Robert Goodman Accountants Blog

Regardless of what type of business you are planning – be it an online or home business, or a start-up with grand plans for expansion, it is easy for a fledgling business to be swept up in the excitement of the early days, while neglecting some of the less compelling factors that are essential to success. We take a closer look at the essential financial and tax factors to get your business off the ground and keep it running.


The top reasons small businesses cease trading are due to under-capitalising, poor cash flow management, and failing to undertake adequate market research. Whilst there is a lot of helpful information online, nothing replaces getting expert advice on how all the facets of the business will interact – from financing, tax management, supply chain costs, and market fluctuations.


Before starting your business talk to us about the following:

Running a financial health check

Prior to seeking investment, taking out a loan, or redrawing against an existing mortgage or other loan, it is important to have a clear picture of your financial status. Do you have debts? What are your living expenses? What about personal spending? How much do you spend on eating out, travelling, and discretionary purchases? What are you prepared to go without to budget for a leaner life? We can help you take stock and then plan.

Researching financing options

There are a variety of finance sources available: such as bank loans, credit cards, public donation platforms – crowdfunding, angel investors, venture capitalists, lump sums for redundancy payments or inheritance, and borrowing from family or friends. All of these options have different pros and cons in relation to costs (eg, for a credit card) and risk (eg, putting your house up for security). It is wise to choose carefully as your choice of funding will have an impact on your personal finances now and down the track.

Up and running?

Once you have established the business we can help you to manage the following:

Taxes

There are a number of costs that are tax deductible when you set up a business, including a number of incentives to help small businesses, but these will vary depending on your circumstances.

Capital costs

A capital cost is incurred where you purchase an asset that allows you to produce income. It could take the form of buying equipment, but it could also be costs for creating an e-commerce platform. Such costs are not usually tax deductible, unless they can be depreciated over a number of years, or if you qualify for the simple depreciation rules for small business. For instance, if your business has a turnover of less than $10 million you can instantly write off assets costing less than $20,000 each, which means an instant boost to your cash flow.

If you purchase an asset worth more than $20,000, you are able to place the cost in the "small business general pool" to claim depreciation over time. Whilst you don't get money back instantly, it can benefit you in that depreciation rates for the pool are generally higher than the rates for individual assets. And, if the value of the pool drops below $20,000 you can claim it as an instant write off.

Note: Capital costs of educational course fees are not eligible for deduction because the qualification was required to set up the business, eg, to train as a doctor, or to become a fitness instructor.

Fees and other costs

You can also claim the following:

  • lawyer and accountant fees for professional advice on starting a new business;
  • government fees paid in the formation of the business structure, ie ASIC;
  • insurance;
  • borrowing fees and other costs associated with setting up the business structure, aside from government fees, can be claimed as a tax deduction over a five-year period.

If your business meets the annual turnover test of $20,000, and the start-up and the running costs are higher than your income, the loss may be deductible against other income you earned in the financial year.

GST and funding sources

Financing sources also have different indirect tax implications. For instance, crowdfunding – most commonly used by start-ups who need seed capital – is gaining popularity in Australia. The GST treatment of crowdfunding for a promoter operating in Australia may vary according to the following factors:

  • the model adopted and what supplies (if any) are made to the funder;
  • whether the promoter is registered for GST, or required to be registered;
  • whether the promoter makes supplies that are connected with Australia; and
  • whether the funder is in Australia.

Providing a service?

Are you running a personal service business (PSB), or earning personal service income (PSI), or both? These attract different tax rules and it's essential that you know which rules apply, but identifying your PSI/PSB status accurately can be complex.

Hiring employees?

If you are considering hiring staff you will be responsible for meeting a number of obligations, such as:

  • withholding of taxes from wages and reporting and paying these amounts to the ATO;
  • pay superannuation for eligible employees (including contractors in some circumstances);
  • register, report and pay fringe benefits tax (FBT) if you provide your employee with fringe benefits, (eg, car, travel, or meal expenses) which are paid to employees as part of, or in addition to, their wages.

 Want to find out more?

There are naturally many other factors to consider when starting your own business, but we can help you to build a sustainable enterprise by taking care of those, less exciting but critical elements, leaving you to focus on future plans.

Please get in touch with us to discuss your individual circumstances.

Call us at Robert Goodman Accountants on 07 3289 1700 or email us at reception@rgoodman.com.au. 

© Copyright 2017. All rights reserved. Source: Thomson Reuters. Brought to you by Robert Goodman Accountants

Payroll Reporting: A Touchy Subject

The introduction of single touch payroll (STP) is in line with the Government's "digitisation agenda", to make reporting more streamlined, but many small businesses will feel an extra compliance burden. Those who work in remote areas of Australia may be at a disadvantage as Single Touch Payroll reporting will require a strong internet connection.


In a straw poll conducted by Accountants Daily (between 5 September and 14 October), almost 90 per cent of accountants and advisers said that their clients were not ready for the shift to single touch payroll.


The Institute of Public Accountants (IPA) chief executive officer, Andrew Conway has said: "While initially STP delivers little benefit to small business, we acknowledge that other benefits exist such as transparency over superannuation guarantee payments."

For small and micro businesses – those who employ less than five people – implementing STP by the deadline will take considerable incentive and support. The IPA supports the notion of a phased and targeted incentive approach as proposed by the Government, along with the consideration of a partial offset of costs. However, Mr Conway said the IPA would "like much more detail" to ensure small businesses are not impacted adversely by the implementation of STP. We will keep you posted on updates to this area.

How will this change affect you as an employer?

The change to STP means that employers won't need to complete payment summaries at the end of the year as these will have been reported in real time throughout the year. If you have a payroll solution (software that you use in order to pay employees), you will need to update this or make sure it is updated by your service provider. If you do not have a payroll solution, you can speak to us about how to find the best solution for your business. We may be able to report using STP on your behalf. The first 12 months of STP will be considered to be a transition period, during which time you could be exempt from an administrative penalty for failing to report on time. There are other exemptions, including if you operate in an area with an unreliable internet connection or you are classed as a substantial employer for only a short period during the year (for example, if your employees are seasonal).

How about if you run a small business?

Mr Conway said the IPA's concern is for 70,000 small businesses that will struggle to implement STP without help and support. If you do not use digital software for your payroll you may also need our help to adopt new technology.

What does it mean for employees?

With the move to STP, employees will be able to log on and make sure they are being paid the correct amount for their superannuation contributions so "this level of transparency is most welcome".

What is the timeframe?

Single touch payroll will be compulsory for employers (including those in a wholly-owned group) with more than 20 employees from 1 July 2018. If your business has less than 19 employees, you have a bit longer, but you will need to get on board by 1 July 2019, subject to legislation. If you are unsure about whether you are a "substantial employer", the advice is to do a headcount of all of your employees who are on your payroll on 1 April 2018; a total headcount includes all full-time, part-time, casual employees, those based overseas, absent employees and seasonal employees, not just your full-time equivalent (FTEs).

Want to find out more?

 

You may not feel ready to meet your compliance needs in relation to STP. You could qualify for a deferral (due to circumstances beyond your control) and you will need to make a request for this. Contact us to discuss the changes to payroll and what you need to do to make the transition seamless.

Call us at Robert Goodman Accountants on 07 3289 1700 or email us at reception@rgoodman.com.au. 

© Copyright 2017. All rights reserved. Source: Thomson Reuters
Brought to you by Robert Goodman Accountants


 


http://www.checkpointmarketing.net/img/Australia/Superannuation%20and%20Retirement/LORES_SUPER_ResidencyChangesSMSFs_CS.jpg

When members of an Australian self managed superannuation fund (SMSF) become non-residents for tax purposes, or temporarily leave Australia for an extended period, the SMSF runs the risk of losing specific tax concessions associated with being a complying fund. Therefore, members and trustees of SMSFs planning to move overseas or cease Australian tax residency need to carefully plan their actions. An SMSF losing its complying fund status will impact the retirement funds of its members.

People often come and go from Australia for a variety of reasons, including temporary work arrangements. Moving to another country is a significant step and requires a lot of planning. From a tax perspective, the focus often remains on residency considerations at the individual level, and superannuation is not necessarily front of mind.

When members of an Australian self managed superannuation fund (SMSF) become non-residents for tax purposes, or temporarily leave Australia for a period longer than two years, the SMSF runs the risk of losing its status as a complying superannuation fund. This status is particularly important because complying funds can access concessional tax treatment.

What is a complying superannuation fund?

The rules concerning concessional tax treatment for complying superannuation funds can be found within Div 295 of the ITAA1997.

Broadly, for an SMSF to qualify as a complying fund, it must be an Australian superannuation fund and have been issued a Notice of Compliance from either APRA or the ATO (depending on whether it is an APRA or ATO regulated fund).

An Australian superannuation fund is broadly a fund that meets certain tax residency rules. These rules are considered below.

Residency of SMSFs

Taxation Ruling TR 2008/9 provides guidance about what the ATO considers an Australian superannuation fund for the purposes of Div 295 of the Income Tax Assessment Act 1997 (ITAA 1997). Essentially, an SMSF is an Australian superannuation fund if it meets the following requirements:

  • it was established in Australia or has assets located in Australia;
  • its central management and control (CM&C) is ordinarily in Australia; and
  • it passes an active member test.

To retain complying status, a fund must meet all of these three criteria for the entire income year.

Established in Australia or has assets located in Australia

Essentially, an SMSF passes this test if either:

  • the initial contribution (the transfer of either money or property) to establish the fund was paid to and accepted by the trustee of the fund in Australia; or
  • if the fund was not established in Australia, at least one asset of the fund is situated in Australia at the relevant time.

Central management and control

The second test requires the CM&C of the fund to be ordinarily in Australia. Where, how and by whom the key strategic and high-level decision-making is undertaken must be considered. Strategic decisions generally include formulation, review and update of the investment strategy, and determination of how assets of the fund are to be used to fund member benefits.

The ATO's view is that the day-to-day management of an SMSF taking place in Australia does not necessarily mean that the control of the fund is also exercised in Australia.

Temporary absence from Australia

Where the CM&C is ordinarily located in Australia, a shift of that CM&C overseas for a temporary period (generally shorter than two years) will be allowed, provided there is a genuine intention to return to Australia.

The ATO may allow some discretion where the CM&C of the fund remains in Australia, even if the temporary absence is for longer than two years. Members must establish that the CM&C of the fund is ordinarily still in Australia. Generally this may be the case where individual members and trustees remain Australian tax residents. However, the test is subjective in nature and requires careful consideration on a case-by-case basis.

Even if the ATO allows for this discretion, it must be continually reviewed, as the intention of the taxpayer is a key factor and should not go against the broader strategy. If the intention is for the individual taxpayer to become a non-resident for tax purposes, other options for retaining the fund's CM&C in Australia should be considered.

Fund members and trustees ceasing to be Australian residents

In terms of retaining the CM&C within Australia, there are a number of alternative considerations, including the following:

  • Provided the SMSF deed and relevant legislation allow for it, a trustee can delegate their powers and authority to another person, such as a legal personal representative, who would exercise CM&C in Australia.
  • With a corporate trustee, a decision may be taken to add resident directors who will manage the fund, with the likelihood of non-resident directors less actively participating in strategic decisions. Resident directors are expected to actively participate in the CM&C of the fund.

As fund members are generally individual trustees or directors of the corporate trustee of the SMSF, they must be willing to relinquish control of their SMSF when adding others.

  • It may be arranged for an APRA approved trustee to act as the professional trustee of the fund. If this option is adopted, the SMSF will lose its SMSF status and become a fund regulated by APRA.

Active member test

Broadly, an SMSF will pass this test if it has either:

  • no active members; or
  • where there are active members, resident members have more than 50% of the total entitlements of the fund (ie amounts payable if the individuals ceased to be members, or the total market value of the fund's assets).

An active member is essentially one who is contributing to the fund or has had contributions made on their behalf.

If a fund has two members, both non-residents, and they do not plan to contribute to the fund while they are non-residents, the fund is considered to have no active members.

Alternatively, if one of the members is an Australian resident, and the balance for the resident member is more than 50% of the total entitlements of the fund, this test is considered satisfied. If the non-resident member continues to contribute to the fund, they must take care that their contributions do not result in their member balance exceeding more than 50% of the total entitlements.

If a decision is made to add resident members because they "bring along" a sizeable contribution which increases the resident member balance to more than 50% of fund entitlements, care must be taken not to exceed the SMSF rule of having a maximum of five members.

Consequences of losing complying fund status

An SMSF that fails to meet the definition of an Australian superannuation fund loses its complying fund status. Its earnings will be subject to tax at the highest marginal rate (whereas earnings of complying funds are taxed at 15% and capital gains at 10%). In addition, employer contributions made to non-complying funds will not qualify for any tax deductions.

The top marginal tax rate is 47% for the 2014–2015 and 2016–2017 income years, to take into account the temporary budget repair levy.

The fund will also be subject to the following one-off tax bills:

  • A 47% tax on the total market value of the assets of the fund (less any non-concessional contributions) at the time that the fund ceases to be a complying fund. This is a particularly detrimental consequence, as fund members will essentially lose half of their superannuation entitlements.
  • Another 47% tax on the total market value of assets of the fund should it become a complying fund again.

Where to from here?

SMSF members and trustees who are planning to move overseas for a period or cease Australian tax residency need to consider the issues discussed in this article. An SMSF failing to meet the residency requirements and losing its complying fund status will impact the retirement funds of members. A fund could stand to lose almost half its assets to a one-off tax bill in the year that it becomes non-complying. Fund members will miss out on the concessional tax treatment that makes operating an SMSF appealing in the first place.

Please get in touch with us to discuss your individual circumstances. Call us at Robert Goodman Accountants on 07 3289 1700 or email us at reception@rgoodman.com.au. 

© Copyright 2017. All rights reserved. Source: Thomson Reuters.  This communication does not constitute financial advice and does not consider your personal circumstances. Please contact a licensed financial planner for advice tailored to your financial circumstances. Brought to you by Robert Goodman Accountants


SMSF Annual Obligations

You have a number of obligations as an SMSF trustee, and harsh penalties may apply if you fail to meet them. Here's a checklist of important areas you'll need to take into account each year.

Pay the minimum annual income stream amounts

If your SMSF pays out pensions, it must pay required minimum amounts each year. This amount is based on the ages of the members who receive the payments – starting at four per cent of the account balance for people aged under 65, and rising to 14 per cent for those 95 or over.

If your SMSF doesn't pay out the required minimum amount, you may not be entitled to treat income or capital gains as exempt current pension income (ECPI) for the year. The ATO may show leniency if the failure is an honest mistake or was brought about by matters outside of the trustee's control, but you shouldn't count on this. Generally, failing to meet the minimum pension standards puts your fund at significant risk.

Value the fund's assets

Asset valuation is important because it affects the returns for your fund's members, as well as the overall performance of the SMSF sector. You need to value your SMSF's assets at their market value as at 30 June.

If you follow the guidelines carefully, the ATO will generally accept the valuations you provide. However, the ATO may review valuations as part of its compliance processes.

There are also some specific considerations for certain asset classes. In the case of collectables and personal use assets, a qualified independent valuer must determine their market price. Listed securities should be valued at their market value on the relevant exchange as at 30 June.


You don't necessarily have to have property assets externally valued, but the ATO suggests it's wise to obtain an external valuation if property values have shifted significantly.


Obtain an actuarial certificate

You may need to obtain an actuarial certificate for your SMSF. This certificate determines the percentage of an SMSF's income that will be exempt from tax for a given year. There are various situations when a certificate is required. 

Generally, when an SMSF has both pension and non-pension accounts, and SMSF assets are not entirely segregated, an actuarial certificate is required. But if the fund's members are all in accumulation mode, or all in pension mode all year, it may not be required.

There are various exceptions to these scenarios, so it's always wise to get expert advice. Contact us if you'd like to discuss your specific fund's situation.

Prepare end-of-financial-year accounts

Every SMSF must have financial accounts and statements prepared for the end of each financial year (EOFY). These are more than a simple income tax return – they also need to report super regulatory information and member contributions, and your fund needs to pay the SMSF supervisory levy.

Accounting software can be a great help with accounts and reporting, allowing you to automate certain transactions and helping to reduce errors.

Appoint an approved SMSF auditor

It's mandatory to appoint an auditor who is approved by the Australian Securities and Investments Commission (ASIC). Your fund must make this appointment at least 45 days before the SMSF annual return is due.

It's a good idea to check that your auditor has a solid track record of ensuring that SMSF clients achieve ATO compliance. In 2016, ASIC struck off 133 SMSF auditors and threatened a further 811 with deregistration. There are currently only around 6500 registered auditors available to assess over half a million Australian SMSFs, so speak to us if you need any recommendations.

Lodge your annual return by the due date

You can lodge your SMSF annual return yourself or through a tax agent, but it must be submitted by the due date or you risk penalties and the loss of your SMSF's tax concessions.

The due date is generally 28 February if:

  • you lodge the return yourself following the financial year; or
  • your return is lodged through a tax agent and it's your first year of submission.

Your agent may also advise you of a different due date.

The due date is generally 31 October if:

  • you did not lodge your return for the previous financial year on time; or
  • your SMSF is reviewed by the ATO at registration, even if the return is submitted by a tax agent.

Review your investment strategy

SMSF trustees are required to produce a documented review of their fund's investment strategy every year. Doing the review presents a good opportunity to assess your fund's performance, how it tracks against industry averages and how market forces have affected it. If your risk appetite has changed, this is a good time to change your investment strategy. 

Maintain all fund records

Super laws mandate that all fund records must be saved, and kept in several main categories:

  • records of payments received;
  • records of expenses related to the payments received;
  • records of acquiring or disposing of any asset;
  • records of tax-deductible gifts, donations and contributions; and
  • records of expenses for disability aids, attendant care or aged care.

Ensure that bills and receipts include information such as the Australian Business Number (ABN) of the supplier, the amount, the nature of the goods or services, and the date.

Compiling and maintaining all of the required records can be easier if your accounting processes are digitised (eg if you use accounting software). The ATO accepts scanned and electronic records.

Want to know more?

While some trustees are comfortable with managing their SMSF investments, many prefer to get professional help with the compliance requirements. If you'd like some extra guidance on managing your SMSF and fulfilling your annual obligations, talk to us today. We also have associations with licensed Financial Planners who specialise in providing independent SMSF, retirement & Estate Planning advice. Call us at Robert Goodman Accountants on 07 3289 1700 or email us at reception@rgoodman.com.au. 

© Copyright 2017. All rights reserved. Source: Thomson Reuters. This communication does not constitute financial advice and does not consider your personal circumstances. Please contact a licensed financial planner for advice tailored to your financial circumstances.  Brought to you by Robert Goodman Accountants


 

If you are either an employee or a self-employed person and you top up your super by making deductible contributions, you need to be aware of not breaching the annual $25,000 concessional (before-tax) contribution cap. If that happens, your tax bill will increase, not to mention the administrative inconvenience you may face.

As an employee, your employer is obliged to pay you the 9.5% of Superannuation Guarantee Contributions (SGC), which count as concessional contributions. So if you are a high-income earner, especially, with more than one employer (eg, a doctor working for more than one hospital) you could risk going over the limit.


You could also be in danger of reaching the cap if you, as an employee, have salary sacrifice arrangements already in place from last year when the annual concessional cap was higher ($35,000 or $30,000 depending on your age).


Given that the annual cap was lowered to $25,000 (regardless of age) from this 2017–2018 year, it is advisable to review your current arrangements and adjust your contribution amounts so you don't inadvertently contravene the new lower cap. 

What exactly are concessional contributions?

Concessional contributions are those made to a super fund out of an individual's pre-tax income and are taxed at 15%.

Generally, concessional contributions include:

  • Employer's super guarantee contributions, that is, the compulsory 9.5% of your salary that your employer puts into your super. 
  • Salary sacrifice payments made to your super fund by entering into a salary sacrifice agreement with your employer. 
  • Personal contributions, for which a deduction has been claimed, typically, if you are self-employed.
  • Insurance premiums and administration fees when your employer paid those costs to your super fund on your behalf, rather than these being deducted direct from your super fund.

What happens if the limit is breached?

If you go over the $25,000 concessional contributions cap, whether deliberately or unintentionally, the ATO will send you an excess concessional contributions determination, which indicates that:

  • The excess contributions will be included in your assessable income and you will be taxed at your marginal tax rate (plus Medicare levy).
  • You will receive a non-refundable tax offset of 15% for your excess concessional contributions. This amount acknowledges the tax already paid by the super fund on those contributions. (Remember: concessional contributions are taxed at 15% when received by the super fund.)

You will need to pay an "excess concessional contributions charge" (ECC charge) at an approximate rate of 4.70% (the rate is updated quarterly). The ECC charge period is calculated from the first day of the income year to which the charge relates, ending on the day before the day on which payment is due under the first notice of assessment.

Making the election

After receiving the excess concessional contributions determination, you can choose to pay the tax bill from your own money, or use a release authority issued by the ATO to pay the debt using your superannuation money.

However, before paying the excess, contact us, or your superannuation fund, to confirm that there was an excess of contributions and that this was not a mistake. There could also be a narrow possibility of challenging the excess based on "special circumstances", but do speak to us first to evaluate your position.

The release authority allows you to use up to 85% of the excess concessional contributions from the superannuation fund to cover the additional personal tax liability. The election to release must be made in the approved form within 21 days of receiving the excess concessional contributions determination.

Once you send the election form to the ATO, it will issue the nominated super fund with an excess concessional contributions release authority. The super fund will then be required to pay the amount to be released to the ATO within seven days. Due to the short seven-day timeframe, trustees of self-managed super funds (SMSFs) should ensure that they have sufficient cash to make the expected payment on time. Note that administrative penalties apply for failing to make a payment to the ATO.

Talk to us first

There are various practical things you can do to avoid paying additional charges. However, talk to us first before making any decision about your super.

Call us at Robert Goodman Accountants on 07 3289 1700 or email us at 

reception@rgoodman.com.au. 

© Copyright 2017. All rights reserved. Source: Thomson Reuters. This communication does not constitute financial advice and does not consider your personal circumstances. Please consult a licensed financial planner for financial advice tailored to your financial circumstances.  Brought to you by Robert Goodman Accountants.

Family Trusts and Lower Tax

The lower corporate tax rate was introduced last financial year, ie 2016–2017. The rules that applied for that year allowed any company that carried on a business to access the lower rate, provided that their aggregated turnover was less than $10 million. In other words, there was a "carrying on a business" test, in addition to the aggregated turnover test.

An additional test is proposed for 2017–2018. The new passive income test contained in the Bill sets out that companies that derive 80 per cent or more of their income from passive sources (eg, through dividends, rent, interest) will not qualify for the 27.5 per cent rate and instead will be taxed at the higher rate of 30 per cent. This test can be explained further in this way: if your company has passive income, you need to demonstrate that at least 20 per cent of its income comes from active business activity (ie, is trading income).

Don't forget that the aggregated turnover threshold has been increased from $10 million to $25 million for 2017–2018. This means that more companies than last year may qualify to pay tax at a lower rate.

If you have a company that receives income from a trust and you are unsure how the changes may affect it, please let us help you.

What was the reason for the introduction of the passive income test?

Well, the ATO had advised in another context that companies may be considered to be carrying on a business even if they only hold passive investments. The media has picked up on this and suggested that "bucket companies" – which receive income from family trusts – could qualify for the reduced company tax rate.


The Government reacted swiftly in response, confirming that the lower rate was meant to apply to active trading businesses and not to passive investment companies.


However, a company that wishes to access the lower rate must also continue to satisfy the carrying on a business test as well as the 80% threshold test in 2017–2018. In other words, the company must carry on a business and ensure that no more than 80 per cent of its income comes from passive investments (in addition to having aggregated turnover of less than $25 million).

When is a company deemed to be carrying on a business?

A company can be carrying on a business even if its activities are relatively limited and primarily consist of albeit "passive" activities, such as receiving rent or returns on its investments and distributing them to its shareholders.

The ATO accepts that the following will qualify as carrying on a business:

  • a property investment company that lets out and manages a commercial property;
  • a share investment company; and
  • a holding company that only holds shares in a subsidiary, where it invests the shares and also manages the company group.

Which companies are not carrying on a business?

On the other hand, the following companies are not deemed to be carrying on a business:

  • a dormant company with retained profits, on which it derives small amounts of interest; and
  • a company engaged solely in the preliminary activity of investigating the viability of carrying on a particular business.

Want to find out more?

Which category does your family trust fall within? If you run a passive investment company and you need to know if you can claim the 27.5 per cent rate, please get in touch with us to discuss your individual circumstances.

Call us at Robert Goodman Accountants on 07 3289 1700 or email us at reception@rgoodman.com.au.

© Copyright 2017. All rights reserved. Source: Thomson Reuters
Brought to you by Robert Goodman Accountants

Are you considering buying a car for your small business? Eligible small businesses can claim a tax deduction for individual assets that cost less than $20,000.

A small business entity purchases a vehicle for $22,500. The purchase price includes GST, registration, compulsory third party (CTP) insurance and stamp duty. The GST component of the purchase price is $1,960 and the registration and CTP component is $1,300. Does the vehicle qualify for the $20,000 instant asset write-off?http://www.checkpointmarketing.net/img/Australia/Business%20Tax/LORES_BUSTAX_INSTANT_ASSET_WRITE-OFF_CS.jpg

The $20,000 threshold applies to the "cost" of the relevant asset, in this case a car: see s 328-180 of the Income Tax Assessment Act 1997 (ITAA 1997) and s 328-180 of the Income Tax (Transitional Provisions) Act 1997. Note that the relevant amount is the cost as calculated at the end of the tax year (that is, the year in which the asset is first used, or installed ready for use, for a taxable purpose).

The cost of a depreciating asset for these purposes is determined by the rules in Subdiv 40-C of ITAA 1997. The cost consists of first and second element costs.

The first element is the amount paid to start holding the asset – in effect, in this case, the acquisition cost (ss 40-180 and 40-185 of ITAA 1997). The cost is exclusive of GST. In other words, if the purchaser is entitled to an input tax credit, the first element is reduced by the input tax credit (assuming 100% business use). So, assuming 100% business use of the car, the small business entity can reduce the $22,500 by $1,960. That leaves $20,540.

The first element also includes an amount paid "in relation to starting to hold the depreciating asset if that amount is directly connected with holding the asset" (s 40-180(3) of ITAA 1997). The ATO's interpretative decision ATO ID 2004/74 states that amounts paid for registration and insurance are not amounts paid for the taxpayer's acquisition of the car; they lack sufficient connection with the acquisition of a car to be regarded as incidental to acquiring it. Registration is paid to permit use of the car on the road for a period of time and insurance premiums are paid to secure motor vehicle (and/or third-party) insurance for a period of time.

ATO ID 2004/74 was withdrawn because, the ATO said, "it does not reflect amendments to s 40-180 [of ITAA 1997] which apply to expenditure incurred on or after 1 July 2005". Those amendments include s 40-180(3).

Does the ATO's withdrawal of its interpretative decision mean it would now consider registration and insurance to be "directly connected with holding the asset", and thus first element costs? Probably not. Irrespective of s 40-180(3), registration and insurance (including CTP insurance) still lack "sufficient connection with the acquisition of the car to be regarded as incidental to its acquisition" – and amounts not incidental to acquiring a depreciating asset are unlikely to be "directly connected" with holding that asset. In addition, registration and insurance (including CTP insurance) are arguably connected with using the car on the road rather than with acquiring (or "holding") the car for depreciation purposes. This suggests they are not part of the first element cost.

Second element costs are amounts paid for each economic benefit that has contributed to bringing the asset to its present condition and location (s 40-190(2)(a) of ITAA 1997). It is hard to see how registration and CTP insurance could constitute second element costs of the car.

So, on balance, it could be argued that registration and CTP insurance are not included in the "cost" of the car. Even if they were, the business could rely on s 40-220 of ITAA 1997, which excludes any amounts that are not of a capital nature from the "cost" of a depreciating asset.

In conclusion, it seems that the small business entity could deduct the $1,300 for registration and insurance from the car's $20,540 GST-exclusive cost. This means the small business spent $19,240 acquiring the car, which is below the $20,000 threshold. The purchase should qualify for the instant asset write-off.

Want to find out more?

This is a discussion only. Please contact our office to discuss your circumstances and obtain professional advice. Call us at Robert Goodman Accountants on 07 3289 1700 or email us at reception@rgoodman.com.au.

This article is adapted from Thomson Reuters' TaxQ&A service.

 © Copyright 2017. All rights reserved.

Brought to you by: Robert Goodman Accountants

 

 

 

The ATO is increasing its efforts to crack down on employers who fail to make quarterly  superannuation guarantee (SG) contributions of 9.5% on behalf of their employees. If you are an employer, regardless of whether you run a small or large business, now might be a good time to review your SG obligations before the ATO comes knocking. If a shortfall is discovered, simply rushing to make extra super contributions will not always be the best course of action. In fact, it can result in a double liability, so careful planning is required for dealing with any identified problems.

It is estimated that the shortfall – or gap – in SG payments could be around 5.2%, equivalent to $2.85 billion in missing super contributions (based on estimated figures for 2014–15). This gap is the difference between the theoretical amount due by employers to be fully compliant with their SG obligations and the actual contributions received by super funds. The Minister for Revenue said the failure of some employers to meet their SG obligations to employees has been a problem ever since SG was introduced in 1992.

ATO Deputy Commissioner, James O'Halloran reported recently: "While this analysis shows that 95% of the estimated superannuation guarantee is paid to employees, the gap exists because some employers appear not to be meeting their super guarantee obligations either by not paying enough or not paying it at all". This follows recent pressure from a Senate Committee calling for the ATO to adopt stronger compliance activities, rather than its previous reactive approach.

 In addition to following up all reports of unpaid SG, the ATO says it is increasing its proactive SG case work by a third this financial year. Mr O'Halloran added:


"We have improved our analysis of data to detect patterns in non-payment, and are working more closely with other government agencies to exchange information"


Package of reforms

As if the Commissioner doesn't have enough powers already, the Government has announced a package of reforms to give the ATO real-time visibility over SG compliance by employers. One of these involves additional ATO funding for a Superannuation Guarantee Taskforce to crack down on non-compliant employers.

Other key recommendations include the following:

Monthly contribution reporting

Superannuation funds will be required to report to the ATO on contributions received more frequently, at least monthly. The Government says this will enable the ATO to identify non-compliance and take prompt action. It has been noted that this move to more regular SG reporting will place a greater cost burden on super funds, especially smaller ones.

Single Touch Payroll (STP) roll out

Employers with 20 or more employees will transition to STP from 1 July 2018, while smaller employers (ie, those with 19 or less employees) will move to STP from 1 July 2019. Rather than being a check on businesses, this new system is designed to reduce the regulatory burden and transform compliance.

Director penalty notices

The issue of director penalty notices and the use of security bonds for high-risk employers are measures set to improve the effectiveness of the ATO's recovery powers, to ensure that unpaid superannuation is collected and paid to employees' super accounts.

Penalties by court order

The ATO will have the ability to seek court-ordered penalties in the most serious cases of non-payment, including those employers who are repeatedly caught but still fail to pay SG liabilities.

Super contribution due dates

Quarter ending

Employer contribution due date

Late contributions, SGC statement and payment due date

30September

28October

28November

31December

28January

28February

31March

28April

28May

30June

28July

28August

Employers are required to make quarterly super contributions of at least 9.5% of an employee's ordinary time earnings. If the super fund receives the SG contributions by the quarterly due dates (see table) the contribution is tax-deductible for the employer, whereas a late payment is not tax-deductible. When a due date falls on a weekend or public holiday, you can make the payment on the next working day.

Where an employer does not make sufficient quarterly super contributions by the due date, the employer becomes liable for the superannuation guarantee charge (SGC). The SGC is payable to the ATO and automatically arises as soon as the contributions are not made by the due date. This means that if an employer discovers a shortfall in SG contributions after the due date, making a contribution to the employee's super fund to cover the shortfall isn't always the best course of action as it may not reduce the SGC liability. Generally, an employer can only use late contributions to offset a portion of the SGC that relates to the relevant employee. However, a late contribution cannot be used to offset the SGC in respect of a person who is no longer an employee.

Fixing a SG problem

If you are expecting leniency from the ATO for a first offence, think again. The Commissioner does not have any discretion at law to remit the SGC itself. The best a non-compliant employer can hope for is that the ATO may remit the 200% additional SGC penalty that applies for the late lodgment of a SGC statement.

Employers can also request the ATO to defer the due date for lodgment of a SGC statement. However, a deferral of time to lodge the statement does not defer the time for payment. The ATO will generally only extend the due date for payment where there are circumstances beyond the employer's control (eg, a natural disaster or illness) and the payment can be made in full at a later time (or by instalments).

Clearing Houses

A clearing house distributes super contributions to your employees' funds on your behalf. If you use a clearing house, the employee's super contribution is counted as being paid on the date the super fund receives it, not the date the clearing house receives it from you. Some clearing houses take 3-10 business days to process the payments before the super fund receives it. The exception is the free Small Business Superannuation Clearing House service. Check with your clearing house to make sure you allow enough time for your payments to be processed before the quarterly due dates. 


Want to find out more?

Do you think you could have a problem with your SG obligations? Speak to us about your options before the ATO is on your doorstep. 

Call us at Robert Goodman Accountants on 07 3289 1700 or email us at reception@rgoodman.com.au.

 © Copyright 2017. All rights reserved.

Brought to you by: Robert Goodman Accountants

 

Paving The Way To Innovate

Innovation is fundamental to drive future productivity in Australia. Readily available finance is critical to make this possible, especially if you plan a start-up, and absolutely vital if your venture is a new fintech (financial technology) company. Here we explore some of the recent changes to law, which could help pave the way to a successful fintech business or early-stage innovative start-up.

A recent report predicted that fintech sector revenues will see rapid growth of 75% each year reaching a value of $4.2 billion by 2020. The Government took steps in 2016 and 2017 to help early-stage innovation companies (ESICs) and fintech businesses.

If you want to capitalise on the benefits available, we can help you to understand changes to the rules and to tax law.

Back in 2016, the Government showed its support for such innovation by proposing:

  • 2016 tax incentives for early-stage investors
  • amendments to the venture capital measures to assist with raising funds;
  • to limit the requirement for employee share scheme (ESS) disclosure documents to be made public by start-ups;
  • to relax the "same business test" by introducing a "similar business test"; and
  • to allow taxpayers to assess the effective life of most intangible depreciating assets.

You may want to work out if you are an early-stage innovation company; it may be appropriate to gain clarification on this from the ATO. Alternatively, you may wish to invest in such a company. Speak to us if you need to make sense of the various investment tax exemptions, including the 20% tax offset for early-stage investments and the CGT exemption for direct and indirect investments.

Fintech versus traditional banking

Fintech start-ups are set to redefine financial services and the way in which we save, borrow, and invest money. The Government has shown that it wishes to break down current barriers to welcome new financial services into the marketplace. Existing barriers include the limitation on closely-held ownership in the banking sector, prohibition on the use of the word 'bank', and complex bank licensing processes. Working with the APRA, the Government will remove such barriers to foster greater competition in the market. This will lead to lower prices, better service and greater banking choice for customers.

Building on earlier incentives

To help Australia become "the innovation and fintech nation", the Treasury's media release in May 2017 described further incentives. These are summarised below.

Crowd-sourced funding made easier

Recent draft legislation proposes to open up crowd-sourced equity funding (CSEF) to a wider range of businesses providing additional sources of capital. Proprietary companies who use this form of funding can have an unlimited number of shareholders. Such shareholders will be protected by the higher governance and reporting obligations that CSEF proprietary companies are obliged to meet, which includes:

  • having a minimum of two directors;
  • conducting financial reporting in accordance with accounting standards;
  • meeting audit requirements;
  • observing restrictions on related party transactions; and
  • granting minimum shareholder rights to participate in exit events.

Removing double taxation

In the past, purchasers of digital currency have paid goods service tax (GST) twice, first on the initial purchase and again in the exchange of such currency for other goods/services subject to GST. From 1 July if you are buying digital currency, you will not suffer GST on any purchases of digital currency you make. This will make it easier to operate if you are dealing in digital currency.

Testing makes perfect

Being able to test out your new fintech offering/service is vital to ensure your success. In support of this the Government will introduce an improved regulatory "sandbox", aimed at financial services, to allow you to test such services first – without a licence – in a timeframe over two years. Protections and disclosure requirements will be in place to protect consumers.

Towards 2030

By collaborating with Innovation and Science Australia the Government will develop a Research Infrastructure Investment Plan and a 2030 Strategic Plan for Australia to further support the economy and promote innovation.

Want to find out more?

Further incentives are likely to be forthcoming to early-stage innovation, especially within the fintech sector. We will keep you abreast of such changes as they happen.

If you are thinking of starting up a new digital business, if you plan to launch a new financial product or service, or to invest in one, and you want to make the most of the new incentives, talk to us first. Call us at Robert Goodman Accountants on 07 3289 1700 or email us at reception@rgoodman.com.au.

 © Copyright 2017. All rights reserved.

Brought to you by: Robert Goodman Accountants

ATO support for small business

The ATO reaffirmed its commitment to supporting the mental health of small business owners in the lead up to World Mental Health Day on the 10 October 2017. ATO Deputy Commissioner for Small Business, Deborah Jenkins, said small business owners experiencing the warning signs of a mental health condition should check out the support available from the ATO at https://www.ato.gov.au/smallbizmentalhealth

 

The ATO support includes tailored payment plans, delaying a lodgment or payment, and organising a call-back or assistance visit. A person can call the ATO directly on 13 11 42, or ask someone to speak with the ATO on their behalf by nominating them as a representative.

 

If you are a small business owner who may be experiencing stress, anxiety or depression, and struggling to meet their tax and super commitments, the ATO can help alleviate some of the pressure.   Find out about help and support available here https://www.ato.gov.au/smallbizmentalhealth

 

Source: ATO media release, 4 October 2017

If you require assistance, please don't hesitate to contact Robert Goodman Accountants on 07 3289 1700 or email reception@rgoodman.com.au