New financial year checklist

It’s time to roll up your sleeves, report, reconcile and get set for the year ahead.

The start of a new financial year is the time to draw a line under the old and begin planning for the future.

For business owners, that means make sure everything from 2014/15 has been tied up and you can move forward without tripping over any loose ends.

This involves some regular ‘housekeeping’ tasks (listed below) that should become habit. But on top of these, each Financial New Year throws up a few fresh challenges as the Government tweaks the goal posts for business.

Two major changes to be taken on board in the 2015/16 financial year both apply to businesses with a turnover under $2 million – a 1.5 per cent drop in the tax rate from 30 per cent to 28.5 per cent and the $20,000 instant asset write-off.

Now the dust has settled from the May announcement of the $20,000 stimulus plan, one of the major tasks for most business owners is to look at their budget for 2015/16 and work out how to use (or not) the generous new provision.

Manuel Tsirmiris of Melbourne’s Accountancy Group has been advising clients not to get carried away with budget hype in their new year planning.

“We’ve explained to our clients there’s no sense of urgency to go off and replace your assets unless you were planning on doing that,” he said. “You don’t just replace assets for the hell of replacing them.”

Essentially the write-off facility – in place until June 30, 2017 – allows businesses to recoup 28.5 cents in the dollar for money spent on assets valued at $20,000 or less in this tax year. Most new and secondhand business equipment, except software, is eligible.

Using a business making $100,000 profit as an example, Mr Tsirmiris said: “You can buy five assets for $20,000 and get your profit down to zero.” But you would be spending about $100,000 to save a $28,500 tax bill.

“From a cash flow perspective, sometimes it’s easier to pay your tax if there are no assets that you need to replace,” he said.

Longer-term finance for some purchases could also be an option.

“You’ll get the deduction upfront, whereas you pay the cash later.”

The tax office has also flagged it is on the lookout for profligate spending, stating on its website: “If small businesses exhibit behaviours that indicate a high level of risk, they can expect a higher level of interaction with the ATO.”

Along with planning your purchases, the new financial year is also a good time to review contracts with suppliers and ensure they are delivering value for money.

“As a business owner, you can shop around and get better options, whether it be stationery or corporate borrowings,” Mr Tsirmiris said.

And having a professional on board can save time when it comes to making sure you have the right sort of finance in place for the year ahead.

With group certificates being issued and a lot of statutory reporting (including superannuation obligations) due, July is also a pertinent time to review contracting arrangements to ensure you don’t have any contractors who should be paid as employees.

The ATO has been cracking down on sham contracting arrangements which some businesses use to avoid paying higher rates and super contributions to workers who should really be classed as employees.

A genuine contractor should typically own their own tools and equipment, be autonomous in their decision-making, be able to freely delegate and not financially dependent on the company they are providing services to.
NEW FINANCIAL YEAR CHECKLIST

  • Get your operating budget for the year completed.
  • Get your cash flow budget in place.
  • Check the adequacy of your funding arrangements with your broker.
  • Check any loan covenants to ensure you are operating in accord.
  • Review any contractors to be used during the year ahead and ensure they would not be deemed ‘employees’ by the ATO.
  • Reconcile your GST control account.
  • Ensure the income declared in your BAS for 2014/15 reconciles with your annual income.
  • Ensure minutes for all directors and trustee resolutions for 2014/15 have been documented and signed off.
  • If you have cross-border transactions, ensure your transfer pricing file is completed with all requirements signed off.
  • Determine whether any activities (such as exporting) that may be eligible for a Government grant.
  • Review suppliers’ contracts or terms of trade.
  • Review financial commitments such as office and equipment leases.
  • Explore whether new tax concessions for employee share schemes could help you free up more cash for investment. ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ??Courtesy CPA Australia and Accountancy Group www.accountancygroup.com.au

Budget Bonanza

The budget gave small business something to smile about, but big business is waiting for more.

Are you reading this on a new laptop or tablet? You may already be reaping the benefits of a Budget which promised something special for Australian small businesses and delivered in spades.

Council of Small Business Chief Executive Peter Strong was so excited about the May Budget he had to check himself.

“I have been effusive in my praise of the budget in various media, and this worried me,”1 he wrote in a newspaper opinion piece after the budget was handed down. “But I checked with our members and they agreed with the effusiveness. One even said that I was understating the fact.”

It’s not often you get more than you’ve asked for but that is what this budget delivered for small business. One of the most talked about items was the $20,000 instant asset write-off for businesses with a turnover under $2 million – about 96 percent of all Australian businesses.

From Budget night these businesses could immediately write off against their taxable income purchases of new and secondhand business assets valued at up to $20,000 each. This is a massive bump up from the previous limit of $1000, but it will revert back to this level on July 1, 2017.

“It will provide motivation to people who wish to start a business, those who want to expand their business, and those who want to replace old machinery and stock. This, in turn, will mean an increase in employment opportunities,” Mr Strong said.

The tax rate for business with turnover under the magic $2 million mark has also been cut 1.5 per cent to 28.5 per cent from the start of this financial year, with a 5 percent discount for unincorporated businesses, capped at $1000.

There was some criticism of the cuts from industry bodies representing start-ups, which said many fledgeling tech businesses with turnovers under $2 million were not yet in profit and therefore not in a position to benefit. 2

But there were other sweeteners for start-ups, with changes to allow them to immediately write-off legal and tax advice involved in establishment, which previously had to be depreciated over five years. The government also delivered on a promise to reform employee share schemes to provide more flexibility in salary packages. Eligible start-ups will be able to offer shares and options at a small discount to employees, with tax-deferred and no tax on the discount.

In other changes to cut red tape, the Government is abolishing fringe benefits on all portable devices used by small businesses from April 1 next year. Previously, if two devices were used for a similar purpose – such as a laptop and tablet – only one could be exempted from fringe benefits tax. The Government has also proposed to allow small businesses to change legal structure without attracting a capital gains tax liability at that point. This change is proposed for the 2016/17 income year.

Australian Chamber of Commerce and Industry (ACCI) Chief Executive Kate Carnell said the Budget was a much-needed ‘turbocharge’ for the small business sector, which had been doing it tough for the past 18 months.

About two weeks after the budget speech the ACCI released its March quarter small business survey which showed the sixth consecutive quarter of declining forecasts from business owners and a gloomy outlook for the economy in general.

“The Budget initiatives, combined with record low-interest rates, should help small businesses rediscover their mojo, which the survey shows has gone missing in recent months,” Ms Carnell said. She said she looked forward to the post-budget June quarter results (due in August).

Australian Industry (Ai) Group was more muted in its praise, with Chief Executive Innes Willox joining others in voicing disappointment there was no tax cut for big business, which will continue to pay 30 percent, while small businesses have had a cut to 28.5 percent. The Government has said corporate tax rates will be considered as part of the Tax White Paper process now underway. An options paper is due in the second half of this year before a final White Paper is released prior to next year’s election.

Mr Willox praised moves to make childcare more flexible and affordable, but sounded a warning about the Government’s controversial ban on maternity leave “double dipping”.

Preventing women from accessing both employer and Government schemes would discourage businesses funding their own schemes and wipe out any advantage they may gain in attracting and retaining staff by offering generous maternity packages.

1 Strong, Peter; Hockey’s ‘small-business budget’ perfect for the sector, The Australian, May 14, 2015.
2 9 things start-ups should know about the 2015 Federal Budget, Business Review Weekly, May 13, 2015.

Many happy returns – tax time is here!

It’s time to roll up your sleeves, report, reconcile and get set for the year ahead. The start of a new financial year is the time to draw a line under the old and begin planning for the future.

For business owners, that means make sure everything from 2014/15 has been tied up and you can move forward without tripping over any loose ends. This involves some regular ‘housekeeping’ tasks (listed below) that should become a?habit. But on top of these, each Financial New Year throws up a few fresh challenges as the Government tweaks the goal posts for business.

Two major changes to be taken on board in the 2015/16 financial year both apply to businesses with a turnover under $2 million – a 1.5 percent drop in the tax rate from 30 per cent to 28.5 per cent and the $20,000 instant asset write-off.

Now the dust has settled from the May announcement of the $20,000 stimulus plan, one of the major tasks for most business owners is to look at their budget for 2015/16 and work out how to use (or not) the generous new provision.

Manuel Tsirmiris of Melbourne’s Accountancy Group has been advising clients not to get carried away with budget hype in their new year planning. “We’ve explained to our clients there’s no sense of urgency to go off and replace your assets unless you were planning on doing that,” he said. “You don’t just replace assets for the hell of replacing them.” Essentially the write-off facility – in place until June 30, 2017 – allows businesses to recoup 28.5 cents in the dollar for money spent on assets valued at $20,000 or less in this tax year. Most new and second-hand business equipment, except software, is eligible.

Using a business making $100,000 profit as an example, Mr Tsirmiris said: “You can buy five assets for $20,000 and get your profit down to zero.” But you would be spending about $100,000 to save a $28,500 tax bill. “From a cash flow perspective, sometimes it’s easier to pay your tax if there are no assets that you need to replace,” he said. Longer-term finance for some purchases could also be an option. “You’ll get the deduction upfront, whereas you pay the cash later.” The tax office has also flagged it is on the lookout for profligate spending, stating on its website: “If small businesses exhibit behaviours that indicate a high level of risk, they can expect a higher level of interaction with the ATO.”

Along with planning your purchases, the new financial year is also a good time to review contracts with suppliers and ensure they are delivering value for money. “As a business owner, you can shop around and get better options, whether it be stationery or corporate borrowings,” Mr Tsirmiris said. And having a professional on board can save time when it comes to making sure you have the right sort of finance in place for the year ahead. With group certificates being issued and a lot of statutory reporting (including superannuation obligations) due, July is also a pertinent time to review contracting arrangements to ensure you don’t have any contractors who should be paid as employees.

The ATO has been cracking down on sham contracting arrangements which some businesses use to avoid paying higher rates and super contributions to workers who should really be classed as employees. A genuine contractor should typically own their own tools and equipment, be autonomous in their decision-making, be able to freely delegate and not financially dependent on the company they are providing services to.

New financial year?checklist

  • Get your operating budget for the year completed.
  • Get your cash flow budget in place.
  • Check the adequacy of your funding arrangements with your broker. Check any loan covenants to ensure you are operating in accord.
  • Review any contractors to be used during the year ahead and ensure they would not be deemed ‘employees’ by the ATO.
  • Reconcile your GST control account.
  • Ensure the income declared in your BAS for 2014/15 reconciles with your annual income.
  • Ensure minutes for all directors and trustee resolutions for 2014/15 have been documented and signed off.

Budgeting beyond the boom

As the investment phase of the mining boom ends, we look at what Australian business needs from the budget to carry the economy forward.

All eyes will be on Canberra next month for one of the most pivotal budgets of recent times. It comes against a backdrop of economic and political instability as ructions within the Liberal party continue to grab headlines.

The Government and business recognise hard decisions need to be made as Australia transitions through the third phase of the mining boom. But will the Government hold its nerve in the face of dissent?

Treasurer Joe Hockey’s first budget, in 2014/15, outlined a range of much-needed saving measures but was roundly seen as a sales disaster.

Deloitte Access Economics partner Chris Richardson told the ABC’s Four Corners: “The Government had the courage – and credit to them – to attempt budget repair in Australia (last year). It turned into major political difficulties.” 1

This year, Hockey’s task is even trickier. The need to rein in spending is greater than ever, but several planned reforms have been scrapped or defeated.

“The politics of this (budget) are a disaster,” Richardson said. “Any political advisor would now be telling the politicians ‘don’t annoy the punters because you’ll lose their votes’ but at some stage this problem still has to be addressed.” 2

Prime Minister Tony Abbott’s recent talk of a boring budget 3 does not bode well for those hoping to see fiscal belt-tightening. But business and industry groups have urged the Government to hold the line on tough reforms in pre-budget submissions. In doing so, key groups – the Australian Industry Group (Ai Group), the Business Council of Australia (BCA) and the Australian Chamber of Commerce and Industry (ACCI) – have stressed the importance of communicating the need for change to the public; something they feel has not been done effectively.

The BCA writes: “The starting point for community support for this program of reform will be to properly explain the compelling need for action.” Echoing that sentiment, Ai Group underlines the need to “build understanding in the broader community.” 4

In simple terms, the first step to fixing a problem is to get the public to recognise that one exists.

To put the current situation in context, the BCA points out that when the GFC hit in 2008, Australia was well positioned to weather the storm with a $20billion surplus and no debt. Today the country is carrying a $40billion deficit and net debt that is 15 per cent of GDP, leaving us exposed to future shocks in uncertain times. Debt is growing each year, indicating a structural deficit, not a cyclical blip that will right itself. And the outlook is not promising. GDP growth is below trend, national income is flat, employment growth sluggish and unemployment on the up.

The reality is – with falls in iron ore and coal prices – Australia can no longer rely on terms of trade windfalls to deliver the economy back to surplus as it has done in the past. The way forward is to cut unsustainable spending and invest in areas that will boost productivity and skills.

The BCA calls for a major “renegotiation of what governments (taxpayers) can be expected to pay for,” with health and aged pensions first up for review. Greater privatised service delivery and user-pays options should be examined.

Industry groups agree this budget should be about repositioning the economy to allow small and medium business to flourish as mining investment contracts. As Treasurer Hockey said in March: “The biggest driver of job growth in the future unquestionably is going to be small business.” 5

Ai Group calls for a focus on incentives for business to innovate and invest and a greater role for Government in helping SMEs access international markets. 6

The Abbott Government has signed several Asian trade deals in the past 12 months and both Ai Group and ACCI want the Government to invest in proactive schemes to tell businesses how they can benefit.

Domestically, ACCI also wants the Small Business Entity Test threshold lifted from $2million annual turnover to $3million (and to further investigate raising it to $5million) to allow more businesses to access tax concessions and simplified reporting. ACCI also calls on the Government to implement the Henry review recommendation that small businesses be able to write off up to $10,000 in new assets each year. 7

On more general tax issues, ACCI also urges the Government to commit to a maximum tax-to-GDP ratio of 23.9 per cent, with indexed thresholds to eliminate bracket creep. And business groups are pushing to see a 1.5 per cent levy on larger businesses dropped now the Paid Parental Leave scheme has been scrapped.

The construction sector has seen mixed blessings in the past year, with slowed mining investment, but the strongest growth in residential building since the early 2000s. Public sector infrastructure investment has fallen and business is urging targeted spending. Certainty at State and Federal levels is vital to avoid a repeat of Victoria’s on-off East West Link. Ai Group and ACCI recommend independent bodies such as Infrastructure Australia play a central role in selecting and prioritising projects to stop them becoming mired in partisan politics.

1 M Wilkinson and K Michelmore, ‘House of Cards’ Four Corners, ABC-tv,16 March 2015.
2 Wilkinson and Michelmore.
3 Staff writer, ‘Tony Abbott says Federal Budget in May to be ‘pretty dull’’ news.com.au, 18 March 2015.
4 Business Council of Australia, BCA Budget Submission 2015-16: A 10-Year Plan For Growth, February 2015.
5 Joe Hockey, Intergenerational Health and Wealth, Q&A, ABC-tv, 16 March 2015.
6 Ai Group, Ai Group Submission to the Federal Government’s 2015-16 Budget, February 2015.
7 Australian Chamber of Commerce and Industry, 2015-16 ACCI Pre-Budget Submission, February 2015.

Are you ready for SuperStream?

Mandatory changes to Australia’s superannuation regime beginning on July 1 will affect how employers make their super contributions.

SuperStream will require employers to update existing payroll systems so additional information about employees can be provided to the ATO and to ensure transactions and data comply with a prescribed electronic format.

The changes, which are part of broader superannuation reforms, will also give businesses with annual turnover below $2million access to the Small Business Superannuation Clearing House (SBSCH).

“This single measure will provide approximately 27,500 additional small businesses with a cost-free solution to help them meet their superannuation obligations,” Federal Minister for Small Business Bruce Billson said.

The SBSCH is designed to help small businesses meet their Superannuation Guarantee obligations by allowing them to pay superannuation contributions in one transaction to a single location.

From July 1, employers will also no longer be required to offer choice of fund forms to temporary resident employees or to employees whose superannuation fund has merged.

“This measure will not only reduce unnecessary red tape but it will also reduce the number of employers who become liable for heavy penalties after inadvertently neglecting to provide choice,” Mr Billson said.

KEY DATES FOR SUPERSTREAM

If you have more than 20 employees
The SuperStream rollout started on July 1, 2014. You have until June 30 to ensure you are compliant with the new requirements when sending super contributions on your employee’s behalf.

If you have 19 employees or fewer
SuperStream roll out will begin on July 1. You have until June 30, 2016 to ensure you meet the new requirements when sending super contributions on your employee’s behalf. Voluntary adoption of the scheme was available from July 1, 2014.

More information is available from www.ato.gov.au/Super/SuperStream