Over recent weeks there have been a number of contributors to market volatility leading to a global correction in equity markets. From Australia’s perspective the major influences centre around China and its economic growth rate, the value of the Yuan, and commodity price moves; the impact has been significant and negative with the ASX200 falling from around 5982 in April down to 5036 as I write this article.
Because the PBoC (Peoples Bank of China) has had such a strong policy of maintaining the value of the Yuan (Renminbi) it came as something of a surprise to the markets that the PboC firstly allowed the Yuan to devalue, and secondly that consensus is now that a further 5-8 percent of devaluation is possible. Allowing the Yuan to devalue and allowing market forces to have some (albeit limited) influence is further evidence of China’s rise in terms of a global participant. The impact of a cheaper Yuan has the dual effect of providing a domestic stimulus to China’s economy which appears to be slowing from the desired 7% growth rate trending down toward 6%; and increased domestic inflation whilst exporting lower global inflation. This may impact the timing of global rate cuts and increases, and/or the duration of stimulus measure of other countries such as Australia.
A continued slowdown in Emerging markets, which now represent more than 50% of global GDP, on the back of falling commodity prices; slower growth in China; and the devaluation of the Yuan resulting in a collapse in EM currencies, are all weighing on global growth.
Another major contributor to the performance of the Australian share market has been the August company reporting season, whilst reports so far have been okay the potential of earning downgrades for the FY16/17 due to a continuation of the domestic economic slowdown has investors cautious. Strong investor demands for higher yielding stocks are supporting the market whilst resource stocks (now in a secular bear market) remain volatile on the back of commodity price movement and economic news out of China.
The overriding question is, are we in a bear market or is this just a correction? Our view is the latter! Share market valuations are generally alright with comparisons against historic values, when bond yields are taken into account, still relatively cheap; global economic growth is constrained resulting in excess capacity to grow coupled with low inflation and debt. The task is to have an appropriate Asset Allocation and the right managers.
If you have any questions about what this means for you, please contact Stephen Caswell on
Meet Jayne Lewis and Danielle Allen, they both grew up and met in Perth over 16 years ago, but it took a two-week tour of the West Coast of the US in 2010 for them to realise how much they had in common.
During the trip they hatched an idea to start their own brewing company and after 6 months of discussing their dream, Jayne and Danielle gave up their full time jobs and Two Birds Brewing was born.
The Two Birds Brewing facility began brewing its first beers in June 2014 and the Tasting Room opened in July 2014, 3 years after the Two Birds Brewing took flight.
Two Birds Brewing philosophy is that they make the kind of beers that they enjoy drinking, so they make beers that have flavour and interest, while being clean, sessionable and approachable.
If you haven’t tried any of their beers you’re missing out. The refreshing Taco Beer would have to be my favourite with its notes of lime and coriander – yum!
One of the difficulties in scaling any wholesale or retail business is effective inventory management. Inventory management is a fundamentally important part in every business.
‘We have one system managing all our inventory across the many warehouse locations. JCurve gives us a real-time, live view of the sales and stock levels at our finger tips which is key to our business growth.’
Danielle Allen – Co-Owner/’the other bird’
All industries and organisations are different, and within an industry, the drivers of success are different. Within a retail and wholesale environment, the management of inventory is critical to the long-term success of the business.
Businesses that do well, build strong relationships in their supply chain and effectively manage the process from the original suppliers through to the business’s internal processes.
Two Birds Brewing needed a system that would integrate all aspects of the growing business. With multiple warehouses in many locations holding their inventory, they were finding it a challenge to manage their stock.
Their many software systems operated in isolation which meant the owners had to bring together all the data which was a complex, timely and manual process. Manual stock-taking needed to be moved across to a software that could connect the inventory information across all their warehouses.
Two Birds Brewing, now a rapidly growing diversifying business where things change hourly implemented the cloud accounting Enterprise Resource Planning (ERP) system, JCurve which is based on the leading cloud business solution Netsuite.
It is important to adopt an accounting information system that can not only manage your inventory levels but also have the functionality to manage your suppliers and customers relationships.
From a taxation point of view, there are a number of key GST and income tax issues that also need to be considered when dealing with inventory.
These issues include:
Deductibility of purchases
Recognition of Income
The timing of deductions need to be considered – when is the deduction available?Is it when the order is placed, received or sold?Generally, the purchase price is deductible however; if the inventory is unsold at the end of the financial year it is added back as assessable income.
When inventory is imported from overseas it is necessary to consider the foreign currency translation and GST issues.Inventory is translated at the earlier of the date of payment for inventory or when it’s deductible.GST may also be required to be paid on the imported goods to Customs however a credit is available provided they are registered for GST.
Income may be derived and recognised for income tax purposes on accrual basis which means it will be assessable when the invoice is raised and not on the receipt of payment.
As a business adviser it is a challenge for us to convey the importance of accounting data to our clients. For a retail or wholesale business, the inventory management system is critical for long term survival. It takes more than a great product to become successful in business and Jayne and Danielle are a perfect example of this.
You will find their beers at all good liquor retailers but next time you’re in Melbourne, why not visit their Nest? Read more about this fantastic business at: http://twobirdsbrewing.com.au/
What if you were going on a trip and you were offered the opportunity to fly on one of two air planes. The first was piloted by a paid and experienced pilot ; the other has no pilot, is cheaper and you are allowed to fly if yourself.
If you choose the plane without the pilot, a computer will be installed in the cockpit that is connected to an internet site that will tell you all you need to know about flying.
Which plane do you want to take for your journey? What you are paying for when you work with a business adviser is not information – you can get that anywhere. You are paying for an experience. I’ve been there in bad weather and I know how to make a safe landing if anything goes wrong.
Draft legislation has been released to amend the methods for calculating deductions for work-related car expenses from 1 July 2015.
In essence the changes are to simplify the way the deductions are claimed by removing two of the methods previously used. Additionally, the Cents per kilometre method is now reduced to 66c per kilometre and capped at 5,000 business kilometres.
What this means for you
If you currently use the ‘12% of original value method’ or the ‘one third of actual expenses method’ you must now either:
keep a log book for a period of 12 weeks or;
use the Cents per kilometre method
James Bond is a very busy employee at ‘Military Intelligence 6 (MI6). He isn’t the best at keeping paperwork and drives an Aston Martin which he travels roughly 6,000km per year for business.
In the past his accountant has calculated that the best method for James to be the 12% of original value method. This gives James a deduction of $6,895 per year and suits him because he hasn’t had to spend time keeping a log book or hanging on to receipts.
Total KM: 15,000
Business KM: 6,000
Business Percentage: 40 %
Total Expenses: $13,000
Current methods of calculation
Cents per KM
1/3rd Actual Expenses
12% Original Value
(77c x 5,000KM)
(Capped at $57,466)
With the proposed changes they have removed the 1/3rd method and 12% method. In addition, the cents per km rate has been lowered to 66c per km. His accountant hasn’t advised him of the proposed changes and as such he hasn’t kept a log book.
James is now forced to use the ‘Cents per kilometre’ method which equates to $3,300 (5,000km x 66c). Therefore his deductible amount has decreased by $3,595!
What you need to do
Speak with MMT Accountants + Advisers and ask them about the proposed changes and how it will affect you. It may be worthwhile to keep a logbook which is only for a continuous period of 12 weeks and lasts for 5 years. You can read more about the logbook method here: ATO: Keeping a logbook
Before you register a business name with ASIC, there are a number of things you should consider in your planning.
Below are a few questions you will need to ask yourself before you start the registration process.
Do I need a business name?
Generally, you will need to register a business name with us if you carry on a business or trade within Australia and you are not trading under your own name.
– you are operating as an individual and your operating name is the same as your first name and surname
– you are in a partnership and your operating name is the same as all of the partners’ names, or
– you are an already registered Australian company and your operating name is the same as your company’s name.
Okay, I need to register a business name but does it protect my name from being used by someone else?
Registering a business name with ASIC does NOT provide exclusive ownership of your business name. The process of registering a business name is a legal obligation if you carry on or trade in Australia. Also, registering a business name will not prevent the name being used by somebody who has registered it as a trademark. This is an important point – and one that every business owner should be aware of.
So how do I protect my business name?
Generally, the only way to gain exclusivity over a particular business name is to register it as a trade mark with IP Australia.
To assist new business start-ups, IP Australia has developed a new simplified online trademark search, called TM Check where you can search for existing trademarks to ensure your business name does not infringe on an existing registered trademark.
What information do I need to register a business name?
During the application process you will need to provide your ABN, individual and birth details, an email address, a residential address and an address for the service of documents.
What are the steps to register a business name?
Step 1: Go to ASIC Connect and log in to your account. When you log in for the first time, you will be prompted to add any existing business names to your account. Select ‘No’ and then’Licenses and Registrations’.
In a recent speech, Small Business Minister Bruce Bilson stated that a lot of his time talking about the $20,000 immediate deductionfor small business was convincing people it was not a hand out.
“I have spent a lot of my time explaining that asset write-off mechanisms aren’t grants, they are not gifts, they are not cash backs. They are a way of expensing a purchase in an asset that can contribute to a functioning business. Now, if you are not making any income there is not a huge benefit in you being able to write-off additional expenses at a faster rate.”
Here are some of the common questions we are asked to help clear confusion.
If I spend $20,000 how much will I get back?
The instant asset write off is a tax deduction that reduces the amount of tax your business has to pay. It enables small business entities (businesses with annual aggregated turnover below $2 million) to claim a deduction for depreciating assets of less than $20,000 in the year the asset was purchased and used (or installed ready to use). For example, if your business is in a company structure the most you will ‘get back’ (reduce your tax by) is 30% (in 2014-15) or 28.5% (in 2015-16) of the cost of the asset. If the business made a $19,000 purchase in June 2015, the most the business would reduce its tax bill by is $5,400. It’s a much better deal than the previous $1,000 immediate deduction limit but there are still cash flow issues for the business that need to be considered. Remember also that the business would have been able to deduct the purchase anyway, just over a longer period of time.
If I signed a contract before Budget night but didn’t pay for the asset or receive it until after the Budget, can I still claim the deduction?
To be able to claim the immediate deduction, you had to “acquire” the asset on or after 7.30 pm AEST on Budget night (12 May 2015) and use it (or install it ready for use) before 30 June 2017.
Contracts are often tricky because the date you acquired the asset really depends on what the contract says and how it’s structured. Generally, if you signed the contract before Budget night and the contract made you the owner of the asset, then the asset would not qualify for the $20k immediate deduction.
We’ve invested in new equipment for just under $18,000. How soon can we claim the immediate deduction?
‘Immediate deduction’ is a bit of a misnomer. Immediate in this context means that your business can claim a tax deduction for the asset in the same income year that the asset was purchased and used (or installed ready for use). The deduction is claimed on the business’s tax return.
Requiring the asset to be used or installed ready to use is an interesting catch. It means that businesses cannot stockpile assets and claim the immediate deduction for those assets. For example, if arestaurant business bought three ovens in June 2015, those ovens would need to be in use or installed ready to be used before the tax deduction could be claimed. If only one oven was used or installed before the end of the financial year, then the business could only claim the immediate deduction for one oven in their tax return. Assuming the other ovens are used before 30 July 2017, the immediate deduction could be claimed in the year they were first used or installed ready for use on the business’s tax return.
Can I buy multiple items and claim theimmediate deduction even though the total being claimed is more than $20,000?
Yes. As long as you acquired the asset on or after 7.30 pm AEST on Budget night (12 May 2015) and use it (or install it ready for use) before 30 June 2017, then an immediate deduction should be available if each individual item costs less than $20,000.
Don’t forget about the cash flow implications. Depending on when you purchase the assets it might be another year before you can claim the deduction.
What sorts of assets can I claim an immediate deduction for?
To be able to claim the $20,000 immediate deduction, the asset needs to be a depreciating asset. A depreciating asset is an asset whose value you expect to decline over time. Examples include computers, furniture, and motor vehicles. So, no investmentassets.
We’ve had some very interesting questions from people wanting to know what they can and can’t claim the immediate deduction for. Take artwork being advertised by a local art gallery. The gallery tells you that your business can buy anything up to $20,000 and claim an immediate deduction for it. Is this correct? The answer is, it depends.
There has to be a connection between the artwork and your business for it to be a depreciating asset. For example, the artwork could be displayed in your office reception or waiting area.
The Tax Office says that the life of an artwork for tax purposes is 100 years. So, deducting the artwork immediately is a big tax bonus.
The same principle applies to items that relate to an existing asset, like machinery. If what you are purchasing qualifies as a depreciating asset in it’s own right, then you can claim it.
Whatever the asset is, the same principles apply. Your business needs to qualify as a small business entity, the asset needs to be purchased and used (or installed) after Budget night and before 30 June 2017, the asset must cost less than $20,000, and the asset must be a depreciating asset. Not everything will qualify.
How many hours are you putting into your business weekly? 40? 50? 60? 70-hour weeks? Sometimes even 80-hour weeks don’t feel like they’re enough to tackle the enormous to-do list you’re facing.
There’s a quote that says, “Entrepreneurship is living a few years of your life like most people won’t so you can spend the rest of your life like most people can’t”. Put simply, put the hard yards in now and reap the rewards later.
Here’s something I tell my 100+ business coaching clients that may surprise you. “Take a holiday”.
You’re probably thinking the same thing they do. “What? But I’m busy enough as it is – things will fall over if I go away! How will I get stuff done?!”
I’m not saying you need to go during your busiest period, or that it needs to be six months in France. But trust me when I tell you that a few days away from the business will actually improve it.
Here’s 5 reasons to take a holiday right now
You get the space to think. It’s very easy to get caught up in your everyday tasks when you’re at the office. Your brain is only focussed on what needs to be done. But the important thinking – the pie-in-the-sky, big picture thinking that will improve your business – needs a bit of head room. Plonk yourself next to a pool, turn your phone off and let the thinking begin. Where do you want your business to be in 5 years? 10? How are you going to get it there? What steps and direction do you need to take?
You get time to read. Pack those books that have been gathering dust on your bedside table. Finally read those business blogs you’ve been dying to read. Try Sam Hazledine’s Unfair Fight or Richard Branson’s Losing My Virginity. Be inspired by the stories of other people’s success.
You get some perspective. What’s your biggest problem in business right now? Are your overheads skyrocketing? Your team morale is low? Your latest product has been a bit of a flop? Sometimes in business you need to get out of the forest to see the trees. On a holiday you can remove yourself from the situation and give yourself some time to mull. You may just find the root cause of your business troubles. The answers will come.
Holiday mode makes you creative. Escape from routine, new sights, smells, experiences, and culture can all instigate change. It boils up to a new perspective, which brings new ideas and creative solutions and innovations.
It recharges your batteries. Most people can’t sustain 60 to 80-hour work weeks for long. Yes, the body will keep going, but you won’t be operating at the top of your game. Plus, you need to be refreshed on your return from holiday in order to implement all the amazing business ideas you’ve had!
There has been a lot of negative conversation about negative gearing lately. But, if you are currently negative gearing your investment property, should you be concerned?
Negative gearing is when you claim more in deductions than you earn for an income producing asset that you have purchased using debt. It is not limited to property, you can for example negatively gear shares, but property is the dominant negatively geared asset claimed by Australians.
The latest Taxation Statistics show that we claimed $22.5 bn in rental interest deductions in 2012-13 against gross rental income of $36.6 bn. While these statistics are not as bad as previous years because of the low cost of borrowing ($1.6 bn less than 2011-12), it’s more than the total Defence budget in 2013-14 at $22.1 bn.
The use of these property deductions does not vary widely across income ranges – that is, it’s not just those on the highest income bracket using negative gearing. The highest proportional losses were experienced by those with incomes (net of the rental loss) between $55,001 and $80,000, where deductions exceeded rental income by more than 28%. Negative gearing makes owning an investment property accessible to those who potentially would not invest for the long term gain in property value alone.
The Reserve Bank has stated that the ‘hot’ property market, particularly in Sydney, is because “Investor demand continues to drive housing and mortgage markets, with low interest rates and strong competition among lenders translating into robust growth in investor lending.” In NSW, lending to investors now accounts for almost half of the value of all housing loan approvals. Demand drives price.
The tax policy experts we canvassed generally held the view that negative gearing distorts the market and – in combination with the CGT discount – provides considerable and unnecessary tax advantages to those who least need them. To quote one, “[Negative gearing] is a uniquely Australian phenomenon (no other country is so generous) and I would abolish it (and the CGT discount) immediately (and not be so generous as to grandfather existing owners). The suggestion that its (temporary) abolition in the early 1990s led to an increase in rent was based on spurious and incomplete evidence. More relevant research has subsequently debunked the suggestion that the spike that happened in Sydney house prices had little to do with the abolition and a lot more to do with other, unrelated market forces.”
At present, the Government and property investors want to keep negative gearing. It’s a lonely policy position.
The Government Tax White Paper is due out later this year and may provide a better indication of any potential risk for investment property owners. But, negative gearing is not something to bank on as a long term strategy. It’s just a question of which Government will have the support to remove it.
Friends, family and holiday homes
If you have a rental property in a known holiday location, chances are the ATO is looking closely at what you are claiming. If you rent out your holiday home, you can only claim expenses for the property based on the time the property was rented out or genuinely available for rent.
If you, your relatives or friends use the property for free or at a reduced rent, it is unlikely to be genuinely available for rent and as a result, this may reduce the deductions available. It’s a tricky balance particularly when you are only allowing friends or relatives to use the property in the down time when renting it out is unlikely.
A property is more likely to be considered unavailable if it is not advertised widely, is located somewhere unappealing or difficult to access, and the rental conditions – price, no children clause, references for short terms stays, etc., – make it unappealing and uncompetitive.
Repairs or maintenance?
Deductions claimed for repairs and maintenance is an area that the Tax Office is looking very closely at so it’s important to understand the rules. An area of major confusion is the difference between repairs and maintenance, and capital works. While repairs and maintenance can be claimed immediately, the deduction for capital works is generally spread over a number of years.
Repairs must relate directly to the wear and tear resulting from the property being rented out. This generally involves a replacement or renewal of a worn out or broken part – for example, replacing damaged palings of a fence or fixing a broken toilet.
The following expenses will not qualify as deductible repairs, but are capital:
– Replacement of an entire structure (for example, a complete fence, a new hot water system, oven, etc.
– Improvements and extensions
Also remember that any repairs and maintenance undertaken to fix problems that existed at the time the property was purchased are not deductible.
Travel expenses to see your property
If you fly to inspect your rental property, stay overnight, and return home the following day, all of the airfares and accommodation expenses would generally be allowed as a deduction. Where travel is combined with a holiday, your travel expenses need to be apportioned. If the main purpose of the trip is to have a holiday and the inspection is incidental, a deduction for travel is not allowed. In these circumstances you can only claim a deduction for the direct costs involved in inspecting the property such as the cost of taking a taxi to see the property and a proportion of your accommodation expenses.
If you drive a car to and from your rental property to collect rent or for inspections, you can claim your car expenses. Just keep in mind that you need to be able to prove that you needed to visit the property.
Redrawing on your loan
The interest component of your investment property loan is generally deductible. Take care if you have made redraws on your investment loan for personal purposes. A portion of the loan may be non-deductible.
You are able to claim a deduction for borrowing costs over 5 years such as application fees, mortgage registration and filing, mortgage broker fees, stamp duty on mortgage, title search fee, valuation fee, mortgage insurance and legals on the loan. Life insurance to pay the loan on death is not deductible even if taking out the insurance was a requirement to get finance. If the loan is repaid early or refinanced, the whole amount including mortgage discharge expenses and penalty interest become deductible.
Why using the 20k Budget tax deduction might be the wrong decision
So, your business has a turnover under $2 million and you want to know how to use the $20,000 immediate tax deduction that’s been all over the news?
Before you start spending, there are a few things you need to know.
Does your business make a profit?
Deductions are only useful to offset against tax. If your business makes a loss then a tax deduction is of limited benefit because you’re not paying any tax. Losses can often be carried forward into future years but you lose the benefit of the immediate deduction.
Small businesses with a turnover of $2m or below make up 97.5% of all Australian businesses. The latest Australian Taxation Office (ATO) statistics show that well under half of these businesses paid net tax. That means that the $20,000 instant asset write-off is useful to less than half of the Australian small businesses targeted.
So, if your business makes a loss and you start spending to take advantage of the immediate deduction, all you are likely to do is to increase the size of your losses with no corresponding offset..
Cashflow is more important than an immediate deduction. Assuming your business qualifies for the deduction, the most important consideration is your cashflow. If there are purchases and equipment that your business needs, that equipment has an immediate benefit to the business, and your cashflow supports the purchase, then go ahead and spend the money. The $20,000 immediate deduction applies as many times as you like so you can use it for multiple individual purchases.
But, your business still needs to fund the purchase for a period of time until you can claim the tax deduction and then, the deduction is only a portion of the purchase price.
Let’s take the example of a small bakery. The bakery is in a company structure and has a taxable income for 2014/2015 of $49,545. The owner purchases a new $13,750 oven on 2 June 2015 and installs it straight away. The cost of the oven is claimed in the bakery’s 2014/2015 tax return resulting in a tax deduction of $13,750.
So, for the $13,750 spent on the oven, $4,125 is returned as a reduction of the company’s tax liability (i.e., 30% company tax rate in the 2015 income year). For the bakery, they need the cashflow to support the $13,750 purchase until the businesses tax return is lodged after the end of the financial year. With the $4,125 reduction of the company’s tax liability, the business has fully funded the remaining $9,625.
From 1 July 2015, the bakery would also receive the small business company tax cut of 1.5%. If the business also had taxable income of $49,545 in the 2016 income year, the tax cut would provide a reduction of $743.
It’s important not to rely on the advice of the person you are purchasing from. There is a lot of misinformation out there in the market right now and it’s important to know how the concessions apply to you.
Is your business eligible
To use the instant asset write-off, your business needs to be eligible. The first test is that you have to be a business – not just holding assets for investment purposes.
The second is the aggregated turnover of your business needs to be below $2m. Aggregated turnover is the annual turnover of the business plus the annual turnover of any “affiliates” or “connected entities”. The aggregation rules are there to prevent businesses splitting their activities to access the concessions. Another entity is connected with you if:
You control or are controlled by that entity; or
Both you and that entity are controlled by the same third entity.
What has changed?
In general, a deduction is available for purchases your business makes. What has changed for small businesses under $2m turnover is the speed at which they can claim a deduction. Before the Budget announcement, small business could immediately deduct business assets costing less than $1,000. On Budget night, the Treasurer announced that the threshold for the immediate deduction will increase to $20,000 at 7.30pm, 12 May 2015 for small businesses with an aggregated turnover less than $2 million. The increased threshold is intended to apply until 30 June 2017.
For small business, assets above $20,000 can be allocated to a pool and depreciated at a rate of 15% in the first year and 30% for each year thereafter.
If your business is registered for GST, the cost of the asset needs to be less $20,000 after the GST credits that can be claimed by the business have been subtracted from the purchase price. If your business is not registered for GST, it is the GST inclusive amount.
How do I make the most of the immediate deduction?
There are a few tricks to applying the instant asset-write off:
Second hand goods are ok
It does not matter if the asset you are buying for your business is new or second hand. So, you could still claim the deduction on say, second hand machinery you have bought.
What is not included
There are a number of assets that don’t qualify for the instant asset write off as they have their own set of rules. These include horticultural plants, capital works (building construction costs etc.), assets leased to another party on a depreciating asset lease, etc.
Also, you need to be sure that there is a relationship between the asset purchased by the business and how the business generates income. For example, four big screen televisions are unlikely to be deductible for a plumbing business.
Assets must be ready to use
If you use the $20,000 immediate deduction, you have to start using the asset in the financial year you purchased it (or have it installed ready for use). This prevents business operators from stockpiling purchases and claiming tax deductions for goods they have no intention of using in the short term.
Business and personal use
Where you use an asset for mixed business and personal use, the tax deduction can only be claimed on the business percentage. So, if you buy an $18,000 second hand car and use it 80% for business and 20% for personal use, only $14,400 of the $18,000 can be claimed.