service, letter of engagement, and software like Hellosign and Docusign make this easier.

Make it easy for customers to pay

Ensure you accept credit cards or PayPal. Fees may be charged by the card providers but the benefit is early receipt of moneys due.

Stay on top of debts owing

Chase overdue payments, even commence legal action. Don't feel guilty by asking for what is rightly due to you.

One system to help with improving a business

This is a first step, a review which looks at what you want to achieve, current issues and trends and challenges, knowing the numbers, the 7 ways to grow the business, asset protection, etc.

What are the outcomes of an hour spent on this?

1. Understanding of the trends and numbers

2. Forecast of expected results for a meaningful term

3. See where cash flow concerns could be expected

4. Determine an effective strategy to get the results required

5. Have the numbers available to analyse and monitor future results.

You should be planning January and February work now as a way of smoothing out cash flow. A lot can happen quite fast, you can't let things go for a year. Procrastination undervalues what you're offering, and the inherent inefficiencies destroy your profitability.

Our Offer

As you know, we don't usually push our services in our newsletters. But this one is complimentary because we want everyone to succeed, so this time we will mention it.

One of our programs is called 'Complimentary Client Review', with Ten Steps including goals, structure, knowing what the numbers/trends are, seeing how sales, profits and cashflow could be improved, how to unlock the potential, risks and asset protection.

The purpose is defining your goals and coming up with a focused (short) plan to achieve them.

If you would just like to know how this could work for you, call me. If you would like to set yourself up for a better 2016, and might need a little help with the 'how', call and we'll set up a COMPLIMENTARY hour-long meeting. Do your business a favour.

A Marketing Machine is Saleable!

Tue, 24 Nov 2015 22:00:00 GMT

If you want to sell your business, a buyer is brutally objective in evaluating your assets, and will have concerns and doubts.

Equipment starting to wear out or is not the latest model won't fetch top price. A lease with an expiry inside two years, and the potential for a big jump in the rent, where is the location value? What about staff who will probably leave when you do? Is the existing client list pretty attractive?

All of these assets are valuable to you because that is how you work, but a buyer is likely to discount them heavily. That means sellers are often very disappointed in the sale prices finally achieved.

What a buyer really values is a marketing and sales system that generates profits. This means a system to generate quality leads, achieve a high conversion rate with a good margin, a high level of retention of those customers, and, that the system does not rely on you for results.

A typical business valuation is around twice net profit after fair owner remuneration. Franchises, which do have marketing systems in place, often attract four times net profit. The more systematised the business, the higher the valuation.

Where do you start? Don't just copy what the competitor over the road does, copy what the best operators do. Usually a few things will produce most of the results, yes it can take a while to test and see which ones these are, but it is also possible they won't need a massive budget either.

Even if you don't plan to sell, it's pretty attractive to have a marketing machine. You'll know where the sales will come from, your team will be busy selling and so not on Facebook, sales will be made even if you're not there, and you can put even more time into growing the business and profits.

It doesn't take a lot of time to evaluate the current system, decide on targets, work out what needs to be done, implement, and keep testing to improve. We help- our clients do this with our system for Profit Improvement.

When you make sure your business is a marketing machine, the investment pays for itself many times over, year after year.

Employment Laws you could be breaking (but not know you are)

Tue, 17 Nov 2015 22:00:00 GMT

The Fair Work Act has penalties up to $54,000 for breaches.

Here are six common problem areas.

Unpaid 'interns' doing productive work

Often used to let students and jobseekers gain some experience, attractive particularly to start-ups. But, the intern must be participating in a recognised school or university program and must not be performing productive work for you, otherwise an employment relationship may be created. Then, minimum award conditions apply.

Failure to consult on a proposed workplace change

Modern Awards require the employer to consult with employees where major changes are likely to impact employees. The best known is redundancy, but also included are job structure, work availability, hours of work, training, relocations and prospects. Courts have found this is not a box to tick after, but real discussions are required in advance.

Failure to provide allowances in awards

Many awards include allowances. Many employers pay over the minimum award pay rates and believe that should cover allowances, penalties and overtime. The FWC requires a written employment agreement which specifies that an amount of overpayment is intended to cover the entitlements, otherwise the allowances will actually be payable on top of the higher rate of pay already being paid.

Failure to pay leave loading on termination

An employer must pay accrued unused Annual Leave plus leave loading of 17.5% on hourly rate.

Not keeping adequate employee records

These must be kept for seven years, even after employment ceases, including pay, overtime, leave, super, individual flexibility arrangements, termination, and transfer of business matters. These must be accurate and legible, and provided to an employee upon request.

Not providing an Information Statement at start of employment

Rarely done, easy to fix. Go to the website of the 'Fair Work Ombudsman', https://www.fairwork.gov.au/employee-entitlements/national-employment-standards/fair-work-information-statement , download its Information Statement, and include it with the employee's employment agreement.

Do your practices include these requirements? You could save yourself much effort and expense in the future.

Where are Interest Rates Going?

Sun, 15 Nov 2015 22:00:00 GMT

Synopsis

28 economists now expect official interest rates to drop by 0.25% to 1.75%, before February 2016. So, why could this happen (remember, these are the same economists who didn't see the GFC coming and agree with Treasury growth forecasts – which are nearly always wrong).

Comments

You probably wouldn't look at the charts if I included them, or the long-winded explanation of them, but there are several factors that are critical:

- The unemployment rate remains high at 6.2% (the core rate is regarded as 5.4%), trending upwards from 2011 despite the mining boom. There are 780,000 looking for work. When unemployment is high, wage growth slows, and core inflation is low. So, the Reserve reduces interest rates to increase activity and inflation.

- The annual inflation rate is 1.5%, well below the target band between 2% and 3%.

- Monthly new dwelling approvals have been trending down since late 2014 (reducing from 20,000 a month to under 18,000). The economy is transitioning to a low capital demand one, which is being hampered by falling population growth, low productivity, and a housing construction market which appears to have peaked.

- New housing approvals by type shows the current housing construction wave is in mid to high-rise apartments, which are sold to speculators, investors (esp. SMSF's) and increasingly offshore buyers. Detached houses in the late 1980's were over 75%, but currently are just 52%. Only speculation and investment seem to be causing the shift in housing demand and product needs.

- Seller asking prices over the last 12 months are mostly about Sydney (15.7%) and Melbourne (9.1%). Very little is happening outside those markets – and auction clearance rates in those are down substantially over the last 60 days.

Why will Interest Rates fall?

Glad you asked! Lower short term rates are likely with conditions of persistent high unemployment, low inflation, falling housing demand and a dollar that is stubbornly high. This, in turn, indicates that the yield curve (the rate for 10 year bonds minus the rate for 90 day bank bills) is a bellwether indicator to watch for interest rate changes. Short rates are currently 0.50% lower than long rates, and is considered 'neutral', that is, settings are neither too loose nor too tight.

For quite a while business confidence has been shaky, but that may be more a reflection of a dud Abbott/Hockey government than volatile consumer demand. In September, business borrowings had a large lift, which could result in the hiring of extra workers and the purchase of new equipment.

The RBA's neutral stance shows it is watching what business is doing, and if economic conditions don't improve, it could drop interest rates further to lift consumer demand which flows on to improved business activity.

My Guess?

More likely down than up, perhaps 2 x 0.25% reductions in the next year. The dates depend on the yield curve and to some degree, the election late next year (was that too cynical?)

The GST Debate is mostly BS - so far!

Thu, 12 Nov 2015 22:00:00 GMT

It's easy to get fed-up with the drivel that comes from Canberra, which is readily lapped up by the media and passed on as responsible journalism.

PM Turnbull says the Government has to raise more money which means it must raise taxes. Note, there is no mention of reviewing their spending or wasteful programs.

An "expert body" (who I've never heard of), The Centre for Social and Economic Modelling, based in Canberra (naturally) has determined a 15% GST would be hard on poorer households. The answer to any question depends on the inputs supplied, so we don't know what kind of briefing it was given. But the modelling resulted in a bleat by the media that any new or more tax should "be borne by the people best able to pay".

A few facts about GST and other tax issues you probably will not see in the media or even hear from politicians:

- Our personal and corporate tax rates are among the highest in the OECD

- Our GST at 10% is one of the lowest broad-based consumption taxes in the world

- Our tax mix is atypical of the type of growth-based tax system required to thrive in a modern economy

- Research by respected financial modellers shows that in just five years, bracket creep will cost taxpayers $45 billion in higher taxes

- That's three times the cost of including food, health and education in GST (to raise $13.5 billion), or just under the cost of raising GST to 15% (which would raise $53 billion)

- NZ reformed its tax system in 2010, reported its first surplus in seven years, and growth at 4% (twice Australia). This was achieved by reducing personal taxes and increasing GST to 15%.

The conversation needs to be why tax reform is the right thing to do, for the nation as a whole. The special interest groups and the Opposition need to understand this; it's not about scoring cheap points, which is part of the reason we have a problem.

Turnbull is not a dill and he is capable of explaining why reform is needed and what the benefits will be. The alternative is horrible; letting the unions decide how things will be run and the Greens decide to give what's left away on their bleeding heart causes.

Turnbull is trying to talk about all issues; income tax, bracket creep, business taxes, state taxes, GST, negative gearing, CGT concessions, superannuation, and profit shifting and even tax evasion. The debate must set Australia up for growth and prosperity while taking care of the vulnerable (not those who feel 'entitled').

It will be an interesting few months, hopefully productive, but I think I'll stay sceptical for a while yet.

What numbers are useful to understand a business?

Mon, 02 Nov 2015 22:00:00 GMT

Many businesses look at a very narrow set of numbers, but it is often necessary to look at a broader range of metrics. Money in the bank can be a sign that a business is performing well, but we also need to know about sales, gross margin, and costs to be able to decide that.

Some of the key numbers are below:

Sales volumes, and value

Volume tells us how many units are sold, and sales value is numbers by price. Both tell us something, but both can be deceptive. Volume can increase but also might disguise discounting undertaken to boost the number of sales. A rising sales value may not be due to higher volume, but perhaps the effect of rising buying price pushing up the selling price but with no change in Gross profit.

Profit

We measure two profits. Gross profit is sales less the direct/variable cost of that sale, that is the cost to make or acquire (purchase, freight in, factory wages). Net profit is gross profit less all overheads or costs.

Costs

These can be fixed, which means no change regardless of how much work performed or income earned (like rent) and variable, which change as sales or production changes. These have an effect on profitability and also impact on cashflow. For instance, variable costs rise as you increase inventory or take on more employees, often well ahead of the business selling to a customer and receiving payment.

Monthly revenues

These are an important part of sales. Seasonality lets us anticipate rises or falls, useful in managing stock levels and cash flow. If we know monthly sales may fall in a month we can also calculate receipts expected from customer payments and so the cash available to pay the business costs like fixed costs and suppliers.

Money in the bank

Profit is one thing, but cash is critical. Bookkeeping can tell you this, or by simply checking to the bank account for the balance. Compare the actual balance to your cash forecast – are you on track, can all accounts be paid, is there a reserve for growth or an expected need?

Inventory

This may be goods on the shelf, but also in the storeroom or in transit to you, and can also include work in progress. It needs to be tracked so you re-order on time but not too far ahead, because that would mean less money in the bank. Some businesses use inventory software, great if you have the resources to run the software accurately, but sometimes your own gut feeling is almost as good.

Whether the business is a start-up or more mature, the numbers are so important. They answer the questions that you must always know; 2) Am I trading profitably, and b) Can I pay the bills?

Accounting software is not there just to keep a bookkeeper busy or to do a BAS every quarter, it is important to track these key metrics so you can always answer be confident of your control of the business.

ATO Crackdown on Small Business

Mon, 21 Sep 2015 23:00:00 GMT

The ATO says it will target 90,000 small businesses over the next 3 months, for 'failing to comply with tax obligations'.

A few ways to ensure you're a target!

1. Be in a cash industry , such as cafes/coffee shops, hairdressers, and the trades. The ATO has benchmarks for many businesses (on the ATO website), and if your tax return is outside the range, the risk of audit is high. We always check to the benchmarks and will tell you if there is a concern.

2. Lodge a BAS with a significant refund due. It could be right, perhaps you have purchased equipment. The ATO will ask for the GST Detail report, select several invoices, and check invoices to the bank statements for payment.

3. Capital Gains are a common review area, especially where you have been able to utilise the small business or main residence concessions. CGT is rarely 'yes' or 'no', there are many conditions that must be met, and that is why we require extensive information.

4. Transfers to and from other countries, even if they are not tax havens. Austrac monitors all transfers and provides information to the ATO. Make sure you have the documentation to support overseas transactions, and pricing if you sell overseas to associates (non arms-length).

5. Excessive rental property deductions are a special area of interest. The ATO is looking at costs of purchase of a property (not deductible), repairs (could be capital), interest not related to the property (say a line of credit), depreciation claims (need a quantity surveyor report), and sharing of income (must be in line with ownership).

6. Random selection. It will usually be something, like the above, that brought you to notice, but it could be overdue returns, or ATO investigation of evasion of someone else and you do business with them regularly, unpaid employee superannuation, use of sub-contractors in certain industries, ownership of a luxury vehicle but not the reported income to support such a vehicle, and just being dobbed-in.

Ensure you keep all receipts, dockets, invoices, diaries, and bank statements. Make sure your accounting records are properly kept (this will also save you money at tax time – see our previous Blogs on 31 July, 25 August, 1 September and 8 September).

The ATO has extensive information gathering powers and software that analyses if something is 'not right'. Even if you are doing the right thing you may still be subject to scrutiny. So, be prepared, keep accurate records, and call us if you're unsure about a claim or you have received a call from the ATO. And a warning, calls from the ATO asking for payment, your bank or other details are quite often a scam! Check with us and we'll check with the ATO.

If you get a call advising a 'review' tell us quickly, the matter can often be resolved without amendment and if an error has been made, making an early disclosure can substantially reduce penalties that can be applied. The cost of audits can sometimes be quite high, so we have sought audit insurance for our clients (a few hundred dollars can be money well spent), and will have an offer out to our clients soon

What stock prices are saying about the economy

Wed, 16 Sep 2015 23:00:00 GMT

I've had dozens of emails from experts over past weeks, all trying to pick when the US will raise interest rates and how far this will crash the stock markets.

What this says is that investors are risk averse and the financial markets are so sensitive to a 0.25% increase in cash rates that they are fragile. For years the system has relied on US easy money, and now it's attempting to deal with a return to normality. Whether it's this week or eventually, rates will undoubtedly go higher, as the US needs inflation.

In the 1970's easy money flowed into higher wages, which put upward pressure on goods prices, so inflation rose. Today's low rates leads to excess production at a time of weakening demand so prices don't increase much and inflation is low. Low inflation means low interest rates but higher bond, stock and real estate prices.

In 1923, W D Gann said stock prices lead business conditions by six to eight months. The markets move ahead of actual events, and it's only some time after that we understand the real cause (so don't believe the newsreader saying that investors are worried about China – then tomorrow they're not?).

Does the fall in stock markets signal a weaker environment in the near future? On the surface, an economic 'adjustment' looks like it's already underway, although the magnitude is hard to determine.

What do the experts say? That is, the ones who totally missed the last crisis in 2008/09. Investment banks, brokers, even financial planners are expected to be bullish; buy on the dips, average down your cost, it's still cheap compared to the past. This approach has worked in the past few years as markets were trending up, so you need to be sure that trend is still intact.

Market charts and reasoned analysis says stock markets are overleveraged, unsustainable and likely to correction. How far? Depends on who you read, but perhaps from a 'correction' of 30% on May prices or a 'crash' of 80%. One analyst says the stock markets could correct sharply in the short term (remember Black October?) but the next crash will stem from default on the bonds markets, (like in the late 1980's) and including some Government bonds. A bond crisis may not occur for some time yet.

Another analyst says a lack of liquidity causes market moves. When liquidity is plentiful asset prices rise, but when scarce, asset prices fall.

Problems are evident in these areas:

- China's economy is slowing rapidly (how would you know what the real number is anyway?)

- India is also slowing very fast

- Commodity prices have fallen significantly and will have major flow-on effects for producers and economies (eg., coal and oil)

- A big slow-down in global trade (watch the D J Transport Index as this shows goods are not being moved around the world)

- Excess industrial capacity is producing more goods which are not being sold

- Credit quality is deteriorating

- Credit availability is tightening.

Will events play out like I think? Of course we can't predict the future, but economies always move in cycles. It appears to me that the end of a number of cycles may be close.

What could you do? Time to consider your investment strategy, take some experienced unbiased advice, review your investment and retirement portfolios, and do some forward planning for your business, even factoring in a recession.

The Top Five Small Business Problems

Mon, 07 Sep 2015 23:00:00 GMT

The most commonly reported financial problems at this time are those below. They do not seem that critical when you consider the recent stock market volatility but they are the essence of good management; know your situation and needs, evaluate your strategies, and ensure you have a long-term plan.

Cash Flow

Make sure you get paid and manage your cash.

- Be efficient at debt collection and managing accounts receivable

- Watch when you pay suppliers; pay on time, not necessarily early because one phones up and wants money now

- Look at the money tied up in stock and work in progress; sell excess stock, complete work faster, bill quicker

- Do weekly or monthly budgets, and monitor them often.

Rising Costs

You can reduce costs with a little effort.

- Get quotes for insurance, telephone, electricity, stationery – these are price commodities

- If you have good suppliers, ask for a better deal (price, discounts for early payment or volume)

- Check bank loans with a good broker

- Review your processes and systems for waste or lost time

- Check actual costs to the budget often; avoid impulse spending.

Regulation

Compliance can use up a lot of time and money.

- Be aware of changes in tax, corporate law, fair trading, awards. You don't have to know everything, just that there are changes to be aware of

- Keep records up to date, it's easier to make decisions if you have relevant information

- Call the accountant before you make significant changes; it's much easier to plan with the right guidelines than clean up the mess after.

- The Tax Act is complicated, not always clearly yes or no, and there may be other matters to take into account too.

Exchange rate/Au$

This is driven by global factors, so there is no 'best' solution.

- If you are an importer, what if the Au$ drops to the low 60's to the US$ (or against the currency you deal in)

- Consider scenarios; perhaps buy goods in volume (to get a better price), manage the forward currency rate (bank), and so sell at a better price than competitors

- Watch your profit margins/cost of goods sold and increase prices to protect your margins.

Interest rates

Interest rates can move suddenly.

- Determine your needs for the next 1 or 2 years, reduce the need to borrow (manage debtors, reduce stock levels, don't borrow for personal needs)

- Look at your loans – rearrange, fixed rate/variable rate, refinance

- Consider scenarios in your budgets and forecasts, the effect on profits if rates increase, what may happen if you can't borrow at the time.

What would the grand poo-bah suggest?

- ensure you allow for uncertainty and volatility in business activity

- expect business to be subdued for at least a couple of years yet

- know what you want to achieve this year and in three years (turnover, profit, cash)

- model the Growth Drivers for your business (we will do it for you as a free service) – it shows you - where to put your efforts to get the best result

- prepare forecasts of sales, profits and cash – shows the results of your proposed plans (we can do this with you) – it highlights where the dangers lie

- run a profit improvement session, a 'how–could-we-be-better' (we do these to get you on track)

- prepare a strategy and 3 or 4 action steps to make the plan happen the way you want (a One Page plan, only overview, not in great detail)

- ensure your accounting is up to date, compare actual and budget often, update your plan and action steps regularly

- have good financial policies, procedures and advice.

The accounting records every business should keep

Mon, 31 Aug 2015 23:00:00 GMT

A few days ago we talked about the basic business records, those required by the ATO and other regulations. These are all the bits of paper need to be put into the computer system - all the computer does is summarise the data into a simpler way of storing and presenting the detail.

Business systems allow you to maximise the value of your time and create reports to guide, manage and monitor, and control the business even if you are not there. The financial system is just one of these key systems.

Cash Book

This is the starting point for all financial information. The 'old way' was to keep a multi-column record of moneys received and moneys paid out in one book, the 'Cash Book'. Add the columns up, make sure the total across was equal to the sum of the payments made and that the payments were ticked off on the bank statements. Then the accountant entered the cash book into the general ledger and produced the financial statements and tax returns. Now largely bypassed as a process, too much time, fiddly work – but some owners still use Excel (you enter up, it adds), or Cash Manager (much the same detail but formulas too, really configured to do BAS but reasonably easy to post to a ledger for year end figures).

Computerising financial records

These can save a business a lot of time, allowing a business to enter, add, delete, amend, share, calculate, total, produce payroll and BAS, communicate online, invoice and pay, etc. The system is as good as you allow it to be; enter wrongly (garbage in garbage out), enter only some of the necessary information or steps, use a bookkeeper who really doesn't understand the business or what is to be obtained from the reports or just 'does the GST' and ……... (select a consequence here!)

Preparing financial reports

The 'system' must enable the production of regular and relevant reports, including BAS, Payment of Suppliers, Accounts Receivable, Profit & Loss, Balance Sheet, Budgets, Compare Actual/Budget, Exception reports, Trading and Job records.

Choosing accounting software

Accounting packages have become much better, names like Intuit/Quick Books, MYOB, Xero, Sage and Saasu. With earlier systems you paid a lot for the program, the manuals were pretty difficult to follow, you paid more each year for updates. The 'Cloud' allows you to use any of these programs for a low fee every month, about $50. Our favourite is Xero – easy to set up and use, an authorised user can access from anywhere, a good range of add-ons for other applications (like job cost, point of sale, report formats, etc), and they spend money on useful improvements. Most users seem to like using this system.

In-house or Out-source?

Many owners do their own books, spending hours on something they hate and at which they are not very good. While they are doing this they are not finding customers, building relationships, or making sales; however, they have saved a little money. Then, the accountant has to fix the errors, and answer the question 'but I've done the books'. Or, the owner engages a bookkeeper who moves a lot of paper around, gets some things pretty right, a few miss the really important stuff (have you ever looked at your 'Loan Account'?), don't know much about tax, and often provide a commodity service at a premium rate. Then, the accountant has to find and fix the errors, and answer the question 'but the bookkeeper did the books'. The message is; whoever does the work, make sure it is properly done – if you penny-pinch or mismanage here it could cost you a lot more down the track, either in fix-up costs or even extra tax paid.

This is not a rant about bookkeepers; there are some good ones but there are also a lot who are guilty of infringing trade practices by using the name.

Benefits of good record-keeping

It is a combination of knowing what you want from your system, how you want to keep the records (whether it will be DIY or a bookkeeper or an accountant) and your budget. Once that is settled, the benefits are:

- clearly, your peace of mind

- run your business more profitably and be more in control

- produce accurate reports on time

- better monitoring of all aspects of the business

- reduce costs of keeping the books and preparing year end financial reports and tax returns (our focus is on helping you achieve a more profitable business and the best tax outcome – not just the cheapest result)

- have meaningful financials for borrowing, bank applications, etc.

The basic business records every business needs to keep

Mon, 24 Aug 2015 23:00:00 GMT

First, the legal requirements. The Tax Act (and GST) require a business to keep records that explain all business transactions. These need to be kept for at least five years and can be kept manually or electronically. The Companies Act also requires companies to keep 'proper accounting records'.

Second, the Tax Act has an interesting twist. If the tax office does not believe the tax return it may issue an assessment based on its belief, and the taxpayer must then prove the assessment is wrong. That's hard without the essential documents.

Finally, you need records to understand the key drivers of the business, see how it can be improved, if you want to sell the business, and to ensure you have the information to work on the business, not just in it.

Records you must keep

It seems trite to talk of some of these now we have computers, but these are the basic records that the computer system relies on to obtain the information to process:

- Income and sales

Records of cash and credit sales and barter transactions-invoices, cash register tapes, cash sales, receipt books

- Purchases and expenses

Supplier invoices, receipts, credit card vouchers, petty cash dockets, cheque butts

- Bank records

Bank statements for all accounts and loans

- Asset purchases

Plant, equipment, vehicles, property – the invoice for purchase and any contract for finance

- Contracts and agreements

Copies of all contracts, agreements, franchises, etc.

- Year end records

List of creditors, debtors and stock at 30 June

- Minor deductible items

Sometimes a receipt is not available – record the details in a diary or logbook (for travel away, parking, tolls)

- Employee records

Records of wages and allowances, hours worked, superannuation guarantee obligations, TFN declarations, pay slips/statements

- Contractor records

Compliant Tax Invoice from contractor (ensure an ABN is quoted or you must withhold 46% from their payment), contracts and quotes. Many businesses engage 'contractors', but awards and personal services definitions consider individuals may not be contractors but employees, which means the business can be liable for award rates of pay, penalties, deducting tax, paying superannuation, holiday pay, etc. The ATO intends to do more checks on these claims.

- Motor vehicle records

All cars require a logbook to be kept for at least three months every five years, and annual odometer readings.

Record keeping tips

- Set up a good filing system

File things so you can find them when required. Get into a routine and file often.

- Fill in payment records

Write enough information on cheque butts or EFT so the purpose of payment is clear (who to, what for, the invoice number, the amount) and ensure your writing is clear and easy to understand.

- Cross reference transactions

When you pay, write the invoice number on the cheque, and the cheque number or date of payment on the invoice.

- Reconcile accounts to bank statements

This is helpful to find errors or omissions, in the records or the entry details. Bank accounts must reconcile.

- Cash register tapes

Provided you keep Z-totals which have been reconciled to sales and bankings, the tapes can be discarded after a month, otherwise they need to be kept for five years.

- While the accountant, and the ATO, will look at the computer reports, which is a pretty good overview of the reliability of the system and processes, there will be a testing of the records to determine accuracy. If the ATO does an audit of a BAS quarter, it will request the GST Detail Report (from GST Reports), select some supplier invoices to match to ABN records and payments, check they have been paid on the bank statements, ask for employee TFN's, payments to employee super funds, the motor vehicle log book, invoices for purchased vehicles or plant, the monthly bank reconciliation and bank statements.

That's the basic data. My next Blog will be on the books/systems to record the transactions.

Is an SMSF really what you want?

Wed, 19 Aug 2015 23:00:00 GMT

Within the next few months, there will be more than 560,000 SMSF's in Australia with over a million members with a median balance of $810,000, and average returns around 12%. Most start by rolling over their balance in their employer/managed super fund to the SMSF. The media says that an SMSF should have a minimum $200,000 balance, as does AMP in its advertising and also ASIC. Why $200,000, why would AMP care, what would public servants know about investment, all good questions?

Some of this 'advice' has a place; super is about investment for retirement, not just saving some tax each year. SMSF's include those who want to invest in property such as their own business premises, undertake flexible estate planning, and even pool super savings to acquire otherwise unaffordable assets.

But, there are weaknesses in some funds, hence the criticism. Some will never have enough assets to become financially feasible or have poor investment diversification. In some, trustees are out of their depth, such as poor investment knowledge and understanding of their legal obligations.

Before establishing a SMSF, critical questions to consider include:

1. Am I dissatisfied with the performance of the managed funds? Returns over 10 years in a balanced portfolio were 6.5%, but have been 9.7% over the last 12 months. These portfolios are widely diversified, spreading the risks and opportunities.

2. Do I want investments not available through a big fund? An SMSF is necessary if you want to invest in direct property or in shares not held by the big funds.

3. Do I want to hold my business premises in Super? This stacks up for tax-effectiveness, asset protection, succession planning, and security of tenure. An SMSF can acquire commercial property from a member or related party and lease the premises to the business, a concession allowed under the in-house asset rules.

4. Do you want to spend time managing your own fund? You need to know the duties and responsibility of a trustee, especially a few 'don'ts'. If you only have a few investments, there will not be much administration or need for investment advice, but you still need to prepare Accounts and a Tax Return, attend to secretarial, have an audit, pay ATO fees, etc. Costs are often less than the expense ratio charged by the managed funds.

If all you do is replicate the portfolio of a managed fund, there is probably little advantage with your own SMSF. But, research by the 2015 SMSF Survey shows most funds benefit because of their purpose and strategy.

We'd be happy to talk about a SMSF with you, not its particular investment choices, but its overall suitability or advantage for you. If you want to talk investments we can put you in touch with our financial planning associate, Gary McNamara.

Fix your Growth pains

Mon, 17 Aug 2015 23:00:00 GMT

I read all the case studies I can find (no, I don't have a life), mostly all are from the US, and there seems an air of mysticism to the concept of business growth. All of the other 'business problems' are readily solvable – what's the problem, what discipline does it belong to, what needs to be changed, how to execute the change (or the trouble maker), etc.

But why does any business fail to grow? The reasons are the same whether big or small business, it's mostly a factor of scale.

1. Failure to define the business' vision (and values).

What will the business look like in 1 year, 5 years, when it is finished? What will it take to get to each milestone? Knowing these targets engages and motivates people, and provides meaning and significance as to how everyone contributes to the result.

2. The CEO doesn't understand the role and responsibility.

You know this one – work on, not in the business. You're not a technician now, you don't have to do 'real work'. The principal needs to delegate, communicate effectively, plan, monitor, and especially avoid being a bottleneck. Usually this means integrated and/or better systems; in the Cloud keeps the IT costs down.

3. Super-sizing is not the best plan for growth.

You need to not only sell more current product or ramp up the value of existing customers. You also need to identify new customer niches, provide new products and sell existing products to new customer segments. (The 'Ansoff matrix' identifies the risk in various growth strategies). Experiment, try new things, learn from failure.

4. Reliance on 'Luck'

Some businesses are fortunate to survive as order takers. But to grow needs a plan and targets, development of infrastructure and systems, and to take advantage of momentum.

5. Becoming complacent

It's easy to say 'I'm okay with where I am'. It could be just complacency, but it could be they don't know how to think big.

Hundreds of leadership texts have been written to tell us how to handle change.

One of the best is Harvard's John Kotter, at Kotterinternational.com. (f you want to find out more). The same texts say the qualities most needed for growth are vision, courage, knowledge, teamwork and execution (which doesn't mean you have to join the Sopranos). Every plan requires knowing what is to be achieved, then working on how it will be achieved; "Where there's a will, there's a way".

Why you need to know things! Now!

Sun, 26 Jul 2015 23:00:00 GMT

Most businesses start with great ides and a passion to build something, but keeping the books is usually not at the top of the 'must do' list.

Real-Time bookkeeping, facilitated by cloud technology, can help address potential problems as they emerge and grow a successful business. Real-Time is always up to date information on invoicing, cash flow and commitments. And for the nay-sayers, the cost is nothing compared to the benefits you obtain.

Why you need to be on top of your books:

1. Cash Flow

Profits are great, but without adequate cash flow any business is facing a crisis, perhaps even its demise. (Why do you think liquidators are always busy?)

2. Know your costs

Knowing what you are really spending provides insight on how to run the business properly. It might take some time to track these items, but it does pay off. (Match actuals to budgets 0 you do have a budget, don't you?)

3. Invoicing/Billing gets you cash quicker

Invoice customers when the job is finished and get paid sooner. Cloud accounting systems allow fast billing, monitoring of collections, and frees up owner time for building the business, not handling self-caused crises.

4. The Profit & Loss is the ultimate window into your business.

Those who understand their financials do better than those who don't, and tells you where you are in working towards your goals. (Which is why we ask you what your targets are for next year, how you will get there, and highlight trends and concerns in your financial statements).

5. Compliance – missing obligations can have dire consequences

You need to pay yourself, your team, the government, BAS, Super, suppliers and probably heaps others, and having that information in real-time means these obligations can

be anticipated and met.

Get on top of invoicing, cash flow and costs and enjoy your success. If you'd like to know more, call me.

A Simple Concept for Winning a Customer

Tue, 14 Jul 2015 23:00:00 GMT

At McDonald's you're asked 'do you want fries with that?'. With rental cars they're sorry but there are no small cars currently available but for an extra $12 a day you can be upgraded to a midsize.

These are just examples of upselling to increase the average sale per customer. The purpose is to sell as many add-ons as possible, whether or not it's in your best interest to buy them. And that is what is wrong with upselling as a strategy!

For everyone in sales, especially those being asked for advice, it can be a way to lose the sale and the customer.

You must keep the best interest of the customer in mind, so:

1. Help them figure out what their problem is.

Even if they're ready to buy, help them clarify and pinpoint the problem. It also builds trust and demonstrates your knowledge.

2. Point them in the right direction, even if that direction is not you this time.

You wouldn't sell a friend a service he didn't need, so the same rule applies here. That is, don't sell something, especially upgraded or gold-plated, if it is not what's needed. If you do, you won't develop a reputation as a trusted and knowledgeable expert.

Selling isn't about convincing people or taking advantage of them. It's really about matching - clearly defining the problem and then finding the right solution. Hopefully, you will be that right solution, but even if you're not this time, the customer will remember you did the right thing and be willing to trust you in the future.

Smashing the Lending Market

Mon, 13 Jul 2015 23:00:00 GMT

I don't know if you've applied to a bank for a loan recently, but you'll likely find the goal posts aren't where they were last time. This has certainly happened before, things like removing some lending products, tightening of lending policies, new rules, etc. A nuisance, but there are several ways to break through the lending ceiling.

In the end, it's all about serviceability, affording a loan based on assets, income, and savings. There is a study where 22 mortgage lenders were given the same information. A couple would not lend, but the amounts where loans would be granted varied between $470,000 to $550,000. So, it pays to look around as the days of being totally loyal to a bank are over (and vice versa!) and this is why brokers have become dominant.

If you don't have a broker, there are a few we are happy to recommend (because they are experienced, capable and caring - please note, we don't receive commissions; ever! ) We also use specialist brokers for asset loans - vehicles, equipment, and working capital. For equipment, it's not only the interest rate but charges, exit fees, the term, their preferred customer, etc.

Here are seven effective strategies to boost borrowing capacity, particularly for home or investment loans, but also useful for purchase of business assets:

1) Get credit cards under control

Lenders assume cards will be 100% maxed out, so cancel some if you don't use them often.

2) Be diligent with your financial records

You have to prove income, so have financial records up to date, lodge tax returns early (payment is not normally due until May the next year), have a number of years to show (preferably two). Consider a forecast if circumstances are improving - this is not proof of income, but could show ability to repay.

3) All lenders don't treat income equally.

Different sources of income can be treated differently - second jobs, child maintenance, company profits, government benefits, rents, how long you've been in business. Most brokers use around 30 lenders and know what each prefers.

4) Get rid of extra debt

Lenders are wary of unsecured debt like personal loans, store cards and credit cards. You can roll these into your mortgage if there is enough equity, but you should then pay more than the minimum each month so you make headway on paying down debt.

5) Look for package deals

Lenders sometimes offer promotional rates and deals, which can save you (that's a good slogan!). Another good reason to use a competent broker.

6) Boost your savings

Lenders want better numbers, so build up your deposit, or pay down your current loan, or use an offset account. Even if you don't want a loan now it is a good habit and ever so helpful when you enter the lending maze.

7) Loan terms

Most loans are for 25 or 30 years, but a few lenders even offer 40 years. Longer terms mean lower repayments but at the cost of more interest paid over the life of the loan. Make extra payments, pay occasional lump sums, pay fortnightly instead of monthly (all of these can save years on the term). One of the 'rules of thumb' is for monthly payments to be as close to $12 per $1,000 of the loan. For example, a $300,000 loan over 25 years at 5% requires $1,755 p/m, but the loan will be extinguished in only 12 years at $3,600 p/m.

Lenders always want good business, so help them to help you by boosting your borrowing power. And, if you'd like an introduction to a capable broker, for a loan now or even to see what is possible, please call me.

Final tax thoughts for this year (and some for next year too).

Tue, 23 Jun 2015 23:00:00 GMT

The end of the financial year is just a few days away so it won't hurt to review some of the opportunities to save tax before 30 June, and to be ready for the next year.

1. $20,000 asset write-off

All asset purchases up to $20,000 per item (excl. GST), acquired after 12 May 2015 and up to 30 June 2017, can be immediately written off. Attractive as it sounds, remember, your benefit is only at the marginal tax rate; for example, if your taxable income is $80,000, and you spend $20,000 on a piece of equipment, your tax benefit is $6,900 (20,000 x 34.5%).

2. Deductions

You can bring forward deductions by prepaying repairs, rent, employee super, and consumables. Car expenses can be claimed as long as you keep a log book for 3 months once every five years, and you also need to record its odometer reading on 30 June each year.

3. Superannuation

Concessional deductions are $30,000 for those under 49 on 1 July 2014, and $35,000 for those over. A good tax strategy is to use an SMSF and transfer surplus wealth into the fund, not only for concessionals but also non-concessional contributions, now up to $180,000 a year. Income is taxed in super at 15%, so there is a big saving on marginal tax rates.

4. Lower tax rates

Can you defer income until next year? From 1 July, the company tax rate reduces to 28.5% and for unincorporated business owners there is a 5% discount on tax on the business income.

5. Trust distributions

Resolutions for distributions of trust profits to eligible beneficiaries must be made by 30 June. (If you have not yet received a resolution for your family trust from us, please call us).

6. Division 7A Loans

The Div. 7 regulations are complex. If a company makes payments for or loans to directors or associates these can be taxed to the director as a deemed, unfranked dividend. Div. 7 allows the company to document the advance as a loan but it needs to be repaid with interest, over 7 years.

7. Trading Stock

Businesses have a choice on how to value stock, at its cost, or market value (eg., if it has to be discounted), or at replacement or obsolete stock value. Each item can be valued on a different basis and the method used can be different each year. The ATO can ask to see stock sheets.

8. Bad Debts

Non-recoverable debts need to be documented and written off before 30 June, not when the tax return is done some months later.

9. Bonus' and Director Fees

These do not have to be paid before 30 June, as long as they are approved and minuted, and paid within a couple of months of the year end. Tax is deducted when the payments are made.

10. Depreciation

It is worth reviewing the list of assets and to write-off any items that have been scrapped. The '$20,000 write-off' (see 1) also allows SME's to write-down to Nil the value of pool assets where the value at year end is less than $20,000.

11. Capital Gains

Capital gains tax is not complex, but the right to apply the small business concessions can be. Assets held over 12 months and not on revenue account (eg., land acquired for development) can qualify for a range of concessions. Don't just sell and hope for the best, this is one to ask about before the sale occurs.

12. Record keeping and IT

Online or cloud is not just another way of selling you more IT. Talk to someone who knows what they are doing, not the salesman (if you need a referral to someone capable, call us). Cloud-based software can save you money, both set up and usage, and give you more information on your sales invoices, bills and receivables, and also integrate with accounting software (like Xero). You also need to be aware that your software has to report and pay super from 1 July 2015, (although this has been extended for a few months) send copies of pays each week to the ATO from 1 July 2016, and probably within a couple of years link to the ATO (Standard Business Reporting). Technology is driving change in every industry, including tax.

13. Use professionals

Accountants and bookkeepers are trusted allies of small business, and most will save you time and money. The cleaner the records, the less you pay, the more useful information you get, and the more profit you make. It's tempting to save a few dollars and do things yourself, but your time will be better spent making sales. I'm trying to say this nicely, but a lot of bookkeepers are doing more and even giving tax advice, often well above their ability and knowledge. Be certain of what you want from your systems, if it's just BAS that's easy, but if you are making decisions, have the correct data and advice.

14. Change

You can be certain there will be more change to come, both federal parties have a tax reform process. The tax white paper is reviewing many areas, including superannuation, franking credits, negative gearing, CGT concessions and loans from companies and trusts. That is one reason we continue to raise concerns about structure, planning, and IT and send newsletters about changes in all areas, not only tax.

We'll certainly be reporting regularly on issues, like those mentioned above, to help keep you out in front.

Have You Made Any of These Mistakes?

Tue, 16 Jun 2015 23:00:00 GMT

The early years of a business and the various stages of growth can both be filled with frustration. It is possible though to avoid some of the mistakes that create obstacles.

Mistake 1: You can save money by not employing someone to do administrative work

What gives you the better return for your time? Typing, telephone answering, and bookkeeping, or marketing for sales? Get someone to do these necessary administration tasks so you can use your time in more productive ways. You will earn more per hour from marketing and sales than you will spend in wages for administration duties. Consider outsourcing some functions, like bookkeeping, managing your website, accounting, obtaining finance, and cleaning. (And they'll do the job much better too!)

Mistake 2: Taking on all customers

You don't want every customer, the ones you accept should fit your preferred customer profile. People will take advantage; they want discounts, more for less, and be slow or even non-payers. You could end up with bad debts or no profits on the work you do, and have a group of poor quality customers. Before you take them on, make sure they know your account terms.

Mistake 3: Underestimating the work required

It is not easy money and fewer hours, quite the reverse. A very good use of your time is creating systems and processes to provide clarity and direction. Create a manual so everyone can see 'how things are done here' - answering the phone, greeting a customer, spending petty cash, creating a file for a new customer, filing, all the bookkeeping steps, etc. Then people do things your way every day and you don't need to check.

Mistake 4: Not having enough working capital

In a perfect world this would never be a problem; everyone would pay you on time, your suppliers wouldn't really care if you needed a few more months to pay, your team wouldn't mind if they didn't get paid, etc. Really, you need a backup of spare cash to use as working capital to carry you through the tight cash times. Do a forecast month by month for 12 months and allow for new equipment, some slow debtors, tax bills, superannuation, loan payments, your drawings, and a reserve for contingencies. Be firm with your debt collection policies. You may be able to finance equipment and find some working capital finance but don't depend on it (the people we use for finance are experienced and excellent value - it's not only the rate to compare, but fees charged, payout penalties, alternatives, the time saved. the best deal, etc.).

Mistake 5: Expecting customers to come to you

You might have the best product or service but prospects have to know about you and especially what you can do for them. You have to market, network, ask for referrals, introduce yourself, and make sure people see the value in what you provide.

The early years can be hard, but put in the time and effort to get the base right and regularly focus on making sure your plan is on track. Even though you've planned you may still have problems, but you have experience and knowledge to overcome obstacles, and some reserves if needed. You've earned the reward for your effort and planning.

Scam Alert

Mon, 15 Jun 2015 23:00:00 GMT

Last week we had a call from a client saying there had been a call from the tax office to pay an amount due to the ATO. That's not so unusual, but the message he received was indistinct; heavy accent, garbled and contradictory, but left a phone number and name. He was suspicious, and so are we.

There are so many scams built around the ATO that the ATO now puts warnings on its website. We've even heard of bogus calls from Centrelink and state revenue authorities.

Sometimes it's money but it can also be about stealing your identity; misusing personal information for tax evasion, customs or GST fraud, even superannuation and welfare fraud.

The scammers can be quite cunning; official sounding phone calls, even emails containing ATO imagery and the names and signatures of real ATO staff.

The typical stories are:

- A call to say tax has been overpaid and a refund is due, perhaps requiring payment of a fee to cover processing costs which can be paid from your bank account or credit card, or if you just provide the number they'll put the net amount into your account.

- An email to say a small debt is overdue, and pay immediately to the nominated account or action will be taken.

- Threats of prosecution or arrest if the debt is not paid immediately by quoting your credit card over the phone.

The ATO does sometimes send emails and SMS messages but usually about new services. However, it will never ask for personal or financial information, and refunds or collections are not handled this way either.

If you receive any contact from the ATO requiring money or personal information, ask for their name and contact number and details of the refund or money owing, like the amount and what it is for. Preferably, call us so we can check for you in the ATO's records, or call the ATO on 1800 060 062 (this is a genuine number!)

Smart End of Year SMSF Strategies

Thu, 11 Jun 2015 23:00:00 GMT

The dual role as business owner and an SMSF trustee gives more flexibility over timing and amount of contributions and choice of investments. The tax benefits of super are important but investment strategy is essential.

Here is a range of super issues, for end of this financial year, and for the new year. Please ensure they are appropriate for your circumstances before adopting any, a phone call only takes a couple of minutes.

Contributions

1. Maximise concessional (deductible) contributions

For 2014/15, the concessional caps are:

under 49 at 1 July 2014 $30,000

over 49 at 1 July 2014 $35,000

The non-concessional (not tax deductible) cap is $180,000 but it is possible to put in $540,000 and then Nil in the next years. This one is tricky as you need to also consider non-concessional contributions over the last 3 years to ensure the cap is not breached.

2. Ensure contributions are made before 30 June.

The ATO says the amount must be in the SMSF bank account no later than the 30 ^th , and if not cleared until the next day it is not deductible this year.

3. Contributions for those with a job and a part time business.

If you are receiving employer contributions, personal contributions are only deductible if the gross salary is less than 10% of all income.

4. Co-Contributions for lower income family members

A Fund member earning less than $49,488 a year and who chooses to make a non-concessional contribution of at least $1,000 may be eligible for a government co-contribution up to $500 . This is a 50% return on the investment and not taxable!

Capital Gains Tax

5. Contribute proceeds from sale of a business

As long as the conditions are met for use of the Small Business Concessions, and if the exemptions for 15 year ownership or retirement apply, these do not count towards the non-concessional cap as long as they are below the current limit of $1.355m. This allows more tax free earnings in the Fund, and saving of CGT on the sale.

6. Offset CGT on investments with Concessional contributions

If a capital profit is made on the sale of an investment, eg., shares, the 50% taxable gain may be reduced or offset with a concessional contribution. (However, see 3. above if employed).

Retirement Planning

7. Split concessional super contributions with a lower balance spouse.

Fund members can request the Fund to split up to 85% of their concessional contribution to their spouse's super account. There are a couple of good reasons for this; an enquiry recommended the government introduce a cap on tax free earnings from pension assets, and pensions are tax free for members over 60.

8. Eligibility for a Transition-to-Retirement pension (TRIS)

It is possible to start a pension from age 55 , even if still working.

9. Equalise balance between spouses

One way to achieve this is with non-concessional contributions, or using a withdraw-and-re-contribute strategy. Also useful for estate planning.

10. If paying pensions, pay the required minimum

These are set percentages depending on age. If the minimum pension is not paid, the amount drawn is treated as a tax free lump sum and the Fund pays tax at 15% on earnings.

Next Year

11. Extra savings

From 1 July 2015, the company tax rate reduces by 1.5% to 28.5% . Put the saving into super and build your retirement capital.

12. Maximise next year's contributions

Budget so that you have the cash available to make maximum contributions next year.

Compliance

13. Value SMSF assets at 30 June

Historic valuations can no longer be used, fund assets must be shown at market value each year.

14. Records and documents

Auditors require bank statements for the whole year and especially the balance at 30 June, copies of term deposits, dividend notices, buy/sell notices for share, invoices for all expenses paid from the Fund.

15. Review strategies

Things to think about include: the appropriateness of fund investment strategies and make sure these are written down, whether to use super funds for asset protection, insurance needs of members, and effectiveness of estate planning in place.

How do you determine the value of a business?

Wed, 03 Jun 2015 23:00:00 GMT

Everyone wants to sell for top dollar.

But achieving top price from a purchaser requires a focus on the five things a buyer values most.

Valuation is simply a factor of Risk x Profits, and these are the risks a buyer sees.

1. Build or Buy?

When corporations buy their question is whether the time and money to build a similar business from scratch may be greater than the cost to buy now. So the business needs to be different and hard to replicate, eg., could a competitor easily replicate your products and services? Train a team like yours? Acquire a customer base like yours?

2. How is Financial Performance?

Buyers thoroughly check financials. They must see strong and growing revenues and profits. Declining revenues significantly decrease valuations, so build growth.

3. Would it be easy to run your business after acquisition?

Buyers want a business simple to run and will pay a premium for that. Do you have systems so the business runs consistently? Are employees trained to handle key issues that arise? Will customers continue to buy if you're not there? Make sure the business will run smoothly.

4. Is the customer base stable?

Everything else depends on keeping customers. It is rare to have contracts, but ideally, do customers return regularly, or have a preference for your products or services. Having a diversified customer base helps too, rather than a few larger customers, because if one leaves a large chunk of revenue goes too.

5. What are the odds for sustainable future growth?

Answers to the four questions above helps to decide on the odds for future growth. There will be more buyers who will pay a premium for a stable customer base, growing financials, a unique business, and one easy to run.

More buyers means the price is bid up. One of your key objectives should be to increase the value of your business even if you are not ready to sell yet. Always make sure these factors exist as it can take two or three years to get ready to sell.

Does CGT apply if you move into your investment property?

Tue, 02 Jun 2015 23:00:00 GMT

Consider this situation:

- residential investment property, probably negatively geared for a few years

- considering renovations and then renting again for a few years

- probably move in eventually

- once used as a principal place of residence (PPOR), is there any liability for capital gains tax?

The short answer is Yes.

This is a misunderstood area of tax law. It has been an investment property since acquisition. Even if it was vacant for some time it was not at that time a PPOR either.

Even if it was a PPOR for some time, and being the only property used as a principal residence, it does not matter how long you stay in it, there will be some assessable gain for the time it was not a principal residence. This is because it was an investment when acquired and no time as your principal residence removes this.

You need records of the purchase price and all monies spent on the property, so that the capital gain can be calculated and the gain apportioned between the periods of investment and home.

The reverse situation is that if may have been purchased as a principal residence but you moved out at some future time. The property is then rented. If you move back in within six years of moving out and still eventually sell, there is no taxable capital gain or apportionment required. If you don't move back in, it is an apportionment situation once again.

As you would expect, the rules are fairly complex. Always check; knowing is better than hoping.

Why Bother With an SMSF?

Mon, 18 May 2015 14:00:00 GMT

If you believe recent media, an SMSF is somewhere between a fashion statement or for the purposes of evil. The essential purpose of an SMSF is to provide retirement benefits for its members. And, if that can be done tax efficiently, then benefits are obtained twice over.

What are the Tax Benefits?

- Contributions (up to $30,000 a year for under 49; $35,000 a year over 49) are tax deductible.

- In Accumulation Mode (contributions being made), earnings are taxed at 15%.

- In Pension Mode, the Fund pays no tax on earnings or capital gains.

- The pension is tax free to a member over 60.

These tax benefits are exactly the same whether in an SMSF or paid to a retail fund! However, there are other benefits from operating an SMSF.

- Asset Diversification

Accumulate monies outside the business, for the principal purpose of use for retirement

- Budgeting

Members should receive fair salaries for their commitment, and also set aside superannuation. To provide for these, the business must have sound strategy and systems and be operated to achieve sufficient profits to pay the owners.

- Credibility

Putting aside more than the statutory 9.5% indicates a successful business and is evidence of profitability, often making business sale easier.

- Investment Selection

Trustees are able to exercise greater choice and control over the investments of the Fund.

- Investment Cost

Investments selected by trustees are often obtained at better value/lower cost than those by retail managers.

- Asset Protection

Assets in a Fund are protected from creditors and liquidators (but must not be used to prop up a business in trouble).

- Estate Planning

SMSF's are a good vehicle for estate planning (they also are not within the scope of a Will, so attention to this is needed in preparation of an estate plan).

- Insurances

More flexible insurance arrangements can often be achieved through a fund (although recent changes limit these somewhat).

Costs

Costs to operate are not excessive, and can even be significantly less than those of retail funds.

Too much emphasis is put on the tax benefits and if that is the principal purpose of contribution, the benefits are the same as in all retail funds. But, if the other benefits are important to you, then an SMSF is most attractive (even with the pettifogging rules).

Budget Commentary

Tue, 12 May 2015 14:00:00 GMT

Commentary

The Budget forecasts show the economy is still limping along: barely able to absorb new workers, interest rates at lows not seen for over 25 years, slow wage growth (which constrains household spending), and investment weak and declining due to low business confidence.

The 2015 Budget won't turn this state around. This budget will have a roughly neutral fiscal impact on the aggregate demand for services and goods. The economy is periodically buffeted by large swings in commodity prices, like iron ore and coal, and these are a key driver of the budget balance.

As the largest brake on the economy is the low level of business and consumer confidence (eg., little response to the eight interest rate cuts between 2011 and 2014), this budget needed to be less controversial, which could lift confidence. So, the emphasis is on the commitment to long-term fiscal repair and a hope for a pick-up in commodity volumes and prices.

Analysis

Most of the detail is an interesting read, and if you'd like a summary of Winners & Losers we have a good Infographic we can pass on to you (prepared by Edith Cowan University), and a full analysis of every measure by Hayes Knight Accountants.

What I will provide here is just the key issues for businesses (with turnover under $2m, which represents 93% of all businesses).

Small Business (Turnover less than $2m)

From 1 July 2015 -

- Company tax rate reduced to 28.5% (from 30.0%)

- But the Franking Credit rate remains at 30%

- An individual receiving business income, as a sole trader, partner, or trust beneficiary, will receive a 5% discount on tax payable on the business income, up to $1,000.

Immediate Write-Off

- From 12 May 2015 to 30 June 2017 -

- Immediate write-off for all items costing less than $20,000, to be claimed in the year it is installed or ready for use

- The existing small item depreciation pool (where all plant etc., is lumped together and depreciated over 3 years) can be written off immediately when the value in the pool falls below $20,000

- If starting a new business, costs of legals, incorporation, and other professional advice can be written off immediately (at present over 5 years).

Primary Producers

From 1 July 2016 -

- Claim immediate deduction for water facilities and fencing (currently 30 years)

- Depreciate over three years expenditure on fodder storage (currently 50 years)

Other Measures

From 1 July 2015 -

- Car expenses can be claimed under the log book method or at the 66 ¢ per km rate (dropping the 12% of vehicle cost and 30% of actual expenses methods)

- FTB(A) and subsidised child care are only available if immunisation is up-to-date

- A new online portal to be available around mid-2016, for streamlining of access to government regulatory bodies

- Small business entities can change legal structure once without attracting CGT (from 2016/17)

- Penalties on SMSF trustees increase slightly, but no other changes to superannuation

- No changes to Negative Gearing

- Allocation of more funds to the ATO to check GST compliance and locate and prosecute fraud (particularly in superannuation, identity theft, and tax evasion).

A Few Myths and Misconceptions about Retirement

Mon, 11 May 2015 14:00:00 GMT

Planning for retirement is not so difficult, it just needs prioritizing in our competing financial obligations. However, too many plans are based on assumptions that are questionable. We see quite a number of plans put together by 'financial planners', but too many of these are either selling products or merely state what the legislation requires them to say.

Here are a few points to consider:

Retirement is not One Phase

It is a transitional process as we exit the workforce, not one long phase. It could be a long stage depending on age of retirement and life span. But it is multi-phase and must consider health, health of your spouse, state of finances, interests, etc. Spending is not constant through retirement; a lot may initially be spent on travel, then perhaps a new car and home renovations, and eventually health needs.

Retirement is not a Destination

Life expectancy averages are about 80 for men, 84 for females. So retirement may be 20 to 25 years. It is a different way of life to the 9 to 5 routine, one that requires planning and regular adjustment, just like you did for the 45 years you worked.

The myth of needing 80% of pre-retirement income

This is a rule of thumb pushed by financial planners, but there is less tax to pay, hopefully no loans to service, no money for children's education, no savings for retirement. The real number may be between 50% and 65% of working-life income. Consider your lifestyle - expensive or practical and reliable? Go through the list of things you must spend on (rates, electricity, registration, insurance etc.) and those more discretionary (groceries, presents, eating out, etc.).

Income returns

Our approach is to achieve not only the best return on capital but also ensure return of the capital. A few we have worked on recently are achieving better than 5%, with very low risk. The portfolios can be simply re-jigged depending on your needs and the state of the markets. Also, in these low-return times it may be necessary for you to draw some capital to ensure you can meet both essential and discretionary needs; don't go without so you can leave it all for the kids!

Equities

Many planners take their clients out of equities and only select safe fixed interest. Inflation doesn't stop though and every year erodes your savings. Hence, some equities are necessary to provide growth and replace capital. It is not simply about choosing a few token stocks though, but about all sources of income, asset allocations, and near and long term needs.

Retirement planning requires analysis of both future needs and income. Don't leave it to someone else to make important decisions for you, and don't rely on the wrong assumptions.

[As you know, while we are associated with Merit for financial planning, we choose to refer to qualified, experienced people who we trust to do the assignment properly and thoroughly with your interests paramount. So, if you want some general help or a point in the right direction, we would be pleased to help with the principles, but for the actual product/investment selection we will refer to our trusted associates.]

What happens if you improve every tiny thing by 1%?

Mon, 04 May 2015 14:00:00 GMT

What is the impact of a 1% change in everything in your business? It's so simple it takes more than 1 page to explain, but I promise you, it's well worth your time.

Dave Brailsford in 2010 was appointed Performance Director for a UK cycling team and told to win the Tour de France within 5 years; he achieved it in 2012. He also was involved with the British cycling team at the 2012 Olympics, and the team won 70% of the available gold medals.

His theory of 'aggregation of marginal gains' was that if you improve every area by just 1% then the total would add up to a remarkable improvement. And not just the obvious: nutrition, training, equipment but others like a pillow for best sleep, a more effective massage gel, even reduction of infections.

As I know nothing about that sport, let's change the topic and ask "how would that work for your business?"

It's more appealing if there is a large and immediate outcome, but what if the strategy doesn't work? Even though improving several things each by 1% may not seem notable, it can in the end be more meaningful and more sustainable. In the beginning there may not look to be much impact, but over time there can be a big difference and your business will be streets ahead of competitors.

Consider the several key drivers of a business, and the possible ways to increase each one (at least the most obvious ones from the chart on the wall in my office):

- retain more existing customers (42 strategies)

- obtain more leads/prospects (61)

- convert more prospects into customers (60)

- improve prices/project value (49)

- increase the number of times a customer transacts with you (41)

- reduce the cost of obtaining product/services

- reduce overheads

What happens? The "rule of 38 = 43" says to target a 5% increase in clients, a 3% improvement in client retention, a 10% increase in price or project value, a 20% increase in the number of projects per client a year (which means only 20% of clients buy 1 more time each year). If we add these (5 + 3 + 10 + 20 = 38), this is a 43% increase in revenue, so in two years you almost double your revenue and your profit could perhaps increase by 84%.

For the sceptics, let's set out examples: only 1% improvement, then 5%, and the numbers I used above, and compare them to a present situation (just the results, not the calculations, to keep it simple):

Now +1% +5% "38 = 43"

existing customers 400 400 400 400

no. of leads 70 71 74 74

conversion rate 80% 81% 84% 85%

retention rate 50% 51% 53% 53%

average project value $700 $707 $735 $770

transactions p/a 1 1.1 1.2 1.3

revenue $179,200 $203,376 $241,809 $275,175

cost of sales 40% 39% 38% 37%

overheads $55,000 $54,000 $52,000 $52,000

Net profit $52,520 $70,060 $97,922 $121,360

increase +34% 87% 131%

The lesson from Brailsford is to improve everything, not just the obvious. Even a small change can have a big benefit, and all aspects of the business need to come under scrutiny.

Would it be worth your while to spend a few minutes and see how you could achieve more profit and cash. We'd be delighted to spend 30 minutes with you and work through your business metrics: no charge for preparing a Profit Improvement model for 12 clients.

Four Ways to Work Out Your 'Best Price'

Thu, 23 Apr 2015 14:00:00 GMT

Businesses need to get pricing right in order to succeed.

1. Have an holistic approach to pricing

There is no 'one-way'. You need to consider what it costs to produce/buy (cost means direct cost of materials plus wages plus overheads), how much competitors charge, and even what customers are willing to pay.

Customers care about value, not the cost, and they may value something completely differently to where you think the value is.

2. Know your customers

You need to know what your customer wants and why they purchase from you. This builds a loyalty centered around the service you provide rather than price, and so if you need to change your price you can anticipate how they may react.

Around 13% only of customers are extremely price sensitive. Take coffee; an operator who is friendly and welcoming and makes great coffee and increases the price will lose few customers to a competitor whose coffee is average.

3. Prices aren't set in stone

It's not 'set and forget' because pricing is one of the marketing mix (the 4 p's - price, promotion, place, product). If your marketing needs to change, pricing may need to be reviewed too. In the coffee example, the operator has a new supplier and the taste is better so he needs to tell everyone with some signage and leaflets but as the coffee costs him more he needs to tell people that 'the coffee is even better, try one on us and we're so sure you will agree that it's worth paying just a little more for such a delight'.

Prices change for context; guests expect to pay more for coffee in a luxury hotel, you know their costs are higher to provide the location, fittings, standards, service, etc. Apple and GAP do pricing well - they sensitise customers to the value provided but desensitise on price. If you're an Apple fan, you want their latest iPhone or whatever and don't care about what it costs because you believe that Apple is always the best (Apple has less than 10% of the market but is one of the most profitable companies in the world).

4. Factor in all of your costs

Be sure to factor in all of your costs; allow for what it costs you, plus the freight, consider stock spoilage or shrinkage, what markup do you need to cover all of your overheads, plus a salary and margin for you. If a competitor up the road has a lower price for exactly the same thing, his pricing model may just be wrong so don't go broke together. Price right but offer better value - nicer premises, better service, order and pay by phone/computer and pick-up in the loading zone outside. You're providing more value to the 90% of customers who want these choices, not just the cheapest.

Why Would the ATO Call About Your SMSF?

Mon, 13 Apr 2015 14:00:00 GMT

We had heard the ATO is directly contacting SMSF trustees, often a telephone call with 'a few questions'. It was also reported in the media last week, and after checking found the media had misreported the story (surprise!).

New laws from 1 July 2014 make SMSF trustees personally liable for fund breaches, including monetary penalties and even prosecution (we put details in a Newsletter a couple of months ago).

The ATO contacts on SMSF's are not random, we found they are a follow-up of reports issued by the auditors of the Fund, which must be lodged with the ATO. The report may concern something that is a technical breach or it could even be a major failure of compliance, every breach is reportable.

The auditors we recommend have high professional standards and do not set out to fail anyone, and if they have concerns, they refer the matter back to us for comment or attention before completion of the audit. I cannot recall one qualified report for our clients in the fast few years. The auditors have supplied us with their Audit Programs and Guidelines, which we use to ensure that the financials, tax affairs and operations of the Fund do comply even before the auditor receives the records for audit. Also, they are always available to us for advice or discussions. We believe their fees are low and the value provided to clients is high.

So, why would the ATO call a trustee direct? If the audit report is not qualified the ATO has no specific concerns, so the call may be checking on trustee activity, to understand the operations or investments of the Fund, or seeking information to develop policy in a particular area.

If you get a call, what should you do?

1. Don't panic

It may be in relation to a concern outside the audit, and they're trying to understand how the Fund operates, without doing an audit. Listen to the reason given for the call.

2. Be nice

The ATO prefers to work with SMSF's to get solutions, not 'get you'. Co-operation usually means a positive outcome and no escalation of action.

3. Make sure you know what they expect you to know

That is, the Fund keeps proper records, separates SMSF records from personal or business accounts, has an investment strategy (grow assets or earn income to pay pensions), prepares tax returns and financial reports, has an annual audit, files all the records, keeps a Register and minutes decisions. If the trustee doesn't know what is expected of him/her, the ATO may require them to undertake a Trustee education course (a sheer delight you don't need!). Yes, we attend to a lot of these matters, but it is why we tell you what we are doing, even harp about trustee duties.

4. Have a Plan

If the call is in response to a contravention report from the auditor (unlikely for our clients) know what is being done to fix the problem. Read out our report or say what was done to fix it. Telling the auditor you're too busy will only result in the escalation of the case.

5. If you don't know

Suggest the ATO calls back in 48 hours. Then call us and we'll see if we can deal with the ATO for you, or tell you what you need to know.

It is worth knowing what is going on in the background. The ATO is not out to get trustees, but their job is to ensure compliance with the law. We take what we do seriously, making sure things are as right as can be and hopefully avoid scrutiny for unintended breaches, or worse non-compliance (loans to members or others, non-approved investments, being in business, etc).

Tax Reform Talk

Tue, 31 Mar 2015 13:00:00 GMT

The Treasurer announced on Monday that he was opening a discussion on Australia's future tax system. So, "Re: think" is a conversation, not about recommendations or definites.

There is a lot of rhetoric, some of it appealing. Taxes will be 'lower, simpler, fairer and encourages productive endeavour'.

What the paper does is outline the issues and then asks a series of questions, 66 in all, about how best to address the issues identified.

However, the rhetoric rings hollow, with a clear aim of herding taxpayers towards an overall higher tax burden. No budget has balanced for many years, so what the government has is an expenditure problem. But the paper is all about reforms to revenue, without fixing the waste.

We have a government and an opposition (they don't deserve capitals) too weak to cut spending, and bureaucrats fearful that technology and mobility make it hard to collect tax.

If the government was serious about tax reform , it would get spending under control. The Senate is not knocking back the programs but rather knocking back the taxes to be collected to pay for party policies announced years ago (in order to get elected).

So the media seizes on bits like 'lower taxes' and interest groups push their barrows too ('tax them, not us'). All spin and PR.

It's not an unreasonable discussion. But we first need to stop waste, control expenditure, and evaluate the size of government. But we shouldn't be fooled by this disingenuous tripe this bunch is trying to pass off as discussion on tax reform.

I'd be happy to point you to where you can obtain a copy of the paper, submissions are due by 1 June 2015, and a green paper by mid 2016 (just in time for the next election).

Pardon my scepticism.

The ATO is officially a big Bully!

Mon, 23 Mar 2015 13:00:00 GMT

It's scary enough to be a small business in Australia with its usual commercial risks, like shopping centre leases, bank lending, employment law, and government at all levels arbitrarily setting new rules. A scarier possibility is being targeted by the ATO.

That's not just me either, this is actually the conclusion of two official (government) bodies, the Board of Taxation's 'Review of Tax Impediments' in February and the Inspector General of Taxation's 'Management of Tax Disputes' released in March. (If you would like a depressing read, these are highly recommended).

Both are high-level authorities and these were not light-weight reports. Even though the language is the usual bureaucratic niceness, they were both scathing of the ATO.

The ATO is required to interpret and implement the laws of the government, it does not make up the laws itself, but where the reports are most critical is of the ATO's behaviour and attitude. This is the area where we often experience the most problems too. There can be a difference of opinion between the way of approaching the taxing of a transaction and the way we see it, but unfortunately there is a 'that's it, our way or no way' attitude. (If we think we're right, we'll recommend objecting to the AAT - the taxpayer wins around 70% of the time).

One example, when applying for ABN's the ATO decides what is an 'enterprise', a view which is often unlike the real world. If it is a start-up the ATO can refuse to grant an ABN because it is not an enterprise, which it can't be without having an ABN to get under way. Clear?

Another, many businesses now operate as self-employed contractors. The ATO says its definition of employment means these cannot be independent contractors. One of the more stupid rules expects them to have substantial equipment; but consider IT people, a $1,000 laptop and a heap of knowledge. You only want them to fix the immediate problem and go, not become entitled to penalty rates, holidays and redundancy rules. Getting the idea?

Some more examples of bully behaviour:

- A Director Penalty Notice can be issued because the ATO has made a retrospective interpretation of a rule. For example, a Trust can claim superannuation for the principals, but the ATO now disagrees with the claim unless done a certain way. A DPN is a personal debt for the money owing, and very hard to defend.

- Where there is a dispute, however genuine, the ATO can require the payment of a big part of it before any appeal. Then you have no money to fund the appeal! Some of the reasons for their decisions/interpretations are just rubbish and what you'd expect from recent graduates or people with no ides of how the real world operates. You have to provide huge amounts of information quickly, put up with a 'guilty until proven innocent' mindset, and spend months or even years getting ready for court.

- 97% of all tax disputes involve small business (21,756 cases in the Reports) and often the ATO just won't settle. However, a new dispute management system for big business allows deals to be cut. Just not for small business. I could be cynical but is this about who's got the biggest lawyer?

- Benchmarks used by the ATO may determine whether deductions are excessive or income understated. The taxpayer must prove the ATO assessment is wrong, which can be hard to do without a lot of data, work, and cost.

So, perhaps now you can see why we suggest taking the cautious approaches we sometimes do. Certainly, claim what is allowable or avoid tax being applied where possible. But don't go over 'the line'.

Every dispute with the ATO is costly and stressful. It is not just the interpretation of the tax law that causes that, but more about the 'oppressive behaviour' of the ATO. We do not back away from taking on the ATO, in fact we usually win, but it is hard to determine strategy where your opponent is acting unreasonably and what is worse, allowed by law to get away with it.

ATO Data Matching and Changes to Super and Payroll

Mon, 09 Mar 2015 13:00:00 GMT

Not a heavy one for today; just some issues to be aware of.

These two matters are probably not a concern for our clients, but you could expect that the volume of ATO activity may result in queries or letters 'to explain'. If you do receive one, just send it to us for handling.

1. Motor vehicle data matching program

The checking of all vehicles costing over $10,000 and acquired since 1 July 2011. The information will be used to identify non-compliance with lodgment, payment and reporting obligations, and particularly taxpayers 'not meeting tax obligations, like undeclared income'. Expect a letter if the business showed a loss or low income and a luxury vehicle was purchased.

2. Share transactions

This program is going back to 20 September 1985 (start of CGT) and again looking for non-compliance with lodgment, reporting and payment obligations. Very few people retain the information for 30 years, so this one sounded an alarm. However, the ATO said its purpose is to identify taxpayers not reporting share sales and avoiding CGT, and to 'assist in the calculation of the CGT cost base where shares have recently been disposed'. The ATO can then provide share purchase and disposal information in its pre-filling service (information on income reported to the ATO for wages, interest, dividends, etc.).

These are measures to 'cut red tape for SME's', but it's likely to mean for some businesses more cost and work.

3. Super Stream

From 1 July 2015, all employers, whether large or small, must remit all super contributions electronically to a super fund (but not for SMSF's where the owners are the only members). We'll do a special Newsletter on the details of this change.

4. Single Touch Payroll

After 1 July 2016, employers will be required to use payroll software to electronically report payroll and super information to the ATO, at the time employees are paid. This will eliminate paper-based payroll reporting, with all reporting digitally based. The ATO has just sought comments on arrangements, costs and timing for remittances of deductions. This one will be introduced but lots of details are still to be worked out.

As Corporal Jones of Dad's Army used to say: 'don't panic!'. The ATO has the capacity for matching data on a large scale (in 2013, almost 770 million transactions) and no doubt it has been an effective program, so expect more of 'big brother'. The message is simple:

- keep good records, the taxpayer is required to prove the ATO is wrong;

- take advice early on transactions where tax may be an issue

- don't rush yet into new software for reporting on payroll and super.

SMSF Penalties

Mon, 23 Feb 2015 13:00:00 GMT

I don't want to dwell on negatives but sometimes it's worthwhile to do so.

The ATO has a very different attitude now to SMSF's than 5 years ago. Then, it was about education and broad guidelines and saving for retirement. Now, tough action.

There are now over 500,000 SMSF's, controlling around $585 billion, and growing. No Government can afford to ignore such a sector, and the Financial System Inquiry report released in December 2014 had little criticism of SMSF's. We'll deal with the recommendations in another Blog, because there are concerns about borrowing in super, limits on non-concessional contributions, access to dividend imputation, etc and the Government has to be considering how it can access this resource. (It could pay off most of the debt left by the Labor government!).

1. Trustee Penalties

From 1 July 2014, a range of penalties can be imposed personally on the trustees and they cannot be paid from the Fund's resources. They start with compulsory education, then increase to require rectification of breaches, and then finally, significant monetary penalties for either failure to act or for a serious or intentional breach.

2.Surveillance

Auditors are required to report every breach of compliance. The ATO jumped last year and disqualified 585 trustees. The new standard business reporting systems (SBR) provides more information sooner, so the ATO will act faster in the future on serious breaches.

3."Dire Warning"

The ATO prosecuted and required a custodial or community service for a trustee who failed to lodge several years worth of SMSF annual returns. The trustee had accessed the SMSF's accounts to prop up a failing business and ultimately lost the money. The ATO disclosed that prosecution was a last resort and would rather have assisted in clearing up the obligations. (Which really means they didn't care about losing the money, governments do that really well all the time, but make sure you send in the paperwork).

As you see, there are consequences now that were previously not available to the ATO, so always check that what you plan to do with SMSF assets does not breach ATO guidelines.

Why Buying Your Own Premises is a No-Brainer

Mon, 19 Jan 2015 13:00:00 GMT

We get asked this question often. Our reply is: "It depends".

The Variables to consider include these:

1. Is there a better use for the scarce capital?

Commercial property tends to yield around 8%, and while there could be a capital gain there could also be a loss too. The big question is - what is the alternative use of the capital? If the business is growing, what rate of return could be earned on the capital if it was reinvested into the business. Many businesses earn well about the 8%, but if you have the cash to spare and no better alternative, go for it.

2. What is the business the client is engaged in?

If your business is a specialist one and needs specialised premises, this may limit the options to rent the premises to someone else later. Alternatively, you may need to spend more money, which is not tax-deductible, to convert the premises to appeal to other businesses.

3. Investment risk!

Many people believe owning premises is not risky, but it may not be easily liquidated and is not diversified (like equities). On the flip side, they believe they are in control and do not have to negotiate with a landlord eager to increases rents.

4. Compare rent earned and interest paid

Interest at current rates may be less than the rent that may be payable for premises. So, the rent that would otherwise be paid can be redirected to fund the acquisition and perhaps pay down the loan faster.

5. Up-front costs

Lenders have fairly strict guidelines and the loan may only be for 70% of the lower of purchase price or valuation. Also, stamp duty, legals and loan fees are payable. The cost upfront to acquire the property may be 35% to 40%; is that the best use of your capital (see 1), and does it leave you enough working capital?

6. Which entity to buy it in?

This is another 'it depends'. We consider:

- Should not be in the same entity as the business is operated in, which is simple asset protection, nor probably the personal name of the business owner for the same reason.

- Probably not a company due to their generally disadvantageous CGT treatment.

- A trust can be used as trusts are good for asset protection and qualify for CGT concessions.

- It's hard to go past the tax efficiency of holding a property in a SMSF. A super fund can borrow, pays tax of only 15% on profits, gets CGT concessions, is efficient for asset protection, and is tax free once an approved pension is being paid.

So, next time you're considering purchasing business premises, these are some of the issues to think about.

Top Tips for the New Year - Part 2

Mon, 12 Jan 2015 13:00:00 GMT

This is the balance of our Blog on annual planning. Last time, the four things to look for. In this, a simple format for writing a Plan (one page only!) and other issues to review regularly.

5. One Page Plan (OPP)

The benefit of planning is to show the right opportunities to pursue, to gain control of the business and achieve targets. The One Page Plan lets you focus the ideas on one page, that is, the key issues at a glance but without all of the thinking. The OPP works well for existing businesses, not so well for a start-up. There are many formats, here is one.

- Vision - what will the business look like in 1 year; 3 years?

- Long-Term Goals (up to four over next 3 years) - like turnover, Profit, purchase premises, pay off debt

- Priorities to achieve LTG - staffing, systems, increase sales, marketing, etc.

- Short Term Goals (up to five in next 6 months) - revenue, free cash flow, new products

- Priorities to achieve STG - marketing, sales, etc.

- Key Measurements (track weekly) - count both hard numbers (sales, profit, key margins, database addresses) and activities (sales calls, closures, referrals, new clients, productivity).

6. Make Sure you Have the Right Business Structure

The structure may have been appropriate once but may not be now. Times and circumstances change - tax, CGT, asset protection laws, your personal circumstances and intentions. Time to review whether something else may be more appropriate.

7. Consider Succession and Estate Issues

a) If you are going to sell and want the best price, you need three years of good figures and to have effective control and reporting systems. However, if you are going to pass it over to family, where will your retirement capital come from then?

b) Your estate needs to be planned too. A lot of assets are not covered by a Will, like joint assets (passes to the other owner), and superannuation and assets in a family trust. How do you want these to be handled?

Some Help?

We get asked about these things often, so we have established programs to work through and make sure what we do is effective. Many have names we use which describe what they do and what their key purpose is, or the essential issues to be addressed. These are good value because they are meant to facilitate the planning, not become just another once-only. Remember, we know numbers but you know your business - the programs link up these two essentials; we can simply tell you what is needed, and you do it all, or even do the whole job for you, or perhaps help you do it, you decide what you need.

Programs include Profit Improvement Session, Objectives & Forecasts, Super and Retirement, End of Year Tax Minimisation, Grants, Monitoring and Regular Reporting, Buy or Sell a Business, Cash Flow, Getting Finance, etc. Over the next few weeks, we might describe for you what we do in some so you can see the benefits for you and how they can be helpful.

Do yourself a favour, invest 15 minutes, call me (there will be no charge ) and see how you could perhaps have a better and more satisfying year.

Top Tips for a New Year - Part 1

Tue, 06 Jan 2015 13:00:00 GMT

Another year gone! Were you happy with the progress you made? What changes could you make this year to your business to take it to the next level?

A new year is a great opportunity to clear the issues holding you back and to set a course for the result your want for yourself. But, you have to stop just 'doing it' and to lift your focus from each day's routine to a higher level, take a helicopter view of where you want to go, then decide how to get there.

Because this Blog started out as a bit more than a few minutes read, I have broken it down over two parts. Both parts will be in the written test at the end, so you will need to read both. Got your attention?

In this part, four tips on what is essential for review, and framing the questions we most need to answer to be able to properly plan.

1. Take the opportunity now to future proof your business

That means anticipating the future and developing strategies to minimise shocks and to capitalise on opportunities. Most businesses don't plan, often because they don't know where to start, so having a process and even the help of a facilitator is a good start. I use a simple process to overview things; where is the business NOW (see 2), WHERE do you want it to be in 1 year and 3 years (turnover, GP, NP, ROI, Value) (see 3 & 4), and make an action plan to work out HOW to get there (see 5).

2. Make sure your finances are in order

What is the current cash & liquidity position and what working capital is required? Look at some key benchmarks, including;

- Return on Capital Employed. You need to make an appropriate return on the money you have invested, in today's values, and after allowing for a fair market salary for yourself.

- Free Cash Flow. What is left after paying the bills, your needs, loans and tax?

- Working Capital. This changes, particularly if the business is growing, so you need to know how much cash you will need to fund that growth. Forecast in detail 3 positions, high growth, low growth, middle of the road, and use the 'most likely' to continually manage actual against forecast.

3. Focus on Profit, not Turnover

Don't chase sales for the sake of it, and make sure you're making profits on your sales (both gross profit and net profit). Analyse profits by each product, profit centre or by job. Remember 'turnover is vanity but profit is sanity'.

4. Look for Waste

Go through your costs and think about each item, you could be amazed at how much waste there is. Consider job cost and or low productivity, waste of materials on jobs, costs of reworking, buying price of goods for production or sale (renegotiate buying price or new suppliers), and every Expense from A to Z (advertising cost and effectiveness, cost of operating bank accounts, insurance cost and coverage, etc.).

In the next part, a simple plan format, and reviewing business structure and succession planning.

What About 2015?

Mon, 24 Nov 2014 13:00:00 GMT

This is a bit of a look forward, to next year, and where the economy might go. 2014 was a year of missed economic opportunities with a government fixated on the budget deficit and debt problems, which hurt business and consumer confidence and in turn kept a dampener on growth.

There were some good results over the last 12 months though:

- housing prices averaged growth of 8 - 9%, with Sydney and Melbourne leading, and SEQ now starting to catch up

- building approvals kept rising, dwelling starts were the highest in 19 years, and home sales numbers were up about 10%, including a big rise in the June quarter

- superannuation fund managers reported one-year returns around 12%

- unemployment has remained fairly steady, average 6.5% but job vacancy advertising has increased in the past 3 months

- the rate of household savings has stayed above the long-term average.

Looking at 2015, what might be possible?

- the Reserve Bank expects growth to be in the range 2.5% to 3.5% (2014 was a little under 2.5%) and Westpac's economist expects 3.2%

- if above 3%, unemployment reduces and consumer spending increases

- business and consumer confidence should continue to cautiously increase, which leads to increased investment and spending

- inflation will stay low

- interest rates also likely to stay low, but perhaps starting to rise later in 2015

- exports will benefit from a falling exchange rate

- the latest Westpac/Melbourne Institute Leading Index (this indicates the likely pace of economic activity for up to 9 months in advance) says the indicators rose in October, suggesting a better economy in the June quarter next year.

The economic fundamentals are sound, so there is no reason not to be optimistic. But, Australia does not operate in a vacuum, and global changes can impact our markets. Research, plan, analyse, and monitor your industry and market. Also, understand that some sectors, even in the same industry, might not be performing at the 'average' level. You can't control that, you can only control what you do. Demographics, supply and demand still drive the markets, and sometimes emotion is more powerful than logic.

Should your SMSF own your business premises? Some pros and cons

Tue, 07 Oct 2014 13:00:00 GMT

The Critics

There has been criticism of this practice, mostly by the big insurers, banks, and super funds. Two good reasons for this stand out; one, around a third of all super is in SMSF's and their owners are achieving better results at a lesser cost, and two, family businesses are withdrawing funds from these managers to invest in their own SMSF.

SMSF and Property

Most owners rollover their Super, start an SMSF, use the super as deposit on the property (usually one third of the purchase price) and borrow the balance. The SMSF is the beneficial owner but while there is a mortgage the property must be held in the name of a property trust; the loan is a non-recourse one, the property is the lender's only security.

Positives

1 Exemptions for business property

Business real estate can be purchased from members (residential can not), and the SMSF can lease the property to related parties, like the members' business (not possible for residential property).

2. Concessional tax treatment

In the accumulation stage (pre-pension), net rents are taxed at 15% and capital gains at 10%. The Fund can claim the same deductions as individual investors, including costs, depreciation, and interest. Once pensions are being paid, fund income and capital gains are tax-free.

3. Asset protection and succession planning

There is greater security of tenure for the business, and the property can stay in the Fund through generations. The property is usually beyond the reach of creditors too, whether creditors of the business or individual members.

4. Family businesses can be excellent tenants.

This includes paying the rent, looking after the building, even agreeing to rent increases. Rents must be commercial, and can be a good way of getting more profits into the Fund.

Negatives

1. Portfolio is unbalanced

If the main or most significant asset is the property, there is insufficient spreading of investment risk. However, there is no legal requirement for this, and it may be that trustees have sufficient diversification considering both super and non-super investments.

2. Conflicts from non-payment of rent

A Fund cannot provide financial assistance to members, which includes rent relief. Trustees can be fined heavily for this, as the Fund's sole purpose must be to pay member benefits.

3. Gearing outside super may be more tax-effective

The Fund rate is 15%, lower than personal marginal rates, thus providing a lower tax benefit from gearing. SMSF's can usually borrow around 65% so the Fund is not likely to be negatively geared for too many years.

4. Paying pensions

Member benefits and pensions may require other assets to be acquired by the SMSF, especially Cash; the Fund cannot borrow to pay member benefits.

5. Borrowing process and costs

The ATO has strict conditions on how funds borrow, requiring a bare/property trust to hold the property while there is a mortgage over it. There are additional costs to set up the approved structure, for legals, and for the lenders in ensuring documentation meets their requirements.

Final thoughts

Putting your business premises into a SMSF is usually worthwhile - a plan for retirement, an alternative to low-earning investments with public funds, and a way to save tax and get more money into your fund. But, check if it could be more tax advantageous outside super, make sure it is set up right, and ensure all dealings with the Fund are at arms-length.

Wasps and Entrepreneurship

Mon, 22 Sep 2014 14:00:00 GMT

I talk sometimes to a chap in Hopkinton, Massachusetts (he lives about 75 metres from where the Boston marathon starts). Michael helps 'solo professionals to develop a clear market niche'.

In his latest email, he says his lawn became infested with wasps, his wife wouldn't let him use toxic chemicals (spoilsport) and she insisted on another way. A neighbour said he'd "heard" you should flood the nest with liquid soap and a lot of water. At that point, things went wrong and downhill pretty fast. You're supposed to do it when the herd (hive? group? team?) is in the nest and so less active. During the day, they made a convincing argument for his early concession of defeat, and chased him back into the house. The neighbour said you should have done it at night. So, how do you find the nests in the dark? In the end he went and purchased the chemicals anyway.

First lesson, don't believe everything you hear. However, it's comforting to know someone else is challenged by these sorts of rocket science problems. Second, it's a bit like being in business for yourself, which requires a different point of view to being employed.

First, the upside is unlimited, because you benefit directly and immediately when things go well.

Second, time is important, and money comes in when you make things happen and try new things (excluding pest control)

Third, the cost of making mistakes is very low. If your next idea works, it works, and if it doesn't, it's annoying but it doesn't matter. It's not failure, it's just one way it doesn't work, the monetary cost is usually pretty low, and because nobody is watching, you don't lose anything else (like your dignity).

The point is, the biggest threat is not that you'll make mistakes (you will, but get over it and learn from them), it's that you'll wait too long and move too slowly out of a fear of making them in the first place.

Competitive Advantage

Mon, 15 Sep 2014 14:00:00 GMT

One of the questions I received last week was "how can I be more competitive? I've dropped my prices so low there's no profit left".

Every business seeks competitive advantage (CA). Michael Porter, from Harvard University, said in 1985 there are only two sources of CA - cost leadership and differentiation (it took him 400 pages to say it though).

Cost leadership is nearly impossible for a small or medium business. So, why then do so many small businesses compete on price? It does not make much sense for competitors to keep dropping prices until they are all broke. (For example, Qantas/Jetstar and Virgin airlines).

On the other hand, differentiation can come from a better product, or through product or service innovation (think Apple), although this is only an advantage for a short while until there are similar products available (then the price war starts again).

What Porter meant was that you must find out what is valuable to your customers (easy, ask them!), and then communicate the value of what you do to prospective customers. This is the easiest source of competitive advantage for small business.

Jack Welch, of GE fame, said advantage comes from learning about your customers needs faster than your competitors do, and then turning that knowledge into action faster than the competitors can.

It turns out the person who asked me the question saves customers up to 40% on the design and construction of an owner-build home. If I was a buyer, I really don't care about their fee anymore, the value to me from saving 40% is far more important. (This also becomes the business' Value Proposition and it would be a powerful selling tool on the website, stationery, business card, etc).

What problems do you solve for your customers? How are you doing it better than others? Do you know what your customers want or need? (One way to do this is with a searching SWOT analysis - Strengths, Weaknesses, Opportunities, Threats).

Binding Death Benefit Nomination Essentials

Mon, 08 Sep 2014 14:00:00 GMT

Our last 'Your Knowledge' Newsletter talked of the importance of a Binding Death Benefit Nomination provided to superannuation funds, whether a public fund of a SMSF. Here's a bit more information on their use and the importance of getting them right.

What is a Binding Death Benefit Nomination (BDBN)?

A BDBN is a notice given by a member of a super fund to the trustee, which requires a death benefit to be paid only to the member's nominated dependant(s) and/or legal personal representative as specified in the notice. If correctly prepared and executed, the trustee is bound to follow the instructions outlined in the BDBN. This provides certainty as to where the benefits will be paid on death. Otherwise, it is at the discretion of the fund trustee as to who receives your benefits.

How long can a BDBN remain in force?

If the trust deed for the super fund specifically states that BDBNs prepared under the terms of the deed can be non-lapsing, the BDBN will not expire simply due to the passage of time. However, if the trust deed for the fund does not have this specific provision, the BDBN may expire at the end of three years after the day it was first signed, or last confirmed or amended by the member. It is recommended that trustees review them regularly to ensure their circumstances have not changed.

What level of detail can a BDBN contain?

Many pro-forma BDBNs offer members the opportunity to do no more than nominate one or more of their dependants and/or their legal personal representative and the proportion of the death benefit that will be paid to each of those persons, whereas they can do so much more. For example, identify specific assets for particular beneficiaries, whether as lump sum or pension, or alternative beneficiaries in case one of the primary beneficiaries pre-deceases the member.

What are the alternatives to a BDBN?

A BDBN is one of a number of options available to members of a superannuation fund, when it comes to dealing with their benefits following their death. Other options include leaving the decision to the surviving trustee, or to a Death Benefit Guardian who could be a friend or advisor who is aware of the member's wishes regarding disbursement of benefits.

When might a BDBN be appropriate?

Situations to use a BDBN include:

- A member re-marries and provides a BDBN for her current husband. If super is paid to her estate, it could be contested by the children of the first marriage.

- Adult children may be divorcing, or bankrupt, or financially incompetent so the BDBN holds the moneys in a series of testamentary trusts that pay income but not capital.

- Where one of the children is not a trustee, so the BDBN ensures each child receives an equal share.

What are the tax ramifications relating to a BDBN?

When proper estate planning is undertaken at the time of planning the BDBN, and at regular reviews, the impact of tax on the distribution is generally one of the major considerations. The BDBN can permit the flow of money in a tax advantaged manner. For example, the BDBN can be established to provide for under age children who would receive the benefit free of tax, whilst the Will provides for older children, who would otherwise be taxed on receipt of superannuation death benefits.

GST Audits

Thu, 21 Aug 2014 14:00:00 GMT

GST AUDITS

The Tax Office has advised that GST audit activity is to be increased. Some statistics are given to explain this:

% for % for Medium

Errors SME's businesses

BAS preparation 58% 46%

Accounting systems 14% 17%

Related party transactions 6% 7%

Incorrect supply status 7% 11%

Errors are commonly systemic or transactional and more prevalent in:

- GST free activities

- Property transactions

- Sale of a business and the 'going concern' requirements

- Entry of documents/invoices

- Unusual transactions

Prevention is better than care, so:

- check with larger or abnormal transactions

- reconcile returns, check the GST detail report

If the ATO identifies a risk or just decides to carry out a random check, it will usually:

- phone and request say the GST Detail Report for a particular quarter, or

- send a letter saying that some particular detail is a concern and requires an explanation or substantiation

- it may then escalate to a full quarterly audit, and if not satisfied with the records or the system, perhaps audit a whole year.

Our approach is to:

- clarify the issue by speaking with the auditor

- see if we can limit the scope

- deal with the requests within agreed timeframes

- determine whether the argument is about facts or an interpretation

- avoid a confrontation and stay professional

- make a voluntary disclosure if need be, and so reduce penalties

The penalties can be high:

- failure to take reasonable care 25% (of the adjustment)

- reckless 50%

- unintentional disregard 75% or more

With a voluntary disclosure, up to 80% of the penalty may be remitted.

We recommend :

- reduce the risk, check the GST reports and BAS before lodging

- mitigate risk, check unusual transactions, seek advice beforehand

- audit insurance (we have submitted a proposal for our clients to an insurer). The insurer says 28% of all claims are for GST matters.

SMSF's & Penalties

Wed, 06 Aug 2014 14:00:00 GMT

On 1 July 2014 the ATO was provided with extra powers for dealing with SMSF trustees. The purpose was to give it new ways to deal with non-compliance in SMSF's.

There are three levels:

An Education directive -

To attend an education course to improve a trustee's knowledge of their role and obligations, and reduce the risk of re-offending. The approved course is an online course run by the CPA. There is a penalty of $850 if the trustee does not complete the course.

A Rectification directive -

This is a formal direction to rectify issues identified either by the ATO or the auditor. The ATO is required to consider the financial detriment, the nature and seriousness of the contravention, and other circumstances as appropriate. If the matter is not rectified within the set timeframe, the fine is $1,700 per trustee.

Administrative Penalties -

Special financial penalties can now be imposed on each trustee, and the fines must not be paid out of the Fund. Some of the most serious breaches have fines of $10,200 per trustee, for example:

- loans to members or relatives

- in-house assets (an investment in a related party; a loan to a related party; a lease of an SMSF asset to a related party)

- duty to notify significant adverse events.

Other breaches with fines from $1,700 to $3,400 per trustee include:

- failure to keep proper records and minutes

- not retaining member reports

- breaching operating standards

The ATO can remit penalties , taking into account the trustees actions, past compliance, legitimate mistakes, etc.

The ATO has recently said it will carefully review 2014 auditor reports, and some Funds may be selected for audit based on the SMSF annual return, monitoring of transactions, and information obtained (Big Brother!).

In our preparation of financials, and reports this year , we will pay special attention to these matters and work with the Fund auditors to resolve any matters before they require reporting. Also, please check with us anytime the Fund might be planning 'something unusual'.

Want More Profit? Plan this way!

Tue, 29 Jul 2014 14:00:00 GMT

I know I rabbit on about this stuff, but it is so vital. I've also read it is ideal to stay under 600 words in an article, so I'll try, but as some things need more detail, I might just go a bit over (and, you can always give me a call/email for more information!)

These are six top tips or resolutions to improve your new financial year:

1. Your business is just a pot of money - your money. The pot is the sum of your capital plus debt funding plus reinvested profits. One of the purposes of a business is to make a profit and you want to maximise this, and where possible, reduce the capital inputs.

2. What rate of return is required?

Risk free is about 4%, property say 9% long-term, and public shares 12% long-term. For the risks of business, you want a higher return on investment (ROI), perhaps 30% p/a is not unusual.

3. Understand the financial drivers of your business

Sometimes this is sales volume and unit prices, or gross profit margin, and can also include working capital or equipment investment. It's not good to sell more with less margin (discounting) because you can end up making less profit. You need to know what changes will give more profit.

4.Sometimes, Think small!

Don't only increase prices. Small changes in several areas can have a huge effect on profit and cash, valuation of the business, and return on capital employed (ROCE). We use some great software to do this financial model, and also look at improved working capital management. (Takes about half an hour, points the way to a huge difference in profits and valuation).

5. Plan to achieve a set ROCE.

You know what overall rate of return you require (2), and using the financial drivers (3 and 4) it is possible to model what needs to change to achieve the return.

6. Understand your Free Cash Flow (FCF)

You can make a profit but still have no cash, due mainly to management decisions or accounting policies. Lots of cash is often tied up in stock, debtors, and surplus plant or vehicles.

All businesses, big or small, face the same issues. The solution is the same too:

- It's your business, decide what you want from it (set Objectives - Turnover, GP, net profit, ROI)

- Decide what 1 or 2 strategies could achieve these required objectives

- Model the results (the various tactics); put prices up, acquire more leads, obtain higher conversions of leads, etc. We have the software to help you do this and simplify the thinking.

- Model the Forecast Profits and Cash (good software makes this easy too).

This is a good time to make some resolutions to change the shape of your business, and your life. Getting the model right lets you concentrate on the 2 or 3 things that will create the biggest benefits.

Focus on Your Business

Tue, 24 Jun 2014 14:00:00 GMT

Every now and again it's good to refocus on your business, perhaps to remind yourself of your goals and to revisit the plan to get you there. Or, business might be good but you may be feeling overwhelmed and not sure of what to do next. Either way, try these six steps:

1 . Ignore the computer, which is a wonderful tool for procrastination and can easily distract. Shut it off for a day.

2 . Review the current strategic plan (you do have one, don't you?). What did you want to achieve? Assess if these goals and rewards still interest you. Priorities change and the plan needs to reflect that. If you are planning, consider a simpler and shorter Strategic Plan (Goals, Strategies, Actions) rather than a full Business plan (which is more for starting a business).

3 . Pinpoint what you don't like about your business. If it is a long list, then a heap of little issues or niggles may be the source. Prioritise the list, work out what really bugs you the most and what is needed to fix it now.

4 . Talk to someone, this can release the frustration and anxiety. There might not be an obvious solution, but getting some support in defining the problem can be a foundation for progress.

5 . Reset your goals, what you'd now like to achieve. It's okay to want a lot, but cull the list; aim further ahead (3 years) and aim higher too. "What the mind can conceive and believe, it can achieve." (Napoleon Hill).

6 . Forget it all for a while. Get back the 'can do' by taking some time out for yourself.

Give yourself the time to relax, reflect and re-plan. Know where you're going next and reignite the passion for your business.

Business Model and Profitability

Thu, 19 Jun 2014 14:00:00 GMT

A few days ago I talked about using four simple concepts to make better decisions (Incentives, Measure What Matters, Be Wary of Conventional Wisdom, Correlation is not Causation). Andy Grove, of Intel fame, said your industry and your business must embrace change to survive and thrive.

It can be hard to look past the way business is currently conducted, or to look at the external factors (Measure What Matters). Often, the change is generated outside the regular players in the industry, and often from new players. Profits then slide so existing firms cut costs to be able to survive, eg., in a market where the product has become a commodity, like insurance or banking.

But to compete, it is not only a matter of increasing scale and efficiency. Buggy whips manufacturers were efficient but went out of business because the industry had changed. (Also, look at what is happening to video shops, newspapers, books, landline phones, outsourcing of clerical work, the music industry, etc.).

Real change comes from thinking about the business model. And changes come from understanding what is really valuable to the customer and determining how to provide a more effective solution.

What is of value to the customer? That is often hard to answer and sometimes even the customer struggles to answer. Henry Ford said "if I asked people what they wanted they would have said a faster horse". Steve Jobs of Apple said many times it's not only what Apple does that distinguishes them but why they do it, which is challenging the status quo of the industry and appealing to the individual not a mass market. Microsoft set out to put a computer in every home, now it sells software. So what does it do next?

Where might the solutions be? Try:

1. Understand what is happening in the customer's lives and where the product benefits them.

2. An effective solution will win over an efficient solution any day.

3. Don't focus on competitors, focus on the customer.

Thinking Smarter

Mon, 16 Jun 2014 14:00:00 GMT

Everyday we are confronted with both problems and opportunities, from quite mundane to complex, but decisions still need to be made. How do we make these decisions? Sometimes it is to defer until more information is to hand, perhaps think smarter, or even go with 'decisions under uncertainty' (or guess and hope as some describe it).

Some useful information is in the three economics texts from Levitt and Dubner: Freakonomics, Super Freakonomics, and Think Like a Freak. Wait! You don't have to be turned on by economics to get value from these authors.

There are 4 key ideas which drive much of their work, and you can apply these to the daily problems and challenges of business.

1. Incentives

A cornerstone of motivation of modern life, so an understanding of what incentives are present are the key. We need to understand our own too because when we do we can understand what might not at first seem logical. Levitt found many US street gangs did not attract members for the easy money from drugs, but for the belonging to a group.

2. Measure what Matters

Knowing what to measure and how to measure it can make the complicated less so. Many measure what's easy to obtain (eg., sales) but what may be more important is what matters to customers (on time supply or accessing a guarantee). Yes, we have to measure what is important to operations but we also need to know what matters to customers. We need to know the sales trend over several years, but we really need to know how many leads there are, conversions to sales, transactions etc., as these are the foundation for making sales.

3. Conventional Wisdom is Often Wrong

Group think or following the herd may seem safe, but conventional thinking mostly leads to conventional, even ordinary, results. Real success comes from looking at things from a different angle but also understanding the risks of that approach. Look at Apple, it challenges the status quo in every product it makes.

4. Correlation does not mean Causation

Sometimes things happen together or progress at the same time, but it does not necessarily mean one causes the other. Look for the real causes for insight and opportunity. There is a story (perhaps now urban myth) that a statistics student found a link between the number of words in Papal Encyclicals and the number of people using ferries on Sydney Harbour for several years in the future.

Better decisions can be made with these four simple concepts. Sorry for the journey into philosophy, but I hope it may be useful.

Seven Tips to Prepare for Tax Time 2014

Tue, 10 Jun 2014 14:00:00 GMT

The countdown to the end of the financial year is now on. And that means you need to focus on your end of year position and the planning that is appropriate for you. Either no decision or a rushed decision can lead to an unsatisfactory outcome. Here are seven issues to get your thinking started.

1. Basics

There are lots of little things which can be considered but these can save lots of tax. These include:

2. Superannuation

There have been more changes this year; note, super contributions are deductible only if they are received or paid into the fund before 30 June.

3. Look for the Bigger Opportunities

There are special claims in this year, we'll ask you about them when you're in, but start to think about them:

4. Capital Gains

A special tax, and full of rules and complications. To use the concessions it is necessary to be a 'small business entity' (in business, turnover under $2m for taxpayer and connected entities)

To calculate CGT and the Concession, we require:

5. Consider Cash Flow

This is essential, as some options require you to spend money or to defer income. These have cashflow implications and you need to ensure that creating a better tax outcome does not cause a short-term cashflow problem. Talk early to the bank, and be realistic as to how long you will need assistance for.

6. Risks and Other Considerations

Keep in mind there other issues to consider at year end. Tax benefits need to stack up on the risk-to-reward matrix. Quantify the benefits and assess any downside too.

7. ATO Audit/Hit List in 2014

Finally, if you are not sure, take advice. It could be just a telephone call or email. Superannuation and Capital Gains are critical to get right and should always be checked.

7 Tax-Effective Approaches to Super

Tue, 10 Jun 2014 14:00:00 GMT

The end of the financial year always seems to crop up faster than it should. Understanding what you could do before and after 30 June 2014 can mean less tax this year. When it comes to superannuation, make sure you maximise the tax deduction this year or salary sacrifice the right amount so you get the best possible outcome and don't end up with tax penalties.

1) Increased tax-deductible contributions cap for anyone 60 and above

For anyone who is under age 60 this financial year, the maximum amount of tax-deductible contributions that can be made to superannuation without penalty is $25,000. However, for anyone age 60 and above the maximum amount is $35,000.

These contributions include amounts you may make as salary sacrifice, superannuation guarantee or personal deductible contributions, if you qualify.

If you wish to maximise your contributions before 30 June, make sure you talk to us to ensure the strategy and contribution is tax effective.

If you are older than 65 you will need to meet a work test to contribute to super in most cases. You will need to work for at least 40 hours during 30 consecutive days at any time during the financial year, to be able to make tax-deductible and non-deductible contributions to super.

2) Claiming a tax deduction for personal superannuation contributions

If you are self-employed, an investor, or in receipt of a pension and receive less than 10 per cent of your income, fringe benefits and other related payments from employment, you may qualify for a personal tax deduction to superannuation.

If you intend to make a contribution, make sure you are eligible to claim a tax deduction under the 10% Test.

You need to notify the fund of the amount you wish to claim as a deduction before the end of the next financial year, that is, before 30 June 2015.

Make sure you keep all relevant paperwork to avoid stress when the time comes to prepare your Return.

3) Making after-tax contributions to super

You can make after-tax contributions to super that could come from your personal savings, transferring personal investments, an inheritance, or from the sale or transfer of investments.

This financial year the maximum personal after-tax contribution is $150,000. However, if you are 65 or older, you can contribute up to $450,000 in one lump sum or over a three-year period. This allows you to make substantial contributions to super and build up your retirement savings.

The way it works is that if you are under 65 and make total non-deductible contributions of more than $150,000 in a financial year, the "bring-forward rule" is triggered. This allows you to make non-deductible contributions of up to $450,000 in total over a fixed three-year period commencing in the year in which you contributed more than $150,000.

This may sound like a real bonus, but you need to make sure you don't exceed the after-tax contributions caps because there may be penalty tax payable. This could be as high as 46.5%.

From 1 July 2014, the after-tax contributions cap increases to $180,000, which means if you trigger the bring-forward rule that a total of $540,000 can be contributed over the fixed three-year period.

One trap that may occur if you trigger the bring-forward rule before 30 June this year is the maximum amount will be $450,000 for the fixed three-year period. Again, seek advice and avoid the penalties.

4) Beware of excess contributions tax

Anyone making large superannuation contributions should exercise extreme care for any type of contributions, to avoid excess contributions penalties.

This can apply to any tax-deductible and non-tax-deductible contributions made to super. The maximum amount of tax payable can be up to the maximum tax rate of 46.5% plus additional penalties at the discretion of the ATO. Changes were introduced in the Budget but these don't apply until next year.

5) Government co-contribution

If your adjusted income is less than $48,516 you may like to take advantage of the government co-contribution. You can do this by making after-tax (non-concessional) super contributions before the end of the financial year.

For every dollar of contributions that are eligible, the government contributes 50 cents to your superannuation up to a maximum government co-contribution of $500.

For 2013/14, the maximum government co-contribution is payable for individuals on incomes at or below $33,516 and reduces by 3.33 cents for each dollar above this, cutting out completely once an individual's total income for the year exceeds $48,516.

6) Drawing superannuation pensions

If you are in pension phase, make sure the minimum pension has been paid to you for this financial year.

By not drawing the required minimum pension, any income earned on your pension investments in your superannuation fund will be taxed at 15% rather than being tax-free if the pension rules are met by the fund.

7) Drawing superannuation lump sums

Once you reach 60, all lump sums from superannuation are tax-free. However, before age 60 any lump sums that include a taxable component can be taxable.

The taxable component includes the tax-deductible contributions plus any income that has accumulated on your superannuation benefit.

No tax is payable on the first $180,000 in total that is received prior to age 60, and 15% on the amount exceeding this.

If you are eligible to draw amounts from superannuation you may like to defer receiving the amount until after reaching age 60 or until a later financial year because it would then be either tax free or a lower rate of tax.

Super is unfortunately full of rules and the tax consequences can be serious. Please call us and check on the options available to you, whatever you are planning.

Armchair Economics

Wed, 04 Jun 2014 14:00:00 GMT

Most media reporting on the global economy is negative and usually tells only what has happened so far.

But, there are several economic indicators which lead the economy, that is, indicate where things are going. Here are five that are easy to find and watch.

1. Purchasing Managers Index (PMI)

A manufacturing measure of most countries, taking into account inventory, new orders, production, supplier deliveries, and employment. Over 50 is an expanding sector. This is usually published around the end of the month. These have been generally going up since late 2012.

2. US Wage Growth

The US sharemarket has a huge impact on global markets. The market is around record highs but unemployment is still high, so the US Fed has continued to stimulate the economy (and fueled share and property speculation). If wage growth picks up, the Fed may tighten which may slow improving conditions (the Fed is reducing stimulus now but not as a result of wages growth).

3. European Bond Yields

The spread (difference in rates offered) on different government bonds has narrowed, which means investors are less worried about problem countries like Spain and Italy, etc. If the spread widens, investors are becoming nervous and interest rates and exchange rates may be going up.

4. China

Most of the world wants China to grow, but high growth means inflation so authorities will then increase interest rates and cut spending to cool things down. The Chinese economic plan is for steady growth, not a runaway economy.

5. Australia

Interest rates are at record lows, which has boosted property. The mining infrastructure boom needs to be superseded by improving housing construction and then flowing on to stronger consumer spending. Watch measures of consumer confidence eg., banks, and retail sales.

ATO Audits

Mon, 02 Jun 2014 14:00:00 GMT

The ATO is putting a lot of focus on taxpayers who operate in 'the cash economy', and whether they comply with tax and superannuation obligations.

The ATO uses a range of measures to check compliance, including reviews or audits to determine if taxpayers' have declared all of their assessable income, can justify deductions and offsets, and have met their regulatory obligations. No arguments here, proper planning is the best defence.

We experienced an aggressive and supercilious attitude on a recent audit. The approach was 'full guns blazing, we've got the power, we know what you're doing, we know everything'. Actually, they weren't right and got nowhere, but their approach was planned and strategic and could have been a problem for a client without the right records.

So, where did this come from?

Two cases in 2013:

The penalties in each case were 100% of the tax (Gashi was $2m tax +$2m penalty).

The lesson is clear; without all of the records, especially proof of income, the ATO is going to win and it is likely to be costly.

What can be done?

2014 Budget Implications for SMSF's

Tue, 20 May 2014 14:00:00 GMT

It was the first time for many years where super was not tinkered with. Nevertheless, there are some issues trustees will need to be aware of.

SUPERANNUATION

Budget Repair Levy, 2%

This is for 3 years, commencing on 1 July 2014 until 30 June 2017, and applies on the amount of taxable income that exceeds $180,000. To reduce the levy, if it might apply in the next year (2014/15);

- hold investments in the name of the lower income spouse

- invest in growth assets that are not likely to be realised until after 2017

- negative gear on investments

- defer tax deductions until after 1 July 2014

- make maximum super contributions

Excess Non-Concessional Contributions Refunding

A win for common sense. Previously, Labor taxed these at the top maximum tax rate. From 1 July 2013, an SMSF can refund excess NCC to the taxpayer plus earnings if applicable on those excess contributions. Those earnings would be taxed at the taxpayer's marginal rate (so leave them in the Fund!).

When you ask 'how much can I put into Super', that is why we ask 'how much in total have you put in over the last three tax years?'. At least now the excess can be withdrawn and the possibility of paying tax at 93% on NCC avoided.

Super Guarantee Rate

The SG rate increases to 9.5% from 1 July 2014 and remains at that rate until 30 June 2018. The caps from 1 July 2014 for concessional (or tax-deductible) contributions are $30,000 for those under 50 and $35,000 for those over 50.

PENSIONS

Age Pension to Rise

Those with a birth date before 1 July 1958 are not affected by the changes to age pension age. For those under 55, the change provides a longer accumulation period. However, those under 55 who are considering earlier retirement need to be fully sufficient until they reach the qualifying age. This may require greater saving measures.

Commonwealth Seniors Health Card (CSHC)

From 1 January 2015, untaxed super income will be included in the eligibility assessment for the CSHC, at the deeming rate. This could mean fewer self-funded retirees may be eligible for pharmaceutical and health concessions.

One implication is that fund earnings may need to increase. Also, for self-funded retirees in receipt of the CSHC but where the fund is still in accumulation phase (not paying a pension) consider commencing a Fund pension before 01/01/15.

Reset of Deeming Thresholds

The income test for government pensions will be tightened from 20 September 2017; for singles, reducing from $46,600 down to $30,000, and for couples, from $77,400 down to $50,000. Even if the Fund pension is reduced, the greater balance of assets remaining in the Fund will be used in the Assets Test.

The message is clear, that people need to focus on being self-sufficient to ensure a comfortable lifestyle in retirement.

INVESTMENTS

It will be expected that trustees should look for higher returns. Shares are likely to benefit from forecast economic growth and low interest rates. The lower tax rate could mean higher dividends, which increases the attraction to and prices of the shares.

If you seek to change higher rates of return, the risk rate also increases. Don't overpay for equities, property or bonds and consider factors other than historical returns. Get good advice or at least another opinion or view.

An Ordinary Budget - 2014

Sun, 18 May 2014 14:00:00 GMT

Labor totally stuffed the economy and Hockey has talked big but there was only a lot of window dressing. Ignore all the rhetoric and posturing, and the drivel from Shorten in his Reply, let's look at the changes that will affect small and family businesses.

Incidentally, there is still no reliable definition of a small business; under Howard, it was employment up to 100, under Labor it was 15 people. This needs to be defined for both tax and employment law purposes.

Lower Company Tax

Will be cut from 30.0% to 28.5% by July 2015. Put it in dollar terms and it's not much. Most small business operate as sole traders, partnerships or trusts, so the rate doesn't apply to them. Even though the rate will drop for a company, the owners still end up paying the personal marginal rate when taking out the profit after paying tax (franked dividends).

Higher Income Tax

The Temporary Budget Repair Levy applies a rate of 2% on the taxable income in excess of $180,000 pa., applying from 1 July 2014. Then, add the new Medicare Rate and other levies and the top tax bracket becomes 49%.

Superannuation Levy (SGC)

Superannuation rates increase to 9.5% from 1 July 2014, remaining at that level until 1 July 2018 when it increases by 0.5% a year until reaching 12%.

Medicare Levy

The Medicare Levy increases to 2% of taxable income from 1 July 2014. The Surcharge remains the same and applies at varying rates to those without adequate private health insurance cover.

Write-off for Assets Costing Less Than $6,500 (GST excl.)

Individual assets costing less than $6,500 will have this instant write-off level reduced to $1,000, applying to assets installed after 1 January 2014. (Linked to the Mining Tax Repeal Bill).

Acceleration Deduction on Vehicles Costing More Than $6,500 (GST excl.)

The immediate write-off of $5,000 will be reduced to $1,000, for vehicles first used after 1 January 2014. (Linked to the Mining Tax Repeal Bill).

Concessional Superannuation for 2013/14

(First time the Budget has not tinkered with Super). The concessional (tax deductible) contribution caps are based on age, and are for this year and the next:

2013/14

Age 58 and under on 30/6/13 25,000

Age 59 and over on 30/6/13 35,000

2014/15

Age 48 and under on 30/6/14 30,000

Age 49 and over on 30/6/14 35,000

Abolition of Tax offsets

These will be abolished from 1 July 2014:

Dependant Spouse

Mature Age Worker

"Three Business Boosters"

I use inverted commas as only a public servant or politician can say that 'he's from the government and he's here to help'.

- An ombudsman to inform businesses about government services and programs, and help to resolve disputes.

- A new unit to help small business tender for government projects.

- Changes to unfair contract provisions when small business deals with big business.

Could be a step in the right direction. Probably end up being portals that are long on rhetoric but don't help in a practical way. And, remember Labor set up a Small Business Minister who, as far as I can see, operated at a huge cost and achieved nothing.

NOTE : If you have payroll in a software package you will have to update for the changes in medicare levy, superannuation, and tax offsets.

More on Tax Audits

Wed, 16 Apr 2014 14:00:00 GMT

Just a short follow-up to our Tax Audits blog on 27 ^th March, we don't want to spoil your long weekend.

We have just had two tax auditors here in the office, doing a GST audit. They selected one quarter, and set out to verify it was 100% correct:

Income

Trace Z reads on till tapes and/or invoices to Sales, and then to bank statements and to the BAS. Has all income been taken up? If any GST free, why?

Expenses

Invoice to payment to bank statement to BAS. Ensure GST claimed is correctly claimed (copy of GST Detail Report required).

Records

What accounting system is used? How are the base records filed? Has care been taken in input of records and preparation of the BAS? Has the bank account been reconciled every month?

Benchmarks

How do the annual or even quarterly financials compare to benchmarks? Explain and prove the differences (looking for undeclared income).

Superannuation

Calculate the amount required to pay. Paid by the due date?

Check Wages

Tax File Number Declarations. Choice of Super Declaration. Tax Withheld correctly calculated and remitted regularly.

If the Auditors are not happy with that quarter, they do the whole year and if necessary will go back a further 4 years.

And then, "seeing that we're here, let's have a look at Fringe Benefits too". They especially require:

- Car log books (and service records and invoice for purchase of the vehicle)

- Any entertainment or hospitality claimed in the last 12 months

- Goods purchased by employees at lower rates than those charged to the public

The Penalties can be anywhere between 20% and 100%.

The simple messages are 1) there are no allowances for simple mistakes, and 2) failure to support claims made will be assessed as 'serious'.

And, to end on a happier note - happy Easter break!

Tax Audits 2014

Wed, 26 Mar 2014 13:00:00 GMT

I was at an accountants seminar last week (yes it was not exactly riveting and exciting) on Cloud Accounting and improving business performance.

One interesting paper was a presentation on ATO audit strategy. It expects to match 640 million transactions this year to tax returns (a lot of detail is required now in returns), and carry out over 30,000 audits on SME's. We have already received "audit requests" for three clients. I'll keep this Blog as short as possible and deal with an overview of six Types of Audit, the typical content of the Records Audit, and our suggested approach to handling the risk.

Audits

An audit is likely if the ATO considers a firm is either not complying with its obligations or that a simple review may be insufficient. The most common audits are:

Records Audit: selected due to industry, risk to revenue, outside ATO benchmarks, low income

Specific audit-data comparisons: discrepancy in data-matching

Specific audit amendment: identified from other audit work of ATO, or a 'dob-in'

Correspondence audit: similar to Records, but discussed by phone to determine if a more detailed audit is required

Cash audit: similar to Records but escalated to a full audit in the belief that there is a low likelihood of compliance

Complex audit: complex structures and transactions, and believed to be a low level of compliance

Possible Content of a Records Audit

The ATO selects a BAS Quarter (like June 2013) and asks for that Quarter's GST Detail Report, bank statements, supplier invoices, till tapes or sales invoices, wages and superannuation records. If the client's system is in order, the ATO assumes the risk to revenue is low.

The program is likely to include:

- Check from till tapes or sales invoices to bank statements, then to BAS, and to sales in the tax return

- Inspect supplier invoices for claim of GST, verified paid in the bank statements, correctly classified in the ledger as an expense (and not private or capital)

- Inspect Wages books for deduction of PAYG tax, and check TFN declaration and Choice of Super form

- Determine whether contractors are really common-law employees, and if so tax to be deducted and super paid (see 'Contractors' Blog emailed 26 ^th February 2014)

- Verify super contributions remitted on time otherwise super cannot be claimed as a tax deduction

- Sight car log books and ensure the usage has not changed (see 'FBT' Blog emailed 24 ^th March 2014)

- Check that the ledger has been reconciled to the bank account on a regular basis.

Whether mistakes are deliberate or accidental penalties will be imposed, usually between 20% and 50%, but can go up to 100%.

Our Recommended Approach

First, we suggest you check and ensure all of these records can be produced within 14 days if requested (although they could be requested for any period and not necessarily the June 2013 quarter). Make sure that a log book exists on every car in use ('a vehicle carrying less than 1 tonne and less than 9 passengers'), and is in line with the percentage claimed as business use.

If the ledger or records are not in order, we may need to do some work with you to get them in shape, especially with MYOB or Quicken books. This could be reconciliations to bank accounts, classifications, checking of BAS, checking of Wages & Sub-Contractors, and even Super remittances and Log Books.

Expect the audit can take a couple of days. We have no problem with the audit being held in our office, as long as all the records are supplied, and you will need to set aside some time to respond to their queries and concerns. We never know how much time is required as it depends on the nature of the audit, records available, co-operation, other information in the hands of the ATO, etc.

Consider purchase of tax audit insurance. We are talking to a supplier now who provides cover for this risk. The company only handles this risk, its claims process is simple and cover is automatic. The premium can range from around $220 to about $700 for big cover. It's very cheap compared to the cost of us sitting with the ATO for 2 to 3 days. I'll write more on this next week when we have the details.

How much Superannuation do you need for Retirement?

Tue, 25 Mar 2014 13:00:00 GMT

I'm glad you asked!

First, a few facts .

- Australia's superannuation system is the fourth largest in the world, and growing. Pretty good for a country with an historically low saving rate.

- Total assets held in Australian super is worth 100% of annual GDP. (Sorry, I can't find the report just now with those numbers, and why would you want to know that number anyway?)

- SMSF's are growing strongly, earn better than industry funds, and are evidence that businesses are taking responsibility for their retirement, not just saving tax.

How much do you need to retire - comfortably?

The Deloitte Accountants study in 2013 says a 65 year old, owning his own home, with around $350,000 in savings, needs an income of at least $23,000 a year (earnings from super $17,000, plus Centrelink $8,000). The capital is likely to be fully spent within 12 years of retirement and that person becomes totally reliant on Centrelink.

A comfortable retirement requires earnings of $45,000, which needs savings of $600,000 (earnings from super $24,000, draw from capital $17,000, Centrelink $4,000).

"But I don't have that much!"

Because the super regime is still fairly young, the average capital in super for someone near retirement is under $100,000. This means reliance in the future on Centrelink. To get a pension, Centrelink applies the Asset Test and the (deemed) Income Test - whichever results in the lower pension is the one paid.

The answer?

These are a few steps to take:

1. Know what you want. Decide on objectives - when will you retire, how much will you need each year (in detail; car, living, holidays, house, gifts, etc), are there other factors to consider. Once we have the annual income needs number, using Tables and Reports of Earnings, we can calculate the capital needed to fund the earnings. Takes less than half an hour.

2. Be aware businesses don't sell for big numbers, nor easily, so if you plan to sell your business to fund retirement, have a plan for sale in place in the 3 to 5 years before retirement date. (If you need some guidance with this, ask about our Sale & Succession planning program).

3. Budget your cash flow each year so you make contributions to super, both concessional (which means tax deductible) and even non-concessional (or non-deductible) to increase the capital in your super. (I consider that a Profit and Cash Forecast is probably the top management tool for a business).

4. Look closely at your investment strategy. You need to improve earnings and look for growth opportunities while managing risk. Good Retirement Planning is not about a financial planner selling you his preferred product to earn a commission, but providing a service at all these levels. We can work with you on this and also provide an introduction to an experienced, capable professional planner.

5. Cover yourself against risk. If you get hit by a meteorite know that your family still needs "the Plan", but won't have you, the business, or the time to put it together. Buy insurance to ensure the result you want. It doesn't cost much and it can be put through super (this has benefits as well as problems to consider). Insurance can be sold by anyone, but we refer our clients only to an experienced professional, so please ask us for help with this.

Fringe Benefits Tax for 2014

Sun, 23 Mar 2014 13:00:00 GMT

It's Autumn! Which means it's time for FBT, yeh?

Fringe Benefits Tax (FBT)

The FBT year runs from 1 April to 31 March, and if required, an FBT Return must be lodged and paid by 31 May.

It is an area of focus this year for the ATO because there is a high level of misunderstanding among employers and it can raise a lot of tax. If benefits are provided to employees and these are not recognised nor taxed as income, then it is necessary to register and pay FBT.

What is Liable for FBT?

The key areas are:

- Vehicles available and used for private purposes

- With cars, the keeping of an up-to-date, accurate log book means you only claim the actual business use, so FBT is not payable because no private use is claimed in the tax return

- Private expenses paid for employees (like school fees, holidays)

- Providing employees with accommodation or a living-away-from-home (LAFH) allowance

- Entertainment for employees, including recreation, eg., tickets to a sporting event

- Others - loans at lower interest rates, forgiveness of debts, salary sacrifice arrangements other than superannuation, and goods purchased at a lower price than the public pays.

What is Exempt from FBT?

Work related items used in employment, like electronic devices, protective clothing, tools of trade. The key test is - if it is tax deductible to the employee of the employer, it is probably not a fringe benefit.

Our Approach

One of the reasons we ask so many questions is not because we're too lazy to read last year's notes but to find out if these liabilities could have changed this year. The financials do not always tell us the whole story. Very few of our clients are actually registered for FBT because we do try to legally avoid any FBT liability.

This year we propose to:

- Send out this warning letter so you are aware of the FBT concerns, and if you think you need to register, please call us.

- Send out a Questionnaire early next week to help you determine if an FBT liability has been incurred.

- Ask you to consider private use of cars/non-commercial vehicles; particularly has a log book been kept, is it current, is the vehicle a car for FBT purposes (capacity less than 1 tonne and carry fewer than 9 passengers)?

- If you don't think FBT applies you could simply reply to our email questionnaire with a 'no'. If you need some help, call or email me soon to discuss it.

ATO Audit Hot Spots FBT 2014

a) Cars (especially high value vehicles). Many 4WD's, SUV's are not commercial vehicles.

b) Corporate boxes, hospitality, and entertainment

c) Benefits provided by third parties (say, where a client provides a box and hospitality at a sporting event).

Next Step

We expect most clients will not need to register. However, there have been significant changes over the last 3 years and FBT needs to be considered now, it will be too late with the tax returns next year.

If you need to register, we will complete this for you and then contact you to obtain the required information and to lodge the return.

7 'Dont's' for SMSF's

Mon, 17 Mar 2014 13:00:00 GMT

Most regulatory problems in super funds are the results of oversight, not deliberate transgressions. However, it is the responsibility of the trustees to be right.

It is often possible to fix the problems, but the Act makes it mandatory for the Auditor to report on them. The ATO can impose a number of penalties if it wishes, the highest level being to assess the value of the assets in the fund for non-compliance at the highest tax rate of 46.5%.

These seven issues are the greatest concern of the regulators:

1 . Annual Contributions

Monitor annual contributions before 30 June and ensure contributions do not exceed the allowable Caps, for Concessional/Deductible contributions and also for Non-Concessional/Non-Deductible contributions. Get it wrong, because the fund can't return the over-contribution, and the tax is 46.5% on the excess contribution.

2. Pensions

If you're under 60 and drawing a Transition to Retirement Pension (TRIS) do not exceed the maximum 10% pension allowed. With Pensions after 60, you must draw at least the minimum each year.

3. Paying Expenses of a Fund

Trustees sometimes pay expenses or costs from their own monies. Careful, this counts as a contribution, so the annual Cap may be exceeded (see 1).

4. Property in a Fund

The trustees may pay an expense themselves, which is a Contribution (see 3), the property must be in the name of the trustee, rent has to be documented to be at market value, residential property cannot be leased to a member or associate, but a commercial property can be leased back to the business/employer at commercial rates. If the fund borrows to purchase an investment property the ATO requires the property to be held in a Bare Trust (also called Custodian or Property Trust).

5. Insurance

Property in a fund may mean that the fund does not have the available liquidity to pay out the interest of a deceased member. The ATO requires trustees to review their insurances on a regular basis to ensure there will be funds available for a payout. Note: you do not have to buy more insurance for this but it may be necessary to document matters better, review Wills and distributions, or re-organise existing life policies. (We can have this reviewed for you, for both Compliance of the fund and for the insurance required).

6. Loans/Borrowing by Fund

A Fund cannot borrow, except through a Bare Trust (see 4) or for a limited number of short term events. It cannot have an overdraft or long outstanding accounts. These can attract significant penalties, even non-compliance.

7. Loans to Members

This is never permitted and could result in the Fund being treated as non-compliant. It is possible to apply to the ATO for access to small amounts in the event of severe ill-health or financial difficulty, but otherwise loans to members are prohibited.

And finally, it is worthwhile to consider Wills and Death Benefit Nominations. Superannuation is not automatically part of a Will, and if a Binding Death Benefit is in place, it overrules the Will. This becomes irritating, to put it mildly, in the event of divorce and the super benefits go to an ex. Not a transgression but an issue to be considered.

We try to "fix" many of the problems we see before the Funds go to the auditors, and we find it is worthwhile to make a Super Fund Review part of our annual End of Financial Year Review, especially the Contributions and Pensions for the year. It can avoid heaps of concern later.

Contractors

Tue, 25 Feb 2014 13:00:00 GMT

The ATO has been hugely successful in challenging the tax treatment of contractors. The big risks are to businesses engaging workers as contractors rather than as employees, which could leave the employer liable for substantial payouts and penalties as well as the requirement to pay superannuation. The Superannuation is the central issue for the ATO.

Definition of Employee

A worker is regarded as an employee for Superannuation Guarantee SG purposes where payment is principally for the labour of the person, whether under a contract, at common law, or under an award. The ATO will always win where the employment contract requires the contractor to personally perform the work, is paid for hours rather than for a specific result, and where the payer has control over the worker.

The Courts are backing the ATO's approach, both relying on the expansive common law definition of employee rather than the more narrow definition for SG purposes.

Superannuation to be Paid

As soon as a person is an 'employee', the SG is payable because it is not possible to contract out of SG obligations. Before 1/7/13 the rate was 9%, and is now 9.25%.

There are big consequences as a result:

The ATO can go back as many years as it wants to, although in practice may limit the period to 5 years

The employer is liable to pay (sole traders or partnerships are legally liable), and if a company or trust, the entity and the directors are liable

The payments under SG are not tax deductible.

One Solution - Interposing Companies or Trusts?

This can help but is not definitely fool-proof. In the recent Full Court decision re Roy Morgan's, Morgan's lost because even though the interviewers were engaged through a company the contract required the interviewer to perform the work (which made him an employee).

An interposed entity can provide some protection if structured and documented properly

Quality Written Contracts are Critical

Any agreement needs to be in writing, without one there is little chance of justifying the correctness of the taxpayer approach, and there are least 6 key factors that need to be documented.

However, keep in mind that the courts will look at the true nature of the arrangements and will put little weight on the terms if they are not consistent with practice.

Can the Problem be made to go Away?

There are a few issues that have to be overcome.

The ATO is raising revenue and is winning, so is unlikely to just back away.

The Government, and the former Government, saw the non-payment of a lot of employee super entitlements, creating a 'cause to champion'.

Directors of a company remain personally liable to pay the super even if the company is liquidated.

Unfortunately, any attempt to just walk away is unlikely to be effective.

Conclusion

There is just no easy answer in this area. As long as contractors are used the ATO is likely to question and challenge the treatment of these workers.

It is crucial that business owners and directors are aware of the scope of the SG system, and that it can potentially apply to workers who would not ordinarily be treated as employees. Court decisions usually treat the workers as common law employees, so expanded legal definitions are not even required.

That means there are substantial risks, not only for super, but areas like PAYG Withholding (pay the tax that should have been deducted from the wage), payroll tax, FBT and workcover too. There is no limit on how far back the authorities may go. There is personal liability, a result that cannot be avoided.

It is not all bleak though. Make sure the circumstances are right, set up the right entity, and prepare an effective written contract which is followed in practice too. A lot of disputes with the ATO are decided on the facts rather than an interpretation of legislation.

What to Do Now

Examine your situation now and over the past 2 or 3 years; could this Contactor engagement be an issue? If you are continuing to use individual contractors (rather than other businesses), get advice early. You may be able to reduce your risk but are unlikely to eliminate it entirely.

Fringe Benefits Tax

Mon, 03 Feb 2014 13:00:00 GMT

The ATO is sending out letters to advise that 'you may have a car fringe benefits liability'.

The ATO monitors vehicle registrations and sends out these letters s a matter of course.

FBT applies to employers who provide employees with benefits, especially private use of vehicles, car parking, assistance with accommodation costs, loans, expense allowances, entertainment or gifts over $300.

If a return is required for the year 1 April to 31 March it is due and payable by 28 May, but the employer must register by 1 April.

To avoid FBT on a car, the company/employee must only claim the percentage allowed per the log book, and the private portion is charged to owner equity and not claimed as a tax deduction. This is one reason we go through the vehicle list each year.

We expect to have forms and calculation sheets by the end of February and will contact you to determine if registration or a return may be required.

Land Tax

Tue, 28 Jan 2014 13:00:00 GMT

Land Tax is calculated on the Unimproved Value of freehold land, not the total property value. It is assessed by the Valuer General each year and used for land tax and for council rates. No Return is required from the property owner, an Assessment is issued on the basis of land in the Titles Office.

It is calculated on property owned in Queensland on 30 June each year. If the value exceeds the Threshold, tax is payable. Excluded from land tax is a principal residence (unless rented out) and farming properties. You need to claim an exemption in the first year and then it continues.

Each State taxes differently, and this article only deals with Queensland.

Please call if you would like information on another State.

The Thresholds depend on the categories applicable: Residents, absentees, companies, trustees (including deceased estates).

Individuals

$0 - $599,999 $0

$600,000 - 999,999 $500 + 1% for each $ above $600,000

$1,000,000 - 2,999,999 $4,500 + 1.65% for each $ above $1m

$3,000,000 - 4,999,999 $37,500 + 1.25% for each $ above $3m

$5,000,000 & over $62,500 + 1.75% for each $ above $5m.

Trusts, Companies (& SMSF's)

$0 - $349,999 $0

$350,000 - 2,249,999 $1,450 + 1.7% for each $ above $350,000

$2,250,000 - 4,999,999 $33,750 + 1.5% for each $ above $2,250,000

$5,000,000 & over $75,000 + 2.0% for each $ above $5,000,000

Land Tax Planning

The best time to get advice is before a contract is signed. Generally, if a property is negatively geared it should be held by the person paying the highest income tax rate because the income tax saved should exceed the land tax paid. If positively geared it should be in the hands of the person paying the lowest tax rate.

As Land Tax is a State tax, there is no carry over to another State so the Threshold starts again in the next State.

New Year Planning

Mon, 20 Jan 2014 13:00:00 GMT

Today I thought it might be helpful if I detailed the planning process I use at the end of December, and also June, each year.

Look back at the past year

I start with the written annual goals that I set at the beginning of the year. Which ones were accomplished, and which ones weren't? Why did we get some right, but missed on others? Also look at the monthly goals; often the effort is evident and the reason for the annual outcome may become clearer.

Be grateful

In looking over the monthly and annual goals, I'm never fully satisfied. I set aggressive goals that might be hard to attain, so chances are that I didn't accomplish everything I had hoped for. However, think glass half-full and see what was actually accomplished, note the hard work, the great things we did do, and how much better off the business is now compared with where we were 12 months ago.

Look ahead

Revisit the long-term/5 year goals. Have the goals changed, and if so, why? Document the new 5 year goals. (Are they SMART: S pecific, M easurable, A ttainable, R ealistic, and T ime-bound?) Then, work backwards to determine what must be accomplished every year to achieve the 5 year target. That shows us what we need to achieve in this coming year to set us up on the path to the 5 year goals.

We state these goals as actual financial metrics including revenue, profits, the business assets to create, new products or services, the number of new clients to acquire, and new people required for the team.

Plan out the coming year

Set out the coming year goals on a chart (like a Gantt chart) which shows what has to be done and when. Document what has to be accomplished in January, February, and so on. It's not possible to get this exactly right, so expect that you may need to adjust monthly goals throughout the year.

What this exercise gives is great insight into what's possible to achieve in the coming year.

Enter the numbers into Forecasts/Budgets

The Plan says what you must do to achieve the targets/goals. The Forecasts and Budgets translate them into numbers and tell us what the monthly results should look like and what we need to do to achieve the goals. Use some good software to make the job easier. Forecast sales (by each product or service or division), consider your price strategy, how effective your marketing and sales processes may be, where your new customers will come from (expect to spend over 50% of the total time on understanding sales dynamics). Then, forecast margins, and expenses (this is the Forecast P & L). Next, use these numbers in a Cash Flow, adjusting for timing of collections and payments, and allow for loan repayments, owner withdrawals, GST, and taxes. Perhaps look at three scenarios; allow for a worst case, perhaps a 'lot better than expected', and a most likely result. What does each look like, and what strategies would be needed to overcome poor sales or expenses out of control.

The numbers don't have to be right, they are a forecast. The key benefit of the exercise is seeing what we need to do to achieve the results we want.

Finally

This is only Goal Planning 101. Practice is needed; the more you set goals then try to achieve them and assess results, the better you get at setting goals that can be achieved.

So, plan now and start thinking about the reward you will give yourself at the end of the year for being successful!

Changes in Credit Reporting

Mon, 20 Jan 2014 13:00:00 GMT

New changes to credit reporting come into effect on 12 March this year, and some information will be back dated to December 2012. Up to now, late payments don't show, only defaults.

In future, credit reporting advises dates of opening and closing credit accounts, the account limit, and the repayment history. So, late payments will be disclosed.

Big deal? Yes, could be. When applying for a home or other loan, a credit history can often be the make or break factor, and a record of late or irregular payments could concern the lender. On the other side, good payers may receive special rates or terms.

So, be organised; set reminders to pay before the due date, or use electronic banking or automatic debits, and even check that accounts were paid on time.

An interesting fact, 80% of people have never checked their credit history, and 93% don't know how to do so. It's worth checking just to make sure that what is on the record is correct. Go to:

www.mycreditfile.com.au/personal

then click "free" and provide identification.

ATO and Director Penalty Notices

Mon, 14 Oct 2013 13:00:00 GMT

It is now easier for a director to become personally liable for company tax debts. This is not an issue to be ignored and must be dealt with as set out in the Tax Act.

There are two types of Director Penalty Notices.

21 Day Notice

This one has been around for years, and it gives a director 21 days to act or then become personally liable for the company's PAYG or SGC debts. The director must within the time either pay the debt, make an acceptable arrangement to pay, or put the company either into Administration or Liquidation.

There is no defence, so the advice is to act within the 21 days. There is a PS too: The ATO is only required to send it to the last address notified, and so the Notice is valid even if you don't receive it.

The New Director Penalty Notices (DPN's)

These came into law in June 2012 and can even apply retrospectively, as far back as 2009. Directors are personally liable if PAYG or SGC amounts are unreported and unpaid three months after the due date for lodging a return. The director does not have the option to put the company into liquidation.

There are some unexpected consequences. Even if the company pays, the director may still be required to pay the penalty (so paying twice). Individual sub-contractors may be entitled to superannuation, and as no SGC return will have been lodged, the director has to personally pay the superannuation. The ATO is presently chasing super for the last three years where it believes the contractor is really a common-law employee.

Directors need to change behaviour. Don't fail to lodge returns but lodge on time and perhaps seek an arrangement to pay over some acceptable period.

Other things to know about DPN's

- A new director becomes liable for ATO debts 30 days after appointment.

- The ATO is permitted to estimate the amounts due.

- If a super debt is for a contractor, the director may not be liable if reasonable care was taken in determining whether the contractor was truly independent.

- The DPN can be served care of the tax agent (at least it may be received within time and so acted on).

- A 'possible' defence may be a serious illness so the director did not participate in management, or if the director took all reasonable steps to ensure company compliance.

Advice to Directors

Make sure all past BAS including PAYG are lodged, and the quarterly SGC Statements for super. This may prevent you becoming personally liable. However, each situation is different and, being tax, complicated. So if you are concerned, get the information together and call us.

How to give your business a health check

Thu, 10 Oct 2013 13:00:00 GMT

This is not so hard, it just needs some healthy scepticism (did you see how cleverly I weaved 'healthy' in?) and a few quiet minutes of your time.

Any business:

1. Always needs a proper and effective legal structure (for tax, CGT, control, or protection purposes), so is it the best for short to mid-term needs?

2. Requires financial structure, which means at least a one-year strategic plan (targets and key tactics), monthly operating budgets (sales, profit and loss, cash flow, breakeven sales, scenarios for each possibility of best, worst and likely results).

3. Should compare actual results to forecasts regularly. Are you achieving targets? Why not?

Is your business going from strength to strength?

Growing businesses can sometimes fall victim to their own success.

4. Is cash flow capable of funding the growth?

5. Could cash be found by collecting debts faster, clearing surplus stock, stretching supplier payments, or some finance for working capital?

6. Do you know how to keep the momentum going?

Is the business faltering?

A business can seem successful, but sales trends and margin could be slowing or under pressure.

7. Look for warning signals - rising stock levels, rising costs and debts, cash collections slowing, staff turnover, and whether key revenue lines are no longer profitable.

Has the business failed?

Technically, a business is insolvent when it cannot pay debts as they fall due. Directors can be personally liable for debts incurred after a company becomes insolvent, or to the ATO for unpaid employee tax deductions and superannuation.

8. Are there frequent letters of demand, do suppliers insist on COD, are BAS up to date?

Fairly simple, but be honest in your appraisal. You'll instinctively know if you should be concerned about something. The solutions are also fairly obvious but perhaps a phone call to us could help. One tool we use is our process, which we call a Business Performance Review (trends, concerns, suggestions, cash v profits explanation, rough plan for one year), which usually hits the target. And, sometimes, we might suggest a Profit Improvement Session - needs a few hours but the benefits to you are outstanding, and we'll even guarantee that it will be. (And, you get a lot of my lame jokes too!)

Remember, your most important job is to be effective at accomplishing the goals of your business. However, you are allowed to make the job easier with tools or by getting some assistance.

Superannuation and a Comfortable Retirement

Thu, 26 Sep 2013 14:00:00 GMT

Deloittes, one of the big accounting firms in Australia, has just released its annual review into how super is meeting retirement needs. There are a few gems (and a lot of boring stuff too!)

How much you need to retire -

Based on life tables, a 65 year old needs around $340,000 to draw down a 'modest' $20,000 a year. A 'comfortable' lifestyle needs nearly $600,000, producing about $41,000 a year. (We suggest around $800,000 as a preferred sum, which allows for more choice).

But ….. most people don't have anywhere near that -

The average capital is only $85,000, and even for those with some years before retirement they still will not have enough in their balance to fund retirement.

Gen X is looking better -

A 30 year old earning $60,000 a year (the average now) could retire with $1.1 million. This will last them for 26 years of comfortable retirement, to 94 if living modestly.

Superannuation hasn't recovered well

The 3 years of GFC caused some big losses and funds need time to recover, perhaps another 3 years.

Industry funds

Many are growing strongly in number, due partly to innovation and choices in investment, and by reducing their high fees/costs, and being better value.

SMSF

Still growing strongly, earning better than industry funds.

A SMSF is usually the employer taking responsibility for their own retirement, so contributions are partly based on tax savings as well as savings for retirement. Employees tend not to contribute anything other than the employer levy, now 9.25%, which fits with Joe Hockey's recent statement "….. created an attitude of entitlement."

Some may recall when super was introduced by Keating; to be paid 33% by Government, the employee 33%, and the employer 33%. Now super action seems to be about government making sure the employer puts in 100%. And just this week, the morons in the RBA believe there should be an inquiry as SMSF's are buying property. But, this is really evidence of investors making rational choices based on the incentives provided. You can't believe that these people are in charge of more than their lunch money.

(PS: the last two paragraphs are rants from me, not from the Report).

SMSF Super needs to be properly planned and not ad-hoc, considering the time span, needs of the members, and the risks inherent in various choices. Employee Super is going to continue being a significant cost to employers, which has to be allowed for in budgets and costs.

Act Like A New Owner

Thu, 12 Sep 2013 14:00:00 GMT

I've just been on a two-day course, all about improving profits for small businesses. Not just where to look, that's pretty easy to do, but more the process . Simplifies what needs to be done hugely (can you end a sentence with an adverb?) However, I'll save that for another day!

First, where to look. Say you bought a business; the first things you do are cut out the dead wood, find ways to save money, and then seek to maximise revenues. You do this without any sentimentality or loyalty. So, why not do this on your own business now - seriously and rigorously? (All those adverbs again!)

Reduce Costs

Don't waste money - look at debt and interest (refinance or ask for a better rate), rent (lots of vacancies, so easy to negotiate now), salaries (look for staff lateness, long lunches, people checking Facebook or their mobile phones - if they'd prefer to be somewhere else, let them go),and other costs (you may not save a lot, but look at the cost and the effectiveness of your marketing, IT costs, insurances, and perhaps bank charges.)

Raw Materials

Go on the internet and find the prices of other suppliers. It's not just about the lowest price, but shipping, terms of payment, range, and reliability. You can achieve a material saving by reducing buying prices, avoiding wastage, and not holding excess stock.

Factory Wages

People making things are fascinating to watch. But, you also need to know if the jobs are being completed in good time - know the required job times, keep work-sheets to measure budget and actual hours, make sure everyone has work to do all the time, and that you hear about problems early.

Maximise Revenues

Make sure every product line is profitable, and necessary. Perhaps increase the range of products and services to existing customers before you chase after new customers - it's more cost-effective to look after existing customers than to find new ones. Look at your sales process - customer reception, product knowledge, sales skills, incentives, after-sales service. Will these be a positive consumer experience, and ensure your customer retention and conversion rates go up?

A good time to do this is at the start of the new year, come up with a rough plan on how to do better. It should take only a couple of hours.

Next time, a bit about the process and a format for a simple plan; it's simple and very effective, and it starts with you knowing things can be better with a little time on the basics.

Emotional Intelligence and SME's

Mon, 09 Sep 2013 14:00:00 GMT

An important tool for Owner-Managers of businesses is Emotional Intelligence. It is as critical as the functions of planning, administration and cash flow. A recent study showed there are tangible bottom line outcomes by being positive.

How can this positivity be brought about?

1. EI is simply the understanding and intelligent use of emotions, which in turn impact behaviour, decisions and performance. Basically, it's usually a bad idea to make decisions when tired or upset.

2. Ensure your team knows how they are part of the business' bigger picture. Our brains are drawn to meaning and purpose, so people achieve fulfilment by understanding the meaning behind what they are doing.

3. The ideal positive/negative ratio is 5:1 (called the Losada Ratio), and high performing teams should frame any negatives in a positive way; speaking of 'we' not 'I', pose questions not opinions, and give sincere feedback.

4. When recruiting and reviewing, look for strengths in people and give them the opportunity to use them, weaknesses will improve naturally and catch up.

5. Always seek to build and earn trust. If broken it can't be rebuilt. This means demonstrating concern, decency, character, and keeping your word. Positional power may be necessary at some point, but people support those they trust.

Should Insurance be in your Super Fund?

Tue, 20 Aug 2013 14:00:00 GMT

We've had a few panic calls from clients. Their insurance agent or financial planner said 'the tax office requires you to hold life insurance in your SMSF'. The correct answer to this is 'no, not necessarily'.

What the ATO requires is for SMSF's to regularly review investment strategy, and in the review also consider whether the fund needs to have insurance cover for members - whether life, disability, or income protection. There is no right or wrong answer, it's about what suits the current circumstances; sometimes within the fund is preferable, while outside may be better in other circumstances.

On balance, inside may be more advantageous in these circumstances:

- Pay for insurance out of the SMSF's cash flow, so both the business and you have more free cash

- Pay-outs are mostly tax effective. If a life payout flows to a spouse or dependant under 18, there is no tax payable. If it goes to non-dependants the tax payable is 31.5% (only if a deduction has been claimed)..

- The purpose of the ATO 'suggestion' is to ensure the SMSF has liquidity in the event of a claim for a payout, for example, the Fund may only have real estate as an investment.

- Proceeds of disability insurance through a SMSF can be a tax-free income for life. (From 1/7/14, new policies of 'own occupation only' cannot be in a fund).

- Trauma insurance should also be kept outside super because a fund can't pay benefits unless the member meets a condition of release and can legally access their super. (From 1/7/14, new policies for trauma will not be permitted for super funds).

The four main areas of annual consideration of strategy are:

1. Investments spread across a range of asset classes.

2. The investment objective (required return, income, growth, risk).

3. Whether borrowing arrangements will be employed to leverage assets and returns.

4. Whether the fund will hold insurance for a member or members (considering liquidity, tax situation, circumstances).

We'll be raising these issues as part of our annual review of your business and circumstances, and not because an insurance/financial planner sees an opportunity to make a sale.

Remember - "Don't sign anything until you speak to us first!"

The Super Revolution

Mon, 12 Aug 2013 14:00:00 GMT

Capital markets are being transformed by the growth of self-managed super funds (SMSF). But, what happens in future may be staggering.

New research shows that savings in SMSF are set to double in the next three years a middle income Australia leaves the 'big funds' to set up their own fund.

Some statistics:

- The number of funds is 503,320 as at March 2013, with 958,095 members and assets close to $500billion, just over 30% of the assets in super, with average assets of $569,000 per fund, and returns significantly in excess of industry funds.

- Forecasts are for a further 1.4million members to set up their own SMSF in the next three years, with $292,000 in average assets per fund.

What this shows is that middle-income Australia is seeking to control its own destiny, diverting investments out of industry funds (AMP, MLC, Colonial, etc), which have rigid services and often high fee structures. There is a sharp rise in SMSF gearing to buy residential and other property.

The timing of this investment strategy is good, with lower interest rates, residential property set to grow over the next three years and equity markets looking precarious.

Treasury has recommended "no substantial change to superannuation" over the next five years. Assuming this is true (let's be charitable), it's time to review your investment strategy and achieve not only tax free benefits but also more wealth for you.

Pricing

Thu, 18 Jul 2013 14:00:00 GMT

It's usually around this time of the year when business owners consider a budget for next year (you should!). For most, a lot of work goes into the Expenses or Costs ('can we save $600 on Stationery this year?'). The real effort must be on growing sales and profit, not tinkering.

One of the fastest and easiest ways to improve revenue and profits is to increase price. Don't dismiss this, pricing strategy is just as important as sales volume and costs. Consider these benefits:

1. It can be easier and more effective than trying to win new customers (the cost to win a new customer can be 7x the cost of selling to current customers).

2. It has a far bigger impact on the bottom line than selling more (costs don't rise, so most of the increase goes straight to profit).

3. Price can be a statement about the quality of what you are selling.

4. Raising prices allows you to compete on value, not price. This could allow you to increase service levels, inclusions, guarantees, and return policies.

5. Expect to lose some customers, but look to replace the ones interested in price only with customers who want the worth offered in total.

6. There are calculations showing how many customers or sales you can afford to lose before you are worse off. If the gross margin is 60%, and prices increase by 10%, you could lose 9% of your present sales before being worse off. (Call me for a Discount/Increase Chart).

7. You are running a business where costs and wages are rising, so you need to earn both a fair salary for your time and a return on your investment.

8. A small price increase can substantially improve the cash position, which you can then apply to funding of marketing and led generation strategies, also leading to more revenue and profits.

It only takes a few minutes to model the impact of a small increase. If you also improve your lead generation, sales conversion rate, customer retention rate, and review costs there can be a huge improvement in your profits and cash. Guaranteed! We'd be happy to show you how relatively simple it is.

Ten Obstacles that limit your Growth

Mon, 15 Jul 2013 14:00:00 GMT

Many mental and personal blockages can hinder your achievement of full business potential. The common ones to be eliminated are:

1. Lack of Skill

There is much to learn. You need to be aware of issues like tax changes, HR Law, marketing and sales techniques, negotiating styles, the economy, and development in your own industry.

2. Attitude

It's easy to acquire a skill, but attitude can make a business. Whether you think you can or you can't - you'll be right!

3. Focus

Doing one thing is an A+ result. Do several at once and the result is B or lower. Focus on must-do's so you excel at them and delegate those that others could do.

4. Procrastination

Set deadlines even if it feels stressful, because it can lead to new thoughts and ideas.

5. Monotony

Try something new or different to get relief from the routine and repetition.

6. Control Issues

These are the micromanagers. Have faith in your team, hire capable people, delegate, leave control to your systems.

7. Overwork

Decision-making abilities are compromised when you are overworked or tired. Schedule time off for yourself.

8. Approval Seeking

You have ability and experience, so make decisions based on what is best for the business and in keeping with your objectives (you do have these, don't you?), not what may be popular.

9. Being Creative

This is not just in your tax return. Jot down ideas and inspirations so you can come back later and see how these could benefit the business when properly considered.

10. Think Big

If you aim low, you strike low. Access ideas and case studies - the internet (try the business schools), books (Richard Branson, Chet Holmes, Covey), blogs, and motivational speakers (quality ones not just the spruikers).

It doesn't matter how many apply to you, pick the one that is impacting you the most and start. Work on it for 30 days, then work on the next one. You'll soon be tearing down the barriers you thought you had.

Numbers You Need to Know to Grow Your Business

Mon, 01 Jul 2013 14:00:00 GMT

Numbers in isolation are fairly meaningless. But, if you start to track and understand the important numbers in your business, you can quickly increase sales and profits.

Here are five ways to track numbers which benefit you:

1. Know how far you are from reaching your goals

Research proves that having goals is more likely to result in achieving them. But, to achieve a goal, you must be able to measure your progress. You must know revenues, and even profit, every day.

2. Manage key underlying issues

There are a handful of smaller activities that affect larger issues. For example, for sales -

- number of outbound sales calls

- number of enquiries (phone, walk-in, website)

- number of proposals/quotes issued

- number of proposals closed or accepted

- average price per sale

If sales slow and you track each of these, you can instantly know what to fix.

3. Discover problems before it's too late

It's not enough to know it was a bad month. Track the above everyday, and it could be as simple as not enough quotes sent in week one, so make sure they go out on time.

4. Quantify success and failure

The numbers tell you if the business is performing well. A quick glance lets you know if everything is on track.

5. Offer your team more constructive feedback

Your team also knows what's important for the future of the business, like customer complaints, refunds, sales closed, etc.

Keep in mind: don't just look at your numbers to find problems. Use them to pinpoint what's working well in your business and do more of that.

Key Planning Questions

Mon, 24 Jun 2013 14:00:00 GMT

The end of the year is a good time to regroup, refocus, and realign with your vision of how you want your business to be. But, how do you start planning?

Look at these four questions.

What has worked?

What's worked well? Think about sales, marketing, systems, processes; what has generated the most results or made the most difference. These are likely to be your priorities going forward.

What didn't work?

Learn from hindsight and mistakes. What marketing strategies flopped? Why? What products aren't selling, and do you know why? What have you learned from the challenges over the last year?

What could be done better?

It is important to know why something doesn't work; the product may be good but the sales process may be crap. Are there opportunities to be had if done better? Look for ways to improve, say, a sales script so it emphasises the customer benefits of use, not its features.

What does the market tell you?

Which products are popular, who is buying from you, why do they buy from you and not someone else, why do they need your products, what feedback do you get? Do you know the number of customers (even in a week), do they come back regularly, has the value of the average transaction increased?

Having some clarity on these lets you know where you need to focus your efforts, how to be strategic and targeted with your marketing, and how you can measure success.

Six Tips to Prepare for Tax Time 2013

Mon, 10 Jun 2013 14:00:00 GMT

The countdown to the end of the financial year is now on. And that means you need to focus on your end of year position and the planning that is appropriate for you.

Either no decision or a rushed decision can lead to the wrong outcome. Here are six issues to get the process moving forward.

1. Basics

There are lots of little things which can be considered, but these can save lots of tax. These include:

- write off bad debts before 30 June

- count stock at 30 June and use the appropriate valuation for each item (lower of cost, market - or replacement)

- declare and minute bonuses' and directors fees (accrue at 30 June and pay early in new financial year)

- prepayments

- employee superannuation paid by 30 June

- deferral of income to July

- maximise depreciation claims, write offs of new items, and scrap old items

- superannuation (see following)

- trust resolutions to distribute income (required by 30 June )

2. Superannuation

There have been more changes this year.

- The maximum deduction is $25,000 per person, from all sources

- A non-concessional deduction of $150,000 can be made if planning to have more assets in super. If under 65 at 30 June this can be increased to $450,000 but no further deductions can be made for two years

- Look back at contributions too over the previous two years, as excess contributions in previous years can impact on the current year amount, and the penalty is 46% of the excess

- Trusts need to pay a salary to the principals if superannuation will be claimed by the Trust.

3. Look for the Bigger Opportunities

There are special claims in this year, we'll ask you about them when you're in, but start to think about them:

- Motor Vehicles - special write off of first $5,000 of cost

- Equipment - total write off of items under $6,500

- Company Loss Carry-Back-Rule - a loss this year can be set-off against profit last year, for a refund of company tax paid

- Entitlement to R&D tax concession - maximise the claim this year for a deduction of 150% of R&D expenditure (must exceed $20,000 to claim)

- Commercialisation Grant - can apply after 30 June for grant for a Plan, Proof of Concept, or Commercialisation of an opportunity - no limit, and based on merit.

4. Capital Gains

A special event, and full of rules and complications.

We need to know:

- Date and cost of acquisition, improvements or further investment

- Contract of sale and settlement details

- Ownership - whether trust, company, partnership or individual

-If a sale of a business, some Concessions require the transfer to super within special time limits

- Other income earned during the year (approximately)

5. Consider Cash Flow

6. Risks

Keep in mind there are some risks with these decisions.

Tax benefits need to stack up on the risk-to-reward matrix. Quantify the benefits and assess the downside too.

- The tax office may do an audit and review the actions at year end - bad debts written off before 30 June, stock count and valuation methods, accrual and payment of director fee and bonuses, superannuation contributed by due date, trust resolutions, conditions for loss carry back for companies, right to Small Business Concessions for capital gains, record keeping and systems

- Lodge PAYG Withholding forms by the due date, and the new sub-contractor reporting is required from the building and construction industry by 28 July

- The ATO will again be chasing super for individual subcontractors, so ensure you have agreements in place, preferably company to company, if you do not consider super is applicable to your circumstances

- The ATO is now using Benchmarks it has developed, and proposes to adjust returns where the records are not sufficient or unreliable to prove the tax return is correct

- If you are applying for loans for say a new home or investment, be aware of lending guidelines and that the lender may require a higher income to show in tax returns to qualify.

Finally, if you are not sure, take advice. It could be just a telephone call or email. Superannuation and Capital Gains are critical to get right and should always be checked.

Superannuation

Tue, 28 May 2013 14:00:00 GMT

Several changes to superannuation have been announced since 5 April 2013, and these need some consideration in planning in the near future.

SGC Levy

Increases to 9.25% from 1 July 2013.

Abbott has promised to delay this for 2 years, but until there is legislation (if the Coalition wins), the 9.25% is payable.

Concessional Contributions and Caps

The maximum deductible amount this financial year is $25,000. From 1 July 2013, for those over 60, the tax deductible amount is $35,000. From 1 July 2013, those over 50 also increase to $35,000. All others remain subject to a cap of $25,000.

From 1 July 2013, individuals who exceed the tax deductible cap can withdraw the excess, but this amount plus interest will be added to the taxpayer's income and subject to tax at the taxpayer's marginal tax rate.

Four years ago for those over 50 the cap was $100,000. So these changes rectify only a part of what Labor stripped away.

Non-Concessional Contributions

The maximum non-deductible contribution is still $150,000, or $450,000 if under 65 when made. The rules for excess contributions are complicated and it is necessary to look back at least two years to ensure there is no excess. The tax rate on the excess can be 72%, so it pays to check before the contribution is made to the Fund.

This is an inequitable penalty, and the Government seems only interested in the tax to be raised and not in allowing genuine mistakes to be corrected.

Centrelink Pensions

From 31 December 2014, individuals able to access Centrelink benefits need to review the opportunities to lock in the benefits, and starting an Account Based Pension before 1 January 2015 ensures the Centrelink Income Test will not apply. From 1 July 2015, new pensions from a superannuation fund will cease receiving partial or full exemptions under the Centrelink Income Test.

This may mean taking certain classes of benefits from the super fund, re-contributing to the fund (which changes the class of benefit), and commencing an ABP. There may be a better Age Pension and Health Care Card. This must be done before 31/12/14.

Taxing Pensions

From 1 July 2014, the tax exemption for earnings on superannuation assets supporting income streams will be capped at $100,000 per person, and earnings above this will be taxed at 15%.

Where a capital gain is made by the fund, the whole gain without any discount applied, is included in the income cap. There are some timing rules based on when the assets were first purchased by the fund.

It is hard to see that this is not only about the potential taxes to be raised. It involves more complicated accounting and tax returns and will likely cost the ATO quite a lot to administer.

What Needs to be Done

- Those in pension mode need to review expected earnings for 1 July 2013 to 30 June 2014, in particular potential capital gains.

- Before 30 June 2013, ensure concessional contributions are less than $25,000.and non-concessional less than $150,000 (but check the contributions made in the previous two years).

- If Centrelink benefits are likely to be accessed, review the opportunities to lock in benefits before 31 December 2014.

Important: This is not advice to stop, start or change a superannuation pension. Take advice on both the financial and tax aspects. We can refer you to competent financial planners if you would like advice on the options.

Tax Audits

Mon, 20 May 2013 14:00:00 GMT

More audits are occurring. Some because BAS and tax returns are late, and some because key numbers in the financials fall outside 'expected' benchmarks.

This year, we will use new software to compare actual financials to ATO benchmarks, and can hopefully fix any problem before one arises, or at least be able to explain the difference if required.

Here are some tips on managing the audit process:

- If you are selected, tell us early so we can obtain from the ATO a clear scope of the areas to be reviewed.

- Don't rush to set the date for the ATO. You are entitled to agree a date that fits with your business needs - within reason.

- Allow sufficient time to review the records for the audit area and to ensure there are no issues or problems.

- Be prepared, have the files and documents requested ready.

- During the audit, stick to the issues at hand. Don't ramble or open up other issues, answer the questions and move on.

- Expect questions like 'could we see the vehicle log books', to explain your accounting system and whether it is regularly reconciled, 'how's trading' and to explain why there are differences from ATO benchmarks, sight choice of super forms, whether ABN/individual contractors are used and has super been paid for them, were trust distributions minuted before 30 June, etc.

- If a problem is found, consider making a voluntary disclosure. It will not save the tax but will mitigate penalties.

- Accept that the ATO auditors are doing their job. Don't challenge them except on issues of law or fact.

- Finally, use an advisor with experience in tax audits. Yes, it has a cost but the pre-planning and attendance should protect your interests, assist the efficiency of the process, and hopefully get it over faster.

There was more money in the 2013 Budget for more data matching by the ATO and this should surely lead to more audits. Knowing how to manage them should protect you from the downside.

These are a few of the ways we hopefully prevent audits now:

- outside audit of super funds; no audits to date, one case of non-compliance resolved early

- checking against benchmarks for key areas; no audits, several cases of non-matching explained before audit required

- warnings on maintaining log books for cars, use of sub-contractors and superannuation, reconciliation of MYOB/Quicken accounts, keeping of records, etc.

- end of year reviews, minutes of trust distribution of profits before 30 June

- careful preparation of the ATO returns to correctly disclose information required

We have not perceived any real benefits to clients from Audit Insurance to date. However, as audits are more frequent and often much wider scope, we are looking at this again as a way of reducing your costs, and will address this in the near future.

2013 Budget

Sun, 19 May 2013 14:00:00 GMT

If you found the 2013 Budget less than riveting, you may have missed some of the changes, some applicable to this 2012/13 year. We have given a summary below of these key matters. If you have a particular query, call us and we would be happy to send you a copy of our associate's, Hayes Knights Accountants, Report, or one of the other 14 we received.

Swan (in his Swan Song?) has pushed reform but without unnecessarily upsetting voters before the election. Many of the big reforms impact on large and foreign entities and non-residents. Very few cuts directly impact on the broader population.

Business

Foreign Residents Capital Gains Targeted

From 1/7/16, a 10% non-final withholding tax will apply on the disposal of Australian property and equities.

Access to R&D unchanged

a 45% refundable tax offset, when business turnover is under $20m.

Tax Measures

ATO and Trusts

ATO to target exploitation of trusts that conceal income, mischaracterize transactions, artificially reduce trust income, or underpay tax.

Data matching

More money to match transactions, including government payments, sales of property and equities, sales through merchant cards, partnership and trust distributions and dividends and interest, and transfers to and from Australia.

GST instalments

Extension of the GST instalment system to allow quarterly access or refunds for businesses that are in a net refund position.

Superannuation

No new changes, the Budget confirms the changes announced in April.

Excess Contributions tax

From 1/7/13, individuals can withdraw excess contributions and these will be taxed at the individuals marginal tax rate (presently, taxed in the Fund at 46%).

Higher Concessional Contributions cap

From 1/7/13, if over 60, an allowable contribution of $35,000, and from 1/7/14 for those over 50. The cap is now applied based on age, not as previously for those with super balances under $500,000.

Taxing earnings on super assets paying income streams.

From 1 July 14, only the first $100,000 of earnings per member will be tax exempt, and income above that will be taxed at 15%. Special arrangements apply for capital gains on assets purchased before 1/7/14.

Account based pensions lose preference for Centrelink

From 1 January 2015, new super pensions will be subject to the standard pension deeming rules, which could increase the levels of income under the Centrelink Income Test (currently, preferential concessional treatment).

Individuals

Medical expenses tax offset (METO)

From 1 July 2013, abolished unless METO claimed in 2012/13 (previously 20% of medical costs paid in a year). Continues for those relating to disability aids, attendant care or aged care expenses.

Medicare levy increase

From 1 July 2014, the Levy increases from 1.5% to 2%.

Work related self education costs capped

From 1 July 2014, annual cap of $2,000 on self education, whether paid by the individual or an employer. Costs include conferences and workshops, tuition fees, texts, travel and accommodation, where these expenses are incurred in the production of a taxpayer's current income.

Income tax cuts deferred

From 1 July 2015, the tax-free threshold will increase to $19,400 (now $18,000)

Key Economic Highlights

The assumptions by Treasury may not be reliable (again). The Australian on 18/5/13, looked at Treasury's record for the last 10 years and concluded most were 'significantly wrong'. The assumptions include:

- Australian dollar to remain high (other forecasters expect to fall to early 90's).

- Wage growth to remain around 3.5%

- Dwelling investment to grow at 5.0% (Shrapnel's expect new building to increase in SEQ by 30% next year, to meet current demand and shortfalls)

- Interest rates low this year (but likely to increase over the next 3 to 4 years as the $ falls, government competes for debt funds).

Five Key Tax Busting Strategies

Tue, 14 May 2013 14:00:00 GMT

Five Key Tax Busting Strategies

For the next couple of weeks we'll be starting to focus on your end of financial year planning. But, to keep it interesting (?), we'll only deal with the issues in summary form, and attend to the detail when we actually do your End of Year tax.

The reality is we all pay a lot of tax - whether income tax, withholding tax, PAYG instalments, or GST. There are two fundamental principles for managing tax: don't pay more than you have to (maximising after tax profits) and don't pay it until you need to (managing cashflows). Here are five ways to achieve them.

1. Make your entity structures work for you

Different tax rates apply to individual, companies, trusts and super funds. Structures change to manage risk, tax and efficiency. So, tax planning seeks to use the lower tax rates, perhaps permanently (like super) or to defer (with a company).

2. Pay costs with pre-tax dollars

Some expenses can be structured to improve tax efficiency. A good example is life insurance; it can be paid by you (so is not tax deductible) or by a super fund (and becomes a pre-tax deduction).

3. Ensure the GST Registration is right

You only need to register when annual turnover is likely to exceed $75,000, so you can avoid the paperwork and including GST in your price until this level of turnover appears likely. If turnover is under $2m you can account for GST on a cash basis, that is when it is collected and not when it is billed. It will not change the amount to pay but it will change the timing of payments.

4. Know where you are financially in the current year.

The ATO requires you to keep records to accurately pay GST each quarter and tax each year. But, your main goal should be to use the information to improve the business - what you measure you can manage.

However, as PAYG tax instalments are based on the last tax return lodged, as is GST, having financials up to date may permit the variation or reduction of those instalments. Don't pay them each quarter and then wait for a year to claim back the overpayment.

5. Don't forget the children

The amount that can be distributed by a trust tax free to a child is now fairly small, but may still be a worthwhile tax saving. Older children can be paid a wage, at commercial rates, for the work they do after school hours or over school holidays. It may be possible to improve the Family Tax Benefits received by use of the entity structure.

All are quite simple strategies but they can put more money into your account. These are some of the issues we consider when either end of year tax planning or when preparing tax returns. Sometimes, a lot of little changes can achieve a material benefit in total.

Estate Planning and Avoiding "A Mess"

Tue, 30 Apr 2013 14:00:00 GMT

Families can break up through fighting over the parents' estates, so it is a good idea not to leave a mess for the children. That is not the legacy you want to leave.

A Will is the means of passing assets to those you choose. Some get it right, but some end up in court.

Wills are technical and it is essential they be properly executed by a competent solicitor. What is not widely understood is that a Will only deals with assets in your name. That is, with complicated structures like superannuation and trusts, the legal owner is the trustee, not you personally, so you can't distribute these assets.

The remedy in a superannuation fund is a Binding Death Nomination, which instruction the trustee must obey. (Simply, it instructs the Trustee to pay the benefits to a person or your legal representative).

With property, which may be either a Joint Tenancy or as Tenants in Common, the interest of the deceased usually passes to the survivor. With Tenants in Common, each person has legal title to half the property, but that title could be challenged so may not automatically pass to the survivor.

Some practical steps to keep things straight forward:

- Review your estate plan regularly to make sure it has kept pace with your current situation and wants.

- Always review after a major event like divorce.

- When things get a bit complex, as with trusts and superannuation, special care is needed to ensure the benefits are paid as planned.

- Life insurance can be used in the Fund to get a particular outcome.

Estate planning is about determining a required outcome. Can it be reliably executed, or is there someone who could challenge that plan? You may need to revisit what you planned, to leave the legacy you want.

This is an area we are addressing this year for clients, as we undertake tax planning and compliance. We can assist by instructing your solicitor on the business entities and situation, attend to an updated Binding Death Nomination (this should be done every 3 years), and review insurances for cover and value.

Achieving Your Full Financial Potential

Thu, 11 Apr 2013 14:00:00 GMT

Top 3 Tips:

Know what your goals actually are (specific & measurable)

Keep good records (accurate and up to date)

Manage cash flow (forecast and regularly review)

Why do Businesses Fail to Achieve?

Lack of planning in the above, which leads to debt and financier pressure.

Don't wait for tax time to find out what's gone wrong; find out before there is a major problem.

There is more value for you in aiming and planning for a required result and monitoring progress towards the successful outcome, than creating a crisis to clean up later.

Our Approach

We see ourselves as business owners first and accountants second. One point of difference from our competitors is that we seek to focus on your financial goals and help you achieve them. One way to do this is a One Page Annual Plan , we'll send an example of an easy to use format out next week. Another is our unique Business Growth System, which is a total marketing system. Please use this internet resource, there is no cost for our clients and it can achieve great results for you.

Tax Update

Wed, 03 Apr 2013 13:00:00 GMT

Recently, there have been a few important decisions in the tax area. I'll keep this short because you need to be aware of their importance, although not necessarily all the facts.

GST and Going Concern Rule

A taxpayer purchased a property GST-free under the going concern rule. However, he proposed to change the use from a commercial residency with leases in place (which made them eligible for the concession) to residential accommodation, so an increasing adjustment was imposed (that is, he had to pay the GST and could not claim it back because it was residential). It is necessary to assess the type of supply (income) that will be made in the future by the purchaser, and if to be used for an input taxed purpose (including residential) then the GST on purchase is borne and paid by the purchaser.

Ý In any contract claiming GST free as a going concern, watch for issues like change of use, and the acquisition of 'all necessary items to continue the business'.

GST and Start up Enterprises

To be able to claim GST on a start up business, the taxpayer must be able to show that activities have been undertaken consistent with business (not just a structure for a potential opportunity) and that the activities were consistent and appropriate for the type of enterprise.

CGT and Dates

CGT is triggered by the date the contract is signed, not when it settles. However, the ATO has successfully claimed that the date of a Heads of Agreement should be used when the Agreement commits to the sale. This could impact on the year in which the CGT would be taxable, or whether or not the concessions could be claimed under the maximum assets test, the retirement exemption, and the small business rollover.

CGT and Maximum Net Asset Value Test (MNAV)

For CGT concession purposes, the taxpayer's MNAV must not exceed $6m. In this case, the taxpayer's loan offset deposit was $1.2m and the loan was $1.0m. The ATO separated the two, calling the $1.2m an asset but excluding the $1.0m loan as being private (for his home).

Ý It is vital to check entitlement to the CGT concessions before selling, and again before lodging tax returns.

Ý It is also critical to 'properly' value assets, the ATO uses the Valuer General it if is not satisfied that the taxpayer value is based on sound principles (like valuations of business and real estate).

The key principle to take from this is that the ATO will rigidly check that concessions and claims have been properly made, so contracts of sale etc., need to be considered well before signing.

Trust Resolutions by 30 June

The ATO found general compliance was not good so it plans to continue reviews of trust resolutions, especially in field audits.

Ý Trust Resolutions for distribution of profits must be completed by 30 June each year.

Leadership

Tue, 02 Apr 2013 13:00:00 GMT

Stephen Covey's "7 Habits of Highly Effective People".

Stephen Covey (died in 2012) sold more than 25 million copies, and it continues to top the list of influential books. Its relevance today is to encourage those who are time poor to achieve a better balance in their lives.

The aim of the 7 Habits is to acquire self-mastery, from these principles:

Be proactive

Begin with the end in mind (put into words what is important, a vision statement)

Put first things first (plan and prioritise)

Think win-win

Seek first to understand then be understood

Synergize (combine peoples' strengths) and improve attitudes

Renew one's personal energy and health.

He was ground -breaking because his approach was to focus on what managers are, not what they do; to work first on themselves, then relationships, then organisation.

Current studies of the most effective business leaders show they are often quiet achievers with strong values - very much the Covey paradigm.

He didn't really uncover any universal truths, perhaps stated what is common sense, but as Covey said 'common sense was not necessarily common'.

The principles and values are still useful and relevant in business today:

Understand the situation

Clarify goals and vision

Plan and prioritise

Get everyone on board and at their best

Monitor and manage what is important

Housing Price Improvement

Wed, 27 Mar 2013 13:00:00 GMT

The rate of increase in home prices is accelerating. If it continues, don't expect a further cut in interest rates, count on an increase, later rather than soon.

RP Data shows capital city prices up 1.4% in March (annual 17%) and up to 2.7% year to date (annual 12%). So, around 10% this year is a real possibility.

Historically, as prices pick up there is usually a year where the rise is between 15% and 20%. This could recur because of current low rates, low unemployment, real wages registering solid gains, strong population growth, low supply and high demand, high rents, and low borrowing costs. All these indicate a rise of 10% is quite likely.

Supporting these is the high level of auction clearance rates (around 70%), which is indicative of buoyant prices. There is a long term correlation between improving shares prices (20% in the past year), financial well-being and rising house prices. However, it is my opinion that share markets are over-priced and there will be a near term fall, but this factor alone won't kill off a better housing market.

House price gains should continue for some years, probably until the Reserve raises interest rates. This may not occur to any great extent while the A$ stays high and inflation is officially low.

Unlike Treasury, the Reserve Bank is independent and so should not prevent the next house price boom, which seems to have started late in 2012.

The Roy Morgan Consumer Confidence Rating is now at 122 points, 11 higher than the same time last year, indicating that people are less worried about their personal finances. The Business Confidence Rating is 124, the highest since April 2011, meaning businesses are cautiously optimistic about the economy.

A very Happy Easter to all!

A Quick Walk Through The BGS Vault

Mon, 11 Mar 2013 13:00:00 GMT

Several people have already commented on our BGS Vault, the unique self-build marketing system now available for our clients to use. The most asked question was 'how do you think I should advertise - direct mail, social media, yellow pages?'

Wrong question, or at least too early! BGS walks you through a process so you get an optimal marketing outcome, that is, leads and prospects for your solution for their problem, whereas advertising is just the media in use to find the leads. The media is irrelevant unless you have a clear understanding of who is your ideal customer and what the problems are which you are ideally placed to solve for them. It is worth spending a few hours to get a highly effective result.

The process/ questions to work through (the key sections in BGS follow below) are these:

A) Who is the target customer for your offer?

That is, what is the niche you will focus on? On BGS, there are questions that help you identify potential target markets (what do you do well, what product or service is the most profitable, who are the best customers and what do they have in common, etc.).

B) What value do they derive from your solution, and why is that valuable to them?

C) Why should people buy from you and not another supplier? Hint - this is not "Our Service" (everybody will claim that) but it could be you deliver every order the same day. (Then, you need to make sure you have a system that ensures that result every time).

D) Why don't they buy from you now? (Many sales are to be made with the answer to this question.)

E) How can the customers be found (the media to use)?

These are all in BGS Vault , just log-in and click on:

"Creating Effective Marketing 1001"

Overview at 'Success Guide'

Either 1 for Success Guide - Products; 2 Success Guide - for Services; or 3 for Success Guide - Retail

- Consider your current marketing

6 Improving Existing Marketing Pieces

- Who is the target customer, or the niche in which you will operate?

13 Defining Your Target Market

- .Know who your Customer is, and understand your major Competitors

10 Customer Research

11 Competitor Research

(These will help when you get to Marketing Channels)

- Define your competitive advantage

16 Unique Perceived Benefit

- .Put together your Marketing offer

17 to 24 (as needed - especially Headlines )

- Select your Marketing Channels

Hint : rarely just one or two will work well enough. Once you know your customer is male, in his seventies and lives in a highrise unit with security access, how will you get your product (a brass-plated walking stick) in front of that customer? It will need a combination of media.

27 Select Media Channels

Then, test the offers. If direct mail, offer it under say 3 Headlines and Offers, send out 10 of each, and then decide which worked best (eg., most responses, best return, lowest cost per customer, etc.).

If you are really, really confused we are happy to critique your Plan for you. If you are hopelessly lost, we include Marketing Planning in our Profit Improvement Program and can work out a Plan and arrangement for you.

Economy Trends

Tue, 05 Mar 2013 13:00:00 GMT

Plain English Guide to the Economy

1. 2012 was an unusually good year form investors.

All investment classes did well last year, with strong rises in just about all asset classes. That is unusually, as if investors were attracted to both high-and low-risk assets at the same time.

2. Sentiment has driven the markers.

Usually its business fundamentals but for the past few years sit was sentiment (watch the Confidence Indicators, both business an private).

Public companies have increased earnings and margins, and reduced debt and debt-to-equity ratios. This means balance sheets are stronger now, but it hasn't changed share prices; even the last rally was driven by good feelings about world problems being over.

3. Economic policies worked

Many of the government policies in Europe, China and the US were feared, but did exactly what they were supposed to. China has not had a hard landing, although its growth dropped from 10% to 7.9% (if you accept the figures are calculated rather than picked out of a hat).

4. The Australian dollar is overvalued.

The A$ has been above parity with the US$ since 2008, good for overseas holidays and importers, not good for exporters. It is about 30% overvalued, but that doesn't mean it will ease any time soon. (One way to measure a currency is 'perfect price parity', one is known as the Big Mac Index). Australian interest rates are higher so global investors find it attractive to park money here, for which they need to buy A$, which forces up demand for the currency.

5. What does this mean for investors?

One lesson is clear; there are too many unknowns so it is difficult to guess the market. If you look at charts for all investment classes since 2007 seeking a pattern, sadly there is not. The key is to diversify and balance the portfolio. (Remember: Goals, Risk, Timeframe).

Diversified Investments

Wed, 27 Feb 2013 13:00:00 GMT

Why You Need Property, Shares and Cash.

In the last five years, bank deposits grew from $200b to $550b. The market capitalisation of shares fell from $1.6trillion to $1.2trillion. Fairly obvious why, investors were averse to risk.

There are three basic considerations with investments: goals, timeframe and risk tolerance.

A goal tells you much how much you need to save and how much the savings must earn to get there.

Timeframe dictates where the money goes. Bank deposits are short-term (ready access, government protected). Shares and property are long-term, think ten years.

This is where appetite for risk comes in. Short term, shares can fluctuate wildly. Over the long term, shares average higher returns than cash; over the last 10 years, 9.1% for shares compared with cash at 5.4%.

This is not an either/or argument. Strong investment portfolios are diversified with a matrix of goals, timeframes and risk, meaning a mix of cash, shares, property and bonds. It is also prudent to support the plan with appropriate insurances, this provides liquidity at a time required.

Traditionally, younger investors should weight towards growth investments, those near retirement a weight towards cash because for them there is not the time to wait out large falls in shares.

Economies and opportunities change. Look ahead and consider investments against goals, timeframes and risk. The ATO now requires self managed superannuation funds to review their investment strategy annually. We'll follow this up soon, but it comes down to goals, timeframe and risk.

The outlook for 2013 is cautious optimism although there may be bouts of volatility. Various forecasters expect growth assets to perform well over the next three years.

So, what for the next couple of years? Business is improving, profits are steady, even rising, so shares will do better. As the economy improves, interest rates will rise too (so don't lock in now for long terms). Demand for property is picking up. On the downside, equities may even reverse in the near future, more property owners will be hurt by any interest rises so there will be good buying for a while yet, and there are so many variables to consider in terms of goals, timing, and risk.

And overall, politicians everywhere know everything, only do the right things, and just want to help you. Yeah, right!

Director Tax Obligations

Sun, 24 Feb 2013 13:00:00 GMT

Director Tax Obligations

Don't Ignore Tax Obligations if you are a Director of a Company!

In February, businesses have to pay the January superannuation guarantee, January PAYG, December quarter BAS and perhaps PAYG Instalments.

Cash can be tight after the holidays, so there is a temptation to delay paying and/or lodging these. Bad idea!

Changes in 2012 make directors personally liable for the unpaid PAYG Withholding and Superannuation. The legislation also provides that where a company fails to lodge and pay for more than three months after the due date, the directors are personally liable.

If you become a director you only have 30 days to ensure the company is compliant with these obligations, and then personal liability commences. So, make proper enquiries before consenting to be appointed.

Directors also need to ensure superannuation obligations are met, especially for contractors. If the subcontractor is either a common law or a deemed employee under the Superannuation Guarantee Act, superannuation is payable and the ATO will collect it. The ATO has a Questionnaire on its website to determine if the person may be an employee for superannuation purposes. Let us know if you want the details.

There are no defences. So, if cash is tight, look at all options and get some advice early.

Expectations 2013

Sun, 03 Feb 2013 13:00:00 GMT

I had a couple of calls regarding my Blog earlier this week, asking 'but what is likely to occur this year?' If you can anticipate some of what is likely to occur then you can be better prepared. Here's my list:

1. Cash Crunch in February

This is usually a tough month, Christmas bills due, start up after a few weeks break, and the next BAS payment due including PAYG Withholding on holiday pays. Cash will be tight so collect accounts early and see the bank well before you need the money. We do Forecasts for Profits and Cash for 12 months with various scenarios, to see where the crisis points are.

2. Businesses going Bust will Increase

Insolvencies are still growing, banks are slow to lend. Watch for warning signs and monitor account customers who seem to be in distress. (We have 'plans' to assist businesses who are in difficulty.)

3. Tax Office getting Tougher

Labor has put pressure on the ATO to collect more tax, which will mean aggressive collection and more tax audits. Make sure your tax position is sound and you have the supporting records if called for, like sales contracts, vehicle log books, supplier invoices for GST claims, diaries if travelling overseas, Minutes for decisions, SMSF records, and good systems/books. (Which is why we nag about these things.)

4. Election

The election is on 14 September. All elections cause business dislocation and customers put off buying decisions, so allow for this and brush up on selling skills.

5. More Acquisitions

Assets and businesses are fairly priced and some even quite cheap. There are many businesses seeking to grow, looking to achieve the benefit of scale, by acquisitions. Sellers, this would be a good year so ensure the business is ready for sale. (We do this with an Information Memorandum and a Valuation).

6. Competitive Businesses will do Well

Stay ahead of competitors and ensure you compete on value not just price. Understand the industry and market (a good SWOT analysis does this), be clear on your competitive advantage (why do customers buy from you?), and switched on with your marketing (from this month, over 60 marketing strategies for any industry will be accessible on our website by our clients exclusively).

7. Economy

Most economic indicators are still pretty weak, but leading indicators are looking positive. A catastrophe in Europe, US or China is unlikely, consumer and business confidence are improving, a slowdown in mining should allow other sectors to grow. The message is Planning; set Goals and Targets, measure and monitor often, analyse the numbers and focus on the key levers for growing a business. (We have a Profit Improvement program - ring me for details, the initial discussion is free, the whole program is not costly, and it can be reduced if you do some of the steps yourself).

The Power of the Trend

Tue, 29 Jan 2013 13:00:00 GMT

The best predictions for 2013 will come from what we know. You know your business well and you can use this to spot opportunities, to make adjustments quickly, and then decide where to focus for the rest of this year.

My choice for the top five general business trends are these:

1. Small Business must be Productive and Competitive

Big retailers mostly compete on Price Strategy, and succeed because they screw their suppliers for lower costs and pass (some) of this on to the customers. For SME's though, the key focus is on growth and customer relationships.

Costs need to be regularly reviewed, as savings go straight to profit

Capacity can be improved by better efficiency, so remove bottlenecks and waste

Flow-chart key processes such as goods ordering, account paying, taking an order or sale, and manufacturing (each can easily be done on a sheet of paper) and eliminate steps that have a negative impact on product or services delivery.

2. Innovation will continue to Deliver Solutions

New businesses typically start with the premise of solving a problem in a new and innovating way. So, keep tuning and refining what you do and how it is done, know why the customer buys from you, (especially the problem you solve or the pain you overcome), and innovate to address those issues and be the preferred supplier of solutions for those problems.

3. Collaboration brings fast Results

Innovation happens quickly from collaboration, that is, sharing ideas with your team, customers, suppliers and others in your network. This leads to important feedback on what works and how well it does. Why will others collaborate with you? If they are engaged by your vision and you address their vested interest in participating and benefiting we know from Psychology that "Belonging" is one of the strongest motivators (to a group, even Facebook, being part of a success story, like MacDonalds).

4. Technology is a critical enabler for SME's

The smart use of technology will be a key to business success, and assist to spot trends occurring. Around 20% of retail sales are likely to occur online this year, and customers will check prices on their smartphones before buying. Developments in accounting and financial management software and access to online marketing and sales tools allows prompt decisions to be made and positive action taken.

And, don't put up with a tired website; it must not only have content but also bring in customers and sales. If you'd like some examples, call us.

5. Cash is still King

Cash is critical. You have to know what your cashflow looks like and anticipate trends or issues. If there is not going to be enough cash you need to have a funding plan ready. We don't do 'cashflows' just for practice, it is one of the tools to plan and succeed, and our lenders see forecasting of profit and cash as necessary for approval of business or large equipment loans because it means you've thought about the factors and trends and so are less of a risk.

Our message is that we have been preparing for a long time, to help our clients. It is not only tax that is important, but making profits, keeping more cash, and helping you get a sustainable competitive advantage.

Essential Behaviours for Success

Wed, 23 Jan 2013 13:00:00 GMT

I was asked by a client recently "What happens if I lost my biggest client?" I knew the answer he wanted was more than just 'you're buggered!' and some sensitivity was required.

Having one key client is risky. Income from one source is a bit like having a job, but it is far easier to lose a client than it is a job.

First thoughts were to deal with the essentials of service for a business:

- set boundaries to define what 'best service' means for you

- work to schedules, not to ad-hoc demands

- allow some time to do other marketing and to run your own business

- have support or a team so the work gets done; you don't have to do everything yourself, you need to delegate, but not abrogate

other people do the work, but you check and do the critical things, like the meetings.

It's also helpful to know the essential behaviours to be successful, and so avoid frustration, struggle, and finally failure:

Invest in lead generation

- You must capture names, from both prospects and buyers, because you must have a list when you finally put together great marketing.

Don't invest too heavily in one strategy

- Don't rely on Yellow Pages, or Pay per Click, or any one activity. Integrate several strategies.

Know who your ideal Target Market is

- You can't craft a message to attract your 'ideal customer' if you don't know who he is.

Know how to sell

- This is a process, not some clever tricks; solve problems, overcome frustrations, remove obstacles to doing business.

Take Action

- Certainly plan, worry less, but get moving. People who take action are more successful.

Know where you want to be

- Set goals, for knowing what you want to achieve is critical in how you run your business over the next 2 to 3 years.

And, no, my client has not lost his customer but actually improved his service and income by clarifying to his customer what his 'service' is, and reduced the risk for the future by goal setting (he can't get to where he wants to be with just one client) and planning his marketing strategy.

We've helped with a One Page Plan: Goals, Targets, Strategies and key actions. His marketing will partly be based on our new website based Marketing Strategies Vault (free for our clients) and if he wants help we use a framework to guide what is necessary (at a small cost), or we can do it all (higher cost and usually not required because you know your business best, so use the 'some help' if a little direction is needed).

Love to tell you about it and why you don't need to be "up the Creek".

Data Matching

Mon, 14 Jan 2013 13:00:00 GMT

Tax in 2013 is certain to be as lively as ever, probably even more so with a federal election by October. Get ready for the promises.

The ATO has been well funded to gather a wide range of information it can then trawl through to evaluate compliance with the tax laws. Do not underestimate the sheer volume of data obtained by the ATO and the ever-increasing sophistication of analysis techniques. One estimate for 2011 gave the raw volume as matching of 780 million transactions .

2013 Program

The ATO has just announced data-matching programs for offshore bank accounts, overseas transactions and transfers, credit and debit card sales, eBay transactions, real property and vehicle transactions, rental properties, interest earned, and dividends and trust distributions.

The program is designed to enable the ATO to address compliance behaviour, including lodgment of BAS and tax returns, disclosure of sales by merchants, capital gains, and whether GST has been correctly collected. (One target is the records of 900,000 merchants).

Sources of Information

Property information is sourced from State Revenue, residential tenancy authorities, councils, and agent listings.

Offshore Accounts & Transactions

Around 50,000 taxpayers with offshore bank accounts are likely to be asked to complete a survey for the years 2008 to 2011, including the details of the account, sources of income, where it has been disclosed in Australia, connecting entities and associations, interest earned on the accounts, etc. We replied to one ATO 'request' in December, the client transferred money from HK to Australia, the banks used an intermediary bank for transfers, and the ATO now insists the client 'must have' an account with the transfer intermediate. This is a gross lack of understanding but unfortunately that is the process the ATO has put in place, and to invite a full audit is costly and a huge waste of time.

Be Ready to Reply

Data-matching is well and truly here to stay, and it is likely to be ramped up (the ATO received $340million last year and expects to collect $2billion from its program). Keep good records, disclose even one-off transactions, get advice up-front on GST, capital gains and overseas matters, and expect more scrutiny.

Government Grants

Thu, 10 Jan 2013 13:00:00 GMT

We are often asked if 'there are any grants available'. The answer is, about 550 nationally. If we take out ones specific to the other States, this leaves about 200 Federal and 50 Queensland grants, and in reality, there are less than 50 where funding may be available.

Free money is good money, and it should not be ignored. Many grants are just allowed to slip away - whether people don't know of them, are discouraged by the paperwork, or simply can't evaluate the Cost/Benefit of application (allow 10% of the grant applied for, as a guide).

Federal Government

Federal assistance is mostly to help companies grow - it will not provide start-up capital, help with a cashflow service, or pay creditors. Most grants are a refund for money already spent for a designated purpose.

Our clients are in many different industries and each one's circumstances are unique, so we have not put in details of each program but picked the 'most likely' ones that may have some benefit:

- Apprenticeships Initiative

Grant is $3,000 to support the career pathway

- Automotive Transformation Scheme

Up to 50% of value of R & D investment, to improve efficiency and operations of manufacturing

- Commercialisation

Over $50,000, to bring a new service or product to the market

- TQUAL Grant

Up to $100,000 to develop significant tourism and employment projects

- Textile, Clothing and Footwear Small Business Program

Businesses with fewer than 20 employees wanting to improve their business culture and innovation, grants up to $50,000

- Export Market Development Grant

Up to 50% of eligible export promotion expenses

- R & D Tax Incentive

Up to 45% for eligible expenditure for creation of new knowledge or improvements to processes

- Digital Business

Guidance on an online presence and online productivity tools.

Queensland Government

Much assistance is by training, and workshops. However, there are some specific incentives available:

- Business Transformation

For innovative projects, like improving productivity or exports, amounts of between $30,000 and $250,000.

- Building Productivity

Support for information & communication solutions in certain industry sectors

- Small Business Mentoring

Subsidised mentoring service for business owners

- Innovation Startup

Commercialisation of new technology based products and services

Apply for Grants

1. Find out what is available, the closing date, criteria and eligibility. Call us and we'll check.

2. Applications are usually competitive so there must be clear benefits with substantial achievable outcomes. Be able to define the outcomes.

3. Applications must be lodged by the closing date and evaluated only on the criteria stated in the funding round. Must be relevant and clear.

4. After submission, expect 30 days from application but some can take anywhere from 4 to 12 weeks.

An industry has started to form helping applicants, some are good but most just fill out a form for you using the information you supply. We suggest the process be a) look at the form b) determine what information is required c) do a mini Cost/Benefit for the outcome d) get quotes to prepare. In some situations we will do the Applications but in others we use expert preparers because of their expertise.

Opinion

These aren't the only ones, but they represent some of the broadest offers. The key to every grant is documentation; there are particular requirements and some can take quite a lot of time, and need all the necessary materials in place before the application is made. Some allow for pre-determination of eligibility, and some are competitive or based on the best result likely from the support.

The ones I think are worth serious consideration are:

Digital Business

to get an efficient online presence (no money but reasonable advice)

R & D Tax Incentive

45% of qualifying expenditure to find new or better products and ways to manufacture

Commercialisation

a merit based program to bring sound business ideas to market

Mentoring Services

Opportunities for strategy development, using consultants, marketing and promotion planning.

Don't make the mistake of inertia; call us anytime about your idea or product, we'll see if there is a grant that could be accessed, and then you can decide if it is worth the effort to pursue. We'll also talk with you as we work through end of year planning this year.

Divorce and Tax

Sun, 09 Dec 2012 13:00:00 GMT

Family law property settlements cause a division of assets, including business assets. But there are three tax risks to consider - CGT, Division 7A, and GST. Capital Gains A transfer out of the company can give rise to a capital gain. However, subdivision 126-A of the Tax Act provides relief, but only where there is either an order or binding financial agreement under the Family Law Act, and all the conditions for relief are met. Deemed Dividends/Division 7A Even if CGT free it is possible that the transfer of the asset out of the company can be caught under Div. 7A. This captures payments made to a shareholder or associate where they are not otherwise taxed. Where Div. 7A is triggered the payment is treated as a deemed dividend, but the provisions in this situation do allow for a franking credit to offset the tax. There can be unpleasant tax outcomes where there are no or insufficient credits. GST While the transfer is not a taxable supply, so GST is not payable, where the asset is transferred to an individual for private use then Division 129 of the GST causes an adjustment which will require some of the input tax credits claimed when the asset was originally purchased to be repaid to the ATO. The message is don't add to the stress with unexpected tax problems; get advice early and before agreeing to the final division of assets.

Tax Blog

Mon, 03 Dec 2012 13:00:00 GMT

I know we promised not to talk about boring Tax, but these are just a few comments on the Government mini-budget as there are some less obvious tax measures worthy of note.

Swan is not going after big business, he has lost many of the cases because big business has the money and access to the best legal counsel. Accordingly, it will be small business and superannuation that will be attacked. Over the next four years he expects to recover over $2b, for an outlay to the ATO of only $390m.

These will be the main targets:

Business will have tough trading conditions for a while longer, but the ATO has been allowed to be more aggressive. That is why we have become more proactive, checking, questioning, and concerned. We are looking at audit insurance for clients, just in case, so please let us know if you may be interested in this (say $400 to save a few thousand dollars).