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Posts tagged with: Small Business

What will change on 1 July 2015

Posted on September 20, 2019

For Business

P  Small business tax cut – 1.5% for companies and 5% tax discount for unincorporated small businesses under $2m (capped at $1,000)*
P  Employee share scheme rule changes to make the schemes more attractive particularly to start-ups (covered in our April update)*
P  ‘Fly in fly out’ and ‘drive in drive out’ (FIFO) workers will be excluded from the Zone Tax Offset (ZTO) where their normal residence is not within a ‘zone’*
P  Start-ups able to immediately deduct a range of professional expenses required to start up a business – such as professional, legal and accounting advice.*
P  The way work related deductions for car expenses are calculated will change. The ‘12% of original value method’ and the ‘one‑third of actual expenses method’ will be removed. The ‘cents per kilometre method’ will be modernised, replacing the three current engine size rates with one rate set at 66 cents per kilometre to apply for all cars.

Superannuation

P  The terminally ill will be able to access super earlier*
P  Employers with 20 employees or more must use SuperStream for employee contributions.

Individuals

P  Changes to family tax benefits – income test changes, add on child payment removed, and changes to large family supplement.

* announced change not yet law.

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Are big companies getting a better tax deal than you? How you can fight back

Posted on September 20, 2019

Hauled in before a Senate enquiry, media mogul Kerry Packer famously said, “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!”

The Tax Justice Network – Australia, recently created headlines when they released a report into the practices of the top 200 ASX listed entities ahead of the G20 summit. The report revealed that:

P  Nearly 1/3 have an average effective tax rate of less than 10%
P  57% have subsidiaries in tax havens or low taxing jurisdictions
P  60% report debt levels in excess of 75% of equity.

What this equates to is that 29% of ASX listed entities have an effective average annual tax rate of 10% or less and 14%, including James Hardie, have an effective tax rate of 0%.

21st Century Fox has a reported 117 subsidiaries in tax havens or low taxing jurisdictions. Responding to the headlines Mr Murdoch tweeted “NO tax avoidance by News, Fox or any Murdochs in Australia. Courts ruled, so move on!”

Tax is like any other cost in your business. It should be managed effectively so you don’t pay any more than you need to.

But here’s the problem, a company has to make a profit to pay company tax. Coming out of the GFC where jobs were shed and investments shelved, it was a bit harder to do than the boom times – particularly if you weren’t in the resources or banking sectors whose buoyancy made Australia’s headline economic figures look a whole lot better than they felt for the rest of the economy. Plus, if you are investing in and growing a business, this consumes profit. Unless you look below the surface, the tax paid is an ineffective measure of the contribution a company makes.

So the question is, is it likely that the biggest companies are paying a lot less tax than the average Australian business? The answer is yes, of course. The reason is simple, tax is a local jurisdiction issue and international corporations have the capacity to look across the tax minimisation opportunities globally, not just locally. As long as everyone operates within the local laws, they are not doing anything illegal by minimising tax. Plus, Government’s often offer tax incentives for large entities to establish in their region for the stimulus and job opportunities they provide.

The issue for Government’s across the board is what happens when it’s no longer minimisation but evasion – transparency is one issue. The recent G20 endorsed a common reporting standard for the automatic exchange of information. The new reporting standard will be introduced in Australia in 2017 with the first exchange a year later.

It’s a debate that is playing out globally and anyone with a business with international connections, should take the time to review their current position across different entities in different locations and ensure that they are not at risk of being drawn into a widening net.

Got international connections? How to avoid problems
Whether you’re in business or an individual taxpayer, if you have funds flowing between countries, the tax office is going to be interested in you. For individuals, Project Do It provides an opportunity to voluntarily disclose unreported foreign income and assets before the tax office discovers them.

For business, trigger points include:

P  Excessive debt levels in Australia – The thin capitalisation rules place a limit on the level of interest and other debt deductions that can be claimed in Australia when Australian operations are heavily funded by debt rather than by equity. Legislation recently passed by Parliament retrospectively tightens these rules further for entities with very large debt deductions ($2m and above).
P  Excessive costs paid by local subsidiaries. The Government is particularly concerned with arrangements where Australian entities transfer intellectual property to a low tax jurisdiction for a relatively small amount of money and then pay considerable sums for the use of those assets on an ongoing basis. Large management fees paid by Australian entities are another trigger for the ATO.
P  Use of tax havens or low taxing jurisdictions.

If you are a smaller business, can you get a better tax deal?

The answer is ‘sometimes’ but you need to be proactive. Larger companies tend to spend more on advice to not only identify current opportunities but to understand the tax impact when acquiring new businesses, selling assets, structuring or restructuring. We’ve seen many scenarios where businesses seek advice on tax issues once contracts have been signed – at the tidy up stage. It’s too late at this stage to improve the tax position or unwind a problem.

P  Understand what’s available to you – concessions exist for small business entities and other entities if you know where to look. Often business just doesn’t have the time or feel the need to invest to explore anything beyond the compliance basics.
P  Get your structures right – a lot of companies fall into the trap of looking at their structure once they have achieved a certain level of growth or decide it’s time to make significant changes – like bringing in investors or selling part of the business. By this time the cost of changing structure is prohibitive. If you put a structure in place at the start that creates flexibility and tax efficiency, yes it will cost a few more dollars but you will enjoy the tax benefits as you grow plus your structure will accommodate change as your business builds out.
P  Ensure that income and profits flow effectively – this is a follow on from structure. Once you have the right structure you can optimise the tax efficiency of how income flows to you providing you plan this in advance.

(Courtesy of KnowledgeShop)

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Why do so many small businesses fail?

Posted on September 20, 2019

Recent research indicates that

P  In 2012-2013 companies which employ fewer than 20 workers comprised around 81% of business failures with the loss of 74,000 jobs compared to a loss of approximately 6,250 jobs caused by the failure of large companies;

P  During the last financial year, approximately 85% of corporate insolvencies had assets of less than $100,000 and 43% had liabilities of less than $250,000.

Research conducted by the accounting firm Jones Partners Insolvency & Business Recovery in Sydney revealed that smaller companies, typically involving more modest asset and liability profiles dominate the Australian insolvency landscape. Most of these insolvencies receive little or no broader public or media attention, standing in stark contrast to the enormous exposure given to large corporate failures.

In many ways this is unsurprising. When large companies collapse they involve a range of easily identifiable affected parties – a large pool of workers, various secured and unsecured creditors, and a host of suppliers and subcontractors. Smaller corporate failures involve these same issues, but at a scale which is far less concentrated and ‘newsworthy’.

However, the scale of these specific insolvencies does not reflect the true underlying economic implications, which are dependent on the aggregates. For instance, the loss of jobs which is perhaps the largest popular media issue surrounding large corporate failures is actually smaller by many orders of magnitude than overall employment losses involved in smaller company insolvencies.

What causes companies to fail?
When companies fail there are commonly a number of underlying factors. In many cases, underlying commercial weaknesses within a company become readily apparent, and often fatal, when another adverse factor emerges.

The three main causes of company insolvency in Australia according to external administrator reports in 2012-13 were:

P  poor strategic-management of the business (42% of reports)
P  Inadequate cash flow or high cash use (41% of reports)
P  trading losses (32% of reports)

It follows that strategic management and cash flow management play critical roles in the future of the small. In fact it all comes back to management of the business.

At HCG we strongly advise our clients to monitor their cash and prepare budgets and assist them during the process. We also provide CFO-type services to assist with strategic management decisions and help our clients to address and resolve day-to-day management issues on an ongoing basis. We believe that the success of our business clients is largely due to the fact that they work on their business and not in the business.

When was the last time you prepared and reviewed your profit and cash flow projections and do you know how your business will operate in 3 years?

(Based on publication by Jones Condon Sydney)

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From 1 July 2014 – recap

Posted on September 20, 2019

Here is a quick recap of changes from 1 July 2014:

Individuals

P   Temporary Budget Repair Levy.
Adds 2% to the tax rate for every dollar of a taxpayer’s annual taxable income over $180,000

P   Increase in the Medicare Levy from 1.5% to 2%

P   Superannuation Guarantee charge increases from 9.25% to 9.5%.

P   Aged care reforms introduce new assets tests for resident’s accommodation and care fees

P   PHI information for 2014 tax returns
Changes to the way the Private Health Insurance (PHI) rebate is calculated requires extra information from individuals for their 2013/14 tax returns, which should be included on their PHI annual statement. There will be two different rebate periods – one from 1 July 2013 to 31 March 2014 and the other from 1 April to 30 June 2014.

Business

P   New ATO tax tables
The ATO has released its new 2014/2015 tax rates, updated to reflect the increase in Medicare levy from 1.5 to 2% and the Temporary Budget Repair Levy for employees earning greater than $3,461 per week (i.e. $180,000 per year).

P   No TFN or ABN
If the employee has not provided a TFN or a supplier business has not provided their ABN, the employer should withhold 49% of any payment made.

P   Increase in the Superannuation Guarantee rate.
The SG rate will increase from 9.25% to 9.5% from 1 July 2014. The government has announced that it would slow the previously announced increases to 12%, (leaving the 9.5% SG rate in place until 30 June 2018) however no legislation regarding this has been introduced.

P   SuperStream
Employers can opt-in to use SuperStream from 1 July 2014. Large and medium employers must complete their implementation by no later than 30 June 2015. Smaller employers (19 or fewer employees) are not required to start using SuperStream until 1 July 2015, and must complete their implementation by no later than 30 June 2016.

P   Paper activity statements
From 1 July, once an activity statement is lodged electronically, the ATO will no longer issue paper activity statements.

P   Company loss carry-back repeal
The government has announced that it intends to repeal the carry back tax offset for the 2013/14 and later tax years. Legislation covering this has been reintroduced, but this is not yet law.

P   Simplified depreciation rules
The government also announced that it would repeal the provision allowing small businesses an accelerated initial deduction for motor vehicles. Legislation covering this has been reintroduced, but this is not yet law.

P   Living away from home allowance (LAFHA) transitional period ended on 30 June 2014
Now, the main condition to be satisfied is that the employee must have a normal place of residence in Australia that is maintained for their “personal use and enjoyment” (i.e. still available to them, not rented out) while they are living and working in another location. In most cases, LAFHAs will also be time limited to 12 months. Employees who qualified for the transitional rules will not be entitled to another 12 month period from 1 July 2014 unless there is a change in the job location. However, if the employee is working on a fly-in- fly-out or drive-in drive-out basis the LAFHA concessions are not subject to the 12 month limit.

SMSF

P   New SMSF trustee penalties
From 1 July 2014 the ATO has greater powers to enforce the superannuation rules by levying financial penalties directly on trustees.

P   Concessional contribution cap changes
From 1 July 2014, the concessional contribution cap for taxpayers up to the age of 50 is $30,000. And for those 50 and above, the cap is $35,000.

P   Non-concessional cap changes
The non-concessional contributions cap from 1 July 2014 is $180,000 (up from $150,000) or $540,000 over 3 years.

P   Insurance inside an SMSF
From 1 July 2014, new insurance policies within a SMSF must be consistent with the death, terminal illness, and permanent and temporary incapacity conditions of release in the Superannuation Industry (Supervision) Act.

(Courtesy of KnowledgeShop)

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ASIC App Released to Help Small Businesses

Posted on September 20, 2019

The Australian Securities & Investments Commission (ASIC) has recently released a new smartphone application to help small business owners undertake important checks before entering into business transactions with other organisations.

As said by ASIC Commissioner Greg Tanzer “What you see on the surface isn’t always what you get.

Due diligence needs to start the moment you’re thinking about starting a relationship with a business, not after you find out you’re chasing money from a business that doesn’t exist.

ASIC’s Business Checks app provides some general guidance on the steps small businesses can take to reduce the risk of being swindled by unreliable operators and fly-by-night businesses.

There will always be an element of risk when you enter into business transactions, but you can help protect your interests by doing your homework and checking for warning signs”.

The ‘ASIC Business Checks’ app encourages small business owners to;
P   ask the right questions about the company, business and individuals they’re dealing with
P   check ASIC’s registers and verify that the information they’ve been given is accurate
P   seek ASIC’s help if they need more information or the support of a professional business adviser, and
P   report suspected misconduct to ASIC if they believe a company, business or individual is acting unlawfully.

The app is available for download now via iTunes or Google Play.

GooglePlayIcon  AppleStoreIcon

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Insights
Hall Consulting Group