In this current economic climate, many small businesses have seen a change in their ability to borrow funds from their bank.
With banks conducting careful research to determine a business' risk factor it is more important than ever for businesses to maintain a good relationship with their bank in order to safeguard their future access to funds.
This is one of the first steps to ensure that a bank will identify a business as low risk and therefore someone they are willing to give funds to.
A solid business plan highlights the viability of the business, information about the experience and success of the owners and managers, expenses which the loan will cover, as well as detailed sales expectations.
Please contact your Harris Black team member for assistance with creating a Business Plan.
Over time, an owner establishes key contacts within their bank who are familiar with their business and financial needs. Keeping these contacts informed of any changes to the business or cash flow projections before it comes as a surprise will build trust between the bank and the business.
By keeping themselves updated of their own financial status by obtaining credit reports and public records, business owners will know what research the banks will obtain when deciding on the amount, if any, to loan to the business.
Understanding banking terms such as credit ratings, cost of capital and other financial drivers will place business owners in a strong position when negotiating the terms of their loans.
Financial advisers are there to advise and will have an intimate knowledge of bank processes. Keeping them posted of any plans or changes will allow them to better advise the business on the best course of action, and ensure that the business will continue to prosper.
The Superannuation Clearing House is a free service offered by the ATO to help small businesses meet their superannuation obligations.
It is available to businesses with fewer than twenty employees.
From July 1 2014, all businesses with more than nineteen employees have been required to use a suitable superannuation clearing house. Most superannuation funds offer a clearing house, and are able to help you in setting up this service. There are also private superannuation clearing houses that can help businesses with more than 19 employees in meeting their super obligations.
The advantage of the Superannuation Clearing House is that it allows business owners to meet their super guarantee obligations with a single electronic transfer.
By registering to use the Superannuation Clearing House, you are freed from further super guarantee responsibilities provided that you pay the correct amount by the required due date and the payment is accepted by both the clearing house and the superannuation fund.
Employers who are currently transferring superannuation to multiple accounts are likely to find the Superannuation Clearing House particularly useful, as it minimises the likelihood of mistakes and reduces the labour involved with superannuation.
Most small business owners would love to be able to offer their more valuable employees a pay rise.
Increasing an employee's pay is likely to reduce staff turnover, increase job satisfaction and boost productivity by raising motivation and commitment. Unfortunately, most business owners are simply not in a position to offer their staff a larger pay packet.
However, there are a number of non-cash benefits that you may care to consider as an alternative course of action for recognising and rewarding good work. These non-cash benefits may not have a dollar value. For example, allowing employees to work from home once a week or rearrange their working hours to better suit other commitments.
Non-cash benefits may also have an identifiable dollar value, and in this case employers need to be aware of fringe benefits tax (FBT) before they decide to offer a non-cash benefit. Non-cash benefits that attract FBT include, but are not limited to, personal use of a company car, cheap or interest free loans, the payment of school fees, and entertainment in the form of food and drinks.
Typically, where an employee is provided with a fringe benefit, the cost of the benefit is deducted from their gross (before tax) pay and the employer must pay FBT on this amount at 47%. Most employers will pass this tax cost onto the employee.
In most cases, FBT will not apply to benefits that are provided to independent contractors.
There are also some types of benefits that are not subject to FBT or receive an FBT concession, including some types of work related items, living away from home allowances, and benefits that are classified as 'minor benefits' (generally under $300).
The structure of the workforce is transforming, and many business owners are struggling to make sense of the rapid changes.
The problem is that regulation, especially from the tax office, will always be a few steps behind changes that are happening in the real world. Sadly, this often means that compliance requirements are not befitting to current business practices. An area where this is glaringly apparent is the tax treatment of independent contractors vs employees.
The option to hire independent contractors increases flexibility, expertise and access to equipment, making it attractive to small business owners. Furthermore, many Australian workers are increasingly opting to work freelance instead of seeking permanent employment.
Unfortunately, business owners are often surprised to find out that there can be some severe penalties for incorrectly treating an employee as an independent contractor for tax purposes. The ATO's definitions of an employee and an independent contractor are fairly strict, and tend to come down on the side of classifying people as employees.
Businesses that incorrectly treat employees as contractors can face a set of heavy financial penalties including missed PAYG payments and super guarantee charges for missed superannuation payments. The super guarantee charges will include the actual super guarantee amounts (currently 9.5% of the employee's gross pay) and penalties.
The ATO uses a combination of compliance and education to help employers ensure that they are correct in their tax treatment of workers.
Generally, an independent contractor will have a high degree of flexibility over their work, provide their own equipment, and will accept risk and liability for poor work. Independent contractors are required to pay their own taxes and make decisions in regards to how much income to contribute to their superannuation accounts.
Employees who perform work under the direct supervision of their employer, should not take on risk for their own work and have their superannuation paid by their employer. Employees have their taxes paid through the PAYG system.
Employers should note that even if a person has been treated as an independent contractor, they may still be eligible to file for unfair dismissal claims.
In the event that you are unsure as to whether or not your tax treatment of employees and independent contractors is compliant, seek advice from our office.
While there are many financial advantages to having independent contractors in place of employees, for example avoiding the super guarantee and payroll tax, you will likely suffer in the long run if you continue to be non-compliant.
For many employers, it can be easy to forget the responsibility of managing your superannuation obligations amidst the busy lifestyle of managing a business or company. However, those who fail to meet these obligations are guaranteed to face some serious and even damaging liabilities.
Recently, the Australian Taxation Office (ATO) has identified industries where employers are facing a higher risk of not meeting their super obligations. These industries include child care services, building and industrial cleaning, pubs, bars and taverns.
The most common superannuation mistakes employers in these industries may make include:
- Not paying enough super for employees;
- Missing due dates;
- Not keeping accurate records;
- Not passing on the employees TFN to their super fund;
- Not understanding when super should be paid for contractors; and
- Error recovery: if a date or amount is missed than a Superannuation Guarantee Charge Statement should be lodged and often it isn't.
In an attempt to assist employers in counteracting these kinds of errors, the ATO is currently running an education campaign for business owners to help them better understand their super obligations.
If you think you might fall under the category of employers who do not understand their superannuation obligations, visit the ATO website for more information and details on the campaign. As of July 2015, the ATO will commence undertaking audits of employers who continue to not meet super obligations for their employees.
Following a number of recent cases involving directors claiming that penalties under the director penalty regime should not apply to them, the ATO has released an update to counteract any misunderstandings.
Directors have a legal responsibility of ensuring that their company meet PAYG withholding and SGC obligations, which is why the overarching objective of the regime is it to ensure that directors comply with certain taxation and superannuation responsibilities.
In an attempt to help directors (and those who are about to become directors) gain a better understanding of the regime, the ATO has issued a fact sheet that outlines obligations in regards to unpaid and unreported PAYG and Superannuation Guarantee Charge amounts.
These obligations include, but are not limited to:
- Directors being personally liable for unpaid PAYG withholding or SGC amounts;
- Penalties still applying even if an individual is no longer a director of a company, or is a newly appointed director;
- A director penalty notice will be issued to collect company debts where the company hasn't engaged to resolve outstanding obligations; and
- Payment being the only option to remit the penalty if the associated company liability was not reported within three months of the due date.
The ATO has released details of its new approach to wealthy individuals and their private groups. The ATO is focusing on a "prevention-before-correction" approach and is ramping up its face-to-face interaction with key taxpayers.
According to the ATO, about 30% of wealthy individuals and their private groups are considered "high risk". Acting Second Commissioner Michael Cranston said that if taxpayers are open and transparent with the ATO, they can expect better services and faster turnaround of key decisions.
Mr Cranston also noted the ATO "will sign-off on the previous year's tax returns of taxpayers who have been open and transparent" about their affairs, have good compliance records and are considered low-risk. He said this will provide certainty for about 30,000 privately owned and wealthy groups that they will not be subject to an audit for specific income years.
Some of the risk areas that attract the ATO's attention include individuals with unreported foreign income or assets; certain types of remuneration arrangements used by members of professional firms; the egregious use of trusts; and mixing personal and company expenditure.
The Government is looking to provide clarity in relation to the capital gains tax (CGT) treatment of earn-out arrangements in connection with a sale or purchase of a business.
An earn-out arrangement is an arrangement whereby, as part of the sale of a business, the buyer and seller agree that subsequent financial benefits may be provided based on the future performance of the business. For example, two parties are negotiating the sale of the business where a significant part of the value of the business is tied to its customer base – that is its goodwill. There is considerable uncertainty about how the sale and other factors may impact upon this goodwill. The parties could agree to an earn-out arrangement under which part of the consideration for the sale is linked to the future economic performance of the business.
The proposed rules aim to provide "look-through" CGT treatment to earn-out arrangements. That is, under the changes, taxpayers may disregard capital gains or losses that arise in relation to the qualifying right to financial benefits. Instead, taxpayers must include financial benefits provided or received under or in relation to such rights in determining the capital proceeds of the disposal of the underlying asset (for the seller) or the cost base and reduced cost base of the underlying asset for the buyer.
It is proposed that the changes would apply from the exposure draft legislation release date (ie 23 April 2015).
The ATO is collecting data from eBay Australia & New Zealand Pty Ltd of sellers who had sold more than $10,000 worth of goods and services on the eBay online trading website during the 2013–2014 financial year.
The ATO said the data will be electronically matched with its records to identify possible non-compliance with the tax law.
The data-matching program is designed to enable the ATO to address the compliance behaviour of individuals and businesses selling goods and services via the online-selling site who may not be correctly meeting their taxation obligations, particularly those with undeclared income and incorrect lodgement and reporting for GST.
It is expected that records relating to between 15,000 and 25,000 individuals will be matched.
If you sell products or services online, you need to understand whether you are doing it as a hobby or carrying on a business. The ATO said the ongoing collection of online-selling data enables it to review online sellers who are transitioning from hobby status to potentially being "in business". When selling online becomes a business, the income you earn from it is subject to tax. If this is the case, you may also be eligible for tax deductions.
The ATO and AusIndustry are working closely with each other to identify taxpayers who may be involved in aggressive research and development (R&D) arrangements. In particular, the ATO and AusIndustry are seeking arrangements that are inconsistent with the requirements of the law, may have features of tax avoidance, and may be fraudulent.
In this regard, the ATO and AusIndustry have asked taxpayers to ensure that their claims for R&D expenditure are attributed to activities that are consistent with their AusIndustry registration – and, importantly, that expenses (eg labour costs) were actually incurred on R&D activities.
Companies should consider whether they have undertaken research and development (R&D) activities that may be eligible for the Government's R&D Tax Incentive. Eligible R&D activities are experimental activities that are conducted in a scientific way for the purpose of generating new knowledge or information. To potentially claim the R&D Tax Incentive, the company's R&D activities need to be registered with AusIndustry within 10 months of the end of the income year. Companies are required to maintain records to demonstrate, not only to AusIndustry, but also to the ATO, that the activities carried out are eligible R&D activities and that they incurred expenditure related to the activities.