Small Business Assist

The Australian Taxation Office’s ‘Small Business Assist’ tool provides answers to small business tax and super questions. It delivers tailored and accurate information sourced from a range of websites. It includes information such as:

  • Registering for an Australian business number
  • Understanding and registering for GST
  • Employer obligations
  • Lodging activity statements

Small Business Assist features links to relevant webinars as well as blogs and forums. Visit the ATO website (www.ato.gov.au) to start using the Small Business Assist tool.

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Preparing To Engage Workers

If you are planning to hire new workers, there are a few things to consider and organise in order to meet your tax and super obligations. One thing you must do is make sure your workers are legal – they must be Australian citizens, permanent residents or non-citizens with Australian visas that allow them to work.

Employee or contractor?

Determine whether your workers are employees or contractors. It is important you know the difference between the two because your tax and super obligations will vary depending on whether your worker is an employee or contractor.

Pay as you go (PAYG) withholding

When you pay employees or contractors, you may need to withhold tax from their pay and send these amounts to the ATO regularly. You will need to withhold tax from:

  • Employees
  • Contractors who have a voluntary agreement with you
  • Contractors who do not provide you with an ABN.

Super

You need to pay superannuation for both your employees and for any contractors you are paying primarily for their labour. A default super fund needs to be established and you should also have a knowledge of super choice arrangements.

Fringe benefits tax (FBT)

When you provide fringe benefits to your employees or to their associates, such as payment of school fees, you may have to pay FBT. When you provide benefits to genuine contractors you will generally not attract FBT. When benefits are provided to employees (or their associates) by an associate of yours or a third party under an arrangement with you, you may have to pay FBT.

Expenses you can claim

Most of the expenses you incur as a result of engaging workers are eligible tax deductions.

Setting up a workplace giving program

You may consider setting up a workplace giving program to allow your employees to regularly donate to their preferred charities.

There are many issues to consider when engaging an employee. For more information about your tax and super responsibilities as an employer, speak to your Chartered Accountant.

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Privacy Law Reform Changes Come Into Effect

Changes to the Privacy Amendment Act 2012 (Cwlth) commence on 12 March 2014. These changes establish 13 Australian Privacy Principles (APPs), which replace the existing National Privacy Principles. These principles identify the information that must be contained in an organisation’s privacy policy, including:

How, what, why and for what purpose the business collects and holds personal information

Whether the entity is likely to disclose personal information to overseas recipients

If the entity is likely to disclose personal information to overseas recipients, the countries in which such recipients are likely to be located, if it is practicable to specify those countries in the policy.

Personal information is defined as information that identifies or could reasonably identify an individual. That might include a person’s name, address and date of birth, but it can also include bank account details, photos and videos.

The business’s privacy policy must be available free of charge and in an appropriate form and include information about how an individual can complain about a breach. It must also outline how the business will deal with any complaints.

For cloud data stored outside Australia – on computer servers outside Australia – the country where the cloud service provider’s servers are located will need to be disclosed to clients.

For more information go to:

http://www.oaic.gov.au/images/documents/privacy/privacy-guides/comparison_guide_APP_NPP.pdf

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Taking Over An Existing Business

Taking over an existing business, whether it is buying an established business or taking over the family business requires careful analysis and planning. When buying a business, some aspects to consider include:

  • Why is the business being sold? What is the vendor’s history with the business?
  • Are there any sales patterns or trends? What is the business’ customer base? Who are its current suppliers?
  • What are the fixed and variable costs for the business? Are there any staff costs?
  • Is the business profitable? How does the business’s previous financial records look? Has it consistently run a surplus?
  • What assets does the business have? Does it have any intellectual property or leasing arrangements?
  • Does the business have any outstanding debts? What refunds and warranties still exist for the business?
  • Have you reviewed the purchase agreement carefully?
  • What kinds of tax will apply? Consider GST, Capital Gains Tax, and stamp duty implications.
  • What are the legal agreements on leases? What is the business structure?
  • What has and hasn’t worked for the previous owner?

While a prospective business owner must carefully consider the factors listed above prior to purchasing an existing business, taking over a family business requires consideration of a different set of factors. They include:

  • Work-life balance – business creeping into family life
  • Different expectations and work ethics between generations
  • Rivalries – family members who don’t work well together or are too competitive
  • Older generations not willing to let go and handover control, or younger generations not wanting to join the family business
  • Deciding the future direction of the business
  • Choosing the right person to take over the business
  • Managing disagreements between family members.

The benefits of such a takeover can be significant. Those that take over a family business often have a longer term view of success and plan for returns over a longer period. They often demonstrate stronger customer focus, community reputation and special care for employees.

One of the biggest challenges of owning a family business is balancing the relationship between work and family. Regardless of which option you choose – buying an existing business or taking over a family business, discuss the plan with your Chartered Accountant to ensure you are making a fully informed decision.

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Personal Property Securities Register

The Personal Property Securities Register (PPSR) is where details of security interests in personal property can be registered and searched.

Transitional arrangements have been in place for the last two years. The transitional arrangements for the PPSR expired on 31 January 2014. Suppliers of personal property who failed to register their security interest during the transition period may lose their priority in the event of their customer’s insolvency.

Commercial arrangements that may be deemed transitional security interests and eligible for registration on the PPSR include:

  • Leases/hiring agreements
  • Retention of title supplies
  • Commercial consignments

Should the security interest have been migrated to the PPS register, then the registration details need to be reviewed to identify and correct any errors. Should a customer become insolvent, accuracy of the registration will be important to ensure there will be no issues with enforcement.

For further information and to access a range of tailored fact sheets visit AFSF (formerly known as ITSA) or speak to your Chartered Accountant.

 

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Common Tax Questions Answered

In the words of the late Kerry Packer: “I am not evading tax in any way, shape or form. Now of course I am minimising my tax and if anybody in this country doesn’t minimise their tax they want their heads read because as a government I can tell you you’re not spending it that well that we should be donating extra.”

While many people think they understand the existing tax regulations, myths and misconceptions still abound. In this article, we aim to address some of the more common tax questions

Question 1

“If I put a work sticker on my car, can I deduct 100% of my car expenses?”

Answer

Simply – no. Deductions are based on four different methods. The methods are:

  • Cents per kilometre (limited to 5,000 business kms per year)
  • 12% of original value (this can be used if you travelled more than 5,000 business kms per year)
  • One-third of actual expenses (this can be used if you travelled more than 5,000 business kms per year)
  • Logbook method (this requires a logbook to be kept over a continuous 12 week period; the logbook can last for five years as long as it still represents continued use of the car).

Whether the car is heavily branded with work logos or not, the deduction only applies to kilometres travelled for business. Travel from home to work or work to home is generally not deductible. Attending meetings, running business errands and the like are deductible.

For those individuals who do use their car extensively for work in terms of kilometres travelled, log books are good. For those who do not use their car extensively, speak with your Chartered Accountant to determine which deduction method to apply.

Question 2

“I’m looking at buying a car, should I lease, hire purchase or Chattel mortgage?”

Answer

A lot of time can be spent analysing the benefits of each purchase option however it usually comes down to personal preference. Chattel mortgage and hire purchase (for income tax) are treated similarly. Some agreements that say “lease” are actually hire purchase upon reading the detail.

Before committing to any such agreement, have your Chartered Accountant look over the document or, better still, call your Chartered Accountant before you get the finance. Here is a brief matrix of the two:

For hire purchase arrangements entered into after 1 July 2012, GST applies to the entire repayment amount (including the interest component). For that reason, a purchaser who is not able to claim back the GST credit would generally prefer a chattel mortgage over a lease or hire purchase.

Question 3

“I’m looking to start a business, what structure should I have?”

Answer

Many factors need to be considered when deciding what structure to adopt – income tax, capital gains tax, GST and stamp duty, to name a few. Making the wrong decision can become a costly mistake.

While this article cannot cover all the areas of tax structuring, there are some important points to consider as a starting point:

  • In today’s litigious environment there are not many businesses that suit a sole trader structure for the long term. Being a sole trader includes basically a personal ABN and, in some instances, a business name. While many may start as a sole trader, this structure needs to be reconsidered once the business is established and generating an ongoing income.
  • Family Trusts allow distribution of income to other family members, which may help to reduce income tax. (Children under 18 are effectively limited to $416 each per year.)
  • Having a company somewhere in the structure (usually as the trustee of a trust) provides asset protection – an important feature protecting your personal assets from creditors.
  • Forming a company is not necessarily a great business or investment structure, mainly for capital gains tax and stamp duty reasons.
  • For businesses or investments with two or more individuals or families, partnerships should be considered. Unit trusts are also effective, as are hybrid trusts. It is worth getting your Chartered Accountant to explore these options.

Getting your tax structuring right provides huge tax benefits (both in terms of capital gains tax and income tax), asset protection and can even improve your chances of getting bank finance. Talk to your Chartered Accountant to determine what will work best for you and your business.

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Great New Product Ideas

Here are several ways to obtain great ideas for new products:

  • Run informal sessions where groups of customers meet with company engineers and designers to discuss problems, needs and brainstorm potential solutions
  • Allow staff time off to work on pet projects
  • Survey your customers and find out what they like and dislike in your competitor’s products
  • Attend trade shows and gain intelligence; learn about all that is new in your industry
  • Set up an ‘Idea Vault’ and make it easily accessible to your staff.

Harnessing ideas that come from internal and external stakeholders can give your business that extra ‘edge’.

 

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Mediation is Better Than a Legal Trial

Litigation is in decline in the business community.

Alternative forms of dispute resolution are now becoming more popular and, in some circumstances, are mandatory. All family law disputes since 2006, for example, have required compulsory mediation.

Mediation is a cost effective avenue for parties in dispute. The process can cost large sums, but the process allows both parties the flexibility to devise tax effective solutions.

 

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Teams Versus Groups

In business, ‘groups’ and ‘teams’ are not one and the same. As it can often be difficult to distinguish between the two, management should define and clarify the difference.

A ‘work group’ interacts primarily to share information and make decisions to help each member perform within their area of responsibility.

The performance of the work group is merely a summation of each group member’s individual contribution.

A ‘work team’ generates positive synergy through a co-ordinated effort. All these individual efforts result in a product or service greater than the sum of the individual inputs. Work teams get a great degree of individual commitment towards the common goal. Individuals want to be identified with the team.

As management seeks positive synergy in their organisation to increase performance, the extensive use of teams will potentially create a greater degree of output with no increase in inputs however the benefits of using teams must exceed the costs.

There are three tests to be used to see if a team is more effective:

  1. Can the work be done better by more than one person? Simple tasks may best be left to an individual whereas complex work can be achieved using the team’s combined skills.
  2. Does a collective approach ensure a greater level of achievement? For example can teams working together achieve greater customer service?
  3. Do teams fit the situation? Teams make sense when the tasks are interdependent. For example linking customer services personnel with sales reps or mechanics in a new car service department.

Source: Robbins, Millet, Cacioppe, Waters-Marsh

 

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General Year End Tax Planning Strategies

With 30 June 2013 just behind us, these are some strategies that you may find helpful when looking towards 30 June 2014.

For most small business owners the end of the financial year requires a review of their operations – not only their tax planning strategies but also their cash flow requirements. Small businesses, defined as having a turnover of less than $2 million, normally account for their income and expenditure on a cash basis.

For this reason there is a need to plan the year end to provide yourself with an optimum tax strategy while not creating significant cash flow issues for yourself. This is particularly important if you have deferred income until after 30 June. For example, income derived from construction contracts is generally taxed when the progress payments are owing or received.

To ensure that you have optimised your position from a tax planning strategy the following should be considered:

  • Bad debts should be written off in your Book of Accounts before 30 June.
  • Employer and/or self-employed superannuation contributions should be paid, or received by 30 June. Take special care these payments are within the Superannuation Contribution limit.
  • Ensure prepaid expenses are claimed up to 12 months in advance.
  • Take care with the payment of wages to related parties – for example a spouse or family member. These payments should reflect a ‘reasonable income’ for the work that has been performed.
  • Fixed assets subject to depreciation need to be installed before 30 June if there is going to be a claim for depreciation.
  • Trading stock should be carefully reviewed and, if necessary, obsolete stock should be identified.

For more information on these matters contact your Chartered Accountant.

 

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