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What A Confusing Picture!

The state of the Australian economy at present creates a confusing picture, especially for small/medium business operators. Only days after the Australian Reserve Bank reduced the official interest rate by 0.25% in June to 3.5% to improve economic activity, the Australian Bureau of Statistics released figures which show strong economic performance was achieved in the March quarter which ABS have calculated grew by 1.3% to achieve an annual growth rate of 4.3% - the best performance since the September quarter 2007!

The annual growth figures have been driven by strong economic performance in the Northern Territory, Western Australia and Queensland. Annual growth figures are as follows:

  • Northern Territory 16.9%
  • Western Australia 14.5%
  • Queensland 7.5%.

The other states have shown significantly less growth:

  • ACT 3%
  • Victoria 2.7%
  • South Australia 2.3%
  • NSW 1.9%
  • Tasmania -0.8%.

The financial report indicated that household consumption was up by 1.6% in the March quarter primarily because of extra spending on food, clothing, health services and recreational activities (such as gym memberships and movie tickets). There has been an expectation that the Reserve Bank would announce further interest rate cuts in July/August however, the pace of these cuts may now be restrained because of this reported positive economic activity. It is of great interest whether this strong activity will continue in the June quarter although many small/medium enterprise operators would say it is not. Globally, immense problems still remain in Europe, particularly in Greece and Spain. The Spanish Prime Minister stated recently that "Spain can no longer raise money on global markets or roll over their sovereign bonds".

In recent days the Australian dollar has fluctuated highlighting the need for exporters and importers to monitor the currency's position. Closer to home the Federal Government Carbon Tax commenced on the 1st July and this will cause problems for some small businesses. The government's announcement of changes to the superannuation rules is also causing concern for some small business operators. We also note that liquidators are reporting that they are very busy at present.

Within this confusing economic picture, business operators need to have a clear plan and monitor their financial position regularly.  Be mindful of cashflow management, primarily monitoring debtors and ensuring that bank covenants are being closely monitored. If its time for your to approach the bank speak to us first so we help you get off on the right foot. If your dealing in foreign currency consider speaking to Harris Black or your banks to assist in mitigating this risk.

With good planning and monitoring you can have certainty in these uncertain times.


Having Problems Putting Your Plans Into Action?

In the "Australian Business Solutions" Issue 24, June/July 2012, the article "Principles of Execution – Making It Happen" by Graham Haines*, identified 36 barriers that prevent or delay execution (AKA implementation of plans to achieve desired outcomes).  He lists 13 barriers in planning, 14 in execution, 6 in monitoring, measuring and adapting and 3 in revising the plan. 

Briefly, barriers in planning arise from poor problem and decision making issues such as: failure to clarify the aim and the business context; not having clear results to aim for; insufficient time spent in planning with no clear action plan before moving to implementation; and underestimating the 'execution' cost. 

Barriers in 'execution' include inadequate attention to factors such as: organisational alignment; management of change; leadership; teams and teamwork; employee engagement; and communication. 

Monitoring, measuring and adapting barriers are the result of lack of awareness of the performance of direct competitors, too much reliance on quantitative measures, and failure to measure performance.

Revising the plan is essential to 'doing things right'.  One needs to recognise when circumstances change and make revisions accordingly.  This is vital to the successful execution of the plan.

Harris Black can assist you to execute your Business Plan and now is a great time to set your plans for 2013.

Planning Successful Succession Within Your Business

Succession planning is a very important issue for all businesses irrespective of size.  Succession does not just relate to older persons wanting to retire nor does it only relate to the owner of the business.  Succession planning is important at every level of the business as it relates to effective mentoring and coaching within the business to improve the skill levels of all team members. 

There is no doubt that succession issues are a very topical subject amongst small business owners at present.  This is because of the large number of "baby boomers" who will want to sell their businesses from now on.  Therefore it is prudent for people who are contemplating selling their business over the next decade to start planning for succession now.  There are some key questions to be answered relative to implementing a succession plan.  The first series of questions start with the current owner:

  • What do you want to achieve from the business?
  • Are you building the business for a lifetime or an exit?
  • As part of your succession plan have you thought about your options for exiting the business?
  • Are you motivated by a significant change or event to influence you to quit the business?
  • Will the business survive with the reduced reliance on "you"?
  • As part of the professionalising of the business can you effectively make yourself redundant?
  • Do you think your business is "exit ready" or succession ready at this stage
  • If you don't believe the business is "exit ready" what are your motivations for staying in the business?
  • Do you have sufficient insurances should a sudden event occur?

If you would like to have a discussion with us regarding to your succession strategy please contact your harris black team member.


Small Business Has Achieved Some Tax Recognition

From 1st July 2012, small business entities are now able to claim immediate deductions for any asset costing less than $6,500 and all assets other than buildings will be allocated to the small business general pooling.  As an additional benefit, if the asset is a motor vehicle, a small business entity will be entitled to an immediate deduction of $5,000 and the residual value is depreciated at 15% in the first year of use.

This provides many planning opportunities for small business and helps reduce the tax burden in line with the reality of a small business' cashflow needs.

Marketing/Sales Hints

Collect Prospect Details

Every business should be maintaining a database of prospects.  There are literally hundreds of Customer Relationship Management (CRM) systems available, many of which would be ideal for small/medium enterprises to use to record details of prospective clients.  Make an attempt to collect mailing information from people who come into contact with your business or alternatively, run a weekly competition that requires a customer to submit their business or personal details by filling in a form.  You will then be able to include these prospects as "leads" into your database or CRM and commence communications with them by mail or email.
Government Grant for SMEs

Commercialisation Australia – Experienced Executives

For companies who have developed a new product or service and who would benefit from bolstering their senior management team, Commercialisation Australia has a grant of up to $350,000 on a 50/50 basis, over a 2 year period for an eligible company to engage an experienced Chief Executive Officer or other executives, who can bring real practical senior management skills to the company to assist in the commercialisation of the product or service that it has produced.  This grant is designed to assist small innovative firms and people new to business to gain access to skilled executives with management experience.  To be eligible an applicant must have a combined annual turnover (including the applicant and any related body corporate) for the last 3 years, of less than $10 million per annum.  The applicant must have access to, or the beneficial use of, the intellectual property necessary to carry out and/or commercialise the project.

If you would like to have a discussion with us relative to the submission of an application to Commercialisation Australia, please contact us.

Director penalty regime - take two!

The Government has reintroduced legislation into Parliament to extend the director penalty regime. This will, among other things, make directors personally liable for their company's unpaid superannuation guarantee amounts.

The changes also aim to ensure that directors cannot discharge their director penalties by placing their company into administration or liquidation while PAYG withholding or superannuation guarantee remains unpaid and unreported for three months after the due date.

The changes also propose a new "PAYG withholding non-compliance tax" that arises when a company has failed to pay amounts withheld to the Commissioner of Taxation. This tax will be levied on directors or associates of directors, provided certain criteria are met.

TIP: In 2011 the Government withdrew its original legislation from Parliament following calls for more consultation after a Parliamentary committee noted that innocent directors could be caught by the proposed rules.  Directors and those considering becoming a director (or those who might be considered an associate of a director) should take note of the changes. Please contact our office if you have any questions.


Commissioner's new power to withhold refunds

Legislation is making its way through Parliament to give the Commissioner of Taxation a new power to withhold "high risk" refunds pending integrity checks of a taxpayer's claim. 

The changes are being introduced in response to court proceedings in which the Commissioner was ordered to pay a GST refund to a taxpayer, despite the fact that the outcome of an ATO audit was still pending. The proposed legislation is designed to address this by providing the Commissioner with a new legislative power to retain refunds in such circumstances.

It should be noted that the Commissioner's power will apply to all refunds and claims arising under the tax law – not just GST. Some commentators have warned that the proposed measures are very broad and provide the Commissioner with the widest of discretions to withhold refunds.
Minors and low income tax offset changes

The Government has introduced legislation to implement its 2011 Budget announcement to bring an end to the ability of minors (children under 18 years of age) to access the low income tax offset (LITO) to reduce tax payable on their "unearned income" such as dividends, interest, rent, royalties and other income from property. 

The changes are designed to discourage income splitting between adults and children, including through the use of trusts. Once formally enacted, the changes will apply to assessments from the 2011–2012 income year onwards. 

Under the new rules, a trustee who is assessed on the income of a minor will not have access to the LITO in circumstances where the income is considered to be unearned income of that minor.
Non-resident tax rate increases on the way

Legislation has been introduced into Parliament to amend the income tax rates for non-residents from 1 July 2012.

The changes, pending formal enactment, will essentially increase the non-resident tax rates from the 2012–2013 year onwards. Changes have also been made to the tax rates applicable to non-resident minors. Please contact your Harris Black team member for further details.


Living-away-from-home concessions to be tightened

The Government has proposed a raft of changes concerning living-away-from-home allowances (LAFHAs) and benefits. Essentially, the Government is restricting access to the concessions. Employers and employees who may be affected need to take note.

Broadly, the following will apply:

  • LAFHAs will no longer be available for international secondments to Australia;
  • LAFHAs will only be available to Australian taxpayers who maintain a second home and only then for a time limit of 12 months per location; and
  • allowances will be taxable to employees with deductions for actual expenditure, rather than being taxable as fringe benefits that are subject to exemptions.

In order to obtain a deduction, the proposed new regime will also create requirements for employees to provide written evidence of their expenditure in some circumstances.

The proposed changes are set to take effect on 1 July 2012.  However, there will be grandfathering provisions to preserve tax concessions for up to two years for some arrangements that were in place prior to Budget night (8 May 2012).

TIP:  The proposed changes are complex and will raise significant issues for affected employers and employees.  Following these developments and before the enactment of the legislation, it will be critical to identify how the changes may apply to your circumstances. If you have any questions, please contact our office.

CGT small business concessions denied

A recent case before the Administrative Appeals Tribunal (AAT) has demonstrated the need for great care when structuring arrangements to ensure a taxpayer's eligibility for the small business capital gains tax (CGT) concessions.

The Tribunal held that the taxpayer had not passed the "maximum net asset value" test for the purposes of the CGT small business concessions in respect of a capital gain made on selling shares to his family trust. The taxpayer was a director and shareholder of a series of interlocking companies. The issue turned on whether a bank loan to the family trust was a liability that could be taken into account in applying the "maximum net asset value" test. However, the Tribunal held the loan could not be taken into account for various reasons.

TIP: One of the conditions for accessing the CGT small business concessions is that the taxpayer (other than those who qualify as small business entities) must satisfy the "maximum net asset value" test. To pass this test, the net value of all the CGT assets of taxpayer (including affiliates and connected entities) must not exceed $6 million (previously $5 million). 
The rules are complex. The AAT decision highlights the importance of careful planning when structuring transactions. Please contact our office if you have any questions.

What A Confusing Picture!

The state of the Australian economy at present creates a confusing picture, especially for small/medium business operators. Only days after the Australian Reserve Bank reduced the official interest rate by 0.25% in June to 3.5% to improve economic activity, the Australian Bureau of Statistics released figures which show strong economic performance was achieved in the March quarter which ABS have calculated grew by 1.3% to achieve an annual growth rate of 4.3% - the best performance since the September quarter 2007!

The annual growth figures have been driven by strong economic performance in the Northern Territory, Western Australia and Queensland. Annual growth figures are as follows:

  • Northern Territory 16.9%
  • Western Australia 14.5%
  • Queensland 7.5%.

The other states have shown significantly less growth:

  • ACT 3%
  • Victoria 2.7%
  • South Australia 2.3%
  • NSW 1.9%
  • Tasmania -0.8%.
The financial report indicated that household consumption was up by 1.6% in the March quarter primarily because of extra spending on food, clothing, health services and recreational activities (such as gym memberships and movie tickets). There has been an expectation that the Reserve Bank would announce further interest rate cuts in July/August however, the pace of these cuts may now be restrained because of this reported positive economic activity. It is of great interest whether this strong activity will continue in the June quarter although many small/medium enterprise operators would say it is not. Globally, immense problems still remain in Europe, particularly in Greece and Spain. The Spanish Prime Minister stated recently that "Spain can no longer raise money on global markets or roll over their sovereign bonds". 

In recent days the Australian dollar has fluctuated highlighting the need for exporters and importers to monitor the currency's position.  Closer to home the Federal Government Carbon Tax commenced on the 1st July and this will cause problems for some small businesses.  The government's announcement of changes to the superannuation rules is also causing concern for some small business operators.  We also note that liquidators are reporting that they are very busy at present.

Within this confusing economic picture, business operators need to have a clear plan and monitor their financial position regularly.  Be mindful of cashflow management, primarily monitoring debtors and ensuring that bank covenants are being closely monitored.  If its time for your to approach the bank speak to us first so we help you get off on the right foot.  If your dealing in foreign currency consider speaking to Harris Black or your banks to assist in mitigating this risk.

With good planning and monitoring you can have certainty in these uncertain times.


Having Problems Putting Your Plans Into Action?

In the "Australian Business Solutions" Issue 24, June/July 2012, the article "Principles of Execution – Making It Happen" by Graham Haines*, identified 36 barriers that prevent or delay execution (AKA implementation of plans to achieve desired outcomes). He lists 13 barriers in planning, 14 in execution, 6 in monitoring, measuring and adapting and 3 in revising the plan.

Briefly, barriers in planning arise from poor problem and decision making issues such as: failure to clarify the aim and the business context; not having clear results to aim for; insufficient time spent in planning with no clear action plan before moving to implementation; and underestimating the 'execution' cost.

Barriers in 'execution' include inadequate attention to factors such as: organisational alignment; management of change; leadership; teams and teamwork; employee engagement; and communication.

Monitoring, measuring and adapting barriers are the result of lack of awareness of the performance of direct competitors, too much reliance on quantitative measures, and failure to measure performance.

Revising the plan is essential to 'doing things right'. One needs to recognise when circumstances change and make revisions accordingly. This is vital to the successful execution of the plan.

Harris Black can assist you to execute your Business Plan, and now is a great time to set your plans for 2013.


Planning Successful Succession Within Your Business

Succession planning is a very important issue for all businesses irrespective of size. Succession does not just relate to older persons wanting to retire nor does it only relate to the owner of the business. Succession planning is important at every level of the business as it relates to effective mentoring and coaching within the business to improve the skill levels of all team members.

There is no doubt that succession issues are a very topical subject amongst small business owners at present. This is because of the large number of "baby boomers" who will want to sell their businesses from now on. Therefore it is prudent for people who are contemplating selling their business over the next decade to start planning for succession now. There are some key questions to be answered relative to implementing a succession plan. The first series of questions start with the current owner:
  • What do you want to achieve from the business?
  • Are you building the business for a lifetime or an exit?
  • As part of your succession plan have you thought about your options for exiting the business?
  • Are you motivated by a significant change or event to influence you to quit the business?
  • Will the business survive with the reduced reliance on "you"?
  • As part of the professionalising of the business can you effectively make yourself redundant?
  • Do you think your business is "exit ready" or succession ready at this stage
  • If you don't believe the business is "exit ready" what are your motivations for staying in the business?
  • Do you have sufficient insurances should a sudden event occur?

If you would like to have a discussion with us regarding your succession strategy please contact your harris black team member..


Small Business Has Achieved Some Tax Recognition

From 1st July 2012, small business entities are now able to claim immediate deductions for any asset costing less than $6,500 and all assets other than buildings will be allocated to the small business general pooling. As an additional benefit, if the asset is a motor vehicle, a small business entity will be entitled to an immediate deduction of $5,000 and the residual value is depreciated at 15% in the first year of use.

This provides many planning opportunities for small business and helps reduce the tax burden in line with the reality of a small business' cashflow needs.


Marketing/Sales Hints

Collect Prospect Details

Every business should be maintaining a database of prospects. There are literally hundreds of Customer Relationship Management (CRM) systems available, many of which would be ideal for small/medium enterprises to use to record details of prospective clients. Make an attempt to collect mailing information from people who come into contact with your business or alternatively, run a weekly competition that requires a customer to submit their business or personal details by filling in a form. You will then be able to include these prospects as "leads" into your database or CRM and commence communications with them by mail or email.


Government Grant for SMEs

Commercialisation Australia – Experienced Executives

For companies who have developed a new product or service and who would benefit from bolstering their senior management team, Commercialisation Australia has a grant of up to $350,000 on a 50/50 basis, over a 2 year period for an eligible company to engage an experienced Chief Executive Officer or other executives, who can bring real practical senior management skills to the company to assist in the commercialisation of the product or service that it has produced. This grant is designed to assist small innovative firms and people new to business to gain access to skilled executives with management experience. To be eligible an applicant must have a combined annual turnover (including the applicant and any related body corporate) for the last 3 years, of less than $10 million per annum. The applicant must have access to, or the beneficial use of, the intellectual property necessary to carry out and/or commercialise the project.

If you would like to have a discussion with us relative to the submission of an application to Commercialisation Australia, please contact us.


Director penalty regime - take two!

The Government has reintroduced legislation into Parliament to extend the director penalty regime. This will, among other things, make directors personally liable for their company's unpaid superannuation guarantee amounts.

The changes also aim to ensure that directors cannot discharge their director penalties by placing their company into administration or liquidation while PAYG withholding or superannuation guarantee remains unpaid and unreported for three months after the due date.

The changes also propose a new "PAYG withholding non-compliance tax" that arises when a company has failed to pay amounts withheld to the Commissioner of Taxation. This tax will be levied on directors or associates of directors, provided certain criteria are met.

TIP: In 2011 the Government withdrew its original legislation from Parliament following calls for more consultation after a Parliamentary committee noted that innocent directors could be caught by the proposed rules. Directors and those considering becoming a director (or those who might be considered an associate of a director) should take note of the changes. Please contact our office if you have any questions.


Commissioner's new power to withhold refunds

Legislation is making its way through Parliament to give the Commissioner of Taxation a new power to withhold "high risk" refunds pending integrity checks of a taxpayer's claim.

The changes are being introduced in response to court proceedings in which the Commissioner was ordered to pay a GST refund to a taxpayer, despite the fact that the outcome of an ATO audit was still pending. The proposed legislation is designed to address this by providing the Commissioner with a new legislative power to retain refunds in such circumstances.

It should be noted that the Commissioner's power will apply to all refunds and claims arising under the tax law – not just GST. Some commentators have warned that the proposed measures are very broad and provide the Commissioner with the widest of discretions to withhold refunds.


Minors and low income tax offset changes

The Government has introduced legislation to implement its 2011 Budget announcement to bring an end to the ability of minors (children under 18 years of age) to access the low income tax offset (LITO) to reduce tax payable on their "unearned income" such as dividends, interest, rent, royalties and other income from property.

The changes are designed to discourage income splitting between adults and children, including through the use of trusts. Once formally enacted, the changes will apply to assessments from the 2011–2012 income year onwards.

Under the new rules, a trustee who is assessed on the income of a minor will not have access to the LITO in circumstances where the income is considered to be unearned income of that minor.


Non-resident tax rate increases on the way

Legislation has been introduced into Parliament to amend the income tax rates for non-residents from 1 July 2012.

The changes, pending formal enactment, will essentially increase the non-resident tax rates from the 2012–2013 year onwards. Changes have also been made to the tax rates applicable to non-resident minors. Please contact your Harris Black team member for further details.


Living-away-from-home concessions to be tightened

The Government has proposed a raft of changes concerning living-away-from-home allowances (LAFHAs) and benefits. Essentially, the Government is restricting access to the concessions. Employers and employees who may be affected need to take note.

Broadly, the following will apply:

  • LAFHAs will no longer be available for international secondments to Australia;
  • LAFHAs will only be available to Australian taxpayers who maintain a second home and only then for a time limit of 12 months per location; and
  • allowances will be taxable to employees with deductions for actual expenditure, rather than being taxable as fringe benefits that are subject to exemptions.

In order to obtain a deduction, the proposed new regime will also create requirements for employees to provide written evidence of their expenditure in some circumstances.

The proposed changes are set to take effect on 1 July 2012. However, there will be grandfathering provisions to preserve tax concessions for up to two years for some arrangements that were in place prior to Budget night (8 May 2012).

TIP: The proposed changes are complex and will raise significant issues for affected employers and employees. Following these developments and before the enactment of the legislation, it will be critical to identify how the changes may apply to your circumstances. If you have any questions, please contact our office.


CGT small business concessions denied

A recent case before the Administrative Appeals Tribunal (AAT) has demonstrated the need for great care when structuring arrangements to ensure a taxpayer's eligibility for the small business capital gains tax (CGT) concessions.

The Tribunal held that the taxpayer had not passed the "maximum net asset value" test for the purposes of the CGT small business concessions in respect of a capital gain made on selling shares to his family trust. The taxpayer was a director and shareholder of a series of interlocking companies. The issue turned on whether a bank loan to the family trust was a liability that could be taken into account in applying the "maximum net asset value" test. However, the Tribunal held the loan could not be taken into account for various reasons.

TIP: One of the conditions for accessing the CGT small business concessions is that the taxpayer (other than those who qualify as small business entities) must satisfy the "maximum net asset value" test. To pass this test, the net value of all the CGT assets of taxpayer (including affiliates and connected entities) must not exceed $6 million (previously $5 million).
The rules are complex. The AAT decision highlights the importance of careful planning when structuring transactions. Please contact our office if you have any questions.


Published 29th June 2012

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Since 1994, Harris Black has been providing accounting and advisory services to our valued clients to help them achieve their business and personal wealth goals.

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