Tax updates

New Years Bulletin 2015

Posted on Jan 2, 2015 in AFS Bookkeeping, Business Bulletin, Superannuation, Tax updates

New Years Bulletin 2015

Super & Business Owners By contributing to superannuation you can not only provide for your retirement but also enjoy concessional tax treatment whereby: Þ Investment earnings (such as dividends, interest, rent etc.) are taxed at just 15% (or 0% if your account is in pension mode) Þ Capital gains (on the sale of shares, property etc. held by your fund) are taxed at just 15% (or 10% if the asset is held for 12 months or more). By contrast, earnings outside superannuation are taxed at your marginal tax rate. Unless you earn below $18 200, your marginal tax rate will always be higher than the highest superannuation rate of tax (generally 15%). This means that the tax imposed on your investment earnings inside superannuation will always be less than the tax imposed on these earnings outside superannuation (unless you earn less than $18 200). The good news is that the tax system encourages business owners to make contributions to the concessionally taxed superannuation environment in at least two respects: Income Tax Deduction By contributing to superannuation as a business owner, you can not only provide for your retirement, but you may be able to reduce your income tax. Generally speaking, unless you are an employee of your business (e.g. company director or employed by your trust) you will likely be able to claim a tax deduction for the full amount of your personal after-tax contributions to superannuation. 10% Rule Specifically, you can claim a tax deduction for the entire amount of your contribution if less than 10% of your  (a) assessable income (b) your reportable fringe benefits and (c) your reportable employer contributions for the year is from being an employee. Therefore, for those of you not employed by your business (e.g. sole traders), this is a strategy worth considering. Having made the deductible contribution, you must notify your fund of your intent to claim a deduction before you lodge your tax return! For those of you employed by your own company or trust (and failing the 10% Rule); that entity may contribute on your behalf and claim an income tax deduction. Business Sale Proceeds Small business owners that sell their businesses may be eligible for generous capital gains tax relief. One of those capital gains tax breaks occurs when an amount is contributed to superannuation. When it comes time to sell your business or even part of your business, small business owners have a unique opportunity to build up their retirement savings. The sale proceeds of your business (or part thereof) may in certain circumstances be contributed to superannuation without counting against your standard contribution limits. A $540 000 non-concessional three-year contribution cap exists. If you sell your business and like many business owners seek to contribute the proceeds to superannuation, the non-concessional cap is often insufficient. Even where the $540 000 three-year cap is able to accommodate your desired level of contribution, your ability to make contributions in the subsequent two years may be restricted. For small business owners however, the CGT Cap Amount offers a special concession. Contributions of up to a lifetime limit of $1.355 million (the CGT Cap Amount) from the disposal of small business assets can be excluded from the non-concessional cap subject to certain conditions. With the sale proceeds safely inside your fund, you can then enjoy the concessional tax treatment exclusive to the superannuation environment (see earlier). Resolving Disputes Whether it be with Government, suppliers, landlords or customers, disputes are an uncomfortable but inevitable part of business. The good news is that now there is an interactive tool that can help....

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Bookkeeping Bulletin Autumn 2014

Posted on Mar 10, 2014 in AFS Bookkeeping, Business Bulletin, HR, Tax updates

Bookkeeping Bulletin Autumn 2014

Two Things Your Business Can’t Live Without 1. Breakeven Point As a business owner, you’re in business to generate a profit! But before you make just a dollar of profit, have you calculated how much product/services you need to sell in order to keep the doors open, and just break even? The breakeven point is the point at which a business generates enough sales/revenue to simply cover its total costs and therefore break even. Many business owners do not understand fully the breakeven point and tend not to remain in business very long as a consequence. In simple terms the breakeven formula is: Fixed Costs divided by Gross Profit Percentage Fixed Costs are those costs that exist independently of sales; they are not proportional to nor caused by sales. Typically, fixed costs are constant in price and ongoing in nature, such as indirect labour, rent, loan repayments, payroll tax, insurance, etc. Gross Profit Percentage is the sales less variable costs expressed as a percentage of sales. Variable Costs are those costs that vary with output or sales. That is, these costs are typically caused by or are influenced by sales. These include direct labour, inventory, materials used in production, etc. Most advisors who deal with businesses are aware of the importance of the breakeven point and how it should be calculated. Breakeven analysis is a great tool for managing and controlling costs, as well as utilising it as a decision tool to assist in setting prices or determining what volumes of sales might be needed to break even. If you don’t know your breakeven point, it makes it more difficult to set prices for your products/services, or to determine the volumes of sales required to be profitable, and hence the chances of business failure increase significantly. 2. Cashflow Projection The old adage that “cash is king” still rings true. Whether it be suppliers, the Tax Office, employee wages, the landlord or insurance, you need cash on hand at all times in order to pay your bills. With many studies suggesting that cashflow is one of the leading causes of small business failure, it’s imperative to prepare with your accountant or bookkeeper a cashflow forecast. A cashflow forecast tracks the sources and amounts of cash coming into and out of your business over a given period. It allows you to foresee peaks and troughs, and therefore whether you have sufficient cash on hand to discharge your debts at a given time. This in turn alerts you to when you may need to take action – by discounting stock or getting an overdraft for example – to make certain that your business has sufficient cash to meet its needs. The forecast also allows you to foresee when you have large cash surpluses which may indicate you have borrowed too much or have money that ought to be ploughed back into your business. Approach your advisors and, in consultation with them, prepare a detailed cashflow forecast. Business Tip — 2014 Economic Conditions While 2014 has commenced with a range on negative news headlines on the business front (among them Toyota s manufacturing shutdown and the Federal Government announcing much bigger than expected Budget deficits in the years ahead unless significant cuts are made), there are many reasons to be optimistic about business conditions in the year ahead: · Despite the dire deficit forecasts contained in the Mid Year Economic and Fiscal Outlook (MYEFO), that document also predicts that economic growth will remain strong at 2.5%, and unemployment will fall to 6% (down from 6.5% which was predicted in the Pre Election Fiscal Outlook (PEFO)). Importantly, global economic growth is expected to rise to 4% in 2014 (up from 3% last year), powered in the main by recoveries in America and Europe. · The recently released National Australia Bank’s monthly business survey indicated businesses were enjoying the best trading conditions in 2 1/2...

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Summer 2014 Business Bulletin

Posted on Dec 9, 2013 in AFS Bookkeeping, Business Bulletin, Tax updates

Summer 2014 Business Bulletin

Summer 2014 New Government, New Announcements In recent months, the new Government has finalised the timing in relation to the following measures which may impact your business and require action. Asset Write-Offs – Act Now! The Government has confirmed the start date for the abolition of the following small business asset write-offs (which apply if your turnover is less than $2 million): · $6 500 Instant Asset Write-Off – This will be reduced to its old rate of $1 000. Assets costing more than $1 000 will be depreciated at 15% in the year of purchase, and 30% per year in subsequent years. · $5 000 Vehicle Write Off – This write-off, which allows small business to claim a bonus $5 000 write-off in the year a vehicle is purchased, will also be abolished. Vehicles will therefore be depreciated as per normal rules (i.e. 15% in the year of purchase, and 30% of the remaining value per year in subsequent years). Both of these measures will be abolished on 1 January 2014. Depreciating assets that are first used or installed ready for use prior to 1 January 2014 are subject to the higher $6 500 threshold. On the other hand, the $1 000 threshold will apply to assets that are first used or installed ready for use on or after this date. Likewise, the repeal of the $5 000 vehicle write-off will apply to vehicles that are first used or installed ready for use on or after 1 January 2014. With this deadline looming, if you are contemplating purchasing equipment or a motor vehicle, consider bringing the purchase forward to before 1 January 2014. Subsequently, you must use the asset or have it installed ready for use before this time. Loss Carry-Back – One Chance Only! Loss carry-back will be repealed from 1 July 2013. To recap, loss carry-back provides tax relief for companies by allowing them to carry back their tax losses and receive a refund against tax previously paid. Refunds of up to $300 000 are available. The 1 July repeal date means that: · Loss carry-back will only be available on 2012/2013 company tax returns · Only losses made in 2012/2013 will be eligible to be carried back, and · Any 2012/2013 loss will only be able to be carried back one year. In view of the 1 July repeal date, if you were contemplating not carrying back your 2012/2013 company loss on your 2012/2013 return (but rather carrying it back next year on your 2013/2014 return) you should reconsider this strategy as carry-back will no longer apply for 2013/2014 returns. To be clear, only losses made in 2012/2013 will be able to be carried back – and they can only be carried back one year (to 2011/2012). Superannuation Rate Frozen The Government will follow through on its pre-election announcement to freeze the current 9.25% Superannuation Guarantee for a further two and a half years. Under the current law which was introduced by the former Labor Government, the Superannuation Guarantee rate (currently 9.25%) was to increase to 9.5% on 1 July 2014, incrementally increasing to 12% by 1 July 2019. The new Government, however, has re-calibrated the gradual increase to 12% as follows:   Income Year Income Year Charge Percentage Under Existing Law New Proposed Law 2013/2014  9.25% 9.25% 2014/2015  9.5%  9.25% 2015/2016 10%  9.25% 2016/2017  10.5%  9.5% 2017/2018 11% 10% 2018/2019  11.5% 10.5% 2019/2020  12%  11% 2020/2021  12%  11.5% 2021/2022and future years  12%  12%   Unfair Dismissal The Fair Work Act provides that employees must not be “unfairly dismissed”. Where an employee is unfairly dismissed, they can apply to the Fair Work Commission for a remedy such as damages or reinstatement. To avoid an unfair dismissal claim employers should ensure that terminations are not “harsh, unjust or unreasonable”. In determining whether this is the case, the following will...

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Election Wrap Up

Posted on Sep 13, 2013 in AFS Bookkeeping, Tax updates

Election Wrap Up

Spring Election Wrap Up from AFS Election Wash-up Edition The Coalition’s victory in the September 7 Federal Election will result in a number of tax changes. In this special edition of the Business Bulletin, we look at how the changes may impact your business. It’s worth noting however that these changes must first pass through Parliament, including the Senate. Without a majority in the Senate, there is a chance that some of the Government’s more contentious reforms may be blocked, watered down or their start date deferred. Pro-Business Measures In good news for business, the new Government has pledged to make the following changes: Company Tax Cut The new Government will cut the company tax rate by 1.5% which will reduce the rate from 30% to 28.5%. The start date for this measure is 1 July 2015. While this is certainly welcomed by the business sector, the effect of the reduction may be limited for two reasons. Firstly, it only applies to company structures. Therefore, the many businesses who are not incorporated (i.e. those who operate through partnership, sole trader or trust structures) will miss out on the tax cut altogether (including more than 70% of small businesses). Furthermore, for the many small business owners that strip the company profits relatively quickly, you will get next to no benefit from any corporate tax cut. This is because under the dividend imputation rules, the imputation credit (the credit that the dividend recipient gets for the tax paid on the dividend by the company) will also be reduced to 28.5%. So instead of getting a 30% credit when paying tax on the dividend as per the current rules, when you as the business owner repatriate the profits out of the company and pay tax at an individual level, the benefit of the 1.5% corporate tax reduction is lost. When company tax cuts are made without commensurate individual tax cuts, there is only a benefit when the profits remain in the company – which is not normally the case for many small business owners. However, when you are leaving the profits in the company (for example, you may be expanding and therefore pumping the profits back into the business) there is definitely a benefit from a company tax reduction. If you were to leave $300 000 of profits in your company for instance, the 1.5% tax cut will deliver a $4 500 benefit as compared to the current 30% rate. Carbon Tax Abolition One of the main promises made by the new Government was the abolition of the Carbon tax. Although the Carbon tax is only paid by Australia’s largest polluters (less than 500 businesses) these big businesses then pass on this tax impost through the economy which may result in price increases down the line (especially in relation to electricity). From a business standpoint, the abolition of the Carbon tax means that there will be far less flow-through pricing impact on small business. Indeed, in a survey of more than 1 700 small businesses conducted by the Australian Chamber of Commerce and Industry which was released on 9 May 2013, the abolition of the Carbon tax was nominated as one of the top three wishes of survey participants. Of course it remains to be seen whether these 500 big polluters pass on the savings that come about through the abolition of the tax. Business Tip—FBT Changes Aborted! Good News for Car Buyers The Labor Party’s defeat means that its controversial FBT change announced earlier in the year to abolish the statutory formula method for working out the FBT on car fringe benefits will not proceed. Employers can therefore continue to use the statutory formula method for...

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Budget Wrap for Business

Posted on Jun 22, 2013 in Tax updates

Budget Wrap for Business

The financial news your Business needs…… The 2013 Federal Budget was handed down on 14 May. While it contained relatively few big ticket items for business owners, the following should be noted. 1. Bright Economic Outlook While the headline take-out from the Budget was somewhat gloomy with a forecast $18 billion deficit, this clouded the otherwise sunny macroeconomic picture. Despite the large deficit, the good news for businesses is that the short and medium term outlook for the Australian economy is favourable, with solid growth, low unemployment and well-contained inflation forecast for 2013/2014. Specifically: · Economic Growth – the Australian economy is forecast to grow by 2.75% in 2013/2014, picking up to 3% by 2014/2015. · Employment – there is expected to be 1.75% growth in employment through the year to the June quarter of 2014, and 1.5% through the following year to June 2015. · Inflation – in good news for interest rates, inflation is expected to remain well contained. Both headline and underlying inflation are forecast to be 2.25% through the year to the June quarters of 2014 and 2015. With inflation within the Reserve Bank’s 2% to 3% target band, it makes interest rate increases much less likely. 2. Trusts Crackdown For the many that operate their businesses through trusts, the Government is devoting more resources to compliance in this area. The Government will provide to the Tax Office an extra $70 million over the next 4 years to undertake compliance activity in relation to trust structures. A taskforce will be established to target the exploitation of trusts to conceal income, mischaracterise transactions, and artificially reduce trust income amounts – all of which results in an underpayment of tax. The taskforce will also focus on taxpayers who have been “involved in egregious tax avoidance and evasion” involving trusts. In view of this crackdown, and the numerous changes to the trust laws over recent years, it’s recommended that business owners ensure their affairs in this area are in order, particularly ensuring that all resolutions to distribute trust income can be evidenced, and that amounts have been properly declared on beneficiary and trust returns. 3. Disaster Relief Payments Disaster Income Relief Recovery Payments provided between 3 January 2013 and 30 September 2013 will be exempt from income tax. These payments provide financial assistance to small business owners and farmers who experience a loss of income as a direct result of an Australian natural disaster. Some individual taxpayers may also have received these payments in which case they too will be exempt from income tax. More Information Although these are the headline small business announcements, the Budget Papers run into hundreds of pages. You can read more about the Budget at www.budget.gov.au. Your Hip Pocket – Increased Super On 1 July 2013, the long standing 9% superannuation guarantee (SG) rate will increase to 9.25%, payable to your employees ontheir ordinary time earnings, and also payable to many contractors that you engage. While this measure will mean extra superannuation is payable to employees, employers have the option to take this increase into account in any salary review (and increase wages by 0.25% less than they otherwise would have) or even reduce the employee’s current take home pay by this amount – there is no law prohibiting this. Indeed, when superannuation was first introduced by the Keating Government in 1992, employees generally saw a reduction in their take home salary, with some of it being redirected and paid to superannuation. Alternatively employers may elect to absorb the superannuation cost themselves and increase the overall employee package by 0.25%. In its Budget reply...

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