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 In this issue...

  'Beware The Tax Man' Eyeing Holiday
Period Activity
 

The ATO is poised to home in on fringe benefits tax (FBT) on celebrations and gifts this festive season.

Depending on where a Christmas party is held, how much is spent on each guest, and whether gifts count as entertainment, FBT may be applicable.

Businesses should keep in mind that there are two main methods for reporting FBT, the 'actual' and the '50-50' split method, and understanding how each of these work can help minimise the FBT liability. Please note that the method chosen applies for the entire FBT year, not per event, although for many businesses a Christmas party is the sole event they host for the year.

How much is being spent?

With the 50-50 method, FBT exemptions generally do not apply, regardless of the cost of any entertainment, so as a general rule, businesses are better off using the 'actual' method if entertainment expenses are likely to be under $300 a head. However it is important to note the actual method requires more detailed and accurate record keeping.

Who is being entertained?

Another important factor will depend on who is being entertained – clients or staff. If more staff attend, then the 50-50 method may help reduce the FBT liability. The 50-50 method basically means that FBT is payable on 50 per cent of the expense of providing meal entertainment to all guests, whether staff, clients or family. The actual method, on the other hand, means FBT is paid on all expenses for staff, but if any clients attend the event then there is no FBT payable on their expenses. (Keep in mind that the client portion is not tax deductible and employers are not able to claim the GST in their business activity statements.)

Where is the event being held?

If the party is held on the business' premises, on a normal working day, with just employees attending, there will be no FBT liability as long as the actual method of reporting is used. There is also no limit on the amount that can be spent, and this includes expenses such as taxi fares for employees to get home after the party. If other people attend the party, such as spouses, the total cost per person must be less than $300 (including GST) to remain FBT-exempt. Further, if the party is held off the business premises, it will still be exempt from FBT if the cost per head is less than $300 as long as the actual method is used.

If you would like to understand more about your FBT obligations during this festive season please contact your
Harris Black team member.


 
Strengthening Your Relationship with
Harris Black


My name is Brett Thompson. I am an FBAA Accredited Finance Broker for the multi award winning Brokerage RFS Finance, and I recently started working on site with the team at Harris Black to offer my 15 years' experience in banking and finance. My experience adds another dimension to your Harris Black relationship that provides independence but complements the already strong client service culture. That Harris Black can be your strongest advocate for finding lending solutions and is an amazing opportunity that I am really looking forward to. 
           
A little about me: I have a strong background in:
                       
  • Equipment Finance;
  • Commercial and Retail Property;
  • Land Purchases;
  • Construction;
  • Bridging Finance;
  • Off the Plan; and
  • Personal Investment.

 
I am also just about to finish my MBA. A combination of my background and skills has assisted me to really understand my clients meet a broad, complex range of business and personal needs, which is something that I can bring to the table working with the Harris Black team.

As an Accredited Finance Broker, I have access to a suite of potentially suitable solutions, with over 30 different financial institutions. I feel that I can really look after what is important to you, then connect you with an appropriate solution that meets your needs.
Best wishes and I look forward to building a strong relationship.

To know more about RFS Finance, please contact your
Harris Black team member today or contact Brett Thompson on bthompson@rfsfinance.com.au.



Preparing For Your Business Exit

Preparing a business for sale is a complex and often long-term process, which requires a lot of preparation and planning. Yet few business owners are prepared when it comes time to be sale-ready.

Exit planning involves careful preparation and consideration of the business, tax and legal implications. Here are five tips to help business owners prepare for a successful business sale:

Prepare Early

Business owners should start preparing early to minimise the risk of a failed transaction and to optimise the value of their business. Anticipation of internal and external factors, including market conditions must be anticipated and managed prior to sale.

A seller must provide key factual information for a potential buyer through the due diligence process. Due diligence is a time-consuming process requiring a lot of documentation. A business' failure to keep adequate and accurate financial records can severely damage their sale price and slow down the sales process.

Reduce Risk For Buyers

Sellers must be very careful to ensure that information provided and statements made in the lead up to the sale are accurate and not open to interpretation. Be sure to provide a clear business forecast and realistic ongoing business model.

All verbal conversations with the buyer should be followed up in writing, such as email, as informal conversations can be relied upon for Court proceedings after the sale. Ensure the contract of sale is well-drafted and states in plain English what you understand to be the agreement.

Evaluate Different Exit Options

It is not necessary to sell 100 per cent of the business immediately. A gradual exit can benefit both parties. For purchasers, it retains customer goodwill and gives new owners time to adjust to the business' operations. For sellers, there is the advantage of keeping an interest in the business and demonstrating its worth to the new owners.

If you are passing the business on to family members, the transition may be over a
number of years. A formal succession plan can help guide the business through a smooth transfer of control.

Understand Tax Implications

Sellers may need to pay GST or capital gains tax (CGT) on some of all the business assets they sell, including land or buildings, or intangible assets, such as patents, licences or goodwill. Some small business concessions and exemptions may apply. Sellers will also need to cancel their GST registration within 21 days of ceasing business, and their ABN within 28 days. Business records will need to be kept for at least five years after the end of financial year in which the business is sold.

Avoid Insufficient Disclosure

To avoid a claim that there had been insufficient disclosure of financial information; sellers must ensure that the Disclosure Statement accompanying the Contract of Sale (or information provided in due diligence) complies with statutory requirements. Where the Disclosure Statement is sufficient, the responsibility is then shifted to the buyer to conduct their own enquiries about the suitability of the business.


Unfair Contract Terms Extended To
Small Business


Small business owners will now be protected from unfair terms in standard form contracts by a new law introduced 12 November 2016.

A standard form contract is one that has been prepared by one party to the contract and where the other party has little or no opportunity to negotiate the terms.

Small businesses enter into and renew standard form contracts regularly, especially between large suppliers such as lenders, insurance companies and telecommunications.

The new law will apply to a standard form contract entered into or renewed on or after 12 November 2016, where:

  • it is for the supply of goods and services or the sale or grant of an interest in land;
  • at least one of the parties is a small business (employs less than 20 people); and
  • the upfront price payable under the contract is no more than $300,000 or $1 million if the contract is for more than 12 months.

Under the new law, a contract's terms may be considered unfair if:

  • terms enable one party (but not another) to avoid or limit their obligations;
  • terms enable one party (but not another) to terminate the contract;
  • terms penalise one party (but not another) for breaching or terminating the contract; and
  • terms enable one party (but not another) to vary the terms of the contract.

 
From 12 November 2016, small businesses will have a higher level of protection so business owners should carefully review all terms of any contracts they enter into. If you believe the terms of a standard form contract are unfair, ask the other party to remove the term or amend it so it is no longer unfair.

For those businesses drafting a standard form contract, be sure to carefully review your terms and, if in doubt, seek professional advice.


Harris Black Top 10: Favourite
Christmas Holiday Destinations


Christmas is just around the corner!

It's that time of the year again when everyone deserves a break from a very long and busy 2016 year.

Time to reflect and look back on 2016 and to celebrate all of our achievements throughout the year.

It is also the best time to celebrate and welcome the coming New Year with positive vibes and family and friends.
           
For the last issue of Harris Black Top 10 for 2016, we will feature our team's favourite destinations for the coming Christmas and New Year break. With some of our team members travelling overseas and across Australia this year, we've pooled our favourite holiday destinations to share with you.             
  1. America
  2. Lima, Peru
  3. Seoul, South Korea
  4. Kyoto, Japan
  5. Lucerne, Switzerland
  6. Wellington, New Zealand
  7. Karumba, North-West Queensland
  8. Poland (for a white Christmas)
  9. French Alps, France
  10. Vienna, Austria

Wishing you all a safe and happy Christmas and a prosperous New Year! 


 

ATO Proposes Changes To Small
Business Penalties
 

The Australian Tax Office has recently proposed some changes to the way they handle mistakes made by small business owners in their tax returns.

For various reasons, many small businesses in Australia make errors that are not deliberate in their income tax returns or activity statements each year. To make it easier for those who make a reasonable effort to comply, the ATO has proposed changes to its approach to penalties.

If implemented, the changes will apply to small businesses with annual turnovers of under $2 million. 
 
The ATO has stated that it will provide one chance before applying a penalty in the following circumstances:
  • where failure to take reasonable care resulted in false or misleading statements being made in income tax returns and activity statements; and
  • for late lodgement of income tax returns and activity statements.

These changes will apply to the first error and late lodgement subject to penalty. The one chance timeframe will be refreshed after a set period of time. The ATO will also confirm in writing to these small businesses that while they were liable to a penalty, it has chosen not to apply one on this occasion.

The changes would not be available to those who demonstrated reckless or dishonest behaviour and those who disengage and cease communicating with the ATO during an audit or review.

All small businesses would receive a clear explanation of how the error occurred and understand what they need to do to get things right in the future.

After a defined period of time (i.e. a three or four year financial cycle) the opportunity would be reset. Given the frequency of reporting for activity statements, when considering late lodgement penalties this set period may be different for income tax returns and activity statements.

After the one chance opportunity has been provided, failure to lodge on time would automatically apply if lodgement was not received by the due date.

The ATO has focused on these particular penalties because they represent the majority of penalties imposed on small businesses in 2015. For example, for all false or misleading statements in income tax returns and activity statements last year, approximately 57 per cent of penalties were imposed on small businesses and over 50 per cent were found to have failed to take reasonable care. In the same year, 83 per cent of all failure to lodge on time penalties were imposed on small businesses. 


 

Taking Out A Chattel Mortgage

Taking out a chattel mortgage to finance the purchase of a business vehicle is an attractive option for small business owners from a tax-saving perspective.

A chattel mortgage is a mortgage on a movable item of property i.e. motor vehicles. A finance company lends money to a business to purchase a car, which the business then pays back through regular repayments.

Among the many business car finance options available, a chattel mortgage can provide significant financial advantages for companies, partnerships and sole traders looking to buy a vehicle to be used primarily (50 per cent or more) for their business. The interest rates for chattel mortgages are also generally quite low, as the finance is secured against the purchased vehicle.

While the business takes ownership of the vehicle at the time of purchase, the finance company takes out a mortgage over the vehicle to provide security for the loan.

Chattel mortgages are a viable vehicle financing option for certain businesses, as they can claim any GST paid on the purchased motor vehicle in their business activity statement (BAS). Business owners can also claim depreciation and interest charges on their income tax return.

Other benefits include flexible contract terms ranging from 12 months to five years, fixed interest rates and fixed monthly repayments.


A Case For Workplace Policies

Workplace policies are not reserved for the big corporations; small businesses are increasingly subject to unfair dismissal and adverse action claims that could be minimised by implementing workplace policies.

With the lead-up to Christmas, now is a great time for employers to set or review workplace policies. Workplace policies set the framework for expected employee behaviour and performance; and the consequences of not complying with their responsibilities.

Well-enforced policies can provide employers with a basis for defending potential liabilities if a legal dispute arises between an employee and employer. A workplace policy not only clarifies functions and employee responsibilities but ensures uniformity and consistency across all operational procedures.

Although, not all workplace issues require a policy; employers should have policies for fundamental issues, such as anti-discrimination and equal opportunity, code of conduct, anti-bullying, sexual harassment, privacy, drug and alcohol use, and workplace health and safety.

For a workplace policy to be effective, it must be publicised and provided to both new and existing staff members. A policy should set out the aim of the policy, why it was developed and who it applies to. It should clearly outline acceptable and prohibited behaviour, as well as disciplinary action for breaching the policy.

Employers must include a date for when the policy was developed and be sure to regularly review and update policies where necessary. Any changes to employment law and/or your industry's award or agreement may require a review of your policies and procedures.

Policies must be explained in full and employees should sign off on documents to acknowledge their awareness and understanding of policies. For policies to work effectively, a breach of policy should be implemented and objectively followed by all levels of management, according to the procedures set out in the policy.



Small Business Grants – Digital And
Business Imprint


Accelerate Small Business Grants Program 
 
The Queensland Government is providing $3 million in grant funding over 3 years to established Queensland –based small businesses to engage business mentors, coaches, or an advisory board, for 6 to 12 months. Matching funding of up to $10,000 (excluding GST) may be provided to eligible business.

Small Business Digital Grants Program

The Small Business Digital Grants Program small businesses with access to digital technologies and services to enable them to work smarter, engage with the global economy and make the most of online business opportunities arising from digital disruption. Matching funding of up to $10,000 (excluding GST) may be provided to eligible business.

If you would like to know about these grants, please contact you Harris Black representative.


  
Travel Expense And Transport Of Bulky
Tools Claim Denied
 
 
An individual has been unsuccessful before the Administrative Appeals Tribunal in a matter concerning certain deduction claims for work-related travel expenses. The individual was a sheet metal worker whose home was located some 60 km from his employer's main work site. The individual made a number of work-related deduction claims. However, after various concessions made by both the individual and the Commissioner of Taxation, the remaining issue between the parties was whether the taxpayer was entitled to a deduction for work-related travel expenses.

The man argued that his employer required him to supply his own tools and that they were too bulky to be transported to work other than by car. He also questioned whether his employer provided secure storage facilities for his tools. In refusing the taxpayer's claim, the Tribunal noted it was the taxpayer's own admission that it was his own personal choice to transport his various hand tools out of security concerns. The Tribunal also said the taxpayer's security concerns were "not supported by objective evidence". The taxpayer's claim was therefore refused.

TIP: The ATO reminds individuals to make sure they get their deductions right. In certain circumstances it will contact employers to verify employees' claims. In this case, the ATO contacted the taxpayer's employer to check his claims, including whether the employer supplied safe storage facilities.


  
Research And Development Tax Incentive
Rates Change
 
 
The Federal Government has reduced the rates of the tax offset available under the research and development (R&D) tax incentive for the first $100 million of eligible expenditure by 1.5 percentage points. The higher (refundable) rate of the tax offset has been reduced from 45% to 43.5% and the lower (non-refundable) rate of the offset has been reduced from 40% to 38.5%. Here are some relevant points to note: 
  • Eligible entities with annual turnover of less than $20 million, and which are not controlled by an exempt entity or entities, may obtain a refundable tax offset equal to 43.5% of their first $100 million of eligible R&D expenditure in an income year, and a further refundable tax offset equal to the amount by which their R&D expenditure exceeds $100 million multiplied by the company tax rate; and
  • All other eligible entities may obtain a non-refundable tax offset equal to 38.5% of their eligible R&D expenditure and a further non-refundable tax offset equal to the amount by which their R&D expenditure exceeds $100 million multiplied by the company tax rate.

 The changes apply from 1 July 2016.

TIP: AusIndustry and the ATO manage the R&D tax incentive jointly. The R&D tax incentive aims to offset some of the costs of undertaking eligible R&D activities. A company must lodge an application to register within 10 months after the end of its income year. Please contact our office for further information.
 


 

SMSF Related-Party Borrowing Arrangements

The ATO has issued a taxation determination (TD 2016/16) concerning whether the ordinary or statutory income of a self-managed super fund (SMSF) would be non-arm's length income (NALI) under the tax law, and therefore attract 47% tax, when the parties to a scheme have entered into a limited recourse borrowing arrangement (LRBA) on terms which are not at arm's length.

The ATO has also updated a practical compliance guideline (PCG 2016/5) which sets out the Commissioner's "safe harbour" terms for LRBAs. If an LRBA is structured in accordance with the guideline, the ATO will accept that the LRBA is consistent with an arm's length dealing and the NALI provisions (47% tax) will not apply. Trustees who do not meet the safe harbour terms will need to otherwise demonstrate that their LRBA was entered into and maintained consistent with arm's length terms.

TIP: The ATO has allowed a grace period to 31 January 2017 for SMSFs to restructure LRBAs on terms consistent with the compliance guideline's safe harbour terms (or bring LRBAs to an end before that date). Please contact our office for further information.


  
Harris Black News

Brentnalls Conference

The Brentnalls Group is a network of national and international independent Chartered Accounting and Advisory firms of which Harris Black is a member. Created in 1999 the affiliation has a total of 7 members located in SA, NSW, WA, Qld, New Zealand and 2 in Victoria.

In October we participated in the annual Directors and Practice Managers conference hosted by our South Australian affiliate (Brentnalls South Australia) at the Adelaide Oval.

The conference began on the Wednesday with the Practice Managers from each firm exchanging ideas and sharing knowledge on practice management for accounting firms. After which we had a tour of the Brentnalls Adelaide office in Hindmarsh then drinks with the whole South Australia team. Thursday was a full day of practice updates from each affiliate and an industry update from Michelle Knights, Principal at Rob Knights Group. After a full day of information overload we relaxed for dinner at the beautiful windy Point Pavilion, what an amazing view of Adelaide.

Friday was another full day of benchmarking as well as presentations from Xero and FeeLink. The conference came to a close with drinks and nibbles with guest speaker Wayne Phillips, former Australian cricket player from 1982 to 1986. Wayne certainly had a lot of stories to tell us and a great sense of humor to tell them with.

We always ensure that we come away from each conference with 3 Action Items that we commit to completing before the next conference…now the hard work begins.


  
Important Tax Dates

21 December 2016
  • Lodge and pay November 2016 monthly activity statement.

 
15 January 2017

  • Lodge tax return for taxable large/medium entities as per the latest year lodged (all entities other than individuals), unless required earlier.
  • Lodge tax return for the taxable head company of a consolidated group (including a new registrant) that has a member who has been deemed a large/medium entity in the latest year lodged, unless required earlier. Payment was due 1 December 2016. 

21 January 2017

  • Lodge and pay quarterly PAYG instalment activity statement for quarter 2, 2016–17 for head companies of consolidated groups.
  • Lodge and pay December 2016 monthly business activity statement except for small business clients (that is up to $10 million turnover) who report GST monthly and lodge electronically.


Office Christmas Holiday Closure 
 

Please note our office will be closed from 10:30am Friday 23 December 2016 and re-open for business at 8:30am Monday 9 January 2017. 

 
We wish you a safe and happy Christmas and a prosperous New Year.  
 



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This newsletter is for guidance only, any professional advice should be obtained before acting on any information contained herein. Neither the publisher nor the distributors can accept any responsibility for loss occasioned to any person as a result of action taken or refrained from in consequence of the contents of this newsletter. We recommend that you contact your Harris Black team member before making any decision to discuss your particular requirements or circumstances. 

About Us

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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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National Affiliation

Harris Black is a key participant in a network of nationally affiliated independent chartered accounting firms called the Brentnalls Group.

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