There are four main items on which SME operators need to concentrate to assist in effective management of businesses. These are:
- The real economic activity in your location
- Inflation rate
- Exchange rates
The real economic activity is very relevant for businesses which are relying on discretionary spending such as tourism, electrical appliance sales, significant amounts of retail businesses, major purchases (eg. cars, houses etc).
Inflation has been rather static in Australia for the last few years and is currently around 2%, but you need to keep an eye on it. When business activity picks up the inflation rate is likely to rise.
Exchange Rate – The Australian dollar is currently around $1.02 per US$. It has risen significantly over the last few years. The rate with the British pound reached a 28 year record recently – it is now approx. 64¢ to a British pound. Monitoring of exchange rates is very important for importers and exporters and consideration should be given to locking in exchange rates when sales contracts are finalised.
Interest Rate – The Reserve Bank's cash rate is currently 2.75%. It is a good time to ensure you are getting the best rate possible on your loans.
The recently released Federal Budget, and various initiatives therein such as those relating to superannuation, will no doubt have caused some concern. Uncertainty will likely continue until the Federal election to be held on the 14th September 2013.
Shrinkage – Shrinkage measures a business' ability to control its margins in pricing. Strong stock management policies will reduce shrinkage. Factors affecting shrinkage include:
- stock wastage
- incorrect pricing policies
loose management systems
Any improvement in shrinkage normally impacts on the business' bottom line. If you would like to review the cost of shrinkage in your business, please contact your Harris Black team member.
Time is one of those things which cannot be expanded, however it can be better managed. Every one of us has 24 hours or 1,440 minutes per day, yet some of us are better managers of our time than others. It is important to allocate the number of hours per day that we are prepared to spend at work and then prioritise how we are going to spend that time.
Managers need to consider a lot of things when allocating time covering:
- client/customer work
- controlling operations
- training and development
- team leadership
- developing new products and services
How do you better manage your time? Here are some suggestions:
- Establish daily and weekly priority goals/"to do" lists... Mark off the task when it's completed and periodically prepare a log sheet of the amount of time you spent on various tasks.
- Control the telephone... Do not allow the telephone to control you. Perhaps you could have messages taken during the day and then have very specific time allocations to return telephone calls (e.g. one in the morning, the other in the afternoon). Have a "quiet period" each day so you can use the "quality time" to plan your daily activities and business strategies.
- Consider and analyse those persons or tasks that cause you to waste time... Can you change your management style to overcome these time wasters (e.g. it might be better if you visited others in their offices or business premises rather than meeting in your office?) The visitor can close the meeting and basically leave.
- Meetings... All meetings should have an agenda and should start and finish on time. At meetings, ensure that minutes are taken and distributed and follow these up at the next meeting. If this type of activity continues at all meetings it will speed up the process.
- Delegate... Identify what you should stop doing... Is there anything currently on your desk or work area that could be delegated to someone else in the organisation?
Management of time is essential if you wish to be successful in business. Effective management involves planning, delegation and eliminating bad time wasting practices. Remember... everyone is allocated the same amount of time each day. How you effectively spend it will have a significant impact on how you perform as a business person.
The current difficult trading conditions have highlighted the necessity for manufacturing, trades and professional businesses to cut waste and minimise costs for their clients. Many manufacturers have adopted the 5 "S" system - a structured systematic approach to housekeeping and the cornerstone of every world class manufacturing operation. The 5 "S" system is also appropriate for trade and professional businesses.
The 5 "S" system involves creating and organising the workplace using the following steps:
- Sort - remove unnecessary items
- Set in order - a place for everything and everything in its place
- Shine - cleaning the work area
- Standardise - the rules and standards
- Sustain - maintaining the standard in a disciplined way
It is May already so it's therefore an appropriate time to be planning your sales strategies for 2013/14.
- What do you want to achieve next financial year?
- How are you going to make that happen?
Look at what will help to create improvements in sales strategies for your business. Consider what it is going to take, on a daily, weekly and monthly basis, to make sales planning come to fruition? If changes are going to be made, the changes need to be made on a timely basis. It is a good time to plan now for new sales strategies to operate from the 1st July, rather than wait until July has arrived. If you are having problems in achieving your sales target, it is best to go back to the core of your organisation. What products are being produced? What is the marketplace reaction to those products/services? Is the individual selling value realistic? What is the sales team's behaviour relative to achieving these targets?
The key thing is to recognise what the problems are and fix them by installing new behaviour patterns before the end of June. You might require:
- a review of cultural issues within the business;
- a review of systems that are being used;
- analysing what is going on in the field where the salespeople are working on a day to day basis.
Changing the pattern of work for sales organisations is difficult but the likelihood of delivering results will be considerably improved if you go back to the core and start planning a training and implementation strategy from there.
If you would like us to make an input into your sales review and sales plan, please do not hesitate to contact your Harris Black team member.
The government has announced some proposed changes to the superannuation laws. They are as follows:
- Changes to tax exemptions for earnings on superannuation assets supporting income streams. From the 1st July 2014, the government is proposing that earnings on assets supporting income streams above $100,000 per annum per member account will be taxed at 15%.
- Increase in concessional caps for certain superannuation fund members. The government is proposing that, from the 1st July 2013, taxpayers aged over 60 will have a superannuation contribution cap of $35,000 (currently $25,000).
- The government is proposing that, from the 1st July 2014, taxpayers aged over 50 will have a superannuation fund contribution cap of $35,000 (currently $25,000).
If you wish to discuss the government's proposed changes to superannuation, as they affect your affairs, please do not hesitate to contact your Harris Black team member.
The government is proposing further changes in the Fair Work Act to implement flexibility relating to the changing demographics of the workforce. These changes include more women re-entering the workforce, older members of the workforce not wishing to work full time and an increasing disabled population who are encouraged to work, but require flexibility of working times. These changes will provide headaches for employers, especially when work roster changes are proposed. Employees will be able to resist roster changes if they are:
- carers for school children and/or pre-school children
- people caring for elderly relatives
- people with disabilities
- people aged over 55 - in which case they can apply for flexible working hours
- people who have suffered from domestic violence
Employers will need to ensure that they have taken into account genuine concerns from employees or risk having action brought against them. Under the General Protection Claim section of the Fair Work Act, an individual employee could take action against an employer who wants to change their rostered hours if they are concerned that the change will affect their responsibilities to others, as listed above.
If you have any concerns relating to how these changes will affect your business, please contact your employer association or your Workforce consultant.
There are many ways in which taxpayers can take advantage of tax planning initiatives to manage their taxable incomes. In order to maximise these opportunities, taxpayers need to start the year-end tax planning process early. Of course, when undertaking tax planning, taxpayers should be cognisant of the potential application of anti-avoidance provisions. However, if done correctly, tax planning can provide possible tax savings.
- Income received in advance of services to be provided will generally not be assessable until the services are provided.
- Taxpayers who provide professional services may consider, in consultation with their clients, rendering accounts after 30 June to defer the income.
- If the disposal of an asset will result in assessable income, a taxpayer may want to consider postponing the disposal to the following income year.
- Individuals operating personal services businesses should ensure that they satisfy the relevant test to be excluded from the personal services income regime, or seek a determination from the Commissioner.
- Debtors should be reviewed prior to 30 June to identify and to write off any bad debts.
- Asset registers may need to be reviewed for any assets that are no longer being used.
- Review trading stock for obsolete stock for which a deduction is available.
- A deduction a for personal superannuation contribution is available where the 10% rule is satisfied.
- Assets costing $300 or less may qualify for an immediate deduction, subject to certain conditions.
- Outgoings incurred for managed investment schemes may be deductible.
- Companies should ensure that all dividends paid to shareholders during the relevant franking period (generally the income year) are franked to the same extent to avoid breaching the benchmark rule.
- Loans, payments and debts forgiven by private companies to their shareholders or associates may give rise to unfranked dividends that are assessable to the shareholders or associates. Shareholders and entities should consider repaying loans and payments on time or have appropriate loan agreements in place.
- Companies should consider whether they have undertaken eligible research and development (R&D) activities that may be eligible for the R&D tax incentive.
- Companies may want to consider consolidating for tax purposes prior to year-end in order to reduce compliance costs and take advantage of tax opportunities available as a result of the consolidated group being treated as a single entity for tax purposes.
- Companies should carefully consider whether any deductions are available for any carry forward tax losses, including analysing the continuity of ownership and same business tests.
- Taxpayers should review trust deeds to determine how trust income is defined. This may have an impact on the trustee's tax planning.
- Trustees should consider whether a family trust election (FTE) is required to ensure any losses or bad debts incurred by the company will be deductible and to ensure that franking credits will be available to beneficiaries.
- If a trust has an unpaid present entitlement to a corporate beneficiary, consideration should be given to paying out the entitlement by the earlier of the due date for the lodgment of the trust's income tax return for the year and the actual lodgment date, in order to avoid possible tax implications.
- Avoid retaining income in a trust because the income may be taxed at 46.5%.
- A taxpayer may consider crystallising any unrealised capital gains and losses in order to improve their overall tax position for an income year.
- Eligible small business entities can access a range of concessions for a capital gain made on a CGT asset that has been used in a business, provided certain conditions are met.
- The ATO has reminded taxpayers to consider the superannuation contributions caps and the timing of when contributions are made when planning their tax affairs, in order to avoid excess contributions tax.
- Eligible individuals who breach the concessional contributions cap by up to $10,000 will be given a once-only option for the excess contributions to be refunded without penalty.
- A member of an accumulation fund (or whose benefits include an accumulation interest in a defined benefit fund) may be able to split with their spouse superannuation contributions.
- A tax offset of up to $540 is available for a resident taxpayer in respect of eligible contributions made by the taxpayer to a complying superannuation fund or a retirement savings account for the purpose of providing superannuation benefits for the taxpayer's low-income or non-working resident spouse (including a de facto spouse).
- Taxpayers aged 50 years or over should review their transition to retirement pensions and salary-sacrificing arrangements to take into account the reduction in the concessional cap from $50,000 to $25,000 for 2012–2013 and 2013–2014. However, note that the Government proposes to increase the concessional contributions cap to $35,000 for seniors.
- For eligible individuals, a government low income superannuation contribution of up to $500 will be available.
- The living-away-from-home (LAFH) rules have been significantly overhauled. While the rules remain in the FBT regime, there is an increased requirement to ensure LAFH payments are properly tracked, categorised and substantiated.
- The four rates used in the statutory formula method for determining the taxable value of car fringe benefits are being replaced with a single statutory rate of 20%. Taxpayers should review contracts for changes to a "pre-existing commitment".
- The Government has proposed amending the FBT law to remove the concessional FBT treatment for in-house fringe benefits accessed by way of salary-packaging arrangements.
- For 2012–2013 and later income years, the dependent spouse tax offset will only be available to those born on or before 1 July 1952.
- The Government has announced that it will remove the 50% CGT discount for foreign residents on capital gains accrued after 7.30pm (AEST) on 8 May 2012. However, the CGT discount will remain available for capital gains that accrued prior to this time where foreign residents choose to obtain a market valuation of assets as at 8 May 2012.
The Government has issued for comment draft legislation proposing to implement its 2012 Budget announcement that it will remove the capital gains tax (CGT) discount for non-resident individuals on taxable Australian property, such as residential and commercial real estate and mining assets.
Under the current law, individual taxpayers are generally entitled to a 50% discount on capital gains made from assets they have held for at least 12 months, regardless of the individual's residency status. The proposed changes will introduce new residency requirements.
Under the changes, non-residents will still be entitled to a discount on capital gains that accrued prior to 9 May 2012 (ie, the day after the Government's announcement), provided they obtain a market valuation of the asset as at 8 May 2012.
Note that, if implemented, the changes will apply to affected individuals irrespective of whether the gain resulted from an asset owned by the individual or was a gain from an asset held by a trust and attributed to the individual.
In summary, the effect of the measure will be to:
- retain the full CGT discount for discount capital gains of foreign resident individuals to the extent that the increase in value of the CGT asset occurred prior to 9 May 2012;
- remove the CGT discount for discount capital gains of foreign and temporary resident individuals that accrued after 8 May 2012; and
- apportion the CGT discount for discount capital gains where an individual has been an Australian resident and a foreign or temporary resident during the period after 8 May 2012. The discount percentage will be apportioned to ensure the full 50% discount is applied to periods where the individual was an Australian resident.
The Government has released draft regulations that propose to give effect to an earlier announcement made in October 2012 that it will provide certainty to the beneficiaries of superannuation death benefits. The changes will allow the tax exemption for earnings on assets supporting superannuation income streams to continue following the death of a fund member who was in the pension phase until the deceased member's benefits have been paid out of the fund. If implemented, the changes will apply from 1 July 2012.
The proposed changes appear to be a response to industry concern with the Tax Commissioner's draft ruling on superannuation income streams issued in a 2011. In that draft ruling, the Commissioner took the position that a superannuation income stream ceases as soon as the member in receipt of the income stream dies, unless a dependent beneficiary of the deceased is automatically entitled to receive an income stream.
According to the Commissioner's preliminary view, tax would generally apply to a fund's investment earnings, including realised capital gains, following the death of a pension member. However, the proposed new regulations will ensure that this is not the case.
In a recent decision, the Administrative Appeals Tribunal (AAT) decided that a taxpayer's interest in a business was disposed of when a "heads of agreement was executed", and not when the formal contract of sale was executed.
An agent had testified that it was long-standing practice in the industry for an intending purchaser and vendor to enter into an "in-confidence" period of exclusivity during which the intending purchaser would use professional advisers to carry out due diligence.
Despite evidence suggesting that the industry did not regard the heads of agreement as a binding contract, the AAT was of the view that the parties to the heads of agreement had agreed to the sale and purchase of the business in question. As a result, as it was found that it was the date of the heads of agreement that was the applicable date of the transaction for CGT purposes.
As a result, the taxpayer was not entitled to access the CGT small business concessions because he did not satisfy the relevant test for the concessions just before that date.
The Government has announced the "cents per kilometre" rates for calculating tax deductions for car expenses for the 2012–2013 income year. Note that they are unchanged from 2011–2012 and are as follows:
- Small car (non-rotary engine up to 1600cc, or rotary engine up to 800cc): 63c/km.
- Medium car (non-rotary engine 1601–2600cc, or rotary engine 801–1300cc): 74c/km.
- Large car (non-rotary engine 2601cc and above, or rotary engine 1300cc and above): 75c/km.
With the changes to the living-away-from-home rules (effective from 1 October 2012) affecting employees who are required by their employers to live away from home for work, greater care needs to be taken in assessing the fringe benefits tax (FBT) implications of living-away-from-home allowances (LAFHAs). With a narrower scope for eligibility for concessional treatment and increased substantiation requirements, the level of risk is greater.
The Commissioner has recently determined the amounts that he considers reasonable for food and drink expenses incurred by employees receiving a LAFHA fringe benefit for the FBT year commencing on 1 April 2013. Broadly, if an employee's food or drink expenses exceed the amount the Commissioner considers reasonable, the employee will have to substantiate all the expenses incurred, or the employer will be liable to FBT on the amount of LAFHA paid to the employee that is in excess of the reasonable amount.
TIP: The new rules will require careful consideration when planning for and preparing the 2013 FBT return – this may include identifying whether the transitional rules apply, obtaining evidence if substantiation is required, and checking contracts to see if food and drink is clearly identified. Where food and drink is greater than the ATO reasonable amounts, future restructuring should be contemplated. Please contact our office for further information.
In response to a number of high profile cases lost by the Tax Commissioner, the Government has introduced legislation into Parliament that proposes to ensure the effective operation of the income tax general anti-avoidance law. In those cases, the taxpayers successfully argued that the income tax general anti-avoidance law did not apply as tax was a legitimate consideration in commercial decision-making, and where the tax cost of a transaction was considerable the taxpayer would have done nothing. The changes, once enacted, will apply retrospectively from 16 November 2012.
The changes aim, among other things, to rectify what the Government considers to be perceived weaknesses in the "tax benefit" concept, which have reduced the effectiveness of the law in countering tax avoidance arrangements. Broadly, the amended law will continue to apply where a taxpayer enters into a scheme with a sole or dominant purpose of obtaining a tax benefit. However, in considering alternative postulates (ie what the taxpayers might otherwise have done), tax costs will be disregarded under the amended law.
Consequently, it will be necessary to compare the scheme entered into with other ways of achieving the same commercial outcome, regardless of the tax cost. Eliminating the defence that the taxpayer would otherwise have done nothing will broaden the potential application of the rules significantly.