The 10 ways to lift your margin

Improvements can always be made at the margin. Small tweaks to your processes or systems can make a massive difference to the end result. It’s the same with your business margin – a 1% increase in your gross margin on $500,000 of sales is an extra $5,000 on your bottom line.

The best part about improving your margin is that you increase your profit without needing to lift your sales.

Here are 10 strategies to lift your margin:

  1. Negotiate better prices with your suppliers.

As they say, ‘the squeaky wheel gets the oil’, so if you don’t ask, you won’t get.

  1. Update your pricing model.

Make sure you’re using the most recent supplier prices and that all costs are included in your price.

  1. Back cost jobs regularly.

Review exactly what you spent on 2-3 jobs each month and compare the actual cost to what you anticipated the cost would be when you quoted the job.

  1. Get rid of slow-moving items or work that has a poor return.

Selling old stock at cost will drop your margin, but if you replace those items or jobs with higher-margin items, you’ll achieve a higher return in the long run.

  1. Set budgets and targets with your team.

Give your team something to aim for. Celebrate success when the targets are achieved.

  1. Report your results on a cloud-based, real-time system.

You can’t manage what you don’t measure! Regularly monitor your most important Key Performance Indicators on your dashboard.

  1. Reduce wastage and re-work.

What processes need to be updated to help reduce wastage and re-work? Or, if the processes are correctly documented, what training do you need to provide to your team to ensure the processes are being followed to reduce wastage and re-work?

  1. Review your sales process.

Does your sales team know which products or services have the highest margin? Do they know how to upsell to those higher-margin products or services? Identify the sales skills gaps in your team and implement training.

  1. Make a plan.

There are plenty of areas for improvement in your business. Unless you write them down, you’re unlikely to bring the correct focus to them. Make a plan to improve one area at a time.

  1. Involve your accountant.

Not only to help you with idea generation and building a plan, but also to hold you accountable to do the things you need to do.

Need more help or information? Contact our team of skilled accountants at Glance Consultants on 03 9885 9793.

Glance Consultants Newsletter – April 2021

 

Some money is not counted as ‘income’ by the ATO

It is possible to receive amounts that are not expected by the ATO to be included as income in your tax return. However some of these amounts may be used in other calculations, and may therefore need to be included elsewhere in your tax return.

The ATO classifies the amounts that it doesn’t count as assessable into: Exempt income; non-assessable non- exempt income; and other amounts that are not taxable.

Exempt income

Exempt income doesn’t have tax levied on it. However certain exempt income may be taken into account for other adjustments or calculations — for example, when calculating the tax losses of earlier income years that you can deduct, and perhaps the “adjusted taxable income” of your dependants.

Exempt income includes:

■ certain government pensions, including the disability support pension paid by Centrelink to a person who is younger than age-pension age

■ certain government allowances and payments, including the carer allowance and child care subsidy

■ certain overseas pay and allowances for Australian Defence Force and Federal Police personnel

■ government education payments, such as allowances for students under 16 years old

■ some scholarships, bursaries, grants and awards

■ a lump sum payment you received on surrender of an insurance policy where you are the original beneficial owner of the policy – generally these payments are not earned, expected, relied upon or occur regularly (eg: payments for mortgage protection, terminal illness, and permanent injury occurring at work.

Non-assessable, non-exempt income

Non-assessable, non-exempt income is income you don’t pay tax on and that also does not count towards other tax adjustments or calculations such as tax losses.

Non-assessable, non-exempt income includes:

■ the tax-free component of an employment termination payment (ETP)

■ genuine redundancy payments and early retirement scheme payments (shown as “Lump sum D” amounts on your income statement)

■ super co-contributions

■ a payment made on or after 1 January 2020 by a state or territory for loss of income as a result of you performing volunteer work with a fire service in the 2019-20 income year

■ Disaster Recovery Allowance paid directly as a result of bushfires in Australia in the 2019-20 income year

■ Ex-gratia disaster income support allowance for special category visa (subclass 444) holders paid directly as a result of the bushfires in Australia in the 2019-20 income year

■ payments by a state or territory relating to the 2019- 20 bushfires under the disaster recovery measures that were introduced.

Other amounts that are not taxable

Generally, you don’t have to declare:

■ rewards or gifts received on special occasions, such as cash birthday presents and gifts from relatives given out of love (however, gifts may be taxable if you receive them as part of a business-like activity or in relation to your income-earning activities as an employee or contractor)

■ prizes you won in ordinary lotteries, such as lotto draws and raffles

■ prizes you won in game shows, unless you regularly receive appearance fees or game-show winnings

■ child support and spouse maintenance payments you receive.

 


New insolvency reforms to support small business

The Australian Government has made changes to the ATO’s insolvency framework to help more small businesses restructure and survive the economic impact of COVID-19.

The insolvency system is facing a number of challenges:

■ An increase in the number of businesses in financial distress because of COVID-19.

■ A “one-size-fits-all” system, which imposes the same duties and obligations, regardless of the size and complexity of the administration.

■ Barriers of high cost and lengthy processes that can prevent distressed small businesses from engaging with the insolvency system early, reducing their opportunity to restructure and survive.

Under the reforms, where restructuring is not possible, businesses will be able to wind up faster, enabling greater returns for creditors and employees. The package of reforms features three key elements, available from 1 January 2021:

■ A new formal debt restructuring process for small businesses to provide a faster and less complex mechanism for financially distressed but viable firms to restructure their existing debts, maximising the chance of them surviving and contributing to economic and jobs growth.

■ A new, simplified liquidation pathway for small businesses to allow faster and lower-cost liquidation, increasing returns for creditors and employees.

■ Complementary measures to ensure the insolvency sector can respond effectively both in the short and long term to increased demand and to the needs of small business.

ELIGIBILITY

The new processes are available to incorporated businesses with liabilities of less than $1 million:

■ simplified liquidation – you must have all your lodgments up to date to be eligible

■ restructuring – before providing a restructuring plan to creditors you must have:

● paid all employee entitlements that are due and payable (including superannuation)

● your tax lodgments up to date (or at least been “substantially complying” with this requirement).

The reforms adopt a “debtor in possession” model. That means that the business can keep trading under the control of its owners, who know the business best, while a debt restructuring plan is developed and voted on by creditors.

Business owners will be able to trade in the ordinary course of business when a plan is being developed; prior approval of a small business restructuring practitioner will be required for trading that is outside the ordinary course of business.

The business owners will be required to work with the practitioner to develop and put forward a restructuring plan and to provide information about the business’s financial affairs to the practitioner to assist with identifying creditors and to assist creditors in making an informed decision on the restructuring plan.

Safeguards will be included to prevent the process from being used to facilitate corporate misconduct such as illegal phoenix activity. They include a prohibition on related creditors voting on a restructuring plan, a bar on the same company or directors using the process more than once within a prescribed period (proposed at seven years), and the provision of a power for the practitioner to stop the process where misconduct is identified.

SIMPLIFIED LIQUIDATION

Regulation around liquidation in Australia, including mandated investigative functions, is suited to large, complex company failure, where intentional misconduct may have been involved. However most liquidations in Australia relate to small businesses, who overwhelmingly fail “honestly”. In these cases, the costs of the liquidation can consume all or almost all of the remaining value of a company, leaving little for creditors.

Under the new process, also accessible to incorporated businesses with liabilities of less than $1 million, regulatory obligations have been simplified, so that they are commensurate to the asset base, complexity and risk profile of eligible small businesses. This will free up value for creditors and employees, and allow assets to be quickly reallocated elsewhere in the economy, supporting productivity and growth.

The simplified liquidation process will retain the general framework of the existing liquidation process, with modifications to reduce time and cost. As currently occurs, the small business can appoint a liquidator who will take control of the company and realise the company’s remaining assets for distribution to creditors.

The liquidator will also still investigate and report to creditors about the company’s affairs and inquire into the failure of the company.

 


When it comes to real estate and CGT, look at timing

When you sell or otherwise dispose of real estate, the time of the event (when you make a capital gain or loss) is usually when one of the following occurs:

■ You enter into the contract (the date on the contract), not when you settle. The fact that a contract is subject to a condition, such as finance approval, generally doesn’t affect this date.

■ The change of ownership occurs if there is no contract – such as when a property passes to a beneficiary.

■ The real estate is compulsorily acquired – the time of the event is earliest of

● when you receive compensation from the acquiring entity

● when the entity became the property’s owner

● when the entity enters the property under a power of compulsory acquisition or takes possession under that power.

Although you report your capital gain or loss in the tax return for the income year in which the contract is entered into, you’re not required to do this until settlement occurs. If settlement occurs after you’ve lodged your tax return and been assessed for the relevant income year, you will most likely need to request an amendment.

You may be liable for shortfall interest charge (SIC) because of an amended assessment for a capital gain.

The ATO generally remits the SIC in full if the request for amendment is lodged within a reasonable time after the settlement (generally considered to be one month in most cases).

However, remission is not automatic – you must request it in writing, which we can help you with. The ATO says it considers each request on a case-by-case basis, so informed wording of that request can make a difference.

If you consider that the shortfall interest charge should be remitted, it is generally best to provide your reasons when requesting an amendment to your assessment.

Two “main residences” is possible

It is generally accepted that an exemption to capital gains tax applies to the family home, or “main residence”, and the exemption usually applies for only one home at any given time. But there is a rule that allows for a taxpayer to have two main residences and still maintain that CGT-free status for both premises for a temporary period.

Known as the “six month rule”, this states that two properties can be claimed as a main residence at the same time where a taxpayer acquires a dwelling that becomes their new main residence before they dispose of the original. This is a sensible allowance for an overlap of periods in which a taxpayer can claim exemption from CGT for two properties — one newly acquired and one that is to be sold. Selling the old house may take longer than six months, but the CGT exemption only holds for that long, and the ATO cannot extend this concession.

It is available for the earlier of; six months after taking ownership of the new house, or when you transfer ownership of the old house. However there are two prerequisites to qualify — the old house must have been your main residence for at least a continuous three months in the 12 months before transfer; and if it was not your main residence for any of that time it can’t have been used to produce income.

 


Managing your superannuation transfer balance account

Most people think of retirement as a time to put your feet up and relax, but it can also be a time when pre- retirees and retirees alike actually need to flex the grey matter.

With all the rules and regulations swirling around the superannuation sector these days, it’s not unusual for those nearing retirement to feel compelled to dust off the calculator and bone up on certain superannuation concepts. The transfer balance account and the transfer balance cap are topics that can challenge many retirees.

Transfers into and out of retirement phase are referred to as credit or debit events. Your transfer balance account is calculated by keeping track of these events and is used to determine if you have exceeded your personal transfer balance cap (TBC, more on this below).

All of your retirement phase income streams are taken into consideration, including capped defined benefit income streams and market linked pensions.

The value of your superannuation interests is calculated by your superannuation fund and reported to the ATO (and if you believe the value reported is incorrect, it is best to contact your super fund or the ATO directly).

CREDITS TO YOUR ACCOUNT

Generally, a credit arises in your transfer balance account when you become the recipient of a super- annuation income stream that is in retirement phase.

The following events will cause a credit to your transfer balance account:
■ superannuation income streams that were in existence just before 1 July 2017 and you continue to receive them after that date – including both reversionary and non-reversionary death benefit income streams

■ new superannuation income streams that commenced after 1 July 2017 – including both reversionary and non-reversionary death benefit income streams

■ when a transition to retirement income stream starts to be in retirement phase

■ repayments from limited recourse borrowing arrangements

■ excess transfer balance earnings.

These credits increase your transfer balance account and reduce your available personal TBC space.

SUPERANNUATION INCOME STREAMS

An income stream is a series of periodic benefit payments to a member. This includes both reversionary and non-reversionary death benefit income streams and can be either:
■ account-based income streams (the amount supporting the income stream is allocated to a member’s account), or

■ non-account based income streams, including capped defined benefit income streams (these are income streams that don’t have an identifiable account balance in the member’s name — the member receives regular payments, usually guaranteed for life).

ACCOUNT-BASED INCOME STREAM

If you were receiving an account-based superannuation income stream just before 1 July 2017, and you continued to receive it after that date, your fund will have reported the value of all the superannuation interests that support the income stream in retirement phase that you were receiving at that time.

If you started an income stream after 1 July 2017, your fund will report the commencement value of that superannuation income stream. This includes death benefit incomes streams and market linked pensions.

Transition-to-retirement income streams (TRIS) that are in retirement phase are also included in the transfer balance account. Your TRIS will start to count towards your transfer balance cap on the day it becomes a retirement phase income stream based on its value on that day.

CAPPED DEFINED BENEFIT INCOME STREAMS

Capped defined benefit income streams are treated differently because you usually can’t commute these income streams, except in limited circumstances. Capped defined benefit income streams are:

■ lifetime pensions, regardless of when they commence

■ lifetime annuities that existed just before 1 July 2017

■ life expectancy pensions and annuities that existed just before 1 July 2017

■ market-linked pensions and annuities that existed just before 1 July 2017.

The modified value of a capped defined benefit income stream is referred to as the “special value”, and this value will be calculated by your superannuation provider.

A capped defined benefit income stream will not give rise to an excess transfer balance by itself. However, you may have an excess transfer balance when you have a combination of both an account-based income stream and a capped defined benefit income stream. If the combined value of the account-based income stream and the special value of the capped defined benefit income stream is in excess of the general TBC, then you will be required to commute the excess transfer balance from the account-based income stream.

TRANSFER BALANCE CAP

The transfer balance cap (TBC) is a limit on how much superannuation can be transferred from your accumulation superannuation account to a tax-free retirement phase account. At present, the general TBC is currently $1.6 million and all individuals have a personal TBC of $1.6 million.

However the general TBC is to be indexed from 1 July 2021, and will rise to $1.7 million. From then on there will be no single cap that applies to all individuals. Every individual will have their own personal TBC, somewhere between $1.6 million and $1.7 million, depending on their circumstances.

If you exceed your personal TBC, you may have to:

■ commute (that is, convert a portion of your retirement phase income stream into a lump sum) the excess from one or more retirement phase income streams

■ pay tax on the notional earnings related to that excess.

If the amount in your retirement phase account grows over time (through investment earnings) to more than your personal TBC, you won’t exceed your cap.

However if the amount in your retirement phase account goes down over time, you can’t “top it up” if you have already used all of your personal cap space.

 


Refinancing loan interest may be deductible to a partnership

A general law partnership is formed when two or more people (and up to, but no more than, 20 people) go into business together. Partnerships are generally set up so that all partners are equally responsible for the management of the business, but each also has liability for the debts that business may incur.

Tax law also provides for the notion of a “tax law partnership” – which occurs when individuals are in receipt of income jointly – such as an investment property.

See the panel on the following page for some facts about partnerships as a business structure.

TYPICAL FINANCING SCENARIO FOR GENERAL LAW PARTNERSHIPS

A typical scenario when launching a business based on a general law partnership structure sees each partner advance some capital to start up the enterprise. As the income years come and go, each partner takes a share of the profit and counts this as part of their personal assessable income for tax purposes.

However as the business becomes established, or better yet proves to be viable and becomes a successful operation, there is likely to come a time when its working capital — which had been financed from each partners’ pocket — can be refinanced through the partnership business borrowing funds.

SO WOULD THE INTEREST COSTS BE DEDUCTIBLE TO THE PARTNERSHIP?

The refinancing principle

For such partnerships, there is a “refinancing principle” under tax law that provides some general principles governing the deductibility of loan interest in such circumstances.

As a general rule, interest expenses from a borrowing to fund repayment of money originally advanced by a partner, and used as partnership capital, will be tax deductible. This is covered in a tax ruling (you can ask this office for a copy).

The ruling states that to qualify for a tax deduction, the interest expense “must have sufficient connection” to the assessable income producing activities of the business, and must not be “of a capital, private or domestic nature”.

However interest on borrowings will not continue to be deductible if the borrowed funds cease to be employed in the borrower’s business or income producing activity. Nor will deductibility be maintained should borrowed funds be used to “preserve assessable income producing assets”. There is also a limitation on deductibility of loan interest in that borrowings to repay partnership capital can never exceed the amount contributed by the partners.

The ability to make these interest expense deductions under the “refinancing principle” is generally limited to general law partnerships — and not tax law partnerships. This principle would also not apply to companies or individuals. (There are prescribed conditions where, for example, a company may make such a claim, but under very specific circumstances.)

 


Partnership facts and foibles

Set-up costs

Partnerships can be less expensive to set up as a business structure than starting business as a sole trader, as there will likely be greater financial resources than if you operated on your own. On the flip side however, you and your partners are responsible for any debts the partnership owes, even if you personally did not directly cause the debt.

Joint and several liability

Each partner’s private assets may still be fair game to settle serious partnership debt. This is known as “joint and several liability” – the partners are jointly liable for each other’s debts entered into in the name of the business, but if any partners default on their share, then each individual partner may be severally held liable for the whole debt as well.

Other tax factors

Other general factors to note about partnerships include:

■ the business itself doesn’t pay income tax. Instead, you and your partners will each need to pay tax on your own share of the partnership income (after deductions and allowable costs)

■ the business still needs to lodge a tax return to show total income earned and deductions claimed by the business. This will show each partner’s share of net partnership income, on which each is personally liable for tax

■ if the business makes a loss for the year, the partners can offset their share of the partnership loss against their other income

■ a partnership does not account for capital gains and losses; if the partnership sells a CGT asset, then each partner calculates their own capital gain or loss on their share of that asset

■ the partnership business is not liable to pay PAYG instalments, but each partner may be, depending on the levels of their personal income

■ as a partner you will need to take care of your super arrangements, as you are not an employee of the business

■ money drawn from the business by the partners are not “wages” for tax purposes.

 

Click here to view our April 2021 Newsletter

Profits of Cash Flow? That is the question.


We could all make the mistake of assuming that turning profits alone tells us the health of our business and determines whether we are running a successful company. However, profit alone should not be the only financial focus of yours if you’re looking to create a stable business long term. 

Cashflow and its appropriate management are also critical aspects of running a business because without a predictable cash flow, you cannot cover overheads, pay employees regularly, and confidently manage day-to-day operations. Without forecasting what you are bringing in, there’s little to no hope in expanding and growing your business. 

So, what we need is to ensure we have a strong cash flow position and focus our thoughts on driving profits. 

We support our clients in many ways, allowing you to keep on top of your business’s financial management and offer insights into some of the technical terms needed when discussing money matters. 

Getting your head around the critical process of cash flow management is necessary, in times both prosperous and challenging. If you’re interested in some support in this, do not hesitate to contact us at Glance Consultants. 

Let’s take a quick look at some of the key points to be aware of in regards to your finances:

  • Profit is a by-product of success. 

High profits are welcomed but can be unstable in the long term. A strong business seeks to have consistent revenues. 

  • View your cash flow as the blood running through the veins of your company

Without steady cash to cover your operating expenses, you have no real chance of sustaining operations. 

  • Know your costs

An ideal world is where we have more cash inflows than outflows, so make sure you carefully manage and understand your expenses.

  • Action is essential

Be proactive about your spend management by choosing cheaper suppliers or negotiating better deals to impact your cash flow position positively. 

  • Understand how to drive more revenue to your business

Through clever sales and marketing activity that works for your business, you can increase revenue and boost your cash flow.

  • Remember; keep the cash flowing, and profits take care of themselves.

As your company sits on an excellent financial foundation with the correct cash flow position, then you have scope for investment and business growth. 

We are here for you if you would like to discuss ways of improving your cash flow management. 

Whether you are a new business owner or a seasoned entrepreneur looking for some fresh insights, your support can be found here at Glance Consultants, so get in touch today via phone call on 03 98859793 or at enquiries@glanceconsultants.com.au

Do I need a Logbook?

 

Some of you were perhaps thinking that those inconvenient days of a travel logbook were long gone, revelling in the freedom that modernization provided. However, recently the ATO is cracking down on those who own vehicles for their business because, well, because of modernization.

Our work vehicles are more lavish, modern and comfortable than they perhaps previously were and we understandably use them for leisure trips in addition to necessary travel for work. Whether it be to go away camping, popping to the supermarket, towing the boat or helping someone move, the benefits of a more powerful utility vehicle goes beyond what you might need it for in your daily working schedule.

Generally, utes are no longer Fringe Benefit Tax-free, even if your work vehicle was exempt before. Unfortunately, the usual assumptions that were once placed on working vehicles, the ones you have grown used to over the years, won’t apply. For example, a deviation from your regular route to and from work by more than 2kms will be considered to be private use. Some guidelines allow for minor, infrequent and irregular private use; however, this barely covers more than commuting.

You may be asked to provide a logbook to ensure that you are not avoiding Fringe Benefits Tax or abusing the system by claiming too many expenses back. By creating such a logbook, you are giving the ATO tangible data that they can use to determine how your vehicle is used so that they can support the claims you make.

Weighing up the inconvenience.

In summary, we recommend that where a dual cab ute or work vehicle is owned and you wish to claim expenses either in your business or as an employee, you MUST prepare a 12 week Logbook to prove the percentage portion of business use.

Doing so will give you extra protection if the ATO decides to audit you or argue that you are not entitled to a motor-vehicle claim due to it not being predominately for business purposes.

Ignoring the concept of a logbook entirely or believing that what you “tell us” is business use isn’t going to be enough. Trust us, it’s not going to get you far in a debate with the ATO..

Our team at Glance Consultants are confident that the slight inconvenience of creating a logbook is more preferable than finding out you cannot claim back desired vehicle expenses when it comes to that time of the year because you don’t have one.

We can provide you tools that enable you to accurately record necessary data for the ATO, which thankfully only need to be recorded for a 12 week, continuous period to be accepted for the entire year. Furthermore, unless your business habits change drastically or you buy a new vehicle, this data need only be updated every five years. Please be aware that you need to start this 12-week record in the year that you seek to claim expenses on your vehicle.

The ATO now accepts logbook apps from your phone, making it easier than ever before to log and report business travel use. You can simply download an app such as Driversnote, to track kms to and from specified locations with odometer readings, which you can then easily pass on as proof of your business travel, meeting relevant logbook standards and ensuring that tax time can also be slightly more relaxing.

Call us now on 03 9885 9793 or send us an email at enquiries@glanceconsultants.com.au for more information.

Is your business likely to survive? Ask yourself these 3 critical questions

 

In such turbulent times, not many of us really have any idea what to expect around the corner. As you react to this uncertainty, it is natural to seek answers and solutions to safeguard your business and livelihood. 

Although there are no hard and fast rules here, we can prompt you to ask yourself some critical questions to determine whether your business is likely to survive. This is so you can take proactive steps to support yourself and increase the chances you can power through subsequent months and years with a thriving business that offers that security we all need. 

So, what questions should you be asking?

Is a ‘new normal’ better or worse for my business?

COVID-19 has changed the way we all need to do business if we want to be able to reach out to consumers who are isolated from one another and fearful of their futures. There is an overwhelming push to move online as a remedy to the former issue, and business owners and operators do need to look at creative ways to ensure that they are connecting authentically with their audiences.

Understanding whether this shift online, in addition to emotional responses by your target audience, are beneficial for your current way of doing business is a key element in determining the health of your business.

How can I pivot to respond to the current situation?

A good business is one that responds to the needs of its clients, so the ability to watch market trends and to determine key points of interest is going to be one of the more critical factors in ensuring the survival of a business during difficult times.

In addition to this, a solution that is unique to your top competitors in the industry is going to attract a different niche, which can help, should your industry be flooded with similar businesses. 

How can I make sure that this pivot is going to provide an opportunity for growth?

Under pressure to simply survive, the thought of growth might need to take a back seat. Still, if you do not future proof your actions and offer room for maneuvering, then you might find yourself again needing to execute further cumbersome pivots to your business plan.

Businesses that have that flexibility to quickly and inexpensively pivot and respond to their customer’s needs are the ones that are the most likely to survive throughout the many changes that business will face over the coming months and even years. 

If you would like to discuss some of these concepts or other factors regarding the security of your business, then get in touch with one of our approachable accountants from Glance Consultants today. 

Glance Consultants Newsletter – March 2021

Update your ABN … or miss out!

Government agencies regularly access data contained in the ABN registration, and where this is not up-to-date the taxpayer may be missing out on stimulus measures, grants, and other government support.

This became painfully evident during the 2019-20 bushfires, and is now re-surfacing during COVID-19 when it was found that a concerning amount of ABN data was out-of-date. The ATO and the Australian Business Register are making efforts to remind businesses and relevant taxpayers that it is essential to ensure ABN registration details are accurate and completely up-to-date.

It is a business owner’s responsibility to make sure this is done (contact the Australian Business Register, see www.abr.gov.au). Once a business owner is aware of a change to the business, details on the register must be altered within 28 days. Updating ABN details will ensure:

■ the right people have the right permissions to act on behalf of a business

■ government agencies have current information – for example, if emergency services need to contact businesses during natural disasters

■ the entity is ready for new government services when they become available.

If you need assistance in updating your details please contact us.

We can also assist you to update:

■ business names

■ legal names for individuals and sole traders who need to contact the ATO directly

■ legal names for companies registered with the Australian Securities & Investments Commission (ASIC).

Name changes made by the ATO and ASIC will update the ABR automatically.

 

ATO’s cyber safety checklist

Scammers never seem to rest. In a new update the ATO reports that it is receiving reports of email scams about JobKeeper, JobMaker and backing business investment claims.

“The fake emails say we’re investigating your claims,” the ATO says. “They ask you to provide valuable personal information, including copies of your driver’s licence and Medicare card.”

During this time of heightened scam activity, the ATO is encouraging individuals and businesses to:

■ Use multi-factor authentication where possible and don’t share your password with anyone

■ Run the latest software updates to ensure operating systems security is current

■ Secure your private wi-fi network with passwords (not the default password) and do not make financial transactions when using public wi-fi networks

■ Exercise caution when clicking on links and providing personal identifying information

■ Only access online government services via an independent search – not via emails or SMS

■ If in doubt, call the ATO on an independently sourced number to verify an interaction

■ Educate your staff on cyber safety and scams.

To report a data breach or scam visit ato.gov.au/onlinesecurity

 

New Director Identification Number regime may be just around the corner

The Director Identification Number (DIN) regime may have been lost in many business owners’ peripheral vision, or even dropped off the radar completely, as it has been on the horizon for some time. But it is worth keeping in mind the ramifications of the measure, as the details could become important sooner than many realise, even before this year is out.

The legislation putting the regime in place has already been passed in June last year, but the scheme is not yet in operation. This is initiated by “proclamation”, which is required to happen within two years of the legislation becoming law.

The regime is part of the government’s “modernising business registers” program, which is intended to lessen corporate phoenix activity – the process of continuing business activity of a company that has been liquidated to avoid its debts — with the DIN regime increasing accountability by making directors traceable.

DINs will be recorded in a database that will be administered and operated by a registrar from an existing (yet to be determined) government agency. The registrar will have the power to issue DINs (once satisfied of a director’s identity) and the responsibility of recording, cancelling or re-issuing DINs. The Administrative Appeals Tribunal will have jurisdiction to review decisions made by the registrar.

Under the scheme, directors will be required to have their identity verified and have a unique and permanent identifier issued to them. Companies will need to put processes in place to ensure that all existing directors apply for a DIN within the prescribed timeframe once the regime is implemented. Also, companies will need to ensure that director appointment processes include the necessary steps for new directors to apply for a DIN. The number will continue to apply even if a director leaves their position.

Within the first 12 months following implementation, new directors will have 28 days after appointment as a director to apply for a DIN. Following this time, individuals must apply for a DIN before becoming a director. For existing directors, transitional provisions should provide a period during which they will need to obtain a DIN.

The regime is expected to have other benefits such as increasing the accessibility of important information that may assist administrators and liquidators. It is anticipated that the public will be able to search the registry and view a director’s profile, including any historic relationships with different companies. For example, if the director has had past involvement with insolvent trading, that information will be available on the registry.

The legislation introduced both civil and criminal penalties for a failure to apply for a DIN within the required time frame, with criminal penalties for deliberately providing false identity information or a false DIN to a government body and intentionally applying for multiple DINs.

The procedures and documents required to obtain a DIN are not included in the legislation, and will probably be set out in a separate announcement in the coming months.

However administrative changes introduced by the scheme may have practical implications when appointing directors on an urgent basis. For this reason, businesses need to be aware of the coming changes so they will be ready to implement procedures to ensure compliance with the law and the timely appointment of directors.

 

Unexpected lump sum payment in arrears? There’s a tax offset for that!

A lump sum payment in arrears is a payment you may receive that relates to earlier income years.

The tax offset that can be utilised with these sorts of payments works to alleviate the problem of a taxpayer being expected to pay more tax in a year when a lump sum of back payments is received — where they would be disadvantaged by paying more tax than if the income had been spread over several income years.

The general rule is that employment income is assessable in the income year it is received, regardless of the period the payment covers. This is still the case, however the tax offset works to restrict the amount of tax payable to the same “marginal” rate that would have applied if it were “received” in the tax year or years it relates to.

As the lump sum payment in arrears (LSPIA) is taxable in the year you receive it, it can impact your tax and non-tax entitlements such as:

■ student loans

■ child support and welfare payments.

You may also find that as a result you:

■ are in a higher tax bracket and pay more tax than you would have if you received the amount when you earned it

■ are in the same tax bracket and pay the same amount of tax as you would have if you received the amount when you earned it

■ are in a lower tax bracket and pay less tax than you would have if you received the amount when you earned it

■ have a new or increased Medicare levy surcharge obligation, because the lump sum pushes you over a Medicare levy surcharge threshold.

The ATO says taxpayers may be able to access the tax offset for certain payments, which usually relate to employment, compensation or welfare payments. To be eligible for the tax offset, a LSPIA must be 10% or more of your taxable income in the year of receipt after you deduct any:

■ amounts that accrued in earlier years (that is, this payment)

■ amounts received on termination of employment in lieu of annual or long service leave

■ employment termination payments (ETPs)

■ income stream and lump sum superannuation payments

■ net capital gains

■ any taxable professional income that exceeds the average taxable professional income.

The ATO notes that the calculation of this tax offset is complex, therefore, there is no online calculator.

 

Vehicle benefit FBT treatment changes under COVID-19

The special circumstances that coronavirus has thrown our way looks like having some very practical outcomes on certain areas of fringe benefits tax. One of the most prevalent and well-established category of fringe benefits centres on the provision and use of vehicles. The parking of a car, for instance, is a benefit that comes with very specific conditions regarding the taxable values that attract FBT.

A work car park closes

If, on a particular day, a business’s office is closed due to COVID-19 and therefore the work car park is also closed, the employer will not have provided a car parking benefit as there will be no car space available for use by an employee for more than four hours between 7.00am and 7.00pm on that day. The time during which the work car park is closed will not form part of the availability periods used to calculate the taxable value of a car space under the statutory method.

Closure of nearby commercial parking stations

If all of the commercial parking stations within a one kilometre radius of a business premises are closed on a particular day due to COVID-19, there will be no car parking benefits provided.

Reduced rates at commercial parking stations

If, on for example 1 April 2020, the lowest fee charged by all of the commercial parking stations within a one kilometre radius of a business premises for all day parking was less than $9.15, the employer will not have provided a car parking benefit. For example, this may occur where all of the commercial parking stations have discounted their all-day parking rate due to COVID-19.

However, the reduced fee must not be substantially greater or less than the average of the lowest fee charged by a commercial parking station operator in the four weeks prior to 1 April 2020 or the four weeks after 1 April 2020. The ATO holds that the reduced fee is disregarded for the purpose of determining the lowest fee charged by a nearby commercial parking station if it does not meet this requirement.

Car returned to employer’s business premises

An employer won’t provide a car fringe benefit where a car is not supplied for an employee’s private use or taken to be available for an employee’s private use. During a period of COVID-19 restrictions, a car that has been provided to an employee is not taken to be available for the employee’s private use if all the following apply:

■ the car is returned to the business premises

■ the employee cannot gain access to the car

■ the employee has relinquished an entitlement to use the car for private purposes.

The ATO says some factors that indicate a car is not taken to be available for an employee’s private use during these restrictions include where:

■ the employer requests that the car be returned to the business premises

■ the employee does not have physical access to the car

■ the business consistently enforces a policy that an employee cannot gain access to the car

■ if the employee has made a choice to surrender the car, they cannot change that choice and obtain the ability to access the car

■ the car is returned to the business premises and the employer applies the car to a different purpose (although a separate car benefit may arise if the car goes to another employee who applies it for private use).

Garaging work cars at an employee’s home

An employer may have been garaging work cars at employees’ homes due to COVID-19.

The employer may not have an FBT liability depending on:

■ the type of vehicle

■ how often the car is driven, and

■ the calculation method they choose for car benefits.

Log books

A business’s employees’ driving patterns may have changed due to the effects of COVID-19. If an employer uses the operating cost method, they may have an existing log book. They can still rely on this log book to make a reasonable estimate of the business kilometres travelled. They can also choose to keep a new logbook that’s representative of business use throughout the year.

 

Click to view our March 2021 Newsletter PDF

 

 

 

 

Not coping from COVID? Here’s some resources that might help

 

Depending on which state you or your business is based in, there are different support packages that the Australian Government are providing to businesses who are feeling the devastating impacts of COVID-19.

Out team here at Glance Consultants, are working tirelessly to ensure that our clients are aware of what is available to them and ensuring that they are quickly taking advantage of such support packages so that businesses can keep their staff employed and their doors ready to open when they can.

With new approaches to controlling potential outbreaks frequently in development, such as the circuit breaker action that has recently been implemented in Victoria, a $143 million response by the Government has been established that provides necessary assistance to businesses that have lost significant income as a direct result.

There are four initiatives within this support package. These include business costs assistance for those who have incurred losses through cancelled bookings or perished foods, an update on the Licensed Hospitality Venue Fund for those who were previously eligible for this support and accommodation support for those tourism accommodation providers who can prove they have lost bookings during the circuit breaker action.

For some of these support packages, you do not need to apply, as you will be contacted directly should you be eligible. For others, it is vital that you bring together the right documentation and deliver through the correct avenues in order to receive the support that you need swiftly.

If you’re unsure whether you can seek specific financial support such as those presented in the circuit breaker action business support package, or you simply do not know where to start with it all, then rest assured that we are able to guide you in the right direction and provide you with relevant advice.

It’s not always about money.

Financial assistance isn’t the only necessary support for business owners and their employees during these tempestuous times. This can lead to more rash decisions as we become jaded to constant fear and anxiety over the precarious situation that we have all found ourselves in. Ensure that you take a moment to congratulate yourself and your staff for what you have achieved over the past year and hold fast knowing that such support packages from the Australian Government seek to keep businesses afloat and individuals in jobs.

Contact us on 03 9885 9793 or fill out our contact form to get in touch with one of our accountants today.

Understanding goods and services tax

 

When registering a business in Australia, you would need to think about the types of taxes that would apply to your business. Many business owners are confused about which taxes they should pay and when they should pay them. Goods and Services Tax (GST) is one of those taxes that can be confusing for some business owners — especially for first-time business owners.

What is Good and Services Tax

Goods and Services Tax (GST) is a 10% value-added tax placed on most services and goods sold within the country. We say most, as there are some exceptions, such as select housing and health items, and particular food. Some long-term accommodation may also be exempted and may only be taxed at 5.5%.

If you’ve registered your business for GST, you should include it in the price you charge for your goods or services. You can also claim GST credits for applicable goods and services you purchase for your business.

Why Is It Important to Know

Understanding GST helps you decide whether it’s time for your business to register for it or not. Additionally, it will help you determine when to charge for GST and when you shouldn’t.

Some GST-free products and services are:

  • Basic food
  • Select medicines
  • Select childcare services
  • Select health care and medical services
  • Select medical appliances and aids
  • Select charitable and religious activities
  • Accommodation, meals, and supplies of those living in retirement villages by select operators

Should Your Business Register for GST?

Not all businesses or organisations need to register for GST. Businesses with a GST turnover of at least $75,000 must register. For non-profit organisations, you would only need to register if your GST turnover is at least $150,000.

Businesses offering limousine or taxi travel like OLA, DiDi, and Uber must register for GST, regardless of their GST turnover.

Do you want to claim fuel tax credits? Consider registering your business for GST regardless of your GST turnover.

How to Register for GST

Do you already have an Australian Business Number (ABN)? If yes, we are able to register your business for GST.

If you do not have an ABN yet, you can register for ABN and GST simultaneously.

Once your business is registered for GST, you would need to provide tax invoices specifying the invoice total and GST component. Additionally, you must obtain tax invoices for purchases made for your business so you can claim GST credits. A robust accounting software should be maintained for this purpose.

Lodgement & Payment Requirements

On a monthly, quarterly or annual basis, your net GST payable or receivable figure would need to be calculated, reported and lodged via a Business Activity Statement. Lodgement and payment (if applicable) would be due within certain deadlines depending on the BAS (Business Activity Statement) cycle your business is on.

GST does not have to be complicated. Let us assist in managing your GST obligations. Call us at 03 9885 9793 or email enquiries@glanceconsultants.com.au to see how we can help you.

What to look for when buying a business

Finally finding a business, you would like to purchase and invest in is exciting. Before finalising your contract, however, make sure it is genuinely worth the investment you are about to put in.

To protect yourself, consider having a checklist of things to review before closing the deal. Do not just depend on what the seller says, or the business’s overall performance is. Dig deeper and analyse.

To assist you, we have listed down some of the items you have to consider when purchasing a business.

Check, and Double Check the Documents!

Some of the documents you should have, and review are:

  • Contract of Sale
  • Vendor’s Statement or Section 52 Statement
  • Copy of Lease
  • Financial records

When reviewing contracts, it would be best to check if you could add a performance clause. The clause should state “minimum takings of the business” for a set period while you finalise the settlement. Additionally, consider having the right to work on the business before you get into a binding contract. This way, you could confirm all the claims the seller made about the business.

Another thing you should review is the business’s existing contracts with suppliers. Ensure transfer of these contracts is included in your Contract of Sale.

Before the Transfer

Verify the name of the business and make sure the seller has clear ownership. Furthermore, they must have full rights to transfer the ownership of the business.

Does the seller own the premises where the business is located? Are they transferring the title of the premises to you, too? If yes, verify the land ownership to confirm they are the actual owners and have the right to transfer the premises’ ownership to you.

Red Flags

Take caution if you see any of these red flags when trying to purchase a business:

  • A significant amount of customer complaints
  • Dropping of prices to boost gross sales before selling the company to you
  • Pending litigation

Failure to disclose any relevant information regarding the business should be a significant red flag for you. Therefore, it is crucial to perform a background check about the business. You really would not know if a seller were concealing something unless you do your own research.

Is the seller in a hurry to sign off? Are they refusing to introduce you to their suppliers? If so, it may be best to take a step back. Decide if it is in your best interests to proceed with the purchase.

Still need help with acquiring a business? We can assist you. Call us on 03 9885 9793 to find out how we can assist you with a business acquisition. You can get in touch with us by sending an email to enquiries@glanceconsultants.com.au to schedule an appointment with a member of our team.

What is strategic taxation planning, and how can it help you?

 

Are your tax obligations stressing you out? While it may be a few months away, thinking about your strategic taxation plan now could help you avoid headaches when your tax liabilities are due. Additionally, it ensures that you won’t overlook anything or come across unpleasant surprises.

Not sure how to go about your taxation plan? Here are some things you should know to help get you started.

What is Strategic Taxation Planning 

Strategic taxation planning is the process of understanding, managing and anticipating tax liabilities based on your business financial goals and activities. Ideally, it’s recommended to carry out a review atleast annually so that your business is up-to-date with any changes in the taxation legislation. It also ensures that your taxation plan matches your current business goals.

Why is Taxation Planning Important

The most important benefit of having a taxation plan is that it allows you to minimise your tax liabilities within the rules and regulations in place. It also gives you more confidence in making strategic business decisions that could impact your finances.

When you fully understand your tax liabilities related to your business’s financial activities, you can take better control of your cash flow, debt payments, and other financial responsibilities.

Tips for Taxation Planning

When creating a strategic taxation plan, consider looking into the following factors:

  • Cash flow — When you understand your business’s financial highs and lows, it will be easier to anticipate tax liabilities & deadlines and prepare for them. You would be able to avoid any undue financial strain on your business.
  • Superannuation liabilities and contributions — Did you know that you could use your concessional superannuation contributions to reduce your tax liabilities? Often, business owners maximise their superannuation contributions in order to minimise their tax liabilities.
  • GST cash accounting — This strategy could improve your cash flow as you pay GST at the point of collection and not when issuing an invoice to a customer.
  • Small business restructure rollover — Looking to change your small business structure? Consider transferring active assets to another small business entity.
  • Trading Stock Write Off – Obsolete/damaged stock – If identified, these items can be written off for accounting & tax purposes
  • Bad Debts – Review your debtors and if any are unlikely to be recovered, write them off as bad debts before 30 June.
  • Instant Asset Write off Concessions – concessions are available for eligible businesses that are looking to invest in fixed assets
  • Prepaid expenses – bringing forward the recognition of certain expenses

Taxation planning doesn’t have to be complicated. At Glance Consultants, we specialise in taxation & cashflow planning for businesses. Our team of experts is ready to assist you in preparing your financial plans, financial statements and lodgement of your annual tax returns. We assist in the preparation and lodgement of your Business Activity Statements and variety of other lodgement obligations that you and your business face.

Call us at 03 9885 9793 or send an email to enquiries@glanceconsultants.com.au for more information on our business services.

 

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