Business Building Blog

2012 Federal Budget - at a glance – what you need to know

Wed, 09 May 2012 05:33:00 GMT

Individual Tax Issues

Personal income tax payable threshold has increased to $18,200
School Kids Bonus of $410 for each primary school aged kid and $820 for secondary school kids for qualifying families
The net medical expense tax offset will be reduced for people who exceed the Medicare surcharge thresholds ($84,000 for singles and $168,000 for couple in 2012/13) by increasing the threshold for claimable expenses to $5,000 from $2,000 – the offset rate will be 10% rather than 20%

Companies

Company Tax Rate cut not happening
From 1 July 2012 companies will be entitled to carry back up to $1million of losses to the previous income tax year providing significant cash flow benefits to smaller businesses suffering short term losses

Superannuation

Deferral of higher concessional contributions (of up to $50,000) for individuals over 50 with low superannuation balances from 1 July 2012 to 1 July 2014
From 1 July 2012 the concessional cap for superannuation will halve from $50,000 to $25,000 for all super fund members aged 50 or over regardless of their account balance
The tax payable on concessional super contributions by people earning $300,000 pa or more will increase from 15% to 30% from 1 July 2012

Other

The 50% capital gain tax discount will be abolished for non-residents
Duty free allowances on cigarettes will reduce from 250 cigarettes (or 250grams of tobacco)) to 50 cigarettes (or 50 grams of tobacco)

For further information please contact Sullivan Dewing on 9526 1211.

Workers Comp Audit Alert

Wed, 09 May 2012 04:47:00 GMT

WORKCOVER have deemed that wages for workers compensation purposes are to include loans or dividends paid to directors or shareholders of private companies if the directors were paid less than the average weekly wage for full time adult employees.

The average weekly full-time adult total earnings compiled by the Australian Business of Statistics is currently $1,332.30 per week or $69,280 per annum plus 9% superannuation bringing the combined total to $75,515.

Wages also include allowances, fringe benefits, superannuation and payments to contractors deemed employees. Refer to the work cover link for more detail on wages definition Work Cover Wages Definition Manual March 2012.

If you operate as a trust and receive trust distributions instead of wages you are also at risk. These distributions are included as wages to the extent they are paid based on work performed.

A practical example is where a director works 40 hours per week and is paid $40,000 per annum plus super. This is fine provided you don't get paid any more money. But if the company pays a dividend or loan of say $30,000 this amount will be included in wages for workers comp calculation purposes.

The next part of the sting is that the extra deemed wage will be subject to Payroll Tax. So if you are close to the Payroll Tax threshold - take care.

In addition if you overpay yourself they will not reduce your wages for workers comp purposes.

This is general information simplified for this article. For further information please contact Sullivan Dewing on 9526 1211.

New Contractor Reporting for the Building Industry

Thu, 26 Apr 2012 05:50:00 GMT

From 1 July 2012 businesses in the Building and Construction industry will be required to report to the ATO annually payments made to contractors.

The report must contain:

The contractor’s name;
The contractor’s ABN;
The contractor’s address (if known);
The total amount paid or credited to the contractor over the income year;
Whether any GST has been charged;
Any other information the Commissioner may require.

For more information visit Taxable payments reporting - building and construction industry or contact Terry Dewing on 9526 1211.

Watch out for Payroll Tax Exposure

Thu, 26 Apr 2012 05:46:00 GMT

If your annual wages, super and fringe benefits exceed $678,000 for the 2012 year then you must register for payroll tax.

This threshold can sneak up on you and it is your responsibility to register.

The penalties for non-compliance can be a nasty sting when discovered. For more information visit Payroll Tax or contact Terry Dewing on 9526 1211.

Immediate Tax Deductions on Certain Assets from 1 July 2012

Tue, 01 May 2012 01:40:00 GMT

Amendments to depreciation rules only apply to small businesses that have an aggregated turnover of less than $2million.

From 1 July 2012, small businesses will be able to:

Immediately write-off assets valued at under $6,500 (up from $1,000 presently), such as photocopiers, laptops, fridges and desks;
Immediately write-off up to $5,000 for motor vehicles acquired from the 1 July 2012 income year, with the remainder to be written-off at a rate of 15% in the first year and 30% in following years; and
Write-off other assets in a single depreciation pool at a rate of 30% (15% in the first year).

For more information visit the web site Small Business Concessions or contact Terry Dewing on 9526 1211.

Business owner slugged with super penalties

Fri, 16 Mar 2012 01:56:00 GMT

Is a contractor really an employee? What are the dangers associated with not getting the paper work right?

Robyn, a dentist, contacted me recently. She was "employed as a contract dentist" in a busy suburban dental practice. She was looking at buying the dental practice.

Robyn worked her own chair in a room in the surgery, alongside Graham who worked in another room. Whilst this seems simple we pointed out a glaring problem.

The owner of the business was not treating Robyn and Graham equally. Whilst they, on the surface, were equal with income earned by the chair shared 50% each with them and the owner of the dental practice.

The important difference was that Robyn ran her operation through a company whilst Graham operated as a sole trader with an ABN.

Again this may seem ok, but now here are the problems.

As Robyn operates as a company she is required to pay superannuation and workers compensation on wages she pays herself. These may total 10%.

Graham, on the other hand as a sole trader is not required to make such payments. So Robyn is out of pocket by 10% compared to Graham.

But the real issue and possible surprise is that Graham is deemed to be an employee of the business owner. As such the owner is responsible for the payment of superannuation and workers compensation insurance on all payments to Graham.

Just after we looked at the business on behalf of a Robyn the owner was subject to a tax audit. The outcome was that he was required to pay super contributions for Graham. The killer was these payments were made after the end of the quarter they belonged to and the owner was denied a tax deduction.

Now the differential gap has increased to around 20%.

An expensive exercise for the owner. Robyn was compliant ... But Graham was the real winner.

The moral of the story is that not all is as it seems. A contractor may in fact be an employee.

Get the structure right in the first place ... or be prepared to pay the price.

Self-funded retirees benefit in 2012-13

Wed, 11 Jan 2012 00:51:00 GMT

Self-funded retirees will continue to benefit from an extension of drawdown relief for SMSF pensions to the 2012-13 year, with a 25 per cent reduction in the minimum payment amounts for these products. The reduction in the minimum payment amounts will apply to account-based, allocated and market linked pensions.

Assistant Treasurer and Minister for Superannuation, Bill Shorten, said "Many self-funded retirees with account-based pensions incurred significant capital losses on their portfolios as a result of the global financial crisis (GFC)."

"The provision of drawdown relief for the past four years has assisted account-based pension holders by reducing the need for them to sell assets at a loss in order to meet the minimum payment requirement."

The Government halved the minimum payment amounts for account-based pensions for the 2008-09, 2009-10 and 2010-11 financial years. A more limited form of drawdown relief was provided for 2011-12, through a 25 per cent reduction in the minimum payment amounts.

"The Government had indicated previously the minimum payment amounts would return to normal in 2012-13. However, equity markets continue to be volatile and prices remain significantly below the levels reached prior to the GFC. Continuing the current limited drawdown relief for a further year will assist retirees to recoup capital losses on their pension portfolios as equity markets recover over time," Mr Shorten said.

Regulations giving effect to this change will be made before the new financial year.

Source: http://ministers.treasury.gov.au/

Personal Property Securities (PPS)

Wed, 11 Jan 2012 00:47:00 GMT

The new national register of Personal Property Securities (PPS) is scheduled to commence on Monday 30 January 2012.

Personal property is defined as any form of property other than land, buildings or fixtures which form a part of that land. It can include tangibles such as cars, art, machinery and crops; as well as intangibles such as intellectual property and contract rights.

The PPS Register will allow lenders and businesses to register their security interests. Secured parties, buyers and other interested parties can search the PPS Register to find out if a security interest is registered over personal property.

A personal property security is when a secured party takes an interest in personal property as security for a loan or other obligation, or enters into a transaction that involves the supply of secured finance.

An example is when a person borrows money from a bank and offers personal property as collateral or security for the loan. The bank’s interest over the collateral is a personal property security.

Buyers also need to make sure that the personal property they are buying does not have a security interest over it. For example, if you buy a car that still has money owing on it; the car could be repossessed by the person who lent money against it.

The reform brings the different Commonwealth, state and territory laws and registers regarding security interests in personal property under one national online PPS Register.

The PPS Register will be web-based and accessible to search and register security interests 24 hours a day, seven days a week.

Business will need to register their legal interests in assets held by another party, to ensure they cannot be claimed by competing creditors if those parties become insolvent.

Essentially, if you own property that isn’t in your possession, for example, subcontracted equipment situated off-site, it is at risk of being lost if it’s not registered.

If security interests are not properly registered, existing security arrangements such as retention of title clauses, leases, rental or hire purchase agreements will not protect businesses from third parties dealing with their assets in an insolvency situation.

For more information visit www.ppsr.gov.au or call their enquiries team on 1300 007 777.

Using A Board of Directors

Mon, 12 Dec 2011 06:08:00 GMT

Would you run a mile at the thought of holding regular Board Meetings with a Board of Directors, cringe at the thought of being accountable to a group of people about your business, gasp at someone else having an opinion about your business …let’s pause right there!

The results of your business are limited to the ideas of the people who give input to your business. Who is currently giving you the strategic direction and clarity that you need to make your business the best business that it can be?

Consider this:

Your Board of Directors can be as simple as the owners of your business, along with your strategic advisor (with many of our clients Sullivan Dewing), meeting once a month to strategically review the financial performance for the month and discuss other issues, for example:

Should the business expand
How to reward key team members
How to create different product streams
Analysing different products or jobs to ensure they are profitable
Moving business premise or buying a business premise

Analysing sales results by state, customer and product group It’s important to note that external members of the board are quite often impartial, unemotional & give clarity as well as strategic direction. They are not concerned or bogged down with the day to day running of your business. Once the process is systemised and everyone attends regularly it becomes a habit to review the business strategically and discuss key challenges facing the business.

Building wealth through superannuation…and not paying tax

Mon, 14 Nov 2011 22:10:00 GMT

It never ceases to amaze me how much people want to learn about building wealth using self managed superannuation funds (SMSF). Especially when they find out that they will not pay any tax when they sell any property in the fund.

So if you are a business owner a very attractive way to create wealth in your SMSF is through buying your business premises. That way you know the rent will be paid as you are both landlord and tenant.

In fact, even individuals who have just $100,000 can set up a self managed superannuation fund and use the equity in your home to buy an investment property in your SMSF name. You can become the bank.

How can this happen?

Your SMSF can borrow to purchase real property (can be from you, for example, your business premises), purchase other commercial, industrial property or residential property or buy listed shares & securities. Your SMSF funds the deposit, stamp duty and legal’s and borrows the balance to complete the purchase. A special trust known as a Security Trust purchases and owns the property and allows the lender to take a mortgage over the property to facilitate the loan for the Superfund. Your SMSF receives rent, pays interest & outgoings. If the rent doesn’t cover the outgoings your super contributions will cover any shortfall.

So why do it?

The asset is protected from your creditors as it is part of your SMSF. Superannuation contributions can be used to make principal & interest repayments on the loan and get a tax deduction for it. There is no Capital Gains Tax payable on the sale of the property when your SMSF is in pension phase.

Even if you sell before pension phase the CGT is only 10%. SMSF are a very attractive way to save tax and create wealth outside of the business and home.

Profit is for keeps

Wed, 09 Nov 2011 05:48:00 GMT

Do you ever sit back at the end of a hard week of work and ask yourself “why am I putting myself through the wringer each week?” Well if you do, the answer to yourself is probably that it is your job to feed the family and to do this you need to work hard and make a profit.

Yep, that’s it PROFIT. But this has to be put into perspective, you have to also make sure that the business cash flow keeps happening and that you allocate some of that cash flow for yourself. And when you do this make sure that you create some wealth ... buy that investment unit, put money into superannuation, maybe even upgrade your house.

So now you have profit, cash flow, wealth ... don’t forget the happiness factor. Go on a holiday ... enjoy your lifestyle. Money itself won’t make you happy, but it gives you opportunities to enjoy yourself. Only you can decide what is important. Just decide and go chase it ... make it happen.

Tax Returns and Peanuts!

Mon, 19 Sep 2011 03:39:00 GMT

Apparently according to an article I read the other day almost 71% of people use a tax agent each year. However this doesn't mean your tax return will be correct - almost 22% of tax returns lodged this year by agents to the ATO have contained simple errors. Would you believe that the most common errors include year of birth, sex code and surnames. This is not surprising when many returns these days are completed for the bargain price of $70 via big tax agent chains with a 'factory mentality' of just getting the job out the door. In addition the rate for errors by those who self prepare is 25%. So what is the moral to the story? If you pay peanuts, then that’s what you’ll get! Time needs to be spent on each job to make sure it is compliant with the ever changing tax legislation. It’s knowing what to do that is important, not just the processing of the job. Our guide is to make sure that the best financial outcome is achieved for the client every single year.

Help me plan for the future of my business

Wed, 07 Sep 2011 01:18:00 GMT

At some stage every business owner must sell or pass on - transition from - their business. Many business owners have predicated their post exit plans on having a nice nest egg from the sale of their business.
What will it really take for a business owner to successfully extract themselves from their business? To leave on their own terms; when they want to; and get the price they need? Here is a plan of attack:

1. Strategically decide WHAT you want to have happen
2. Plan HOW you are going to make it happen
3. Actually GET ON with making it happen
4. Remember Transition Planning can bring immediate benefits too

Even if retirement seems a long way off and even though some things are going to change your ultimate goals as time goes by, the fact is that because transition planning revolves around taking steps to improve the value of your business there will usually be some immediate benefits from starting the process. Benefits include more profit, higher efficiency, greater peace of mind and a clearer focus.

Anecdotal evidence has determined that the business that achieves the highest value on sale has good systems in place, a stable team, a focus on where the business is going & a loyal customer base. On top of all that the business can operate effectively & efficiently when the owner is not there.

Personal Properties Act - does this apply to you?

Mon, 12 Sep 2011 23:32:00 GMT

New legislation known as the Personal Property Securities Act 2009 (PSSA) will change the way security is taken over personal property other than real estate. The PPSA incorporates a single national register for Security Interests in Personal property. It replaces around 70 existing national, state and territory laws and registers including the ASIC register of changes and the Register of Encumbered Vehicles (REVs) consolidated into one personal property securities register (PPSR). The register will be web based and available 24/7. Personal Property is any asset other than real estate and includes: motor vehicles, plant & equipment, stock, intellectual property & intangibles and accounts receivable.

Any person or business that sells stock to customers on credit, uses retention of title clauses, leases plant & equipment, motor vehicles or has goods or assets on consignment with third parties is impacted. If you fail to register you risk losing any claim to an interest in collateral.

The PPS Act and PPS Register are now scheduled to start in February 2012.

You should seek appropriate legal advice to ensure your interests are protected. For more information visit the web site www.ppsr.gov.au. We thank Peter Rusbourne of Watkins Tapsell for his contribution to this topic.

Make Sure the Investment Advice You Receive Makes Sense

Tue, 09 Aug 2011 02:04:00 GMT

Just read an article where a financial planner advised a client to sell two investment properties that had achieved significant capital gains as they looked fully valued and it was time to "de-risk". REALLY!! Hope that the advice was not to put the money in the share market. The advisor "advised" that to keep the properties would have reduced the clients net wealth position.

The article goes on to say that the client was advised to invest in a portfolio of diversified growth and defensive assets. All because, according to the advisor, of the growth of Sydneys residential property over recent years and his belief that holding the properties would not deliver the necessary rates of return given the risks involved. RISKS!!

I don't know about you but I think there are less risks involved in owning a nicely appreciating property in Sydney in a sought after area compared to investing in a crashing share market. Perhaps we should all buy Gold!!!