Posted on 3 July '22, under Business.
Understanding how and preparing your business for the impact of inflation is a critical element of business planning that now more than ever needs to be addressed.
Interest rates rising are putting a strain on businesses across the country, as the costs for running these businesses rise in turn. Further spikes in inflation could provide additional challenges for businesses and their owners who are struggling to prepare for them.
With interest rates forecast to increase exponentially over the next year, here are some methods you can employ to address the risk inflation may pose to you.
Improve Productivity And Efficiency
Now is the time to review processes and output and look at ways to improve or streamline your operations, such as automation of processes including business software.
This could include
- Sales and marketing or
- Purchase orders
Strategically Cutting Costs
Review your current service providers and contracts such as telecommunications and internet providers, commercial property leases and service contracts, and compare the current market. You may find that there are better deals or options that allow you to minimise costs without impacting your business’s performance and options overly much.
However, be mindful not to cut marketing spending or communications capabilities which could cost you business in the long term.
Revisit Your Banking And Financial Products Needs
Look beyond your short-term needs and make sure that the interest rate on your business loans is competitive and weigh the benefits of variable and fixed rates.
Develop A Pricing Strategy
Rather than a price increase, look at ways you can leverage or bundle your existing goods and services.
If you are selling products, understand that there is a link between your client relationship and your pricing. Pricing too high all of a sudden could impact how your business is viewed by customers, but pricing too low will be detrimental to your business.
It could be cheaper for your business to offer a discount on upfront or prompt payments, rather than maintain an overdraft that accrues higher interest rates.
Consider Your Supply Chain
Overseas markets are volatile at the moment, so consider reducing risks by finding a domestic supplier which could also slash the costs of freight and storage. Create backup supply chains to mitigate the risk of having a ‘singular’ supply chain that could be impacted by market disruptions.
Review Your Workforce
The labour market is competitive, and you want to keep talented staff. Consider offering flexible work arrangements, offering nine-day fortnights rather than pay increases, and looking for training and development opportunities, particularly those that are subsidised by the government.
If an employee is not providing value to the business (such as working in a redundant position or failing to meet work expectations that are reasonable to expect from them), it may be better for the business to let them go.
Are you concerned about how inflation could impact your business? Speaking with a trusted business adviser (such as your accountant) may assuage some of those concerns, as they can provide you with a formulated plan that targets your business’s year ahead.
Posted on 26 June '22, under Super.
A relationship has been established around superannuation and mortgage debt that could impact the stability of your retirement.
As prospective Australian retirees approach their preservation ages and retirement, those who are yet to own their own homes may struggle to maintain a comfortable retirement. Retirement plans often work out a prospective financial situation, and assume that an owned home is an already existing asset.
Housing is quickly becoming a critical aspect of retirement, alongside the pension, super and voluntary savings as the main means of ensuring a comfortable retirement for future retirees.
Mortgage debt and the threat of continued payments to pay it off is something that workers must now take into consideration when looking into their retirement, as Australians struggle to pay off their homes. Can it be paid off without the extra income earned from their work?
As more and more Australians retire with healthy superannuation balances, the allure of using that money to pay down a mortgage is strong.
Factors that may be affecting retiree’s mortgage debts could include:
- Higher property prices (now ten times the average wage as compared with three or four times two decades ago).
- A delayed entry into the property market as they save for a deposit, leaving fewer working years to pay off the loan.
- Relatively low-interest rates – currently, every dollar used to pay down a mortgage is saving less than 3% on interest, while in superannuation that same dollar has the potential to return 7 or 8 per cent.
Paying down a mortgage is a growing problem for retirees who are increasingly leaving the workforce with mortgage debt, which is far from the norm among middle-income Australians as recent as a decade ago. Among retirees, homeowners in the years prior to retirement (ages 55-64) had dropped from 72% in 1995 to 42% in 2015-16.
However, those who began their working careers prior to the 1990s face another challenge as they move closer to their preservation age; the superannuation guarantee was only introduced in 1992, which means that many may have accumulated less superannuation than other generations after.
It is understandable that for those approaching retirement, preferencing super over mortgage could seem like a logical move, as the extra funds generated can be diverted back into property on retirement. Using superannuation to pay a mortgage can make some tax sense – in an assets test for the Age Pension, a primary residence is exempt while superannuation is not.
This may become a more common approach for retirees and those looking to retire within the next few years. However, you should consider what the best approach is for your situation, and whether paying off the mortgage with your super is worth it in the long run. Consulting with a professional before taking any action should be your first step in this process.
Posted on 19 June '22, under Tax.
If your business earns a part of its income in cold, hard cash, be prepared to have the Australian Taxation Office’s eyes on you this tax time.
To protect honest, compliant Australian businesses, the Australian Taxation Office (ATO) has placed a strong emphasis on targeting the cash and hidden economy (known to be a part of the shadow economy).
For example, they may be keeping a close eye on a sole trader electrician, whose reported earnings over the financial year versus their actual spending isn’t adding up. Or perhaps you have a side hustle (such as freelancing or selling plants at the market), and earn some cash-in-hand alongside your full-time job’s income.
The ATO will be watching these businesses and individual traders that deal predominantly in cash, with a focus on those that:
- Fail to meet super or employer obligations, and fail to register for GST or lodge activity statements.
- Operate outside regular small business benchmarks specific to their industry.
- Show discrepancies between what they have reported and ATO collected data relating to electronic payments.
- Operate and advertise as cash-only.
- Income does not correlate with the lifestyle of the business owner, i.e., assets and spending habits exceed what is expected of someone with their reported income.
- Pay their employees cash-in-hand.
- Estimate their sales and income.
- Use the ‘no sale’ and ‘void’ buttons on cash registers when taking cash payments.
- Do not reconcile at the end of the day and do not keep cash register tapes.
- Are reported to the ATO by members of the community or any third party regarding potential tax evasion.
- Are part of an industry that is known for dealing primarily in cash-only.
When out visiting cash-only businesses, the ATO will be working in unison with local authorities and industry associations to ask questions and discuss:
- Why the business operates primarily or only in cash.
- The need to lodge tax returns and activity statements.
- How to be compliant in relation to tax and super obligations.
- Different claims and tax deductions businesses can make.
- The general community’s preference for having EFTPOS or electronic payment options available to them.
- Benefits of electronic payment and record-keeping facilities.
- Relaying tools and services businesses can use if they are struggling to ensure they are compliant with Australian tax laws.
If the ATO comes across a business that is doing the wrong thing or failing to meet its obligations, they have a duty to take action. This may result in the business facing an audit and possible prosecution.
Its imperative that you are fulfilling your obligations and know where you stand, particularly with;
- Bookkeeping and record-keeping requirements
- Reconciliations between till takings (z-totals) and banking
- Consequences of failure to report all income (penalties, fines, interest, additional tax, additional GST)
- Consistency of business income between prior and current years, and with reference to lifestyle
If you do make a mistake upon completing your tax return but make a voluntary disclosure detailing your errors, the ATO will work with you to rectify this and create a solution.
Posted on 13 June '22, under Business.
What is the origin story of your business? Why did it begin?
Many people might say publicly that they went into business to make a better future. Others might say that they began the business to pursue a passion. You may have simply wanted to earn money on your own terms, and create a better world for yourself.
More money, more free time, and more control or flexibility around your own work are often the reasons that people go into business. In a perfect world, you would have that control over your own work, be working fewer hours and have more money while pursuing your dream job and career goal. This may sound perfect, but it is rarely the outcome that people get from their own business.
In most instances, people may find that their hours increase, their income drops and though they now possess control, may also find that their business now also has control over them. The amount of work that may need to be done as a business owner can be overwhelming, but it must be completed. Instead of having one boss to answer to, all your customers are now your boss.
Owning a business can grant you more control, but it also comes with these heavier responsibilities and obligations. Being prepared is why consulting with a trusted business adviser can allow you to take the fear out of ‘impossible situations’ for the business, and give you choices.
There are many tasks that now require your focus to keep your business in operation – but to everyone else, it probably seems like you are living the high life as a business owner, answering to no one (if only they knew).
Your business probably started with a dream – a dream that probably did not include becoming a slave to your business or earning less than what you did in your previous job. What was that dream? What was your motivation?
Take stock of the situation you have found yourself in with the business. Relax, reflect, and consider what direction you want it to move in. Where do you want to go? Once you have a general idea, you need to put a little bit of time into planning how you are going to get there. Determine where you want your business to be in five years, or even ten years’ time.
Benjamin Franklin is believed to have once said, “if you fail to plan, you are planning to fail.”
It does not matter what stage of the business you are at, revisiting the business planning stage, even midway through the business, can be a useful strategic tool. Every business needs regular planning. This cannot be stressed enough. The chances of achieving your business goals are improved dramatically if there is a formally noted business plan.
A good business plan outlines your strategy for the next couple of years. It may be used to help support an application for business finance or business grants. Or it could be just for your own use as a roadmap for the growth of your business.
The components of a business plan explain your objectives and the actions required to get your small business from where it is now, to where you want it to be.
The process of creating your business plan will help you focus, crystallise your ideas and identify priorities, saving both time and effort. Your business plan will give you a clear sense of direction and a benchmark enabling you to measure progress.
In the approach to the end of the financial year, the best time to prepare a plan to use for your business over the next twelve months is now. Developing your five- and ten-year plans is also highly recommended. For assistance in preparing or developing your business plans, you can come and speak with us as trusted business advisers.
Posted on 5 June '22, under Super.
As you grow older, your aim may be to live a long, happy and healthy life. This is hopefully with the mental capacity to make your own financial and lifestyle decisions, and the appropriate superannuation to fund it.
But not everyone is always able to do this as they grow older. In the worst-case scenario, you may find yourself unable to make those choices yourself due to a diminished mental capacity (such as from mental deterioration, illness etc). If you can’t make your financial decisions, this could be bad.
There is often a misconception that people who lose their capacity to make, for example, financial decisions will simply be able to have their partner or spouse step in to make those decisions on their behalf. This is not the case.
Even if you are in a relationship with someone or own property jointly with them, they do not automatically have the power to make those financial decisions for you. This is where estate planning comes into play.
An estate plan records what you want to be done with your assets after your death. It can include documents such as:
- your will
- a testamentary trust (as part of your will)
- superannuation binding nominations
It also covers how you want to be cared for — medically and financially — if you can no longer make your own decisions. This part of your estate plan may be in documents such as:
- any powers of attorney
- a power of guardianship (giving someone the right to choose where you live and to make decisions about your medical care)
- an advance healthcare directive (your needs, values and preferences for your future care)
You may also choose to create an Enduring Power Of Attorney, which is a substitute decision-maker on your behalf. An EPOA is essential for clients who have their own Self-Managed Super Fund (SMSF).
The SMSF regulations require that members of the SMSF are either a trustee of the fund or directors of a company acting as the trustee. If a fund member is incapacitated, the member cannot be a trustee or a Director of a company. If that occurs, the SMSF becomes ‘non-complying’ which means it loses the tax concessions given by the super regulations.
Depending on your state of residence, powers of attorney may have different rights and obligations, particularly with respect to financial matters. Doing research and consulting with us about what your course of action could be if you were to lose your mental capacity for financial decisions could be a great start.
Posted on 29 May '22, under Tax.
Registering for an ABN and applying for GST refunds when you don’t own a business or are not eligible is fraud.
The Australian Taxation Office (ATO) has identified a significant number of GST refund fraud attempts, totalling an estimated $850 million to around 40,000 individuals. This fraud involves predominantly participants inventing fake businesses to claim false refunds.
Sophisticated risk models deployed by the ATO, coupled with intelligence received from banks including through the AUSTRAC-led Fintel Alliance and the Reserve Bank of Australia, identified a recent spike in suspicious refunds. Currently, the ATO has stopped $770 million in payments from being issued.
The fraud involves offenders inventing fake businesses and Australian Business Number (ABN) applications, many in their own names, then submitting fictitious Business Activity Statements in an attempt to gain a false GST refund.
Currently, this fraudulent activity has been circulating as online advertising and content, particularly on social media and their platforms.
Reminders For The Community
- The ATO does not offer loans. If you see someone advertising a way to get a loan from the ATO, it’s not legitimate.
- The ATO does not administer COVID disaster payments.
- If you are not operating a business, you do not need an ABN, and you don’t need to lodge a GST return.
- Backdating your business registration so you can apply for a refund will flag you as high risk in our systems.
- False declarations may impact eligibility for other government payments.
- The ATO possess the data matching ability to detect these patterns and stop fraud.
- If something seems too good to be true, seek independent advice from an adviser who has no connection to the arrangement before taking any action, or phone the ATO.
What This Means For Businesses:
- Legitimate businesses may face extra steps to receive their refunds as extra controls are put in place.
- To prevent people from lodging fraudulent claims, the ATO has engaged tighter controls around ABN and GST registration.
Were You Involved?
The ATO is urging anyone already involved to come forward now on a voluntary basis rather than face tougher consequences later. They will be recouping the funds, and there will likely be a better outcome for you if you approach them first.
People who have participated in this fraud may have unwittingly followed advice they have read online, claiming to help access a loan from the ATO, or receive other financial government support such as a disaster payment.
However, for others where there was nothing accidental or unintentional about setting up a fake business in their own name and seeking an unearned refund, harsher penalties could be faced.
If you become involved in this arrangement, you need to speak with the ATO now. They will be able to support you with a range of self-help options. You may be able to correct it yourself, the ATO may be able to assist you, or you may be referred to a trusted advisor like a tax agent (such as us) to help you.
Super Guarantee Change – Deadlines, Payments & Everything Your Business Needs To Know Before The EOFY
Posted on 22 May '22, under Business.
It is easy to get caught out with superannuation, particularly when you are the owner of a business. With so many things to occupy your mind, superannuation may slip from the forefront.
But as a business owner, you must pay the superannuation guarantee for your staff, and you must pay it on time. A failure to pay it on time will mean that you are no longer able to receive a tax deduction for the payment for that financial year.
On top of that, you can face hefty penalties (which you won’t get a tax deduction for either!). Now imagine being five days late on a $10,000 super payment, losing the tax deduction on that payment and then copping a $20,000 penalty as well.
The first thing is to make sure that your super is paid well before the time it is due. This should be a priority payment (a payment that you make before anything else).
As the end of the financial year approaches, it is time to be thinking about the June Super Guarantee payment. You may have until July 28 to make the payment but leaving it until then will not net you a tax deduction until the next financial year. From a tax perspective, this may not be what you want to do (unless you know that in the next year, you will need more tax deductions).
Superannuation also has a few strange rules when it comes to claiming a tax deduction. For employee superannuation, it is critical that it is paid on time. More than that, the money has to actually be in the bank account of the super fund for you to claim a tax deduction.
Unlike other expenses where you can show the money coming out of your bank account, this money needs to be present in your super fund for you to make the claim. If your super guarantee payment hits the bank account of the super fund on June 30th then you can claim a tax deduction for that year. If, however, it hits the bank account on July 1st then the tax deduction is claimed in the financial year after.
Problems arise when you are paying your super through a clearing house, which takes a number of days to clear your payment and get it to the super fund. For example, you may pay the clearing house on the 25th of June, but your super fund does not receive it into their bank account until the 1st of July.
The ATO’s Small Business Superannuation Clearing House usually has some concessions in these instances.
If you want to get a tax deduction for your June Super Guarantee payment, you need to work out with your clearing house the latest day that they can guarantee that the super fund will then receive the payment this financial year. Some of these clearinghouses are quoting that you should be paying as early as the 14th of June.
Finally, with regards to Super Guarantee, remember that the rate increases to 10.5% from 1st July. This rate applies to wages paid on or after July 1st so make sure your payroll system either automatically updates the rate or that you have updated it to reflect the increase.
Employers who fail to meet their Super Guarantee obligations may also be liable for a range of penalties or charges on top of the super guarantee charge.
Paying super is an important part of being an employer. To ensure your business remains compliant, remember to:
- pay the right amount (10 per cent) of employee ordinary time earnings until 1 July 2022 (when it will rise to 10.5
- pay on-time
- pay the right way and
- keep records to show you have met your obligations
Posted on 16 May '22, under Super.
The way in which a self-managed super fund is structured could change its legal compliance requirements. If you are in the process of setting up an SMSF, you will need to make a decision about how to structure it appropriately to suit.
An SMSF can be structured as a single-member fund or a multiple-member fund, with the trustees of those funds deemed as either to be individual trustees or a corporate trustee
Examining the circumstances of your members could help to narrow down the structure that will be best suited. You can also work out from the requirements of each structure whether or not a fund structure would be suitable for the needs of your members.
Individual trustees in a single-member fund will have two trustees within the fund. One trustee must be the fund member, but cannot be the other trustee’s employee (unless they are also relatives). An example of a single member trust fund structure could be a family super fund, where the members are trustees for the fund.
Individual trustees in a multiple-member fund structure generally have between two to six members. Each fund member must be a trustee and each trustee must be a fund member. Like the single-member fund, members of this fund structure cannot be the employee of another member (unless they are relatives).
SMSFs that use individual trustees or are looking to use individual trustees in their structure may benefit from the following:
- The fund can be cheaper to establish, as a separate company does not need to be set up to act as a trustee.
- Trustees must follow the rules in the fund’s trust deed, the super laws and the tax laws.
- There are fewer reporting obligations which means it can be easier to administer, however, changing trustees can mean more paperwork and administrative costs. .
- Another trustee must be appointed if your fund only has two trustees and one leaves or dies to continue operating as an SMSF, or it must change to a corporate trustee structure. If the trustees change, you need to notify the ATO within 28 days.
- Fund assets must be held in the name of the fund or the names of the individual trustees, “as trustees for” the fund. If the trustees change, the name in each asset’s ownership document must be changed as well, which can be time-consuming and costly.
SMSFs that are set up using corporate trustees, typically set up a business or company to act as a trustee. The members within these kinds of funds are known as directors and will need to apply for a director identification number as such.
Corporate trustees within a single-member fund structure may have one or two directors, but one of those directors must be the fund member. If there are two directors, the member cannot be the other director’s employer (unless they are relatives).
Corporate trustees within a multiple-member fund structure generally number between two to six members, with each fund member also being a director. A member cannot be the employee of another member (unless they are relatives). An example of a corporate trustee SMSF could be a business acting as the trustee for a super fund, where the members are also directors of the fund.
SMSFs that use corporate trustees or are looking to use corporate trustees in their structure may benefit from the following:
- A company must be set up to act as the corporate trustee, for which ASIC will charge a fee to register them as a corporate trustee and an annual review fee.
- Directors must follow the rules in the fund’s trust deed, the super laws, the tax laws, the company’s constitution and the Corporations Act 2001.
- Company directors, including directors of an SMSF corporate trustee, will need to obtain a director identification number.
- There are some extra reporting obligations to ASIC but it can be easier to administer the ownership of fund assets and to keep fund assets separate from any personal or business assets.
- The corporate trustee does not change if a director leaves or dies, as it can operate with just one director. However, you will need to notify the ATO and ASIC within 28 days if the directors change.
- Fund assets must be held in the name of the fund or the names of the company, “as trustee for” the fund. If the directors change, the corporate trustee does not change so the titles of the fund assets are unchanged.
The setup of an SMSF can be a complicated process. You may benefit from speaking with a professional assisting you in its preparation and establishment. Choose someone who is qualified, registered and licensed, and right for you and your circumstances.
Posted on 9 May '22, under Tax.
The end of the financial year is coming up next month (30 June), and you may be looking for ways in which you could make tax savings in this year’s tax return. This could be through tax deductions, expenses that you could make now for your work purposes or even with tax offsets introduced by the government. Whatever your tax situation, we’re equipped and ready to help you navigate the tricks and traps of income tax returns.
Upon completing a tax return, individuals are entitled to claim deductions for expenses that are directly related to their income. These can come in a variety of forms, but must usually be work-related to be claimable.
There are three requirements individuals must meet to be able to claim a work-related deduction:
- the individual must have spent their money and not be reimbursed for it
- the expense must be related to their job and;
- there must be a record, like a receipt, to be able to prove it.
If an expense was for work and private purposes, individuals can claim a deduction for the work-related portion.
Here are some common types of deductible expenses taxpayers like employees and rental property owners can claim this financial year:
Home Office Expenses
The past year may have seen you working more from home or remotely than ever before, and setting up a home office may have incurred a number of additional expenses. Some of the expenses that you may be able to claim as tax deductions include
- Phone and internet expenses
- Computer consumables (such as printer paper and ink) and stationery
- Home office equipment (such as computers, phones, printers, furniture, etc).
With home office equipment, you may be able to claim either:
- the full cost of the items (if less than $300 in value) or
- The decline in value (also known as depreciation) for items over $300.
Unless you meet very specific requirements, you probably will not be able to claim for home expenses, such as mortgage interest, rent and rates, or the cost of general household items.
If you plan to use the temporary ATO approved ‘shortcut method’ (80 cents per hour for all additional running expenses) to claim your deductions, you cannot claim any other expenses for working from home for that period. If you purchased a desk to use when working from home for example, you cannot claim a deduction for that separately as it is covered by the 80 cents per hour work rate. The deadline for this method of calculation is 30 June 2022 (unless it is extended).
Individuals can make a claim for work-related clothing expenses including compulsory, non-compulsory and registered uniforms, occupation-specific and protective clothing, and expenses associated with work-related clothing, such as dry cleaning, laundry and repair expenses.
Individuals can prepay self-education items before the end of the income year, including:
– course fees (not HECS-HELP fees), student union fees and tutorial fees
– stationery and textbook purchases
Other Work-related Expenses
Individuals can prepay the following expenses before 1 July 2022:
– union fees
– seminars and conferences
– subscriptions to trade, professional or business associations
– subscriptions to magazines and newspapers
If you are looking for assistance in working out potential expenses that you could incur prior to the end of the financial year, have queries about your claims or just want to prepare for 30 June 2022, start a conversation with us now. We are tax planning professionals ready and willing to help.
Posted on 2 May '22, under Business.
As of 5 April 2022, new Directors will need to have applied for their Director Identification Number (DIN) prior to their appointment to the position.
Existing directors were required to obtain a DIN prior to the end of the transitional period (30 November 2022), whereas directors of Indigenous Corporation have until 30 November 2023. Failure to do so could result in penalties for non-compliance.
What Is A Director Identification Number?
Previously a company or business was registered through ASIC, where a Tax File Number and an Australian Business Number would be required. These are obtained through the Australian Taxation Office (ATO) and are a critical part of setting up a business or company.
Introduced in November 2021, there will be an additional step introduced in the registering of a company, involving a Director Identification Number (DIN). This director identification number is a unique identifier that a director will apply for once and keep forever.
They were brought in as a part of a broader regulatory strategy to address the issue of phoenixing – this is where controllers of a company deliberately avoid paying liabilities by shutting down indebted companies and transferring assets to another company.
DINs are recorded in a database to be administered and operated by the Australian Tax Office and are made available to the public.
The ATO has the power to provide, record, cancel and re-issue a person’s DIN. A DIN will be automatically cancelled if the individual does not become a Director within 12 months of receiving the DIN.
Who Does A DIN Apply To?
Director ID only applies to companies and corporate bodies registered under the Corporations Act and CATSI Act.
Director ID does not apply to sole traders, partnerships or trusts unless the trust has a corporate trustee.
Deadlines For Applying For A DIN
When the announcement of DINs was made in April 2021, there were set deadlines in place for those involved in profit and not-for-profit entities, as well as for Indigenous Directors. As of 5 April 2022, those deadlines have changed.
For profit entities, the deadline for applying for a DIN under the Corporations Act must be done before your appointment as a director.
For non-profit entities (including those entities registered under the ACNC Act as either private or public companies), you also need to have applied for your DIN before you are appointed as a director.
For new directors of Indigenous Corporations, the same requirements for applying are advised (prior to appointment).
How To Apply For A DIN
All directors must apply for their own DIN. This cannot be done by a third part, unless it can be proven to the Registrar that the director is unable to make the application on their own behalf (such as suffering some sort of incapacity, etc).
There are three ways to apply for a DIN:
- Online application via the myGovID app. This is different to myGov and is the quickest way to obtain a DIN.
- Phone application.
- Paper application (which is the slowest process).
These methods require proof of identity documentation, however, you may be able to use certified copies (witnessed by a Justice of the Peace) if you are using the paper application.