Budget Changes for Business and Superannuation

Superannuation pension phase – $1.6m transfer balance cap for retirement accounts
From 1 July 2017, the Government has proposed to introduce a transfer balance cap of $1.6m on the total amount of accumulated superannuation an individual can transfer into a tax-free “retirement account” (also known as retirement phase or pension phase). Subsequent earnings on these pension transfer balances will not be restricted.
According to the Government, this $1.6m transfer balance cap for amounts transferred into pension phase will limit the extent to which the tax-free benefits of retirement phase accounts can be used for tax and estate planning. For those who will have more than $1.6m in super you can leave the excess in accumulation mode.

Retirement account cap – $1.6m
Where an individual accumulates amounts in excess of $1.6m, they will be able to maintain this excess amount in an accumulation phase account (where earnings will be taxed at the existing concessional rate of 15%). The
$1.6m cap will be indexed in $100,000 increments in line with CPI (the same as the Age Pension assets threshold does).

Existing pension balances
Members already in the retirement phase as at 1 July 2017 with balances in excess of $1.6m will be required to either:
transfer the excess back into an accumulation superannuation account to reduce their retirement account balance to $1.6m by 1 July 2017; or
withdraw the excess amount from their superannuation.
Excess balances for these members may be converted to superannuation accumulation phase accounts. A tax on amounts that are transferred in excess of the $1.6m cap (including earnings on these excess transferred amounts) will be applied, similar to the tax treatment that applies to excess non-concessional contributions.

Date of effect
This measure will apply from 1 July 2017.


Transition to retirement pensions – tax concessions to be reduced
The Government said it will remove the tax exemption on earnings for pension assets supporting Transition to Retirement Income Streams (TRISs), also known as transition to retirement pensions (TTRs). Under the changes, earnings from assets supporting TRISs will be taxed at 15% (instead of the current 0%). The change will apply from 1 July 2017 irrespective of when the TRIS commenced. For clients whose personal tax rate is higher than 15% this will still represent a tax effective strategy.

No election to treat as lump sum
In addition, the Government said individuals will no longer be able to make an election under reg 995-1.03 of the ITA Regs to treat certain TRIS payments as lump sums for tax purposes, which currently makes them tax-free
up to the low rate cap ($195,000).

Sebastian is 57 years old, earns $80,000 and has $500,000 in his super account. He pays income tax on his salary and his fund pays $4,500 tax on his $30,000 earnings. Sebastian decides to reduce his work hours to spend more time with his grandchildren. He reduces his working hours by 25% and has a corresponding reduction in his earnings to $60,000. He commences a TRIS worth $20,000 per year so that he can maintain his lifestyle while working reduced hours. Currently, Sebastian pays income tax but his fund pays nothing on the earnings from his pool of super savings. Under the Government’s changes, while the earnings on Sebastian’s super assets will no longer be tax-free they will still be taxed concessionally (at 15%). He will still have more disposable income than without a TRIS. This ensures he has sufficient money to maintain his lifestyle, even with reduced work hours.
Date of effect
These measures will apply from 1 July 2017 (irrespective of when the TRIS commenced).


Non-concessional contributions: $500,000 lifetime cap from Budget night
The Government has introduced a lifetime non-concessional contributions cap $500,000 effective from Budget night, i.e. 7.30 pm (AEST) on 3 May 2016. The lifetime non-concessional cap (indexed) will replace the existing annual non-concessional contributions cap of up to $180,000 per year (or $540,000 every 3-years under the bring-forward rule for individuals aged under 65). Non-concessional contributions include contributions which are not included in the assessable income of the receiving superannuation fund, e.g. non-deductible personal contributions made from the member’s after-tax income (formerly known as undeducted contributions).
The $500,000 lifetime cap will take into account all non-concessional contributions made on or after 1 July 2007.
Contributions made before commencement (i.e. 7.30 pm AEST on 3 May 2016) cannot result in an excess of the lifetime cap. However, excess non-concessional contributions made after 7.30 pm AEST on 3 May 2016 will need to be removed or subject to penalty tax. The cap will be indexed to average weekly ordinary time earnings (AWOTE).

Concessional contributions cap cut to $25,000 from 1 July 2017
The annual concessional contributions cap will be reduced to $25,000 for all individuals regardless of age from 1 July 2017. The cap will be indexed in line with wages growth. The concessional concessional cap is currently set at $30,000 for those under age 49 on 30 June for the previous income year (or $35,000 for those aged 49 or over on 30 June for the previous income year) for the 2015-16 and 2016-17 income years.
Concessional contributions (i.e. before tax) include all employer contributions, such as superannuation guarantee and salary sacrifice contributions, and personal contributions for which a deduction has been claimed. Members of defined benefit schemes will be permitted to make concessional contributions to accumulation schemes. However, the $25,000 cap will be reduced by the amount of their “notional contributions”.

Excess concessional contributions
Existing processes for the administration of the concessional contributions caps and the imposition of the additional 15% on contributions, including the ability to withdraw the excess from super to pay the additional liability, will be maintained. Currently, concessional contributions exceeding an individual’s annual concessional cap are automatically included in an individual’s assessable income and taxed at the individual’s marginal tax rate (plus an interest charge). An individual is also entitled to a 15% tax offset for the contributions tax paid by the fund. Individuals can elect to release up to 85% of their excess concessional contributions from their superannuation fund to the Commissioner as a “credit” to cover the additional personal tax liability.

Concessional contributions catch-up for account balances less than $500,000
From 1 July 2017, individuals with a superannuation balance less than $500,000 will be allowed to make additional concessional contributions for “unused cap amounts” where they have not reached their concessional
contributions cap in previous years. Unused cap amounts will be carried forward on a rolling basis for a period of 5 consecutive years. Only unused amounts accrued from 1 July 2017 will be available to be carried forward. It will
improve flexibility for those with interrupted work arrangements. The measure will also apply to members of defined benefit schemes. Consultation will be undertaken to minimise additional compliance impacts for these schemes.
According to the Government, allowing individuals with account balances of $500,000 or less to make catch-up concessional contributions will make it easier for people with varying capacity to save and for those with interrupted work patterns, to save for retirement to the same extent as those with regular income.

Superannuation contributions tax (extra 15%) for incomes $250,001+
The income threshold above which the additional 15% Division 293 tax cuts in for superannuation concessional contributions will be reduced from $300,000 to $250,000 from 1 July 2017.
Currently, individuals above the high income threshold of $300,000 are subject to an additional 15% Division 293 tax on their “low tax contributions” (essentially concessional contributions). The Division 293 tax effectively doubles the contributions tax rate from 15% to 30% for concessional contributions. Note that Labor has also proposed that, if elected, it would reduce the high income threshold to $250,000. A taxpayer’s “low tax contributions” are essentially their concessional contributions less any excess concessional contributions for the financial year. Concessional contributions (before tax) include all employer contributions, such as superannuation guarantee and salary sacrifice contributions, and personal contributions for which a deduction has been claimed. Importantly, the extra 15% Division 293 tax does not apply to concessional contributions which exceed an individual’s concessional contributions cap (which is proposed to be set at $25,000 for all taxpayers from 1 July 2017: see para [567] of this Bulletin). Such excess concessional contributions are effectively taxed at the individual’s marginal tax rate in any event. As such, the maximum amount of Division 293 tax payable each year will be limited to $3,750 (i.e. 15% of the $25,000 cap) from 1 July 2017.

Division 293 tax – high income threshold
The Division 293 tax high income threshold is currently based on the individual’s “income for surcharge purposes” plus the individual’s low tax contributions. Given the broad definition of “income for surcharge purposes” (which adds back net investment losses to taxable income), negative gearing and many salary packaging arrangements generally will not assist in bringing a taxpayer under the high income threshold. If a taxpayer’s income for surcharge purposes is less than the high income threshold, but the inclusion of their low tax contributions pushes them over the threshold, the 15% Division 293 tax only applies to the part of the low tax contributions that are in excess of the income threshold.

Tax deductions for personal super contributions extended
From 1 July 2017, the Government will improve flexibility and choice in super by allowing all individuals up to age 75 to claim an income tax deduction for personal super contributions. This effectively allows all individuals,
regardless of their employment circumstances, to make concessional super contributions up to the concessional cap. Individuals who are partially self-employed and partially wage and salary earners (e.g. contractors), and
individuals whose employers do not offer salary sacrifice arrangements will benefit from these proposed changes. To access the tax deduction, individuals will be required to lodge a notice of their intention to claim the deduction
with their super fund or retirement savings provider. Generally, this notice will need to be lodged before they lodge their income tax return. Individuals will be able to choose how much of their contributions to deduct.
Individuals that are members of certain prescribed funds would not be entitled to deduct contributions to those schemes. Prescribed funds will include all untaxed funds, all Commonwealth defined benefit schemes, and any
State, Territory or corporate defined benefit schemes that choose to be prescribed. Instead, if a member wishes to claim a deduction, they may choose to make their contribution to another eligible super fund.

Superannuation contribution rules – work test to be removed for age 65 to 74
The work test for making superannuation contributions for people aged 65 to 74 will be removed from 1 July 2017. Instead, people under the age of 75 will no longer have to satisfy a work test and will be able to receive contributions from their spouse.

Low income super tax offset (LISTO) to be introduced
From 1 July 2017, the Government will introduce a Low Income Superannuation Tax Offset (LISTO) to reduce tax on super contributions for low income earners. The LISTO will provide a non-refundable tax offset to super funds,
based on the tax paid on concessional contributions made on behalf of low income earners, up to a cap of $500. The LISTO will apply to members with adjusted taxable income up to $37,000 that have had a concessional
contribution made on their behalf. Note that the proposed LISTO will replace the current Low Income Superannuation Contributions (LISC). The Government said this will provide continued support for the accumulation of super for low income earners and ensure they do not pay more tax on their super contributions than on their take-home pay. The ATO will determine a person’s eligibility for the LISTO and will advise their super fund annually. The fund will
contribute the LISTO to the member’s account. The Government said it will consult on the implementation of the LISTO.

Low income spouse super tax offset to be extended
From 1 July 2017, the Government will increase access to the low income spouse superannuation tax offset by raising the income threshold for the low income spouse to $37,000 from $10,800. The offset will gradually reduce
for income above $37,000 and will phase out at income above $40,000. The low income spouse tax offset provides up to $540pa for the contributing spouse. The Government noted the proposed changes build on its co-contribution and superannuation splitting policies to boost retirement savings, particularly of women.


Changes affecting Businesses


The Budget announced that the small business entity threshold will increase from $2m to $10m from 1 July 2016. As a result, a business with an aggregated annual turnover of less than $10m will be able to access a number of

small business tax concessions from 1 July 2016, including:

  • the simplified depreciation rules, including immediate tax deductibility for asset purchases costing less than $20,000 until 30 June 2017 and then less than $1,000;
  • the simplified trading stock rules, which give businesses the option to avoid an end of year stocktake if the value of the stock has changed by less than $5,000;
  • a simplified method of paying PAYG instalments calculated by the ATO, which removes the risk of under or over estimating PAYG instalments and the resulting penalties that may be applied;
  • the option to account for GST on a cash basis and pay GST instalments as calculated by the ATO;
  • immediate deductibility for various start-up costs (e.g. professional fees and government charges);
  • a 12-month prepayment rule; and
  • the more generous FBT exemption for work-related portable electronic devices (e.g. mobile phones, laptops and tablets) – the FBT car parking exemption for small business already applies to entities with “annual gross income” of less than $10m.


CGT concessions

The threshold changes will not affect eligibility for the small business CGT concessions, which will only remain available for businesses with annual turnover of less than $2m or that satisfy the maximum net asset value test (and other relevant conditions such as the active asset test).


Reduced tax rates for small business

The company tax rate for small business entities will reduce to 27.5% (from 28.5%) from the 2016-17 income year. The rate is set to reduce further to 27% in 2024-25 and then by 1 percentage point per year until it reaches 25% in 2026-27.


GST reporting on a cash basis

The reporting of GST on a cash basis will be extended as an option to businesses with a turnover of less than $10m (previously $2m)


GST and the importation of low-value goods

The Government is to impose GST on goods imported by consumers regardless of value. The new rules will commence on 1 July 2017.

The liability for the GST will be imposed on overseas suppliers, using a vendor registration model. This means that those suppliers which have Australian turnover of $75,000 or more will be required to register for, collect and remit GST for all goods supplied to consumers in Australia, i.e. regardless of value.

The Budget papers state that the measure will have a gain to GST revenue of $300m over the forward estimates period (i.e. the next 4 years). There will be additional funding of $13.8m over the next 4 years to implement the measure. The arrangements will then be reviewed after 2 years to “ensure they are operating as intended and take account of any international developments”.




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Profit – How to improve your bottom line?

Profit – not something every business has, so how can you get it and improve it?

  1.     Raise your prices. You’ll be surprised how few complaints you’ll get about a 5% price increase.
  2.     Sack a customer. Think about abandoning demanding customers who eat up too much time for too little reward.
  3.     Drop a product from your range. Most companies carry products or services that are just not working or cost too much to produce.
  4.     Change your bank. There’s plenty of big and small financial institutions out there, so shop around for the best deal.
  5.     Put your printed materials online. Posting documents such as manuals and brochures on your website saves on printing, storage and postage.
  6.     Change suppliers. China, India, Vietnam and Thailand are full of companies that can supply products cheaper than in Australia. If you can’t beat the importers, join them.
  7.     Put lots of information on your website. This will help reduce the amount of time you spend on the phone answering customer queries.
  8.     Bill customers promptly. Get your invoices out as quickly as possible to get them back faster.
  9.     Create incentives for creditors to pay faster. Offer a small discount to clients prepared to pay within a week and your cash flow will improve.
  10.  Weed out slow payers. Before taking on a major customer, check their credit worthiness and references. Bad debts are bad news.
  11.  Use email. Cut postage costs by migrating customers to email.
  12.  Cut your inventory. Don’t tie money in the warehouse. Get that money out there working for you. Or better still, get it back in your wallet.
  13.  Consider different property options. Moving out of the city can save you a bundle on rent.
  14.  Barter. Look for companies with which you can exchange goods and services. It keeps cash in your pocket and helps you network at the same time.
  15.  Add a new product or service to your range. Then bundle the new product or service with your new offering and watch revenue grow.
  16.  Pay your bills online. It saves on cheque fees and postage costs.
  17.  Consolidate your loans. Multiple loans mean multiple sets of fees. Consolidate and save.
  18.  Change your phone company. Communications — particularly mobile phones and internet — can be expensive. Review your supplier and don’t sign a contract longer than 12 months unless you’re sure prices aren’t going to fall.
  19.  Do things out of season. Conference facilities, hotels and airline flights are cheaper at certain times of the year. Plan around this and save.
  20.  Negotiate. It makes some people uncomfortable, but haggling is a perfectly normal part of doing business.
  21.  Shop around. You can find a cheaper price for everything if you look around. The bigger the expense, the more shopping you need to do.
  22.  Advertise online. Online advertising is relatively cheap and its effectiveness is much easier to measure.
  23.  Check your invoices. Don’t just pay up blindly — make sure none of your suppliers are over-charging you.
  24.  Take advantage of discounts. You love prompt payers and so do your suppliers — take advantage when companies offer discounts to customers that pay quickly.
  25.  Recycle. Reuse marketing materials such as promotional signage and displays.
  26.  Find a purchasing partner. There are some things every business needs, like stationary and cleaning products. Team up with another business and use your combined buying power to get discounts.
  27.  Standardise and simplify. Big manufacturers try to standardise every process in their business so it is done right every time. Less mistakes means less wastage.
  28.  Clean up. Tidy your work environment so staff waste less time dodging obstacles and finding lost files and spend more time attending to customers.
  29.  Survey your clients. Find out what they like about you and what they don’t like. Decide where you should invest your time and energy.
  30.  Cut your labour costs. People are typically a business’s biggest expense. Weed out underperforming or unnecessary staff.
  31.  Outsource. In some industries such as manufacturing, outsourcing production of some products or components can save big dollars.
  32.  Form a joint venture. Many companies are too small to compete for large contracts. Find businesses with complimentary products or services and bid together.
  33.  Make an acquisition. Buying another company is a quick way to grow revenue. The key is managing the integration.
  34.  Go global. Australia is a relatively small market and taking your business offshore can open huge sales opportunities. There are even government grants available to help with the costs.
  35.  Buy second-hand furniture and fittings. A slick office never made anybody any money. Keep it neat, tidy, functional and cheap.
  36.  Do some R&D. Research and development can be expensive but new products don’t make themselves. Take a punt and trial something new.
  37.  Copy. So what if you didn’t have that great idea first? If you see something that works, incorporate it into your business.
  38.  Be extra nice to your customers. The cheapest and most reliable form of advertising is word-of-mouth.
  39.  Say no. Some jobs are marginally profitable or high risk — don’t be afraid to avoid them.
  40.  Go upmarket. Customers are prepared to pay for high-quality products. Make sure you are seen as the premium alternative and price products to reinforce this.
  41.  Steal top staff from a competitor. Luring a proven employee with a big salary may end up being cheaper and less risky than hiring and training new staff.
  42.  Improve your reporting systems. Knowing how each department and sales person is performing on a weekly basis helps highlight your strengths and weaknesses.
  43.  Focus. Work out exactly what your business is good at and concentrate on it. If you stop trying to be all things to all people, you’ll improve your competitive advantage.
  44.  Cut out the middle man. See if you can source products directly from the manufacturer at below wholesale prices.
  45.  Extend your trading hours. Staying open a bit longer can be a good way for retailers to bring in extra revenue.
  46.  Examine your logistics. Big companies regularly restructure their supply chains to improve profitability. Look at your transportation arrangements and eliminate double handling and delays.
  47. Benchmark your business. Compare your departments to each other. Compare your business to competitors. Compare your company to those in other industries. Then decide what sort of returns you should be getting and make a plan to get there.
  48. Develop and maintain your customer database. Selling to your existing clients is far cheaper than trying to find new ones. A good database is a big asset you must exploit.
  49. Change electricity suppliers. Energy companies are targeting small and medium businesses so take advantage and get a better deal.
  50. Monitor and manage staff workflow. If employees are getting through their work quickly, assign them new or extra tasks. You may even find you’ve got more staff than you need.
Posted in Business

Tax Refunds – Accountants Beenleigh

Tax Refunds – Accountants Beenleigh and Nerang (Plant and Associates) wish to protect their clients whilst ensuring they receive the Tax refunds they are entitled to.  With a strong emphasis on educating clients, from the Gold Coast to Brisbane, they proactively write blogs, and contact clients before an issue can arise.

Tax refunds are, for many people, a sacrosanct part of the tax system. Many people just simply assume they will get a tax refund at the end of the year after they lodge their tax return. – Article by Terry Hayes

In fact, rightly or wrongly, many people and businesses rely on getting a tax or GST refund, so any delay in getting one can create problems.
While many people (and companies) will get refunds, the oft-heard cry “Where’s my tax refund?” may take on a new meaning after recent changes to the law.

The changes have provided the Tax Commissioner with a new discretion to withhold what are called “high risk” tax refunds pending refund “integrity checks” of a taxpayer’s claim. The refunds affected include income tax and/or GST and some other taxes.
I outline below how the new law works.
The new discretion is intended to allow the Commissioner to consider the correctness of the information provided by the taxpayer before refunding an amount. It is not intended that the Commissioner use this discretion to withhold a refund merely where he and the taxpayer disagree about how the law applies to the facts.
In deciding whether to withhold a refund, the Commissioner must have regard to a number of factors, including, but not limited to:

  • the likely accuracy of the information provided – things like comparison to industry benchmarks, and size of refund claimed relative to the taxpayer’s turnover may be
  • the impact of withholding the refund on the taxpayer’s financial position. Information relevant to this factor may include evidence of financial hardship for the taxpayer, such that it would compromise the taxpayer’s business viability. The ATO may need to evaluate the impact of a decision to withhold a refund on the taxpayer’s immediate cash flow, solvency and borrowing needs. The size of the amount claimed may also be a relevant consideration in the context of the particular taxpayer’s circumstances;
  • whether withholding the refund was necessary for the protection of the revenue;
  • any complexity that would be involved in verifying the information e.g. arrangements, involving multiple supply chains and multiple entities;
  • the time for which the Commissioner has already retained the amount. The ATO acknowledges that undue delay in an investigation considered in the light of new information may in some cases be a factor against retaining the refund;
  • It  should be noted that no single factor is to be determinative and the applicability of each factor will depend on the specific circumstances of each case.
  •  the likelihood that there is fraud or evasion, or intentional disregard or recklessness as to the operation of a taxation law.

If the Commissioner decides to withhold a refund, he must inform the taxpayer within a short initial period (14 days for a RBA (Running Balance Account) surplus or 30 days for other credits). If the taxpayer is not informed, the amount must be paid by the day after the end of that period.

The changes will particularly affect the situation where there is an entitlement under any taxation law to the refund claimed upon lodgment of a return or other information provided by the taxpayer. This would include income tax returns for full self-assessment taxpayers (mainly companies and super funds), original or revised BASs (applying to tax periods starting before July 1, 2012), and BASs under the indirect tax self-assessment system that applies to tax periods starting on or after July 1, 2012.
Prior to the changes in the law, there was no legislative provision which allowed the Commissioner to retain a refund to check the validity of the claim, even if the Commissioner suspected it might have been incorrect.

The ATO recently released draft guidance to its staff on when it would be reasonable to exercise the Commissioner’s discretion to delay a refund amount.
Taxpayers can make a request under the Freedom of Information Act for documentation about the Commissioner’s decision to withhold a refund. The ATO will therefore keep a record of the reasons it has for withholding the refund.

Taxpayers can also seek a writ of mandamus against ATO staff to compel the release of a refund if an amount is withheld based on irrelevant factors, so the Commissioner is very conscious of the need for his staff to maintain complete and accurate records of the reasons for withholding any refunds.

ATO’s obligation to inform taxpayers

If the Commissioner decides to withhold a refund, he is required to inform the taxpayer:

  •   in the case of a running balance account surplus, by the running balance account interest day (which will generally be 14 days after giving the Commissioner the notified information);
  • for other credits, within 30 days of the taxpayer giving the Commissioner a notice containing the amount claimed.
The Commissioner says his obligation to inform taxpayers may be satisfied in a number of ways, including by telephone, electronic mail, post, and text message. Don’t let that mobile phone battery run flat!
Where the Commissioner is unable to contact the taxpayer, he will be taken to have satisfied the obligation to inform the taxpayer by serving a document to the taxpayer’s preferred address for service of notices.
Taxpayers can object to the Commissioner’s decision to withhold a refund. The right to object arises 60 days (plus any applicable extensions) after the last day on which the Commissioner is required to inform the taxpayer of his or her decision to withhold the refund.
Where possible, the ATO has indicated it will advise taxpayers of the reason why a refund has been retained at or before the time of objection period in order to allow taxpayers to consider their reasons for lodging an objection.
If the Commissioner wishes to withhold a refund beyond the initial period of time (i.e. generally 14 or 30 days), the Commissioner must inform the taxpayer before that period ends. The continued withholding of the refund after this period is subject to an objective test of reasonableness.

When an amount must be refunded

The Commissioner may only withhold a refund until it would no longer be reasonable to require verification of the information that has been provided by the taxpayer e.g. where new information is available to the Commissioner.
Terry Hayes is the Editor-in-Chief of tax news reporting at Thomson Reuters, a leading Australian provider of tax, accounting and legal information solutions
Contact Plant and Associates at their Beenleigh office or Nerang and ensure you stay off the ATO radar.  admin@plantandassociates.com.au
Posted in Business

Small Business tax help

Plant and Associates Accountants Beenleigh and Nerang specialise in small business.  They take the pain out of the accounting, taxation and business side of your business.  Contact them for assistance today.  admin@plantandassociates.com.au

Small businesses need tax help – Article by Terry Hayes

So what else is new you say! That heading won’t shock any SME. The question is where to get that help. The SME’s adviser or accountant is one obvious source, but the ATO is another very valid so
Australia has almost three million small businesses, employing about one in five of the workforce. Small businesses therefore represent a large target sector for the ATO. Little wonder when you consider a survey by American Express earlier this year revealed a staggering 39% of small businesses keep their tax receipts in a shoebox!
Not surprisingly, the ATO does try to help, especially where a small business is just starting. Some of the guidance materials it can provide include:

  •  a checklist for people starting a new business;
  •  information about tax assistance visits by the ATO;
  •  tip and fact sheets about a range of business topics; and
  •  an easy-to-use small business tax calendar to plan and manage business tax obligations.

The ATO also contacts businesses that register for pay-as-you-go withholding when they take on staff for the first time or register for GST when their turnover exceeds the $75,000 threshold, to help them get it right from the start.Recently, the Tax Commissioner said that, in collaboration with local councils, industry associations and other government agencies, the ATO offered assistance to small business operators in western Sydney.

In one example in Penrith, the sister-in-law of a couple operating an earthmoving transport company attended an ATO seminar and got the couple to ask for an assistance visit. The couple in their first year in business earned $100,000 with the turnover increasing to around $2.6 million in the second year.During the visit, the ATO discussed the company’s need to move from cash to accrual accounting; how to better plan its cashflow; and how to manage its tax liabilities associated with much higher levels of income.

In another “good news” story, after reading an article in a Darwin newspaper about small business assistance visits on offer, a builder who registered for an Australian Business Number and for GST in July 2000 “because he thought he had to”, sought an ATO assistance visit as he had a significant amount of unopened mail from the ATO, causing him “sleepless nights”.

As he had operated his business for only a short period and was an employee for the rest of the time, the ATO helped him tidy up his un-lodged quarterly business activity statements. He also cancelled his GST registration, which he no longer needed.
The ATO also uses what are known as Taxpayer Alerts to provide early warning of arrangements it is concerned about. Recently, the Commissioner says the ATO has seen small business involved with deemed dividend schemes, labour hire arrangements (splitting income from personal services through the use of a discretionary trust ), research and development abuse, and foreign trust arrangements (foreign based discretionary trusts used to avoid taxation on Australian sourced income).

Employee vs contractor

There are, of course, regular problem areas. One of those is the issue of whether someone is an employee or a contractor. Disputes about this are becoming more common, especially in light of increased action by Fair Work Australia, and I have written on a number of occasions about this issue.In a very recent case, Fair Work Commissioner Jones ruled that a specialist Microsoft software consulting firm had 15 employees, finding two alleged contractors were, “as a practical matter”, employees. Therefore, the firm was not exempt from unfair dismissal claims nor could it avoid an obligation to make redundancy payments as per the Fair Work Act 2009. I’m sure this won’t be the last of the employee vs contractor cases that we will see.
In 2011-12, the Tax Commissioner said from its audits the ATO collected details of approximately 51,000 payments made to around 41,000 contractors, about 18,000 of which were individuals. The ATO found that 48% of businesses that engaged contractors were wrongly treating individuals as contractors. These workers were legally employees but were missing out on employee entitlements such as superannuation. To help SMEs, the ATO has an Employee or Contractor homepage on its website.

Information matching

The Tax Commissioner said the ATO’s information matching program is expected to match over 600 million transactions in the current year (up from 538 million in the 2011-12 income year). He said commensurate with the increase in information matching, the ATO also expects an increase in the number of discrepancies identified. According to the Commissioner, discrepancies detected by ATO information matching increased from 266,000 in 2007-08 to over 540,000 in 2011-12.Specifically in relation to small businesses, the Commissioner said the records of more than 10,800 taxpayers were matched in 2011-12, and identified businesses not reporting correctly through undeclared income or overdue returns. He said the identified discrepancies raised more than $40 million in liabilities.For example, by working with other agencies such as the Department of Climate Change and Energy Efficiency, the ATO was able to identify a government grant of $200,000 that was not declared by a taxpayer. Further information from the Department of Human Services highlighted the same taxpayer had also received a disability support pension, at the same time.

Small business benchmarks

Controversial as they may be, the Commissioner said ATO statistics indicated that approximately 90% of small businesses in benchmarked industries fell within a benchmark ratio. However, he said around 76,000 businesses reported income that was significantly below those benchmarks.To address this issue, Mr D’Ascenzo said the ATO wrote to around 30,000 small businesses regarding the benchmarks in 2010-11. He said around 17% (or over 5,000) of the businesses have since started reporting income commensurate with the benchmarks, thereby lowering their risk profile with the ATO.

Compliance and prosecution

The Commissioner said in the last financial year, the ATO’s compliance activities in the small business sector yielded around an additional $1.97 billion in taxes collected. He said that year also saw a decline in the number of returns and statements lodged on time for small businesses, as well as fewer income tax return liabilities paid on time. No doubt the general state of the economy was influential in that.

The Commissioner also said small business debt with the ATO increased in the last financial year to 61.4% of the total ATO collectable debt. The ATO believes this increase mostly reflects the cashflow impacts of the challenging economic environment. Despite the challenging economic conditions for small business, the Commissioner said the ATO will continue to support those businesses that are viable.
However, the Commissioner warned that the ATO undertook over 28,000 of what he called “firmer and legal recovery actions” in the small business sector in 2011-12. The ATO also conducted over 11,800 compliance reviews of self-managed super funds (mainly micro enterprises) raising tax liabilities of around $21.9 million.
Future ATO improvements for small businesses
Future technological improvements are planned to the interactions of small businesses with the ATO. By 2013, the ATO is aiming to allow small businesses to access and update their obligations online. By 2014, the ATO aims to allow small businesses to complete obligations using a mobile device and track their dealings online. Then by 2015, the ATO will aim to have integrated payment services, personalised options, and cross-channel authorisation solutions for small businesses.
With our complex and ever-changing tax laws, complying with them is not easy. That’s why around three-quarters of Australians use a tax agent. But there are ways SMEs can obtain the information they need to make tax compliance easier.
The Tax Commissioner says the ATO acknowledges that running a small business is not always easy and that behind every small business are people. He said, “We’re all human and we don’t always make the right choices, or circumstances sometimes make it extra difficult for us”. For people trying to do the right thing, he said the ATO will try to get them “over the line” where it can. A good adviser/accountant wouldn’t go astray either.

Terry Hayes is the Editor-in-Chief of tax news reporting at Thomson Reuters, a leading Australian provider of tax, accounting and legal information solutions.

Posted in Business

Marketing Plan

A Good Marketing Plan and Why Your Business Needs One – article by Susan Hutson

You can be an online entity operating under a “one man” management structure or a multi billion manufacturing unit, the one thing that you absolutely cannot do without is a good marketing plan. For reasons, far too many to recount, a successful business is one which relies on and works around a strategic and structured marketing plan.

So what is a marketing plan?

In simple language, a marketing plan is a detailed outline of your marketing strategy. This plan is based on the following considerations:
1.      Client information (demographic classification, likes, preferences etc.)
2.      Market size
3.      Sales potential
4.      Prevailing marketing trends, tools and resources
5.      Competitors marketing strategies (already existing businesses)
6.      Available resources
7.      Available capital
8.      Best marketing approach with respect to the above points; this on a yearly basis
Once you are already in business your next year marketing plans will include information from all quarters of your business such as sales, supply, personnel and finance.
Large businesses make do with hundreds of pages of marketing ideas, tools, resources and plans. Some of which are pursued with zeal and diligence while others might fail to see the light of the day. A small business or enterprise on the other hand might limit their marketing plans to perhaps a few pages.
Either way, these plans and ideas are vital for they give direction to how the business interests can be furthered and improved. What is vital is that you refer to it on a regular basis so as to analyze and study monthly reports generated from sales, so you know where you are headed and how far.
Envisaging a business is easy, it is the planning stage that is complicated. Big businesses have the resources and tools and the labor force to pursue goals and ideas on a long term basis. However, small business entrepreneurs would do a lot better to plan their marketing and business goals on a yearly basis. Firms that are successful in marketing invariably start with a marketing plan.
Large companies have plans with hundreds of pages; small companies can get by with a half-dozen sheets. Put your marketing plan in a three-ring binder. Refer to it at least quarterly, but better yet monthly. Leave a tab for putting in monthly reports on sales/manufacturing; this will allow you to track performance as you follow the plan.

Benefits of a marketing plan

A marketing plan is not just vital to a business but it also carries certain benefits. Here are some of the benefits explained –
Focal point: A marketing plan is in a lot of ways the focal point of your business. It brings together the meaning of having planned a business by offering dimension and a vision to where your business is going to be in the next year or a few years from now.
Charting business success: A marketing plan may or may not be able to capture accurate information. Well where people and behavioral patterns are concerned it is never possible to be right on all counts. So while it is true that a marketing plan does not always give the best and most perfect interpretations of the consumer world, it is still a representation.
Just remember without any kind of representation of facts and figures, however inaccurate they might be, planning ahead is impossible. And these days, one has the benefit of using several market indices that help in studying and analyzing market trends. Hence a marketing plan helps in charting your business course keeping in mind its goals and objectives.
Serves as a “to do list” for the coming year: One of the benefits of having a marketing plan in place is so you know what your future goals are and the tasks and duties that you need to perform in order to achieve those goals. Once you have carefully analyzed every aspect of your business, knowing how to plan and move ahead becomes a lot easier.
Reference point: Changes are an accepted aspect of business. Your products and services might take a new form, your clientele grows and changes, people you employee might come and go. These are all loose cannons that might force you to make adjustments and changes. However a well written and well documented marketing plan will ensure that you don’t loose focus of what your end goals and objectives are.
Assessing and planning against competition: You cannot be the only vendor for any specific product of service within a given market. You are bound to have competitors who will do everything possible to tip the scales in their favor. A marketing plan in place means you can asses your competition and plan your best possible approach to counter it.
O’Neills Business Lawyers have provided the following important notes.  You can contact them on (07) 3849 6263.
Posted in Business

PARTNERSHIP PROTECTION – article by Paul Langdale LEA Insurance Brokers

I have set out below some pertinent points in relation to Partnership Protection: 

 I believe that your business venture is a partnership. The impact of one partner dying or becoming permanently disabled could have a catastrophic effect on the business as the remaining spouse/family may inherit a share in the business and the profits for no extra work. A worse case could be a husband and wife passing away and the share of the business going to the estate, where someone with little or no experience may in fact be entitled to a share of the profits and a share of the decision making with no input work-wise to the business.
 The best way to combat this is to have insurance on each partner for the value of their share of the business. This is then “tied up” with a partnership buy-sell agreement drawn up by a solicitor so as when a trigger event occurs e.g. death, the estate is entitled to the insurance proceeds in exchange for the deceased persons share of the business. In other words the funding is provided through life insurance and the agreement binds the estate to release the control of the business to the remaining partners.
Each client should own his/her policy subject to any agreement.
This advice is of a general nature only and the advice of a solicitor who is an expert in this field should be consulted.
I am happy to provide quotes if required in respect of insurance cover if necessary.
Paul Langdale   A.F.A .Dip IV FinPlanning (Integratec)
Lea Insurance Brokers
Authorized Representative
Millennium 3 Financial Services Pty Ltd
AFSL Lic. No 244252
Posted in Business, Insurance

Trading Name

Business name

Do I need to register a business name?

If you are using your own name – your given name(s) and/or initial(s) followed by your surname – as a business name, it does not have to be registered.

You need to register your business name with the Australian Securities and Investments Commission (ASIC) if:

  • you include other words with your name, such as Joan Smith Party Hire or John Smith & Sons
  • you are trading under a name that is different from your own name
  • you are operating a company (Pty Ltd) and want to trade under a different name to your company name.

A business name (e.g. Acme Trading Services) is different from a company name (e.g. Acme Pty Ltd). A business name is used by consumers to identify the company or persons behind a trading name. A company is a separate legal entity from its directors and shareholders.

You must register your business name with the Australian Securities and Investments Commission (ASIC). You must then adhere to several legal obligations to avoid fines and the possibility of losing the name you trade under.

  • Register your name before you spend money on signage, printed material, name tags or uniforms displaying your business name.
    You can apply for an Australian business number (ABN) and a business name at the same time. You will use your ABN to manage your tax and deal with other businesses or government departments.

How to do a business name search

After choosing a natural and fitting name for your business, you must conduct a business name search to ensure it is available and acceptable to register.
The Australian Securities and Investments Commission (ASIC) will check the suitability of your name, but it is good to check it first yourself to avoiding having your application rejected.
You can check if a name is available for registration by searching the ASIC register. The register will compare your name against an index of Australian corporations, businesses and government bodies.

How to register a business name?

Once you have chosen an appropriate name, you can contact the Australian Securities and Investments Commission (ASIC) to:
check that the business name is available
register your business name nationally with ASIC Connect.
In your application, you will need to provide:

  • your Australian Business Number (ABN) or ABN application reference number
  • your proposed business name and registration period
  • the business locations or addresses
  • the full names and addresses of all business owners.

Once your business name is registered, you will receive a record of registration effective for 1 year or 3 years, depending on the term you chose on your application. You will also need to meet legal obligations, that may include:

  • displaying your business name
  • renewing your registration to keep it active
  • informing ASIC of any changes to your registered details within 28 days after the change occurs – including if you cease to trade under the business name.

Once you’ve registered your business name you can use ASIC’s business name services to renew your business name, cancel your business name or update your business name and address details.

Renewing your registration

To keep using your business name you need to renew your registration before the expiry date. The minimum registration period is 1 year. A discount is available if you renew for 3 years. If you don’t renew your registration, your business name will be removed from the register and another business will be free to use it. You could then be stopped from using the name you have been trading under.

Changing your details

If you have any changes to business ownership, the names of business owners or your business addresses, you must tell ASIC within 28 days of the change.
If you decide you want to change your business name, or if you have made a spelling error on your application, you will also need to contact ASIC.

Closing your business

If you plan to close your business, you must send ASIC a request to cancel your business name at least 28 days beforehand. ASIC will then notify the business name holder (and any other people recorded in the business names register). This prevents unauthorized attempts to cancel a business name.

Tips for creating a business name

Your business name should accurately reflect your business. It should clearly convey to potential clients the type of products or services you offer.
When you are choosing your business name you should make sure that it is:

  • not too long
  • easy to pronounce
  • easy to spell
  • memorable
  • not likely to date
  • logical
  • not offensive
  • not misleading.

If you think you might want to trade overseas, you should check the suitability of your business name in other countries.

Posted in Business

What are the main advantages and disadvantages of using a partnership of discretionary trusts for a professional practice?

I’ll start with the advantages and there are many.  Probably the biggest one is the access to thesmall business concessions moving forward.  Again as we’ve touched on in other parts of today’s program, the ability for a partnership of trusts for each individual partner to gain access to the small business concessions is one that just simply cannot be ignored.

Obviously, discretionary trusts are the vehicle of choice by and large for most small to medium sized businesses these days.  So the ability to combine both the small business concession access with individual autonomy and flexibility on income tax planning is very attractive.
The other issue I guess with a partnership of discretionary trusts is that it’s relatively simple to explain and understand.  This point is often in the eye of the beholder and we’ll talk in a moment about some of the disadvantages and how this same advantage can in fact be a disadvantage, particularly in larger practices.  This issue can often be managed by making sure that the one company is trustee for all trusts in the group, and also perhaps acting as a nominee to the outside world, so that as far as clients are concerned, they are in fact only dealing with one entity, being the corporate trustee of a number of different trusts.
I guess the final point to make however in relation to the advantages is that the ability to limit liability to the actual interest in the practice is solely dependent on the actual trust making sure that it only owns one asset, being it’s interest in the partnership.  So in other words, the attraction of perhaps having different assets inside that one structure very much diminishes the ability to limit liability in relation to issues that might arise.
The disadvantages are probably not dissimilar to the advantages, just looking at things from the other side of the fence obviously.  I touched on in the advantages that the ability to have a number of partners in partnership via the trust structure can be an advantage.  Obviously, it can be a disadvantage as well, and particularly as partnerships get bigger, the concept of having countless discretionary trusts involved can administratively be quite prohibitive.  Now   argument would be that as long as you have the same corporate trustee across the group, that can be attractive.
This of itself creates further issues, particularly from a control perspective, because you then need to have the individual trusts looking very carefully at issues such as the appointorship, to make sure that if there is disharmony within the partnership that there’s an exit mechanism, via the trusts, for each of the individual partners.
Conceptually also, while the attraction of the small business concessions is very strong, you are not getting away from the stamp duty costs.  So in other words, if an individual trust decides to dispose of its partnership interest, it will still very much be exposed to all of the normal stamp duty costs at an ad valorem rate, on the full unencumbered value of interest in the partnership.

The last point, and this is in direct contrast to what the situation is for companies, is that you do not really have a corporate model.  So all of the normal advantages that you associate with incorporation, such as employee share arrangements, become very difficult indeed to achieve, because you’ve got this disparate structure of a number of different trusts involved in relation to the partnership.

Posted in Business, Trust