In the early months of the financial year, the economic scene is sluggish, with lower than normal economic growth, low inflation, no change in interest rates and, at this stage, no likely sign of interest rates going up for a while. There are still major problems in certain business activities and locations around Australia. The key areas for small business operators to monitor are:
- Growth of the Economy (GDP – Gross Domestic Product)
- Interest Rates
- Currency Rates
- Government Policy
Whilst there has been some positive growth, it has not yet returned to the 4% trend at which the economy has generally performed. It is likely to continue in this manner for the remainder of the financial year, unless there is a major wages breakout, which will significantly affect the inflation rate.
The Australian dollar is very high, especially compared to rates that were evident 4½ years ago, when the Australian dollar was 57 cents against the US dollar. The US dollar rate against Australian dollar is currently at $1.05, which is good news for importers and Australians travelling overseas, but not for Australian exporters or the tourist industry relying on international tourists visiting Australia.
Cashflow management is still a high priority issue for SMEs. If you are preparing budgets for this financial year, it is a good idea to prepare three separate sets of budgets, comprising:
- most likely outcome;
- most optimistic scenario; and
- most pessimistic scenario.
If you would like our assistance in the preparation of budgets and cashflow forecast, or a review of your cashflow management procedures, please do not hesitate to contact your harris black team member.
The recent comments by the Australian Taxation Commissioner, that small businesses are approximately $9B in debt on Business Activity Statements, has highlighted the significant importance of effective cashflow management for SMEs. Two years ago, the total debt for the same group of taxpayers was approximately $4B.
This level of debt, together with the average debtors' outstanding figures of approximately 53 days (as disclosed by Dunn and Bradstreet), highlights the severe cashflow problems that many small business operators are experiencing. We can assist our SME clients to manage their business affairs better by focusing on the area of debtors and completing a debtor system review, including the review or implementation of:
- A debtors' Procedure Manual
- An application for credit account form
- A welcome new customer letter
- Procedures for obtaining and safe keeping of private company directors' guarantees
- Calculating Debtors' Days Outstanding
- Procedures for collecting debts
- A Debtors' Reduction Checklist
Next month we will discuss the other components of cashflow management – Stock, Work in Progress, and Bank Covenants.
Last month, we reviewed the establishment of key targets for Budgets and Cashflow Forecasts. Some of the other key items for consideration in the preparation of a budget includes:
This is a summary of some of the targets that you need to bear in mind when preparing Budgets and Cashflow Forecasts for the 2012/13 financial year.
If you would like to have a discussion with us relating to the preparation of budgets and cashflow forecasts for your business, please do not hesitate to contact your harris black team member.
Consider how to improve or implement the following:
- Do your customers say "Wow"?
- Do they recommend your business to their friends and associates?
- Do you acknowledge long-term clients for their continuous support of your business?
- Do you send letters to new customers thanking them for their patronage?
- Do your encourage customers to give you referrals to their friends and associates?
- Do you ask clients for testimonials which you can post on your website?
- Do you give guarantees so your team understands the lifetime value of a customer?
- Do you have a customer database?
- Do you understand the demographics of your customers?
- Do you have procedures in place for handling complaints?
The Government has passed legislation on the 29th June 2012 to make company directors personally liable for unpaid super contributions if the company fails to comply with its superannuation guarantee obligations. This is in addition to existing legislation that can make directors personally liable for any unpaid Pay As You Go Withholding (PAYGW)
- The Commissioner of Taxation is now allowed to commence proceedings to recover director penalties three months after the due date, if the company debt remains unpaid and unreported after the three months passes.
- Where three months has passed after the due date for the company's liability, and it remains unpaid and unreported, the director's liability cannot be extinguished by placing the company into administration or beginning to wind it up.
- Where company directors personally obtain a PAYG credit for tax withheld by a company, the directors will effectively lose that credit (by way of becoming liable to pay PAYG withholding non-compliance tax) where the company fails to remit the PAYG withholding to the ATO.
- Those intending to become directors should ensure that, as part of the due diligence process, they consider the company's PAYG and superannuation guarantee obligations. A new director will become liable to a director penalty if, after 30 days of joining the company, the company still has not discharged its obligations.
- Companies should review their PAYG and superannuation compliance procedures to ensure there are no risks identified, such as incorrectly classifying employees as contractors or incorrectly calculating superannuation on overtime (which should be included in 'ordinary time earnings' in some circumstances).
- If outstanding obligations exist and your business is in the position to make payment consideration should be made as to which debt is paid first.
The Government's Business Tax Working Group has recently released a discussion paper highlighting a number of possible ways in which a company tax rate cut could be funded from within the business tax system.
According to the Working Group, a comprehensive tax base that contains minimal special exemptions and deductions for certain investments can result in a more productive mix of different investment options and a broader tax base that will generate greater revenue to fund a lower company tax rate. Public consultation closes on 21 September 2012.
The ATO has highlighted a number of areas that it will focus on in its compliance activities this year. This includes:
- incorrect claims for work-related expenses. In particular, the ATO says it will focus on claims made by plumbers, IT managers and defence force personnel. Taxpayers must keep written records for all their work-related expenses if their claims total more than $300;
- unrecorded and unreported cash transactions in the café and plastering industries. Note, the ATO is stepping up its use of third party information, such as information from suppliers, to identify under-reporting of income;
- incorrectly treating employees as contractors, particularly in the construction industry. In addition, the ATO notes that from 1 July 2012, businesses that make payments to contractors in the building and construction industry are required to report the payments to the ATO each year;
- treatment of private company profits, particularly in relation to loan arrangements; and
- superannuation obligations of employers, with a focus on cafés and restaurants, real estate businesses and carpentry businesses in home building or construction.
TIP: The ATO's main tool for detecting non-compliance is matching information reported to it by taxpayers and third parties, such as financial institutions both in Australia and overseas. The ATO says its matching capabilities have grown strongly over the years. This financial year, the ATO expects to match over 600 million transactions.
The ATO has been publishing small business benchmarks since 2009 as part of its strategy to help small businesses to compare their performances against similar businesses. The benchmarks are also used by the ATO to identify taxpayers who may be under-declaring income.
The Commissioner of Taxation, Michael D'Ascenzo, recently said that approximately 90% of small businesses in benchmarked industries fall within a benchmark ratio. However, he said around 76,000 businesses have reported income that is significantly below those benchmarks. To address this issue, Mr D'Ascenzo said the ATO wrote to around 30,000 small businesses regarding the benchmarks in 2010–2011. He said around 17% (or over 5,000) of the businesses have since started reporting income commensurate with the benchmarks, thereby lowering their risk profile with the ATO.
Warning: The ATO, are using there benchmarks to issue default assessment notices to taxpayers who have long outstanding tax and GST obligations.
The ATO has warned taxpayers about arrangements where accumulated profits of a private company are distributed substantially tax-free to an entity associated with the ordinary shareholders of the private company.
The ATO says the dividends are generally distributed on a new class of shares that the private company has created and issued to the associated entity for nominal consideration. In addition, it says the dividends will often be fully franked such that the associated entity will bear little or no additional income tax.
The Commissioner said the ATO is concerned the arrangements are set up with the dominant purpose of avoiding tax. "While some arrangements may be claimed to be done for commercial and other non-tax purposes, we will be closely examining whether the way these arrangements have been set up would show a tax avoidance purpose," said Mr D'Ascenzo.
The Commissioner has been successful before the Federal Court in overturning an earlier decision that had held that around $4.7 million deposited into a taxpayer's bank account from an overseas bank were loans and that payments made in respect of the loans were deductible interest.
The taxpayer's financial statements for the 1997 to 2008 income years recorded a loan liability to an overseas bank and substantial related interest expenses. The Commissioner argued that the asserted loan liability related to funds that the taxpayer received as assessable, and that none of the asserted interest payments were deductible.
In allowing the Commissioner's appeal, the Federal Court held that the Administrative Appeals Tribunal (AAT) had made an error in finding that the taxpayer had discharged the onus of proving that the amounts were not income. The taxpayer is seeking to appeal to the Full Federal Court against the decision.
The Government has announced that it will introduce penalties to deter promoters of illegal early release superannuation schemes. These schemes usually involve a promoter offering to assist individuals to gain early access to their super before they retire.
The Minister of Superannuation, Bill Shorten, said promoters of such schemes have in the past targeted vulnerable people, including those from non-English speaking backgrounds. He said promoters have taken fees of up to 50% of the members' superannuation balances.
Mr Shorten said legislation to give effect to this measure is being progressed and will commence on formal enactment.
TIP: Early release of super is not always illegal. There are very limited circumstances in which members can legally access their super savings early, such as on compassionate grounds or where members experience severe financial hardship. There are very strict conditions to be met, and they include some restrictions.
We wish Renee Bettenay all the best on the impending birth of her child next month. Renee will be taking maternity leave for the rest of the year but will be back in the new year. In her absence she will be well supported by the harris black team.
We also wish Tania Newberry all the best on the impending birth of her third child in November.
On Sunday October 14th 2012 Team harris black (Brendan Power, Nathan Gordon, David Alcock and Rachel Brown) will be supporting the AEIOU Foundation by participating in Take A Hike 2012. Take a Hike 2012 involves walking a 40km loop of Brisbane to raise funds and awareness for the AEIOU Foundation and the work they do providing early intervention servicers for children with autism.
Harris Black Director Brendan Power's daughter Mary-Claire was lucky enough to be one of the first to attend AEIOU when it first opened in an old church in Moorooka in 2005. She is now in Grade 5 at All Hallows and effectively has no autism diagnosis. Brendan has been on the AEIOU Board since mid 2005, and it has been wonderful to see the organisation grow to over 200 kids and 10 centres throughout Queensland (soon to be 11 or 12 and hopefully interstate soon after).
Take a Hike involves walking a 40km loop of the Brisbane River over 9 hours to raise funds and awareness for the AEIOU Foundation and the work they do providing early intervention servicers for children with autism. The aim is to carry a 15kg pack which is equivalent to a 3 year old child. Team Harris Black's aim is to help eliminate the $10,000 funding shortfall that exists for each child placement. Your support will change the future of the children in the AEIOU program.
Our challenge along with the rest of the Hikers is to raise $200 000 and make a real difference to children in the AEIOU program and their children. Your support will change the future of the children in the AEIOU Foundations program.
If you would like to help team harris black support early intervention of autism you can donate at
Please give as generously as possible, and note that nothing is too little.