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Small businesses are facing a set of challenges once again that can make fulfilling tax obligations seem like a daunting task. However, as a small business, capital gains tax concessions on assets used to conduct your business may be of interest to you. These assets are known as “active assets” and can, for example, be a tangible asset (such as commercial property), or an intangible asset (such as goodwill).
The turnover threshold for such CGT concessions is $2 million, according to the ATO. If your turnover is more than $2 million, then you need to satisfy an assets test.
There are stringent eligibility requirements and conditions that you must meet in order to access these concessions.
If you have owned an active business asset, you may only be required to pay tax on 25% of the capital gain when the asset is disposed of.
If you are 55 years of age or older, and are retiring or are permanently incapacitated (and have owned an active business asset for at least 15 years), you may not have to pay any CGT when disposing of an asset by sale, gift or transfer. You might also be able to contribute the amount that you make from this exemption to your super fund without affecting your non-concessional contributions limits (you can speak with us about this if you are unsure about this process).
If you are under 55, the taxable 25% of the disposal of an asset can be paid into a complying fund or a retirement savings account. There is then a full CGT exemption on the sale of an active business asset of up to $500,000 (the lifetime limit). Any amounts earned from this exemption to CGT may be able to be paid into your super fund without affecting the non-concessional contributions limit).
Disposing of an active asset, but are going to buy a replacement asset or improve on an existing one? You can defer your capital gain in this instance until a later year. The replacement asset can be acquired one year before or up to two years after the last CGT event in the income year that you choose the roll-over for.
If the asset is a share in a company or an interest in a trust, there will be additional conditions that you will be required to meet as well. If you are a small business, there are other CGT exemptions, rollovers and concessions specific to small businesses that you may be able to access, if you meet the eligibility criteria. These small business CGT concessions will reduce the taxable capital gain and in some cases result in no tax being paid at all on the gain.
Speak with us to find out what you may be entitled to when it comes to CGT and your business to ensure that you are doing the right thing with your tax obligations after selling an asset.
If you’re looking to go into business with someone, the chances are that you might be looking at using a business structure known as a partnership. A partnership is a type of business structure that is made up of two or more people who distribute income or losses between themselves and is a fairly popular form of structure amongst those looking to develop a business.
It offers ease and flexibility to run your business as individuals, eliminates the need to create a company structure and avoid reporting obligations. You’re also not going into creating a business by yourself, which can be an added bonus for some and reduces some of the initial financial burden and uncertainty of the setup.
Just as there are advantages to choosing to set up a partnership, one must also examine the disadvantages.
A partnership generally exists between two or more parties, so disagreements in management may occur, and decision-making may never be truly equal. It can be difficult to add or remove partners into and out of the partnership, and adding more partners can make the partnership more complex to manage.
Partnerships also generally do not receive access to many government grants (barring special exemptions).
A partnership business structure may be the structure for you to employ as they possess the following key elements:
- Partnerships are relatively easy and inexpensive to set up
- Have minimal reporting requirements
- Require separate tax file numbers
- Must apply for an ABN and use it for all business dealings
- Share control and management of the business
- Don’t pay tax on the income earned, as each partner pays tax on the share of the net partnership income that each receives
- Do require a partnership tax return to be lodged with the Australian Taxation Office (ATO) each year
- Require each partner to be responsible for their own superannuation arrangements.
There are three main types of partnerships that you may have come across in your own research. Each one has advantages and disadvantages that you may want to take into account when considering what would be the best suited to your situation.
A general partnership is where all partners are equally responsible for the management of the business. For any debts and obligations that may be incurred by the business, each partner has unlimited liability for them.
A limited partnership is made up of general partners whose liability is limited to the amount of money that they have contributed to the partnership. Those involved in this style of partnership are known as limited partners who are usually passive investors without a role to play in the day-to-day management and running of the business.
An incorporated limited partnership is where the partners involved in this type of partnership can have limited liability, but at least one general partner must have unlimited liability. If the business cannot meet its obligations, that general partner (or partners) become personally liable for the shortfall and debts.
Each state and territory has different legislation and regulations that must be abided by when setting up a partnership. Learn what is legally required from you prior to setting up your partnership, or discuss with us what you may be obligated to do.
A family trust is a great structure. It provides tax flexibility whilst giving you asset separation in two directions. But what does asset separation in two directions mean? And why might we suggest it to you as a recommendation?
First of all, why do you want asset separation? If there are multiple assets, you want to make sure that if someone makes a claim against the owner of a particular asset that your other assets can be quarantined from that claim. This isolation will mean that they can’t gain access to the assets that are yours and separate from the claim.
If you own a business and have a successful financial claim made against your business where the claim is for an amount that is more than the assets of the business, you will first need to use the business to cover the claim, and then find something additional to supplement the shortfall. In this case, if you also own your own home, and its worth is enough to cover that shortfall, it may be used to meet the claim by combining the business assets’ worth and the family home’s value. You could lose your family home!
However, if we structure your business in a particular way then the person making that claim will only have access to the assets in the business and you will be able to keep your family home.
This is what is called asset separation. Generally, it’s a good thing to employ, but it does have one flaw – it usually only goes one way.
If someone claims on your business, they won’t get the house but if they successfully make a financial claim against you, they will successfully get all of the assets that you own, including those of your business. This is a risk that you must be willing to take if you own a business.
When you operate a business through a family trust instead of owning that business, you will merely “control” it, and have but a “mere expectancy” of being considered in the distribution of any profits or capital from that business.
The good part here is that although you only have a mere expectancy to be considered, we would set it up so it is YOU that “considers” who gets the money. This means that if someone makes a claim against you then they can’t get access to assets in the family trust. What this does is give you two-way asset protection.
There is a bit of an issue with family trusts though – although you will see the debts of the trust as debts of the trust at law, they are in actual fact the debts of the trustee. If you are the trustee, all of the debts of the trust are your personal debts. You can use the trust assets to pay down those debts, but if the trust assets are insufficient to pay the debts, it will be up to you to pay off the rest.
When you’re an individual trustee of a trust, you lose the perk of asset separation, which is why a company may be used as a trustee, as the company does nothing other than act as the trustee of the trust. If there are insufficient funds in the trust to cover the debts of the trust, then those debts fall on the trustee and the creditors have no access to your personal assets because you have no individual debts owing.
Want to know more about asset separation? Interested in trusts? We’re here to help.
Have you, over the course of the past financial year, received a government assistance payment, support payment or disaster relief supplement?
There have been a number of cases where people who received financial assistance from the government were hit with additional owed tax to the ATO, due to their payments increasing their income threshold.
When lodging your individual income tax return this year, you will need to declare certain Australian Government payments, pensions and allowances in your tax return. If you did not elect to pay tax on those payments, this could affect the payment received from your return (or mean that you actually owe money to the ATO).
Some of the taxable payments that you may need to include in your tax return include:
- the age pension
- carer payment
- Austudy payment
- JobSeeker payment
- Youth allowance
- Defence Force income support allowance (DFISA) where the pension, payment or allowance to which it relates is taxable
- veteran payment
- invalidity service pension, if you have reached age-pension age
- disability support pension, if you have reached age-pension age
- income support supplement
- sickness allowance
- parenting payment (partnered)
- disaster recovery allowance (but not in relation to 2019–20 bushfires)
Most of these pensions, payments and allowances will pre-fill in your tax return if you lodge online. You will need to make sure that all information submitted is correct though. Verify the pre-filled information with your own records to ensure that you are lodging the right information, and not missing anything.
Do you have concerns about your tax return this year? Uncertain about deductions, or if certain taxes will apply to you? Want a little more help or information about your government payments?
Be prepared for your individual income tax return with a consult with us. We can advise you on your tax returns, and potentially help you minimise the tax you will end up paying.
Sometimes you might want to set up a structure where you will share in the spoils with everyone that deals with that structure. There is a specific type of structure for this and it is known as a Co-Operative.
A co-operative business structure (or co-op) is a legally incorporated business entity that is designed to serve the interests of its members. Co-operatives may be profit-sharing enterprises or not-for-profit organisations.
A cooperative business serves members by providing goods and services that may be unavailable or too costly to access as individuals. There are two types of cooperatives that businesses can be set up as.
Distributing cooperatives are able to distribute any annual profits to members of the cooperative. They are required to share the capital that they make, and members of this type of cooperative must own the minimum number of shares specified in the co-op’s rules.
Non-distributing cooperatives cannot share their profits with members of the cooperative. All profits must further the cooperative’s purpose, and the cooperative may or may not issue shares to the members. Members may be charged a subscription fee if there is no share capital
Some popular cooperatives business structures include:
- Consumer co-operatives, which buy and sell goods to members at competitive prices in a variety of sectors.
- Producer co-operatives, which may process, brand, market and distribute members’ goods and services, or supply goods and services needed by their members, or operate businesses that provide employment to members.
- Service co-operatives, which provide a variety of essential services to their members and communities.
- Financial co-operatives, including co-operative banks, credit unions, building societies and friendly societies, which then provide investment, loan and insurance services to their members.
The ATO is looking to make tax season a little bit easier this year, particularly in light of the unique but significant challenges that Australians have been facing over the last year, and are continuing to face. If you received a financial assistance payment, grant or scheme package during the 2020 financial year, you need to be aware of your taxable requirements. There are different tax treatments for different payments that you may have received.
Payments that were received from Jobkeeper as an employee will be automatically included in your income statement as either salary and wages, or as an allowance. Sole traders who have received a Jobkeeper payment on behalf of their business will need to include the payment as assessable income for the business.
All information will be included in your tax return (in the Government Payments & Allowances question) when ready. Lodging your return prior to the information being available will require you to add it yourself. Leaving out income will slow your return, so it is important to ensure that you have all of the information when lodging.
Stand Down Payments
If you were the recipient of a one-off or regular payment from your employer after being temporarily stood down due to COVID-19, these payments will be automatically included in your return as they are taxable.
COVID-19 Disaster Payment For People Affected By Restrictions
The Australian Government (through Services Australia) COVID-19 disaster payment for those who were affected by restrictions is a taxable payment. This must be included when lodging your tax return.
Tax Treatment Of Other Assistance Payments
The tax treatment of other assistance payments may vary according to what is required and how the income is assessed as. It is best to double-check on the ATO’s website directly to determine how different disaster payments may impact your return.
Early Access To Superannuation
If you received early access to your superannuation under the special arrangements resulting from COVID-19, you do not need to declare that amount in your tax return. Any eligible amounts withdrawn under this program are tax-free.
If you require assistance with determining what is taxable income and what is not, or you’re not sure what payments that you received may be applicable to the ATO’s different tax treatments, come speak with us. We’re here to help.
Family-run businesses form an essential part of the economy. Tradition, success and history along with their unique dynamic can create a thriving business that many may wish to see continue.
However, as with any business, the conversation about succession and how to continue the business into the future needs to be had.
With only 1 in 4 family-operated businesses considering their approach to succession formally, succession in a family business is one of the greatest viability risks to the actual business and needs to be addressed accordingly.
Every family and family-run business is unique, and every transfer or succession of a family business will also be executed differently. If you are thinking about what your family business’s plan is for succession, you may want to consider keeping these critical factors in mind:
- Where is your business going? What do you want for your family and business? What are your goals and your time frames for achieving those goals?
- Is the vision you have for your business shared by your family? It is important to consider this for the succession of your business, as a mutually shared vision will ensure that the business continues on the projected path even after the business has been passed onto the next generation.
- What obstacles and challenges will your family business face? You need to be able to understand the different perspectives and motivations of each individual that the succession impacts. Ongoing communication is vital to gaining this understanding, but an advisor can be employed to unbiasedly look at the situation independently and take the emotion out of a conversation.
- Create a plan to plot out the path of the business’s future, and the challenges that the business may face along the way as well as what it is currently facing.
- It’s important to remember that a family business does not have to be succeeded by a family (though it’s an outcome you may want). Always consider what the members of your family wish to do, and consider alternatives if none wish to take over the business.
A succession plan for a family business needs to be created to move forward and should detail all of the actions you intend to take (including the steps involved with both management and ownership succession).
It needs to be flexible, adaptable and ready to evolve, as businesses (as well as families), change over time. Your succession planning process should be transparent and understand and align with the goals you have set out for the business’s further development across the generations.
The most effective succession plans:
- Preserve and generate family wealth
- Minimise disharmony and disruption
- Minimise the impact of tax
- Encourage personal growth of family members
- Fund the retirement and family lifestyle
- Bring clarity to where the business and the family are heading.
There were a few changes to superannuation that were passed by the Senate recently.
You can now use the bring-forward rule to make three years’ worth of non-concessional contributions (where you don’t claim a tax deduction) up until the age of 67.
Last year the rules had changed to permit a person to make non-concessional contributions up to the age of 67 but the use of the bring forward rule had stayed at an age limit of 65 years old, as it required a full Bill to be passed by both Houses of Parliament.
This new age limit will apply to contributions made on or after the 1st July 2020. This is particularly good news for people that turned 67 during the year and utilised the three year bring forward rule in anticipation of the law being passed.
From the first quarter after receiving royal assent (most likely to occur from 1st July), Self Managed Superannuation Funds will be allowed to have up to six members. The limit is currently four members. For larger families, this will be of particular use and relevance, as the parents involved in the fund may wish to include more than two children (this could potentially be up to four children involved in this case).
Pauline Hanson’s One Nation Party also passed through an amendment into the changes that will remove a charge on excess concessional contributions. Concessional contributions are those where you or your employer can claim a tax deduction on a contribution.
If you or your employer currently contribute over the allowable caps (usually limited to $25,000 but moving to $27,500 on 1 July) to your super, you are charged an amount of around 3% of the excess you contributed and it is calculated from the 1st of July in the year that you made the contribution up until the day your assessment is due.
There are still other charges that will apply to exceeding contribution allowable caps, such as Shortfall Interest Charge and General Interest Charge. The biggest is usually the Excess Concessional Contributions Charge.
This change was never announced and was not part of government policy but made it through anyway. One Nation also tried to increase the maximum allowable tax-deductible contributions for persons aged over 67 years old, but that amendment did not go through.
Another change that had not been previously announced was that if you had an amount released from super under the Covid Relief package ($10,000 per year for two years) then you will not be able to claim a tax deduction for the same amount that you contribute back into super up until 2030.
For example, Peter took his $20,000 under the Covid Release package. Peter contributes $1,000 per month into his superannuation fund and usually claims a tax deduction for that amount.
The first $20,000 that Peter contributes after 1st July 2021 will not be able to be claimed as a tax deduction. This only applies to personal contributions, so if your employer contributes on your behalf this will not impact you.
Want more information about super contributions, but not sure where to start? Come speak with us – we can help you with any questions you may have about superannuation
More and more Australians bought local products during the past year and rallied behind smaller businesses, which buoyed many shops that may have otherwise struggled to stay afloat.
To create this kind of loyalty and support it’s crucial to develop and maintain a strong connection with your customers.
If you are a small business, this is a vital aspect of business management that you will want to have occurred to strengthen customer relationships.
Make The Customer Feel Special
Customers want to feel special – you can achieve this by approaching each customer as an individual rather than as a customer per se. Making the user interactions tailored to suit each customer’s specific needs/usage of your products will enhance the relevance and improve the authenticity of the interaction. Your customers will feel heard by your business and seen.
Let Your Customer Feel Heard
Always ensure that the customer feels heard – if the customer has a complaint, treat it the same way that you treat a good review, and respond accordingly. This builds trust with the customer and future customers that you will hear them out, and act the best you can to assist.
Reward Customer Loyalty & Strengthen Connections
Go above and beyond for your customers – if you’re a small business, you can use the closer connection you may have with your customers to your advantage and offer additional loyalty discounts, recommendations, and phenomenal customer support.
Follow Up With Your Customers
Follow up with customers (new and current) to ascertain reception of products and services, spearhead a proactive approach to appraisals and determine if a poor customer experience has been had. Following up allows customers to feel acknowledged while also granting you access to potential data that you may not have received otherwise.
Connect Via Social Media
Ensuring that you remain actively involved on your social media for your business with your customers should increase interaction. With many looking to online platforms to browse products, leave reviews and share favourite products via social media, it makes sense to turn your social media platform into a way to make your brand shine. Actively engaging with customers, responding to comments and questions, and directing your brand’s narrative are great ways to use social media to strengthen your connection.
Your Existing Customers Should Come First
Prioritise the customers you already have over the accrual of potential customers. If you’ve already got an established customer base, one of the best ways to maintain it is to keep them happy. You don’t want to risk losing them during the growth of your business due to less attention and more subpar customer service. The best way to maintain customer loyalty is to ensure that you can meet their needs, follow up with their requests (to the best of your ability) and satisfy their customer service needs.
Ethical investing is gaining traction, with more and more investors selecting where their money will go based on their personal principles. This style of socially conscious investment holds companies accountable for their negative impacts and is driving many investors to select their investments dependent on their mutual shared values.
Ethical investing can align with moral, social, political, religious and environmental values, and takes them into account prior to making investment decisions. The primary objective of ethical investments is to create a positive impact by investing in companies that take environmental, social governance (ESG) and ethical issues into consideration and make an effort to address or prevent the business from contributing to the issues.
Rather than only receive a financial return on their investment, investors also receive a social conscious return that has an overall impact on them and the planet.
There are two ways that ethical investing can be done.
An investor chooses to invest in industries/sectors/companies whose values align with their own values. As an example, they may look towards companies who are environmentally and socially conscious, who treat their workers fairly, have high governance standards and carry out environmentally sustainable practices.
This is when an investor avoids industries whose values directly differ from their value – those involved in fossil fuels, gambling, military ammunition and tobacco are automatically crossed out from ethical investors’ choices. Treatment of workers can also determine to an ethical investor whether or not a company is worth investing in.
Ethical investing, while praiseworthy, needs to consider the soundness of their investments as well as their values. To examine whether the investment is sound and has the potential to reap significant returns, a review of a company’s history and finances is necessary. It is also important to confirm the firm’s commitment to its declared ethical practices and measures.