Pride & Prejudice: Top Four Predictions for 2017

The global economy is picking up and Australia is about to secure the global record for the longest period a country has gone without a recession. But with the focus on the political environment, there is an uneasiness in the market and with uneasiness comes a reticence to take risks.

The fortunes of Australians this year will have much to do with how you or your business is positioned and how you respond to challenges.

Here are our top predictions:

Trumponomics will impact on our region

Business is business – either an opportunity makes sense or it doesn’t. The biggest pressure from the new US President is unlikely to be the much discussed Trans-Pacific Partnership (Australia’s current Free Trade Agreement with the US (AUSFTA) has been in place since 2005), or President Trump’s controversial immigration policies, but the plan to cut the US Federal company tax rate from 35% to boost competitiveness. If the US drops its company tax rate below 30%, Australia will be the one of the most expensive countries in its region to do business and globally uncompetitive. The 2016-17 Federal Budget announcement to reduce Australia’s company tax rate progressively to 25% for all businesses has stalled in the Parliament with voter perception that it is a gift to ‘big business’ at the expense of more deserving elements of the community.

The US is Australia’s second largest two-way trading partner at around $69 billion and our third largest export market at $22 billion* (we import around $47 billion in US goods and services). Australia’s trade relationship with China however swamps this volume with $150 billion in two-way trade of which almost $86 billion is in exports. These trade statistics are important to remember when we look at the geopolitical landscape of the Asia-Pacific region and in particular the increasingly antagonistic relationship between the United States and China.

Australia is too small an economy to successfully survive on its domestic market alone. Strong regional alliances and competitiveness are critical.

For business: Innovate or Perish

Economists widely predict that residential construction and exports – the mainstay of Australia’s domestic economic growth – will slow in 2017. Part of this is the Chinese Government’s concern about investment outflows (Australia has been a significant beneficiary with Chinese Direct Foreign Investment growing by 72.5% over 2010-15). So, where is growth going to come from?

One of the most alarming statistics comes from the Boston Consulting Group Global Manufacturing Cost-Competitiveness Index.

Advances in technology in particular will make some operators unsustainable and give others the capacity to change the very nature of their sector either through production efficiencies or disruption. After all, tech company Uber started in 2009, spreading exponentially around the world well before it launched in Australia in 2014. Real Estate Agents may be next with companies like Purplebricks.

The bottom line is that you cannot rely on the stability of your business model to sustain over time.

For you: Superannuation knee-jerk reactions will disadvantage some

2017 will be a watershed year for superannuation in Australia. With many of the reforms coming into effect on 1 July 2017, there will be a temptation for many to ‘do something’ before the deadline.

The biggest impact of the reforms is likely to be on those with large super balances close to or exceeding $1.6 million. And, it’s not just the wealthy with large super balances. Many SME business operators utilise the business real property exception to hold their business premises inside their SMSF, which can significantly increase the asset value of the fund. For anyone close to or exceeding the $1.6m cap, it’s essential that you have current valuations for your assets to know exactly where you stand.

One of the key decision points for those with large balances is how Capital Gains Tax applies where assets supporting pension payments exceed the new $1.6m pension transfer limits and need to be moved back into accumulation phase.

Knee-jerk reactions to the management of your fund’s assets – like quickly selling assets pre 1 July – may result in your fund being in a much worse position. With the risk of sounding conflicted, good advice is essential.

International is still a dirty word

If you are an individual or a business that transfers money internationally, you will continue to be a target. For individuals, if you work overseas be careful of residency issues. The residency tests don’t necessarily work on ‘common sense’. Just because you work outside of Australia for a period of time does not mean you are not a resident for tax purposes. And, for those with international investments, it’s important to understand the tax status of earnings from those assets. Just because the asset and the earnings from those assets are overseas does not mean they are safe from Australian tax law, even if the cash stays outside Australia.

Innovation

The BCG analysis demonstrates that Australia was the least competitive of the top 25 global manufacturers between 2004-14 – Australia’s direct manufacturing costs, for example, were just under 30% higher than the US. Manufacturing wages grew 48% in Australia over this period while labour productivity fell 1%. While this was a period of abnormal events with the mining boom, the Australian dollar at parity with the US, and a GFC, it still creates a stark picture of why a focus on productivity is important.

Over the last two decades we have seen a global trend towards offshoring to reduce labour costs to achieve productivity gains. Now, gains are being achieved through innovation to reduce costs. This is an area where Government policy is there to support business. These incentives include:-

– Small business rollover relief that removes the tax impediments associated with changing your business structure.
– Tax incentives for investors in early stage innovation companies.
– Broadened tax incentives for early stage venture capital limited partnerships and venture capital limited partnerships.
– More generous employee share scheme arrangements particularly for high growth start-ups.
– Immediate deductions for start-up businesses.
– Reduced company tax rates for small businesses.
– Plus there is also the R&D incentives for innovative companies.

For survival, all business operators need to look at the trends in their industry.

For business, Government regulation is increasingly cynical about those using low taxing jurisdictions, paying large management fees between international entities, and parking large debts in Australian entities.

Like every other tax authority, the Australian Tax Office wants its share of profits earned from Australian consumers. You can see this trend in the new GST rules (dubbed the ‘Netflix tax’) which come into effect on 1 July 2017 – although for many the requirement for foreign entities to charge GST on services and digital products provided to Australian consumers has already come into effect. On the other hand, changes to the GST treatment of international transactions that apply from 1 October 2016 are intended to make life easier for both Australian and overseas businesses, but these rules can become quite complex to apply in real life.

No one likes uncertainty and 2017 is shaping up to be a year where people feel unsettled. Take a breath, think strategically, look beyond your personal experience, and take advantage of the opportunities that are available to you.

 

*2015-16 figures Austrade Why Australia Benchmark Report 2017.

Business structures and restructures: Is your structure working against you?

Many business owners don’t realise that the business has outgrown its structure until something comes up – and this something is usually something negative.

Are your assets at risk?

Legal action by employees, customers and suppliers as well as divorce are the two primary risk issues for many business operators. If you have been operating as a sole trade or as a partner in a partnership or have simply been holding all business assets in a single entity, your structure may not provide sufficient asset protection. If any personal assets or valuable assets of the business are held in the same entity which carries on the trading operations of the business, those assets may be at risk. To protect your assets it is generally preferable to separate as many valuable assets as possible from the trading operations.

Can you introduce new business partners or investors?

If you want to provide key employees or investors with an equity interest in your business, your current business structure may not allow for this. For example, it is not generally possible to provide fixed entitlements to the profits of a business operated by a discretionary trust.

Entities such as companies and unit trusts are a much more effective vehicle to facilitate the introduction of new equity partners as they can provide a fixed interest in the income and capital gains generated by the business. New investors can also potentially claim interest deductions on funds borrowed to invest in the company or unit trust.

Reinvesting in growth

Reinvesting profits in your business is important if you have or expect a strong growth path. Some business structures however don’t readily facilitate profits being retained by the business. For example, it is generally more difficult for a trust to retain profits, as the trustee of a trust is taxed on these profits at penalty tax rates if they are not distributed to the beneficiaries of the trust each year. This is compared to private companies where profits are taxed at a maximum rate of 30% or 28.5% and can be retained in the company without the need to distribute these profits annually.

Can you take money out of the business?

When you first established your business, it’s hard to know what your profits are going to be and for many, there are a few lean years of losses to get things up and running. Your personal circumstances might have changed as well – marriage, children, a spouse, etc. These changes can drive the need for change. The structure of your business has a direct impact on how money flows through it to the investors. For example, one of the benefits of a discretionary trust is that the income of the trust can be distributed to any of the beneficiaries of the trust in any proportion, and that proportion can change annually.

Impeding international expansion

If you are contemplating expanding overseas this can significantly increase the complexity of your operations. All of a sudden you will be exposed to a new set of Australian tax rules in addition to the legal and regulatory requirements that will need to be considered in the foreign jurisdiction. On top of the complexity, control may also become an issue. The right business structure can limit your exposure to risk.

Access to tax incentives and concessions

Research & Development (R&D) concessions are only available to companies. If you have a significant level of R&D activity that could potentially qualify for the tax incentives, it’s worth exploring your options if you are not already in a company structure.

Can you exit your business?

The business lifecycle has shortened considerably with less business owners seeking to create empires but more opportunistic business models. The wrong structure will limit your ability to sell your business interests and may have a dramatic and detrimental impact on the amount of tax you pay on the sale proceeds. It’s important that you explore this issue well before you actually plan to sell or reduce your stake in the business.

Is your business structure working for you? Contact MMT Accountants + Advisers to discuss whether your structure is right for long term goals.

Growing to Death

 

Most people are not surprised when a start up business fails. But it’s not just start ups that grow to death; it’s also a common cause of business failure for mature businesses.

Start-up businesses often fail because they are undercapitalised. They grow until the money runs out and then they can’t afford to fund further growth. The banks refuse to lend to them as they have no history and no assets to leverage, and then they die. It’s an easy trap to fall into. The entrepreneurial spirit that drives people to start up a business is often the same spirit that keeps them focussed on a growth path. The mentality is that the faster you drive sales and bring in the cash, the more successful the business (and the entrepreneur) will be. However, this cycle of sales and profit is missing two key components; financial, and cash flow management. A successful and sustaining business has all of these elements.

For the more mature business, growing to death is often the result of unplanned growth opportunities. It’s ironic that seizing a major sales contract or a big new client can be your business’s ruin but it’s more common than you think. More often than not it’s an issue that business operators don’t identify until it is too late.

Many business operators are very good at what they do. Most have an excellent knowledge of the business they conduct and understand their products and services. Most also have an in-depth knowledge of sales performance and revenue. Few however have a high level of financial management expertise, so when a big new opportunity presents, critical financial questions are not asked. As a result, there can be a sudden and unintended impact on their financial position. A rush of sales might be a great thing but it is not always counterbalanced by a rush of income and profit. Free cash and liquidity are the victims.

Big one-off opportunities can also be dangerous because they are rare. For businesses without strong financial management and control, there is simply no way of understanding what impact the opportunity will have until they have experienced it. With no background history to rely on, the warning signs of impending financial crisis don’t appear.

Sudden growth comes at a cost. That cost can be at a profit or at a cash flow level. Profit and cash flow are not the same and where operators don’t have a lot of financial expertise they generally rely on profit analysis without considering the cash flow implications. You need to understand the cash cycle and its timing within your business.

The first step is to understand that sudden change creates a different dynamic and brings cost and cash flow implications with it. It’s essential not to embark on sudden change without identifying what these implications are.

Let’s look at an example: Jonathon runs a typical small business. Since taking over the established business a year ago growth has accelerated. The primary product of the business is brought in from overseas. The business is predicated on a budgeted turnover of $70,000 – $100,000 per month. The working capital in place accommodates the business operating at this level which is already a step up from where it was when he bought it.

Jonathon knows the business has a lot of potential and he’s been working hard to fulfil its promise. He’s ecstatic because he’s brought in five major sales all within the $50,000 – $200,000 range and all expect delivery within the coming 3 months. While the big sales required a dip in the gross profit margin, it’s still doable.

If all of the orders come through, the impact of the new sales will take his turnover from its current level of $100,000 per month to an average of $250,000 per month for the next 3 or 4 months. If you imagine yourself in Jonathon’s place, it would be hard not to be impressed with your efforts wouldn’t it? What a boost to the company.

Now add in another factor. The primary product is purchased from the supplier without trading terms so the outlay for any major sale is in advance. As a result, the cash flow implications of the time between each sale, the purchase of the product from the supplier, fulfilment and payment by the customer is critical to understand. For Jonathon, the highest risk is the major outlay of cash required to fulfil the sale. He cannot buy time.

When Jonathon had a cash flow analysis put in place to determine the impact of the new sales it revealed that he needed $200,000 to $300,000 more cash than he had. He knew it might be tight but didn’t realise the situation was that stark. As a result of the analysis, Jonathon was able to work with the customers to stage the orders and manage the cash flow requirements.

Had he fulfilled the sales without the analysis, he would have had a funding gap of approximately 60 days where he was exposed by $250,000 without the capital base to support him.

While the details might be different, situations like Jonathon’s are not uncommon. The problem is that unless you have strong security, the chance of any bank giving you an increase in funding is unlikely. Banks want to lend to businesses that have good financial management. If you approach them once a problem such as Jonathon’s has occurred, you have already proven the case in the negative and set yourself up for rejection.

In the example above, cash flow was the major issue. In others it is profit. Large customers with large orders may expect you to cut your margin. Or, they might ask you to discount if they ‘up the order’. The danger is that you, or your sales people, get carried away with the headline number and don’t look at the profit contribution. Some sales, even big sales are simply not worth it as you can’t trade below a certain profit level. For businesses with higher fixed costs your ability to negotiate your margin is less flexible than those with higher variable costs. The key is to know your break-even point before entering into any deals.

And, discounting can be its own trap. For example, if your margin is 40 per cent and you reduce your price by 10 per cent, you need a 33 per cent increase in sales volume to maintain your profit level!

The good news is we’re here to help and taking steps before these problems arise can help your business proposer.

Deadline looms for SMSFs and collectibles

Does your self-managed superannuation fund (SMSF) own a motor vehicle, artwork, wine, coins, jewellery, cars or other collectibles?

More stringent rules for how these collectible and personal use assets are managed come into effect for all funds from 30 June 2016. While it’s important for all SMSFs to ensure that they are compliant with the rules, funds with collectibles purchased before 1 July 2011 have had a grace period to get their house in order. This grace period ends on 30 June 2016.

There is around $407 million worth of these collectible and personal use assets sitting in SMSFs in Australia. The Tax Office’s main concern is that it’s really easy for fund members to forget that these assets – like artwork and cars – are owned by the fund and must be held for retirement purposes. That means members of the fund (or anyone related to them) can’t use or enjoy that asset.

If you have these assets in your fund (or are looking to acquire them), here’s what you need to ensure:

1. The asset must not be leased to a related party – a related party includes a member of the fund, their relatives, business partners, the spouse or child of these business partners), or any company or trust that the fund members control or influence.

2. The asset must not be stored in the private residence of the related party – this includes sheds and garages etc.

3. The trustees must keep a written record of where, how, and why the asset is to be stored.

4. The asset must be insured in the fund (trustees) name. If your SMSF is buying a collectible, insurance needs to be in place within the first seven days. If the fund already owns the asset it must be insured in the trustees name before 1 July 2016!

5. The asset must not be used by a related party. For example, if your fund owns a vintage car, you cannot drive it for any reason, not even to go to the mechanic.

6. If the asset is sold to a related party, the asset must be sold at a market price determined by a qualified and independent valuer.

A few issues come out of these requirements. Sometimes insurance is difficult or impossible to get for collectible assets. If you can’t secure insurance, the asset may need to be sold. If a collectible asset needs to be sold because the rules can’t be met, the sale process can sometimes be protracted – this could be an issue if you need to sell the asset pre 30 June.

Before your fund acquires a collectible asset, it’s also important to ensure that the fund Trust Deed allows for collectibles to be acquired, the Investment Strategy of the fund allows for the collectible to be acquired, and that the sole purpose of acquiring the collectible is to provide retirement benefits for members.

What is a collectible and personal use asset?

The definition of a collectible is quite broad and will often capture assets that many fund members don’t realise qualify as collectibles.

A common example is motor vehicles. The definition of a collectible includes motor vehicles such as utes, not just classic cars that are generally considered collectors items.

When the Tax Office talks about collectibles, they mean:

– artwork – including paintings, sculptures, drawings, engravings and photographs;
– jewellery;
– antiques;
– artefacts;
– coins, medallions or bank notes (coins and banknotes are collectables if their value exceeds their face value, and bullion coins are collectables if their – value exceeds their face value and they are traded at a price above the spot price of their metal content);
– postage stamps or first-day covers;
– rare folios, manuscripts or books;
– memorabilia;
– wine or spirits;
– motor vehicles and motorcycles;
– recreational boats; and,
– memberships of sporting or social clubs.

If you have any questions about the above please contact your MMT Adviser on 9930-6100.

Ups & Downs: Managing in uncertain times

 

How do you create certainty in uncertain times? Much of what we do personally to grow and protect our wealth, and commercially for the businesses we manage is subject to unpredictability and change.

The answer is that there are no certainties in life – sorry about that. But, this doesn’t mean that you can’t take charge and protect against uncertainty – you just need to know where and how to look at it.

Where we are at

Government spending will continue to be a focus this year with the interest on Government debt now running at $1 billion per month according to Treasury. There are only a few ways the Government has of dealing with the increasingly ominous debt trend; initiatives to lift productivity and growth to boost tax revenues, spending cuts, and increased taxes or a reduction in tax concessions. This year, for you personally, your SMSF, and your business, you should keep this in mind when trying to manage change as Government policy is likely to provide both opportunities and risks in the short and long term.

For you

Your wealth

In the last 9 months, we have seen a huge drop in the value of equity markets, especially here in Australia. The All Ordinaries Index sat at close to 5,955 points at the end of April 2015. As at 21 January 2016, the index was 4,896 points. A drop of over 1,000 points or close to 18%.

It’s a volatile market and difficult to know what to do beyond “don’t panic.” Most of the leading economists are predicting continued growth despite the market being easily spooked. It’s important to know your individual position and the likely impact of change on you – investing vs paying down the mortgage, different investment types, SMSF vs retail funds. Reacting with the crowd to change is never a good idea. If you haven’t already, talk to one of our advisers about your options.

Also bear in mind the impact of Government policy. Negative gearing currently costs more than Australia’s defence budget. It’s likely to be cut back or grandfathered out of existence at some point.

Got kids?

The reforms to social welfare in the last few Federal Budgets didn’t quite make it through the Senate in full. But, times have changed and Palmer United is no longer the Senate ‘king pin’ it once was – directing traffic on Government policy and social reform.

One change that did pass Parliament was the ‘no jab, no pay’ reforms. From 1 January 2016, if your kids are not immunised then your family is no longer eligible for subsidised childcare or the Family Tax Benefit Part A end of year supplement.

Extensive reforms introduced to Parliament pre-Christmas will change the structure of childcare subsidies to consolidate the current system of multiple subsidies to just one. The new subsidy will be income and activity tested. While these reforms will not take effect until 2017 (assuming they pass Parliament) it’s important to understand that change is coming and it’s impact on you.

In general, if you currently receive family tax benefits and your household income is getting towards the upper threshold limits, you should do a quick check and see if you can still cover your expenses if any benefit payments you currently receive were removed. Further reforms to refocus benefits on lower income families are likely.

Work in the not-for profit sector or for hospitals or ambulance services?

From 1 April 2016, changes to salary sacrificed meal entertainment and entertainment facility leasing benefits come into effect. A single grossed-up cap of $5,000 will apply to these benefits from this date. Many people in these sectors benefit from these concessions so it’s important to check the changes and the implications to you.

Living outside of Australia?

From 1 January 2016, Family Tax Benefit A will be reduced for people outside of Australia. Families will only be able to receive FTB A for 6 weeks in a 12 month period while they are overseas.

Also, if you have a Higher Education Loan and live overseas for 6 months or more, from 1 January 2016 you will be required to make repayments of your HELP debt if your worldwide income exceeds the minimum repayment threshold at the same repayment rates as debtors in Australia.

Stocktake debt

Every so often it’s important to review what you’re spending money on and why. Debt is a big issue for most as we accumulate debt in different forms over time – home loans, investments, credit cards, etc. If this sounds like you, it’s almost guaranteed you are paying too much. It’s time to take stock and see what debt you have and if there is a way of getting a better deal.

Your Business

Look at the trends and opportunities

Many of the ‘dramatic’ changes that impact on mature business models – online retail vs traditional retailers, the shift from paper publishing to online publishing, the demise of packaged electronic products on shelves to download delivery, or for example, the impact of Uber on taxi services – were reasonably predictable. There were recognisable indicators for each of these changes well before they had a direct impact on Australian businesses. Online retailing existed decades before denting bricks and mortar retail sales in any recognisable way, and as soon as faster internet speeds enabled quicker downloads the packaging and B2B sale of most electronic product became unnecessary. Tech company Uber started in 2009, spreading exponentially around the world well before it launched in Australia in 2014. If anything Uber proves that the foundation of any industry can be shaken dramatically in less than a few years.

In many cases, these ‘disruptive’ businesses offered something to consumers not reliably fulfilled by the existing market – efficiency, access, range, and importantly, greater consumer control not just acceptance of what is on offer.

As business operators, it’s important to constantly assess the impact of trends on our current business and product range and work toward the ‘what ifs’.

Trends also exist in Government policy and can have a positive or negative effect on your business. At present, the Government is firmly focussed on boosting business productivity and investment.

There are a wide range of incentives to stimulate spending and the entrepreneurial spirit:

  • Crowd funding – funding is difficult for entrepreneurial start-up businesses in Australia. New frameworks are currently being developed to formalise crowd and other funding sources to encourage investment opportunities beyond bank finance.
  • Employee share schemes (ESS) – new rules introduced last year bolster the tax benefits for employees of ESSs and provide special concessions for start-ups. Further changes should follow shortly.
  • Accelerated depreciation – small business and primary producers can access a range of concessions that enable them to offset expenses in the same year as the expense – rather than depreciating the expense over time.
  • Tax relief for restructures – changes to be introduced this year should allow small business to change their business structure without the risk of triggering CGT and other income tax implications. So, it is a good time to check whether your structure is right for your long-term business plans.
  • Your Superannuation

    There is almost no doubt that the current raft of concessions available to superannuation will change. To lock in your access to the current concessions, you should focus on maximising the tax-free component of your superannuation. If you haven’t already, come and see us to have a chat as there are different strategies that can be utilised depending on your situation.

    SMSF and related party loans

    The ATO is looking closely at related party loans in SMSFs. If your fund has borrowed money from a related party, for example a member of the fund, to acquire an asset and the terms of that loan are not at arms length or well documented, then you need to get the paperwork and the loan terms in order a.s.a.p. While the ATO have stated that they are not necessarily looking at arrangements before the 2014-15 income year (unless it comes up in audit), you can expect a much closer scrutiny from now on.

    Super and Social Security

    The social security income test tightened on 1 January 2016 for superannuants. If you receive defined benefit income from your superannuation, a larger portion of this income will now be taken into account when applying the relevant social security income tests – capping the proportion of income that can be excluded at 10%. This affects aged care fees, income support payments, the Low Income Health Care Card, etc.

    Naughty or nice? Xmas tax checklist

    It’s that time of year again – what to do for the Christmas party for the team, customer gifts, gifts of appreciation for your favourite accountant (just kidding), etc., etc. Here are our top tips for a generous and tax effective Christmas season:

    For your business

    What to do for customers?

    The most effective way of sharing the Christmas joy with customers is not necessarily the most tax effective. If, for example, you take your client out or entertain them in any way, it’s not tax deductible and you can’t claim back the GST. There are specific rules designed to prevent deductions and GST credits from being claimed when the expenses relate to entertainment, regardless of whether there is an expectation of generating goodwill and increased business sales. Restaurants, a show, golf, and corporate race days all fall into the ‘entertainment’ category.

    However, if you send your customer a gift, then the gift is tax deductible as long as there is an expectation that the business will benefit (assuming the gift does not amount to entertainment). Even better, why don’t you deliver the gift yourself for your best customers and personally wish them a Merry Christmas. It will have a much bigger impact even if they are not available and the receptionist tells them you delivered the gift.

    From a marketing perspective, if your budget is tight, it’s better to focus on the customers you believe deliver the most value to your business than spending a small amount on every customer regardless of value. If you are going to invest in Christmas gifts then make it something people remember and appropriate to your business.

    You could also make a donation on behalf of your customers (where your business takes the tax deduction) or for your customers (where they receive the tax deduction). Donations to deductible gift recipients (DGRs) above $2 are tax deductible and can make an active difference to a cause (see For you below).

     

    What to do for your team?

    Christmas is expensive. Some businesses simply can’t afford to do much because cashflow is too tight. Expectations are high so if you are doing something then its best not to exacerbate cashflow problems and take advantage of any tax benefits or concessions you can. Let’s have a look at the impact of your options.

     

    Christmas parties
    If you really want to avoid tax on your work Christmas party then host it in the office on a workday. This way, Fringe Benefits Tax (FBT) is unlikely to apply regardless of how much you spend per person. Also, taxi travel that starts or finishes at an employee’s place of work is exempt from FBT. So, if you have a few team members that need to be loaded into a taxi after over indulging in Christmas cheer, the ride home is exempt from FBT.

    If your work Christmas party is out of the office, keep the cost of your celebrations below $300 per person. This way, you won’t pay FBT because anything below $300 per person is a minor benefit and exempt. Be careful though as the $300 includes all the costs of the event so meals, drinks, entertainment, etc.

    If the party is held somewhere other than your business premises then the taxi travel is taken to be a separate benefit from the party itself and any Christmas gifts you have provided. In theory, this means that if the cost of each item per person is below $300 then the gift, party and taxi travel can all be FBT-free. However, the total cost of all benefits provided to employees needs to be taken into account in determining whether the benefits are minor across the FBT year.

    Just remember that if entertainment is provided to employees and an FBT exemption applies, you will not be able to claim tax deductions or GST credits for the expenses.

    If your business hosts slightly more extravagant parties and goes above the $300 per person minor benefit limit, you will pay FBT but you can also claim a tax deduction for the cost of the event. Just bear in mind that deductions are only useful to offset against tax. So, if the business is paying no or limited amounts of tax, a tax deduction is not going to help offset the cost of the party.

     


    Christmas gifts for staff

    $300 is the minor benefit threshold for FBT so anything at or above this level will mean that your Christmas generosity will result in a gift to the Tax Office as well at a rate of 49%. To qualify as a minor benefit, gifts also have to be ad hoc – no monthly gym memberships or giving the one person multiple gift vouchers amounting to $300 or more.

    Gifts of cash from the business are treated as salary and wages – PAYG withholding is triggered and the amount is subject to the superannuation guarantee.

    Aside from the tax issues, think about what will be of value to your team. The most appreciated gift is the one that means something to the individual. Giving a bottle of wine to someone who doesn’t drink, chocolates to a health fanatic, or time off to someone with excess leave, isn’t going to garner much in the way of goodwill. A sincere personal message will often have a greater impact than a uniform gift.

     

    For you

    Spread the joy with charitable gifts

    I have a relative who doesn’t need or want anything material and who is very socially aware. This Christmas I am gifting her a well in a third world country. And, to make sure there is something to open at Christmas, I plan on packaging the donation in a drinking bottle. Assuming the gift is made through a deductible gift recipient (DGRs), then the donation of the well will be tax deductible – either for me or her – as it is the money equivalent of a well for projects of this type, not an actual well.

    If I had made a donation and received something for that donation like a toy or raffle ticket, then it would not be tax deductible.

    MMT Accountants + Advisers wishes you all a happy and safe Christmas and a prosperous 2016.

    Glenn Simpson Landscapes wins the LNA People’s Choice Award

    MMT Accountants + Advisers are pleased to see one of our valued clients doing so well.

    Glenn Simpson Landscapes recently won the People’s Choice Award for Commercial projects at the LNA Master Landscapers Association’s 2015 Excellence Awards!

    Glenn Simpson receives Award

    Sandstone work at Bateau Bay
    Sandstone work at Bateau Bay

    The Award was given for their outstanding job for the construction of the Shelly Beach Surf Life Saving Club Forecourt, Bateau Bay for Wyong Council.

    The Award was voted live on the night against a multitude of state wide entries and was selected by industry peers.

    “We are thrilled, humbled and honoured to have received this prestigious Award. Being selected by our industry peers made the Award even more meaningful for us.” – Glenn Simpson.

    The project comprised of bulk excavation and trimming, drainage works and storm water connections, sandstone log installation, concrete works for vehicle and pedestrian access, concrete walls and step installation, porous paving, beach showers, planting and turf installation, installation of solar lighting across three separated Areas and traffic control.

    Congratulations to Glenn and the team at Glenn Simpson Landscapes!

    Project Overview

    Congratulations to Glenn Simpson Landscapes!

    Glenn Simpson Landscapes wins the People’s Choice Award for Commercial projects at the LNA Master Landscapers Association’s 2015 Excellence Awards!

    GSL-LSAThe award was given for their outstanding job for the upgrade of the Shelly Beach Surf Life Saving Club Forecourt, Bateau Bay for Wyong Council. The award was voted live on the night against a multitude of state wide entries and was selected by industry peers.

    The project comprised of bulk excavation and trimming, drainage works and storm water connections, sandstone log installation, concrete works for vehicle and pedestrian access, concrete walls and step installation, porous paving, beach showers, planting and turf installation, installation of solar lighting across three separated Areas and traffic control.

    “We are thrilled, humbled and honoured to have received this prestigious Award. Being selected by our industry peers made the award even more meaningful for us.” Said Glenn Simpson
    MMT Accountants + Advisers are pleased to see Glenn Simpson Landscapes doing so well.

    Capital gains & property: The top questions and answers

    The thought of the Australian Tax Office (ATO) sharing up to 50% of any gain you make on an investment decision is enough to strike fear into the hearts of most people. Given Australia’s love affair with property, it is little wonder that we are often asked about the impact of capital gains tax (CGT) on property. This month, we explore the most frequently asked questions.

    In general, CGT applies to any change of ownership of a CGT asset, unless the asset was acquired before 20 September 1985 when the CGT rules first came into effect.

    Most questions about CGT on property are based on the main residence exemption that exempts your home (your main residence) from any CGT exposure when you sell the property.

     

    I jointly own an investment rental property with my elderly mother. Neither of us has ever lived in the property. We’ve recently updated our wills. The lawyer says that if Mum’s will gifts her half of the property to me then this ‘gift’ will not attract capital gains tax. Is this correct?

    Kind of. Tax law tends to work on the basis that if looks like a duck and walks like a duck then it’s a duck, not whatever your legal document calls it. Exposure to capital gains tax is a matter of fact and substance.

    If you inherit your mother’s share of the property, there would generally be no tax liability until you sell the property. What is important here is how the CGT is calculated when you ultimately sell.

    When the rental property transfers to you from your mother’s estate, the tax rules determine how CGT is calculated when you eventually sell. Basically, if the property was bought on or after 20 September 1985 then when you sell the property your taxable profit will be based on the original purchase price. That is, you will end up being taxed on the increase in value of the property since it was acquired, including the portion that accrued while your mother was still alive.

    In general, if you jointly own an investment property, your individual exposure to CGT will depend on how the property is owned. If the property is held as tenants in common then any CGT exposure is in line with your ownership interest. For example, in your case, it is 50% owned by your mother and 50% by you but different people can own different ownership interests. If the property is owned as joint tenants then any CGT exposure is equally shared by the owners.

     

    I bought a house in 2000, and lived in it until 2003. I was posted overseas with my job between 2003 and 2011. During that time my brother lived in the house rent free – he just paid for utilities. In 2011 to 2012, I rented the house out (no one I knew). I moved back into the property in 2012 and have just sold the house. Do I have to pay capital gains tax on the property?

    The capital gains tax rules are more understanding about how people live their lives than other laws and in some circumstances allow you to continue to treat your home as your main residence even if you are not actually living in it.

    While you are away overseas, if you leave the property vacant or let a friend or relative live in the property rent-free, assuming you do not claim any other property as your main residence, then you can continue to treat the property as your main residence for CGT purposes indefinitely.

    If you rent the property out while you are away, the tax laws allow you to still claim the property as your main residence as long as the period you rent it for is not more than a total of 6 years. This 6 year period can actually be reset by moving back into the property again.

    Effectively, you can move out and move back in as many times as you like and still claim the property as your main residence as long as it is your only main residence during that time and if you are renting it out, you do not rent it out for more than a total of 6 years across the period you are claiming the property as your main residence.

    During the rental period you can also claim deductions against the rent, even though the property might still be exempt from CGT during this period.

     

    I bought a property in 2008 and expected to move in straight away, but there were tenants still in the property and their lease still had 8 months to go. I waited for the lease to expire and then moved in. I have lived there ever since and plan to sell later this year. Can you just confirm that I would still qualify for a full CGT exemption on the sale as the property has significantly increased in value?

    This is a very common situation but is probably overlooked much of the time. Unfortunately, you would not qualify for a full exemption in this case.

    The main residence rules allow you to treat a property as if it has been your main residence since settlement date as long as you actually move into the property as soon as practicable after settlement. This is intended to cover situations where there is some delay in moving into the property due to illness or some other “reasonable cause”. The ATO’s view is that this rule cannot apply if you are waiting for existing tenants to vacate the property.

    This means that you would only qualify for a partial exemption under the main residence rules. We will need to calculate your gross capital gain and then apportion it to reflect the period of time when it was actually your main residence (i.e., from when you actually moved in).

    As long as you are a resident of Australia and have owned the property for more than 12 months we can also apply the 50% CGT discount to reduce the leftover capital gain.

    It will be important in this case to gather as much evidence as possible of non-deductible costs that you have paid in relation to the property such as stamp duty, legal fees, commission paid to real estate agents, interest, rates, insurance, etc. This will help to reduce the gross capital gain that is subject to tax.

     

    If you have any questions about Capital Gains Tax and what it means in your personal situation, please don’t hesitate to call MMT Accountants + Advisers on  02 9930-6100.

    Political Leadership Change: What it means for your small business

    The top job has been once again changed mid-term meaning Australia has now seen six leadership changes in the last eight years! It is alarming to think John Howard was our last leader to serve a full term.

    Like in any business, a change of the top dog can be a good thing or a bad thing. It can inspire confidence and creativity in the leadership team or it can create an environment of unease and resentment. Under Turnbull however, what does it mean for Small Businesses? Small Businesses do of course account for almost half of employment in the private sector.

    “The Australia of the future has to be a nation that is agile, that is innovative, that is creative. We can’t be defensive, we can’t future-proof ourselves. We have to recognise that the disruption that we see driven by technology, the volatility in change, is our friend if we are agile and smart enough to take advantage of it. There has never been a more exciting time to be alive.” Turnbull said.

    Turnbull has used similar language when talking at tech-start up conferences. Tech start-up companies are of course close to Turnbull’s heart, previously acting as chairman of ISP OzEmail and later selling his $500,000 stake in the business for a cool $57,000,000 (in only three years).

    It would appear then that start-ups, not small businesses may be favoured by Mal and while it’s a little early to determine how Abbott’s economic policies which included generous small business tax incentives, will change under Turnbull. Already we are seeing a welcoming of the leadership change by businesses which should inspire business confidence.

    Aussie entrepreneur Dick Smith seems to think so, “He’s a successful business man and I like the fact he’s middle of the road,” Smith says.
    It is no secret that businesses need a clear vision for the economic future and plan on getting there (an area where Abbott failed).

    “We need to have in this country, and we will have now, an economic vision, a leadership that explains the great challenges and opportunities that we face, that describes the way in which we can handle those challenges, seize those opportunities, and does so in a manner that the Australian people understand so that we are seeking to persuade rather than seeking to lecture,” Turnbull said.

    Turnbull went on to say that, “The culture of our leadership is going to be one that is thoroughly consultative, a traditional thoroughly traditional Cabinet government that ensures that we make decisions in a collaborative manner. The Prime Minister of Australia is not a president. The Prime Minister is the first among equal”.

    This approach, along with Turnbull’s close relationship with Senate cross benchers will hopefully assist the Turnbull government push through important reform.

    Let us know what you think of the leadership change.

    Image Source: GQ Australia

    What now for the GST?

    Fifteen years after the introduction of the GST in Australia debate still rages over what should be taxed and whether the GST rate should increase.

    Unless the Government changes the GST Act, any change requires the approval of the States and Territories. The Treasurers’ workshop late last month resolved to keep the GST rate at 10% but enable a series of other changes. We look at the key areas of change:

    GST on online products

    From 1 July 2017, the GST will be broadened to apply to all goods purchased online and imported from overseas. Currently, GST does not apply to inbound goods under $1,000.

    The latest NAB Online Retail Sales Index estimates that Australians spent $17.3 billion on online retail in the 12 months to June 2015 – around 7% of traditional bricks & mortar retail. It’s difficult to find an accurate measure of how much of this online trade goes to overseas retailers but the Productivity Commission report in 2011 estimated 7.5% – the rest is spent with Australian retailers. According to the same report, around 76.5% of all online sales are for goods made up of low value purchases under $100.

    The Treasurers have opted for a vendor registration model which means that they are relying on businesses based overseas and selling into Australia to register and comply voluntarily with Australian tax law. The problem is how to collect the tax from businesses that have no obligation to comply and the Government has no jurisdiction to pursue tax owing. It is almost impossible to bring all but the largest of providers into the GST net.

    An OECD report at the beginning of the year recommended that foreign suppliers register in the country they are supplying to – Apple for example, already does this in Australia. It will be interesting to see if, over time, this becomes the norm. While protecting the tax base it would be a major competitive disadvantage for small business looking to explore new markets.

    The ‘Netflix tax’: GST on digital goods

    Draft legislation released on Budget night broadens the GST to digital products and other imported services supplied to Australian consumers by foreign entities in a similar way to equivalent supplies made by Australian businesses.

    Expected to generate $350m over 4 years, the tax treats streaming or downloading of movies, music, apps, games, e-books as well as other services such as consultancy and professional services in a similar way to local suppliers. In some cases the GST liability might shift from the supplier to the operator of an electronic distribution service where those operators have responsibility for billing, delivery and terms and conditions.

    GST on digital products is intended to apply from 1 July 2017.

    GST to remain on tampons

    GST on feminine hygiene products generates around $50 million in revenue per year. It has been a political sore point for some time that highlights the inequities of a system that taxes essentials but not items such as personal lubricants. Toilet paper and nappies, other essentials of life, are also taxed.

    At the Treasurers’ workshop, the State and Territory Treasurers rejected Joe Hockey’s proposal to remove the GST from feminine hygiene products.

    When the GST was first introduced, to get the legislation through Parliament the Howard Government agreed to demands to make amongst other things food, health and medical supplies, and education GST-free. The rationale is that because the GST applies evenly across all things, it hits low-income earners the hardest as they spend a higher proportion of their income on basic necessities. On these grounds making feminine hygiene products, nappies and a range of other essentials GST-free sounds rational. The problem is that the wealthy benefit from GST-free products and the tax system becomes a quasi social welfare system that dramatically impacts on the revenue collected and revenue available to fund better targeted social welfare programs. It’s a touchy debate and one that the major parties are unlikely to want to enter anytime soon.

    Using your SMSF to buy property in the United States

    One of the most common questions from clients with a Self Managed Superannuation Fund (SMSF) is, can I buy property? Followed by the second question, can I buy property in the United States?

    SMSFs provide investment flexibility for those that understand the rules. They can also be a significant liability if you get it wrong.

    There are a few key things to check before purchasing a property:

    • The SMSF’s investment strategy and trust deed must allow for the purchase you are contemplating.
    • You can’t purchase property from a related party (for example a relative or spouse) unless the property qualifies as business property (business real property to use the technical term).
    • When you are exploring the viability of the property purchase, be aware that the SMSF cannot lease the property to a related party (again, unless it is business real property). For example, you can’t have your kids living in the property even if they pay market rate rent.
    • Your SMSF needs to have the cashflow and liquidity to purchase the property.
    • Factor in transaction costs such as stamp duty into your planning.

    Australian SMSFs can purchase property in the US if it is correctly structured (you will need good legal and structuring advice). The question is, should you invest your retirement savings in a market where you have limited visibility or knowledge?

    A SMSF would not usually acquire US property directly. Generally, the fund would structure the property investment through a Limited Liability Company (LLC) where the SMSF (and its associates) own and control the majority of the “membership” (the shares). The US LLC is likely to be required to lodge a tax return and pay US federal and state taxes.

    As the actual investment the fund holds is the interest in the company (with the company owning the property), there are in-house asset issues to consider. One issue is that the company bank account needs to be with an entity that is classified as an Authorised Deposit Institution (ADI) – not all foreign banks are. Fail this criteria and the investment held by the SMSF may become an in-house asset and require the fund to sell the asset.

    If you are contemplating purchasing property in your SMSF, talk to us today about achieving the right structure and outcome.

    Recent market headwinds indicative of a correction or something more?

    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.

    How the ASX, US and Shanghai have done so far this year - Source: Yahoo!7
    How the ASX, US and Shanghai have done so far this year – Source: Yahoo!7

    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
    9930-6100.

    Two Birds, a Beer and an Inventory Management System

    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.

    Jcurve Dashboard
    A good accounting system will give you the visibility to make decisions on the fly

    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 Importing Inventory 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/

    thenest

    Why use a business adviser?

    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.

    Take a look at our business advisory services

    Bad news for motorists: planned motor vehicle deduction changes

    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

    For example:
    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.

    Key Information

    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 Log Book
    (77c x 5,000KM) (need receipts) (Capped at $57,466) (need receipts/logbook)
    $3,850 $4,333 $6,895 $5,200

    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

    How to Register a Business Name

    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.
    Unless:
    – 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’.

    Step 2: Enter your Australian Business Number (ABN)
    You must have either an ABN or an ABN application reference number.

    Step 3: Enter the proposed business name and registration period
    Make sure the proposed business name is available to register. Registration periods are for either one year ($34) or three years ($79).

    Step 4: Enter the proposed business name holder details
    Enter the proposed business name holder details in the fields provided.

    Step 5: Enter the addresses of the proposed business name
    You must provide an address for service of documents, a principal place of business address
    and an email address. An SMS address is optional
    .

    Step 6: Confirm the eligibility to hold the proposed business name
    Read the eligibility requirements of a business name holder.

    Step 7: Review your application
    Check that the information displayed is correct.

    Step 8: Make your declarations
    Read the declaration to ensure you agree with the conditions of the transaction.

    Step 9: Make your payment
    You can choose to pay your registration fee using a credit card, BPAY or alternatively you can request an invoice.

    Step 10: Confirmation
    This will confirm your transaction has been submitted with ASIC.

    The top small business $20k deduction Q&As

    In a recent speech, Small Business Minister Bruce Bilson stated that a lot of his time talking about the $20,000 immediate deduction for 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 a restaurant 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 the immediate 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 investment assets.

    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.

    5 reasons to take a holiday right now | Zac de Silva (Xero Blog)

    Ref: Zac de Silva – Xero Blog

    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

    1. 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?
    2. 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.
    3. 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.
    4. 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.
    5. 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!

    Ref: Zac de Silva – Xero Blog
    holiday-fiji-business

    Landlords Beware: Key issues for property investors

    Are you relying on negative gearing?

    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.

     

    Borrowing costs

    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.