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What Should My Business Focus On For The Financial Year Ahead?

By Renee Bettenay

Growth and Profit are two key outcomes of a successful business.  But to achieve a successful outcome a number of key factors must come together to create a winning business.  At any point in time businesses have strengths and weaknesses in these key success factors and it is important that businesses identify these areas so that strategies can be put in place to help the business succeed.  Harris Black, in conjunction with Mindshop, have created a Growth and Profit Diagnostic to help you identify the strengths and weaknesses of your business.  Watch this video as Renee Bettenay a Director of Harris Black walks you through the diagnostics and the detailed reporting you will receive specific to your business.

Tightly-Held And Family Businesses… How Does Succession Work?

By Brendan Power

Many of our clients are small-medium businesses (SME’s), but they also have a similar trait – they are tightly-held and/or family businesses. They are surprisingly similar, and an increasing conversation topic has been around the business owner’s succession, and more importantly the ongoing future success of the business.

Challenge

Many of our clients have similar attributes:

• Small number of business owners (sometimes just one).

• Have been operating for a number of years, generally successful and the business is a large part of their life.

• The business is intertwined with family, friends and other investments (eg business premises).

• They have a few important senior employees (which may include next generation family) and a small number of key client relationships and referral sources which have all been important drivers to the long-term success of the business.

• Most clients want their businesses to succeed into the future and not simply be sold as they are concerned about the well-being of the people and clients they have been working with for a long time.

• There have been thoughts of what happens next.  You’re enjoying work, and aren’t sure what retirement (or succession) looks like.

Solution

Luck rarely plays a part in succession.  Planning is important, often long term, and if you try and fast-track retirement/succession you will often have employees/clients concerned about their own future.

However, the important factors are normally staring you in the face.  You need to take your key employees, key clients and key referral partners on a journey… and it takes time.

Most business owners often initially think that retirement/succession means leaving on Friday and not coming back Monday. However, we are finding that more business owners want to reduce their involvement but not necessarily cease working completely (because they enjoy it and care about the future success of the business).  This has the following outcomes:

• By reducing both hours and ownership over time, this gradual transition to the next generation provides huge comfort to them as you are still available to help with the big deals and decisions, as well as reducing the changeover with continuing clients and referral partners.

• Allows you to take on a more managerial role and assist the next generation with their transition to business owners.

• There is a need for you to be flexible as the next generation will want to implement changes.

Outcome

It is important to approach succession with a win-win mindset.

We often point out to clients, the most valuable “earn” from their business is the annual profits, not necessarily the sale of the business at the end… This is in fact often the cream.  However, by remaining as a business owner for longer during the succession to the next generation can be can be very rewarding and reduce stress on both yourself as you exit the business over time, and the incoming business owner as they learn the ropes.

How can we help?

The type of discussions and assistance we often have with clients includes:

• Identifying those key people in the business, and assisting with early discussions so they know there is a future and pathway for them to continue.

• The importance of the correct structure, both for:

– the actual business – the wrong structure can be detrimental to the introduction of new owners; and

– the actual shareholder/owner – for both distribution of profits and capital gains implications upon sale.

• Appropriate pay structure for current owners (this is often overlooked or below market).

• Ensuring an appropriate shareholders agreement is in place.

Save The Date – HB Business Leaders Forum

We’re excited to invite you to our next HB Business Leaders Forum on 18 November 2021 focussing on “The Road Forward – Unlocking Opportunities for your Business in 2022”.  For more information on this workshop and to purchase your ticket please click the button below.

Date: 18 November 2021

Venue: Harris Black Office – Level 16 333 Ann Street Brisbane Qld 4000

IMPORTANT – All Directors Need A Director ID By November 2022

As from today 1st of November 2021 if you are a Director of an Australian registered Company, the government has introduced DIN (Director Identification Number) this is an unique identifier all Directors need to apply for once and will keep forever (much like a tax file number).

DIN requirements apply to appointed Directors and acting Directors of Australian corporations and registered foreign companies under the Corporations Act 2001 (Cth), including companies responsible for managed investment schemes and registered charities. 

Directors must apply for a Director ID themselves, so that their identity can be verified. No one can apply on their behalf.

The Director ID regime is intended to tackle illegal ‘phoenixing’ activities and increase Director accountability and traceability. DIN’s will be recorded in a new database to be administered and operated by the Australian Taxation Office and be made available to the public.

IMPORTANT: All existing Directors will need a Director ID in place by 30 November 2022

Registrations open for existing Company Directors on 1st November 2021 with a 13 month deadline

• Any new Directors from 1st November 2021 will have 28 days to apply for their Director ID 
• After 5 April 2022 a Director ID will need to be held before appointment

To apply for a Director ID, Directors will need to have a myGovID. It is important to note this is different to a myGov Account. More information on myGovID and how to apply can be found here.  They will need to verify their identity during the process.

Apply for Director ID here https://www.abrs.gov.au/director-identification-number

Please reach out to your Harris Black team member if you have any questions or need assistance.

Main Residence Exemption – First Used to Produce Income

When it’s time to upgrade your main residence and start renting out your old main residence, you can set your cost base in one of two ways:

  1. Calculate the purchase price, any holding costs and capital improvements whilst the property was your main residence; or
  2. Get a valuation at the time the property is first used to produce income.

Option 2 is usually the best scenario however only works if the property was your main residence first.

Option 2 does not work if the property is an investment property, then a main residence and then a rental property again.

Please contact us if you would like to discuss further or have any questions.

Small Business CGT Concessions (Part 3)

By Bjorn Kirberg



In Part 1 and Part 2 we covered the basic conditions of the CGT Small Business Concessions.

Part 3 will cover the common scenario where the asset being sold is a share in a company or an interest in a trust.  This is especially helpful in Queensland to avoid stamp duty.

If the asset being sold is a share in a company or an interest in a trust, it must meet additional conditions outlined below.  These rules were expanded in 2018 to ensure that the entity itself being sold could not be worth more than $6 million, which significantly narrowed the number of taxpayers eligible.

(1) Just before the CGT event, either:

(i) The taxpayer must be a CGT concession stakeholder in the company or trust; or

(ii) CGT concession stakeholders in the company or trust had a total small business participation percentage in the taxpayer claiming the concession of at least 90%.

(2) Unless the taxpayer satisfies the maximum net asset value test, it must be carrying on a business just prior to the CGT event.

(3) The company or trust must either be a CGT small business entity (below $2 million aggregated turnover) for the income year or satisfy the maximum net asset value test (net assets below $6 million).

(4) The share in the company or interest in the trust must satisfy a modified active asset test (MAAT).  Work out the total market value of both:

(i) the assets of the company or trust and

(ii) the assets of any later (interposed) entity in which the taxpayer has a small business participation percentage, multiplied by that percentage.

To meet the MAAT, at least 80% (the 80% test) of the above assets must be made up of:

• active assets and

• cash or financial instruments inherently connected with the business carried on by the company/trust or a later entity

Definitions

A CGT Concession stakeholder of a company or trust is a significant individual in the company or trust, or the spouse of a significant individual where the spouse has a small business participation percentage in the company or trust.

Small business participation percentage is the sum of the direct and indirect small business participation interests.

A significant individual has a small business participation percentage in the company or trust of at least 20%.

These rules are very complex and this is just an overview. Please contact us if you would like to discuss further or have any questions

How can we help you?

Today’s financial environment demands a regular review of strategy and a focus on execution.