Being a business leader in these tough economic times is difficult. Staying motivated, motivating the team, managing the cashflow and planning for the future are all challenging issues for business leaders. Your ability to lead your business is affected by:
- how you plan future activities for your business;
- how you identify the 'big picture' opportunities;
- how you solve the business problems that you are facing; and
- how you manage change and think strategically.
As a business leader, you can't do any of this if you are bogged down in day to day management.
We are currently living in a world of change predominately caused by 'the digital age'. A recent Deloitte report, 'Digital disruption – short-fuse, big bang?', indicated that there will be significant 'digital disruption' that will affect many businesses over the next three years. Business leaders need to consider how they are going to chart a path for their businesses and navigate through these obstacles.
Harris Black has been working with clients to provide them with guidance and help determine their business plans. Ultimately you know your business and your business environment better than anyone. Therefore, the planning needs to be done by you. Our clients have found Harris Black can improve their planning process by providing a framework, provoking thoughts and making suggestions.
As a business leader you will need to communicate your business plans to your team and get them on board. You'll be amazed what you can achieve when you have your whole team working on your goals with you.
The first month of the financial year has already passed us by, so it's time to put the ideas and thoughts stored in your head down on paper and into action. The first step is not a difficult one just contact your Harris Black Member for a chat.
Cashflow management is very important for the ongoing success of a business. It need not be complicated, but it is a way to increase the value of the business. Cashflow management can be divided into three categories.
- Operating Activities - What do you do in your business? You make a product or supply a service, and sell it. You send a tax invoice (perhaps a statement), and ultimately get paid by your customer. How you manage that activity is important in trying to shorten the time it takes to receive your money. If there is a delay in sending the tax invoice or the statement, or if you do not follow up debtors, there will be a delay in payments being made.
Dun & Bradstreet recently indicated that debtors' days outstanding in Australia is 55 days. This highlights a major reason for improving the management of debtors, which is an intricate part of cashflow management.
- Investing Activities - What assets does the business own that are not being used? Why not prepare a list of the surplus assets you have, which might be plant and equipment, vehicles, properties, stock, or fixtures and fittings. Why not have a 'fire sale', and turn that unutilised asset into cash which could be deposited to the bank account to improve the business' cashflow.
The key strategy here is not to have too much money tied up in unproductive assets.
- Financing Activities - When you purchase products or services, do you negotiate payment terms with your creditors and pay your creditors according to the negotiated payment dates? In some businesses, payments are made earlier than what has been negotiated. Why?
In other cases, you need to be mindful of payments being made well after the creditor's stipulated terms. What would happen if the creditor suddenly demanded that payments be made by the stipulated date? Could you pay the arrears? What would happen if your supplier cut off supply? Can you purchase similar goods and services from other suppliers?
What is the cost of your overdraft and term loans? Could you have a conversation with your bank manager and negotiate lower interest rates? If you don't ask, you won't know.
Does the business need to spend capital expenditure at this particular time? Would it be better to lease an asset rather than pay cash upfront for the purchase of an asset that will be used over the next four or five years?
If you would like our assistance on reviewing your business' cashflow management, please do not hesitate to contact your Harris Black team member.
Financial stress testing is a test that the banks require their customers to undertake, to satisfy the bank that the business has the ability to repay the loan, irrespective of the prevailing financial conditions. If you're planning to borrow money from a financial institution, you will need to satisfy the financial institution that you have the ability to repay the loan.
Financial stress testing requires the business to prepare the best and worst case scenarios, taking into account:
- sales levels;
- gross profit margin;
- operating expenses;
- interest rates.
As part of the financial stress testing presentation, the business should present the most recent financial data (prepared no earlier than one month prior to the application being lodged), so that the bank can ascertain the business' current financial performance. Other items normally included in the financial stress test analysis include:
- Key Performance Indicators relating to the previous financial year and the current financial year to date;
- budgeted figures;
- debtors' aged analysis review; and
- debtors' days outstanding.
If you need to borrow additional funds, please contact your Harris Black team member so we can assist with the preparation of the suitable package of information to satisfy the bank's financial stress testing requirements.
This is a very appropriate question which should be asked by all family business owners. Effective planning is essential to ensure your beneficiaries gain the best possible benefit from your assets and investments, if you died.
Estate planning concerns most of us. We spend a lot of time complicating our lives for business or taxation purposes and often a 'simple' Will would not be sufficient.
Some reasons to plan your estate:
- to provide for your retirement;
- to achieve the right balance between your income and growth assets;
- to maximise the financial return on your investments;
- to protect your assets;
- to ensure that you and your finances are looked after when you're not in a position to do so;
- to ensure your estate is dealt with in accordance with your wishes when you die;
- to save your family from unnecessary legal and financial problems and stress when you die; and
- to ensure that you and your finances are looked after when you're not in a position to do so.
The making of a Will exercises your legal right to decide how your assets will be divided upon your death. You need to prepare a Will:
- to choose beneficiaries for your assets and investments, including your business;
- to appoint guardians of your minor children; and
- to name an executor(s), someone you trust to carry out the administration of your estate.
It is important that your Will is regularly reviewed, to ensure it accords with your current wishes, either every 5 years or on the happening of a significant event in your life such as:
- upon death of the executor or a beneficiary under the Will;
- upon changes in relationships;
- upon birth or death of children or other beneficiaries; and
- upon the acquisition or sale of specific assets or investments bequeathed in a Will.
"Fringe Benefits Tax" are three little words most business people loathe with a passion. The Australian Taxation Office (ATO) has advised that this is an area they are auditing yearly because they believe non-compliance is high. The latest method to increase compliance by the ATO involves the system of data matching income tax returns with information from each state government's motor vehicle registration department for purchases of new motor vehicles.
This is a fairly simple process where the ATO data matching will be able identify a business which has purchased a car above $10,000 in value and then, once ownership is established, be able to identify businesses which are likely to provide car benefits to employees who do not lodge a fringe benefit tax return or include a fringe benefit reimbursement amount at the appropriate label of the income tax return.
Ignoring the issue, or hoping that an audit will never happen, is not going to solve the matter and discussions need to be held each year with your accountant. The discussions need to be specifically about:-
- whether your business subject to FBT;
- what record keeping is necessary for compliance;
- the consequences of not keeping adequate records or non-compliance; and
- methods of dealing with the fringe benefits, either by the Fringe Benefit Tax Return or the elimination of the Fringe Benefit via employee reimbursements (where available).
If you would like us to review your exposure to Fringe Benefits Tax, please contact your Harris Black team member.
For those that have taken up our audit shield insurance, this type of audit will be covered by our Audit Shield Insurance. If you would like a Audit Shield Insurance quote to ensure you are covered for potential ATO Audits please contact your Harris Black team member.
The Parliamentary Joint Committee on Corporations and Financial Services (PJC) has recently issued a report into family businesses in Australia from its inquiry into the sector.
The report, Family Businesses in Australia – different and significant: why they shouldn't be overlooked, provides 21 recommendations to the federal government that revolve around the establishment of an Inter-Departmental Committee to identify the policy issues facing family businesses that are not adequately addressed within the existing policy framework.
Whilst the recommendations do not deliver "on the ground" solutions for Family Businesses they aim at improving the profile of this business sector in the Government's policy formation and reporting.
Let's hope that future decisions by federal governments can be more supportive in their policies.
The Assistant Treasurer, David Bradbury, has announced that the Government will prevent "dividend washing" by introducing a specific integrity rule into the tax law. This follows the Government's announcement in the 2013–2014 Federal Budget that it will implement reforms to close, with effect from 1 July 2013, a loophole it believes currently enables some investors to engage in this practice.
"Dividend washing" potentially allows investors who undertake certain sophisticated share transactions to receive two sets of franking credits on what is essentially the same parcel of shares. Mr Bradbury says the proposed specific integrity rule will end this practice. He adds that the measure will not impact typical "mum and dad investors" as it will only apply to investors who have franking credit tax offset entitlements in excess of $5,000.
A doctor has been unsuccessful before the AAT in arguing that he should be declared a non-resident of Australia for tax purposes. The doctor had been working in East Timor since 2006 and submitted that he "resided" in East Timor as that was where he spent his time and lived.
The AAT heard that the doctor was an Australian citizen and spent nine to 11 months of the year in East Timor, with the remainder of his time spent in Australia and Bali. However, the AAT noted that the doctor owned a property in Australia which the Tax Commissioner described as the "family home". The AAT also noted that the doctor had a property in Bali which he and his wife called "home". The AAT found that the doctor "resided" in Australia for tax purposes because the taxpayer had retained a "continuity of association" with Australia.
The AAT has held that a partnership was not carrying on an enterprise and was not entitled to input tax credits claimed in respect of the relevant period.
The taxpayers, a married couple, argued that their partnership had provided handyman and other maintenance services to a hotel, a business they also controlled and which they had taken over from their sons. The AAT was not convinced that the partnership was an entity providing the claimed services to the hotel. Therefore, the taxpayers were not entitled to claim input tax credits during the relevant period.
However, the AAT was of the view that the net amount of GST owed for the relevant period was zero, and not a positive net amount as argued by the Commissioner.
The ATO has advised that, for the income year that commenced on 1 July 2013, the benchmark interest rate to be used in calculating the interest component on the repayment of a private company loan received by a shareholder (or an associate of a shareholder) is 6.20%.
The ATO has announced that the car depreciation limit for the 2013–2014 income year is $57,466.
The Government has recently enacted a number of key superannuation changes. These are discussed below. Importantly, these rule changes are not simple and individuals would be prudent to consider their options before deciding what to do.
The rules in relation to the taxation of excess concessional contributions have been amended with effect from 1 July 2013. The Government says the new rules will be "fairer for individuals who exceed their annual concessional cap".
Under the new rules, excess concessional contributions are automatically included in an individual's assessable income and subject to an interest charge to account for the deferral of tax. Broadly, the new rules ensure that individuals who make excess concessional contributions are taxed on the contributions at their marginal tax rates, rather than at the effective 46.5% tax rate that previously applied for all taxpayers before the changes were introduced.
These proposed changes will undoubtedly be welcomed by the 40,000-odd taxpayers who are expected to pay (on average) $1,100 less tax on their excess concessional contributions in 2013–2014.
However, taxpayers on the top marginal tax rate are expected to have a slightly higher tax liability for their excess concessional contributions (due to the additional interest charge).
On 1 July 2013, the concessional contributions cap increased from $25,000 to $35,000 for individuals aged 60 years and over. The same threshold will apply from 1 July 2014 for individuals aged 50 years and over.
Eligibility for the higher cap depends on a person's age on 30 June in the previous income year. This means:
- persons who were aged 59 years or over on 30 June 2013 are eligible for the higher cap in 2013–2014; and
- persons who will be aged 49 years or over on 30 June 2014 will eligible for the higher cap in 2014–2015.
Please contact our office if you wish to discuss your eligibility for the higher cap.
Under the new cap, eligible individuals will potentially be able to claim greater deductions for superannuation contributions, or salary-sacrifice larger contributions. It is important to note that this temporary concessional cap will cease when the general cap reaches $35,000 through indexation (which is expected to be 1 July 2018).
Taxpayers aged 59 years or over on 30 June 2013 should consider reviewing their salary-sacrificing arrangements, deductions for personal contributions and transition to retirement pensions to take into account the higher concessional cap of $35,000 for 2013–2014.
From 1 July 2012, individuals earning above $300,000 must pay an additional 15% tax on concessional contributions. That is, the effective contributions tax has doubled from 15% to 30% for concessional contributions (up to the cap of $25,000 or, for older taxpayers from 2013–2014, $35,000) made on behalf of individuals above the $300,000 income threshold.
However, despite this extra 15% tax, it should be noted there is still an effective tax concession of 15% (ie the top marginal rate less 30%) on concessional contributions up to the cap of $25,000 (or $35,000).
Individuals with incomes above $300,000 may want to consider limiting their concessional contributions to compulsory superannuation guarantee contributions (9.25% for 2013–2014) where such benefits can be packaged in a more tax-effective manner. Alternatively, these individuals may want to consider whether it is more beneficial to instead make after-tax non-concessional contributions.
The Medicare levy has been increased by 0.5% to help fund the Government's National Disability Insurance Scheme, known as DisabilityCare Australia. This will take the Medicare levy from 1.5% to 2% of taxable income from 1 July 2014.
Under the changes implemented by the Government, low income earners continue to receive relief from the Medicare levy through the low income thresholds for singles, families, seniors and pensioners. The exemptions from the Medicare levy for blind pensioners and sickness allowance recipients also remain in place.
The Government has made tax law changes to provide tax certainty for superannuation trustees and deceased estates in situations where a person has died while in receipt of a superannuation income stream.
Investment earnings derived by complying superannuation funds from assets supporting current pensions are generally exempt from tax. However, a draft tax ruling issued by the ATO in 2011 caused some uncertainty over the eligibility of this tax exemption in situations following the death of a member to whom a pension was being paid.
In response to the uncertainty, the Government last year announced that it would amend the law from 1 July 2012 to allow the tax exemption to continue following the death of the pension recipient until the deceased member's benefits have been paid out of the fund (subject to the benefits being paid as soon as practicable).
The Administrative Appeals Tribunal (AAT) has recently affirmed tax assessments issued to a taxpayer after finding that delivery drivers hired by the taxpayer were common law "employees" and not independent contractors.
The taxpayer had contracts to deliver bakery goods to supermarkets and had engaged a number of drivers to make those deliveries. It contended that those drivers were independent contractors and were responsible for their own taxes and superannuation. However, the Tax Commissioner determined that the drivers were common law "employees" of the taxpayer.
Among other things, the Commissioner noted that the drivers did not own or lease their own vehicles, did not control or delegate any of the work, and wore uniforms (vests) identifying the taxpayer's business name. Based on the evidence before it, the AAT was of the view that the drivers were "employees" of the taxpayer during the relevant period and held that the taxpayer had failed to withhold amounts as required under the pay-as-you-go (PAYG) withholding rules.
A medical doctor has been unsuccessful before the AAT in arguing that the Tax Commissioner should exercise his discretion to allow the doctor to claim non-commercial business losses of his cattle and sheep farming activities against his medical practice income.
The taxpayer had applied to the ATO for a private binding ruling, requesting that the Commissioner allow him to claim the losses from the farming activities against his medical practice income. However, the Commissioner issued a private ruling in which he refused to exercise the discretion sought. Notwithstanding the ruling, the taxpayer then lodged his 2010 tax return and claimed losses in relation to the farming business.
The AAT affirmed the Commissioner's decision and found that the taxpayer had not discharged the onus of proving that the conditions of the relief sought had been met. Accordingly, the AAT held that the losses incurred must be deferred until those activities produce assessable income against which the deductions could be claimed.
There are rules in the tax law designed to prevent losses from a non-commercial business activity from being offset against income from other sources, unless the activity satisfies one of the commerciality tests, or the Commissioner exercises his discretion to not apply the non-commercial loss rules. However, there are strict requirements surrounding the exercise of this discretion. Note that there are specific exemptions from the non-commercial loss rules for low income primary producers and professional artists.
Also, since 1 July 2009, losses incurred by individuals with an adjusted taxable income of $250,000 or more from non-commercial business activities have been quarantined, even if they satisfy the relevant commerciality tests. The effect is that these individuals are not able to offset excess deductions from non-commercial business activities against their salary, wages or other income. Please call our office for further information.
A taxpayer, a retiree, who withdrew and re-deposited his superannuation savings during the global financial crisis has been hit with excess contributions tax of $31,620 after the AAT agreed with the Tax Commissioner that there were no "special circumstances" to disregard the excess contributions under the tax law.
After observing a significant decline in his superannuation savings in a matter of months and following the Government's announcement that it would guarantee bank deposits, the retiree withdrew his superannuation savings in early 2009 and deposited the amounts in term deposits. When the term deposits matured six months later, he re-deposited the money back into his superannuation.
In May 2012, the Tax Commissioner informed the taxpayer that he had exceeded his non-concessional contributions cap for the 2009–2010 financial year. The taxpayer argued that the imposition of excess contributions tax was "unfair" and that he had not obtained a tax advantage.
However, while noting that the taxpayer had made an unfortunate error, the AAT still ruled that there was nothing "unique" or "special" to allow the relief sought. It also considered that it was reasonably foreseeable that the re-depositing would result in excess contributions.
Managing an individual's contributions caps for any year is a critical consideration to ensure that any tax benefits of superannuation contributions are not later reversed (and punished) via the imposition of excess contributions tax.
Given the constant tinkering with the contributions caps, extreme care is needed with the amount and precise timing of contributions.