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Key Aspects of CGT Relationship Breakdown Rollover Relief

The capital gains tax (CGT) rollover relief for marriage or relationship breakdown is, suffice to say, highly significant for people who are experiencing the trauma of a relationship breakdown; especially where substantial assets may be involved. This article notes some key things about the rollover’s operation that may present planning opportunities and highlight traps to avoid.

 

As a general rule, capital gains tax (CGT) applies to all changes of ownership of assets on or after 20 September 1985. However, if you transfer an asset to your spouse because your marriage or relationship has ended, the related capital gain or loss for the person transferring the asset (the transferor spouse) is automatically disregarded (rolled over) in certain cases.In effect, the person who receives the asset (the transferee spouse) will make the capital gain or capital loss when they later dispose of the asset. The asset’s cost base is transferred to the transferree spouse.

 

This rollover automatically applies where a marriage or relationship ends on or after 20 September 1985, and:

-one spouse transfers an asset or a share of an asset to the other; or
-a company or trustee of a trust transfers an asset to one of the spouses.

Here are 13 important things to note about the CGT rollover relief for marriage or relationship breakdown:

 

1.    The rollover automatically applies where the conditions for it are met; it is not a optional matter.

Planning: If a transferor taxpayer wishes to realise a capital loss on an asset, the asset should be transferred independently of the tax rule requirements for the rollover.

 

2.    The transfer of the asset must occur pursuant to a specified court order or arrangements (as set out in the rollover provisions), such as a court order under the Family Law Act 1975 or a binding financial agreement between the parties under the Family Law Act 1975.

 

3.    The rollover is only available for the transfer of an asset to a spouse or former spouse (including de facto and same sex spouses). It does not, for example, apply to the transfer of an asset to the deceased estate of a former spouse.

 

Query: It is not clear, in light of this rule, whether the rollover is available for the transfer of an asset to a child maintenance trust for the benefit of any children of the relationship (albeit, the argument could be made).

 

4.    An asset transferred from a company or trust controlled by a spouse can  also qualify for the rollover. Similarly, the rollover can apply where a right is created in the former spouse (eg shares in a company controlled by the other spouse).

 

5.    The consequences for the transferor (be it a spouse or an entity controlled by the spouse) is that any capital gain or loss that would otherwise be realised on the transfer or the asset to the former spouse will automatically be disregarded.

 

6.    In the case of the transfer of an asset acquired before the 20 September 1985 (and therefore not subject to CGT), the transferee spouse will be taken to have acquired the asset at that time, and therefore will not be subject to CGT on a later sale or disposal of the asset.

 

7.    In the case of an asset acquired on or after 20 September 1985 (and therefore subject to CGT), the transferee spouse will be taken to have acquired the asset at the time of the change in ownership and for the transferor’s “cost”. This will include the costs of transfer incurred by either party, and any capital gain or loss to the transferee.

 

Query: It is not clear whether such costs may include legal costs incurred by the transferor  spouse in defending the proceedings as “reasonably” allocated to the asset or assets transferred.

 

8.    For the creation of a CGT asset, the transferee spouse will be taken to have acquired the asset at the time he or she comes to own it and for a cost base equal to the incidental cost incurred by the transferor in creating the asset.

 

9.    For the purpose of meeting the 12-month holding rule and qualifying for the 50% CGT discount on any later disposal of the asset, the combined period of ownership of the asset by the transferor and the transferee spouse is taken into account.

 

10.    Where a company or trust transfers an asset to, or creates an asset in, a transferee spouse, adjustments are required to reduce the cost base of interests (ie shares or trust units) held in the company or trust as a result of the transfer or creation by reference to the market value of the asset transferred.

 

Warning: The payment of money or transfer of property from a company to a transferee spouse who is a shareholder of the company or an associate will be treated as a deemed dividend (under Div 7A of the Income Tax Assessment Act 1936) in the hands of the transferee spouse. It will be frankable if appropriate (although it is not clear whether a former spouse can be an “associate” of the company for these Div 7A purposes).

 

11.    If a post-CGT dwelling is transferred between spouses, the transferee spouse will be liable for CGT on its later disposal to the extent that it did not qualify as the main residence of either spouse during the combined periods they owned it. As a result, a partial exemption may later arise to the transferee spouse under the relevant partial exemption rules.

 

Warning: As a result of this rule, it is important to factor any such potential liability into settlement negotiations between the parties.

 

12.    If a post-CGT dwelling is transferred from a company or trust and the transferee spouse makes it his or her main residence, only a partial exemption will be available on its later disposal. This is because a dwelling can never qualify as main residence when owned by a company or trust, even if it was used as a main residence by one or both of the spouses when it was owned by the company or trust.

 

13.    Where “collectables” (eg jewellery, antiques) or “personal use assets” are transferred to a spouse, they retain character as collectables or personal use assets in the hands of the transferee spouse. They are therefore subject to the rules for calculating capital gains and losses on any later sale or disposal by the transferee spouse.

Warning: This rule means it is important to maintain appropriate records.

Airbnb And Home Sharing: Taxing Implications

Do you rent out a part of your home, or a holiday home, on Airbnb, Stayz or another sharing site? Perhaps you see this as a way of making a little extra income to help the household budget or to save for that holiday. But what you may not be aware of are the long-term tax implications of such a move, which may lead to a case of short-term gain causing long-term pain.

 

These days it seems more and more people are diving head first into the sharing economy by driving Ubers or listing their properties on Airbnb and other home sharing sites. Renting out a part of your home or your whole home while you’re on holidays seems like a great way to make some extra money now, but if you go down this route what about the tax implications for you now and in the future?

 

Reporting income

Unless a home was rented out to family members or under domestic arrangements that are not commercial, all income received needs to be included in your tax return. This is regardless of whether it was a long-term rental or a short-term rental.

 

Claiming deductions

Where you are only renting out a part of your home (ie a single room), say on Airbnb or another similar platform, you can only claim expenses related to renting out that part of the home. According to the ATO, a floor area method based on the area solely occupied by the renter as well as a reasonable amount based on their access to common areas should be used to apportion the expenses claimed.

In addition, where you use the room that is rented out in any other capacity such as storage, home office, or spare bedroom, then you cannot claim deductions for any expenses for the period the room is unlet. For example, heating and electricity costs received every quarter need to be apportioned based on the number of days the room was occupied and on the floor area basis to obtain the final deductions figure.

 

Selling your home eventually

As the ATO’s Deputy Commissioner for Small Business, Deborah Jenkins, has said:

 

“Just like running a business from home, once income is earned from a primary place of residence there are Capital Gains Tax (CGT) implications. It is possible that if a property significantly increases in value, the amount of CGT owed may even be higher than the amount of income received.”

 

When it comes time to sell your home and you’ve previously rented it out, you won’t be entitled to claim the full exemption for capital gains tax. This is the case even if you’ve lived in the home as your main residence and only rented out one room for a short period of time. The calculation for the portion of capital gain that will not be exempt is complex and a qualified and registered tax adviser should be consulted.

 

Want to find out more?

Renting out your home on sharing platforms may have some tax pitfalls, speak to us if you are thinking of or are renting out part of your home or your entire home. We can help you understand the intricacies and tax implications further to avoid a visit from the tax man.

Payroll Reporting: A Touchy Subject

If you are an employer the way you report payments, such as salaries and wages, pay as you go (PAYG) withholding and superannuation is changing from next year. The ATO will need you to report these payments directly from your payroll solution in real-time, at the same time as you pay your employees. This is known as single touch payroll (STP) and is intended to simplify business reporting obligations. It comes into effect in 2018 or 2019, depending on the size of your business. Are you ready for this change and how will it affect you? We can help you to prepare for the move to STP.

 

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.

Taxable SMSF Assets Double: Is Your Fund Affected?

New research has shown the transfer balance cap and reduction of tax concessions for transition to retirement pensions have achieved their policy outcome and made more SMSF assets taxable. This may be considered bad news for the SMSF sector, however, one ray of sunshine to emerge from the research is the policies’ unintentional outcome of improving gender imbalance in SMSF assets and balances. Find out whether your SMSF has been affected and how strategies could be implemented minimise the impact.

 

It’s been a little over a year since the dual changes of the pension transfer balance cap and the reduction of tax concessions for transition to retirement pensions were implemented by the government. Recent research has indicated that these changes has achieved their policy outcome by making almost 25% of previously tax-free SMSF assets lose their status and become taxable.

 

To recap, a pension transfer balance cap of $1.6m applied from 1 July 2017 to limit the total amount of accumulated superannuation that can be transferred to the retirement phase, where the earnings on assets are tax-exempt. The transfer balance cap is indexed but adjustments are unlikely to occur until at least 2023-24.

 

The ATO uses the concept of a transfer balance account to track each person’s net pension amounts against their transfer balance cap. Where an individual’s transfer balance accounts exceed their transfer balance cap, the ATO will issue a determination requiring the excess amount to be removed from retirement phase.

 

In addition, these excess transfer balance amounts are subject to tax, initially at 15% but increasing to 30% for breaches in subsequent years.

 

Similarly, the tax exemption on earnings for pension assets supporting Transition to Retirement Income Streams (TRISs), also known as transition to retirement pensions (TTRs) was removed from 1 July 2017. From that date, earnings from assets supporting TRISs were taxed at 15% instead of 0%. TRISs have traditionally been used by individuals who have reached their preservation age but do not want to retire.

 

According to recent research, at June 2018, one year after the sweeping superannuation changes came in, SMSF asset value in accumulation phase was approximately $422bn. This was a 90% increase from March 2017 (before the changes) when asset value in accumulation was around $222bn.

 

Based on simple modelling (not taking into account of contributions tax, deductible expenses, and rebates), assuming a modest return of 5% on assets for the 2018 income year, this increase of SMSF asset value in accumulation phase would result in $3.2bn worth of tax on SMSF earnings. This equates to a $1.5bn increase from the 2017 year.

 

However, it’s not all doom and gloom for the SMSF sector after the changes, one ray of sunshine in the research is that the changes have led to new strategies being implemented which significantly improved gender imbalance in SMSF assets and balances. Two of the most notable strategies used include:

-contributions splitting which involve a member of an accumulation fund splitting superannuation contributions with his or her spouse to equalise their total superannuation balances to counter the $1.6m transfer balance cap.
-recontributions strategy which involve withdrawal and recontributions to a spouse’s superannuation account to equalise total superannuation balances up to $1.6m each (subject to the non-concessional contributions limits).

 

Are you affected?

Is your fund affected by this? Talk to us today, we may have a strategy to help you reduce the taxable proportion of your SMSF assets. Alternatively, if you’re thinking of commencing a TRIS we can help you navigate the tricky laws around this area and make sure you get the maximum benefit from your hard-earned superannuation.

Starting a Small Business? Don’t Become a Statistic

There is something irresistible about starting a small business that has captured our collective imaginations, with small businesses making up 97% of all Australian businesses. But unfortunately, over half of these fail within the first three years. So how can you stop your business from becoming a statistic?

 

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 fledging 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.

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.

Choose the Right Valuation Method for Your Business

 

If you’re looking to sell your company, to attract investors or simply to find out your net worth, it’s important to obtain an accurate valuation of your business. There are several ways to do this, each with its own advantages and risks. Here’s a look at how to conduct a business valuation, and the biggest pitfalls to avoid.

 

Gather all of the information you need
For an objective and accurate valuation, start by gathering as much information about your business as possible. The type of information you need will depend on which valuation method you choose.

 

If your valuation will be based on assets, you need to do a complete audit of both tangible assets (such as buildings, employees, cash and machinery) and non-tangible assets (such as goodwill or intellectual property). You must also list any liabilities – that is, anything that subtracts from the business’s value, such as debts or legal rulings.

 

For a valuation based on business earnings, you need detailed financial information such as cash flow statements, debts, annual turnover and profit and loss statements – ideally dating back at least three to five years.

 

Potential buyers or investors will want to know whether your business will make money in the future. Including all information, such as sales reports and forecasts, customer profiles, marketing plans and competitor analyses, will make the process more transparent.

 

Consider the valuation method
As with a valuation of any asset, the big challenge in valuing a business is reconciling what you think the business is worth and what a buyer may believe it’s worth.

The true value of your business is the amount someone is willing to pay for it.

 

Let’s look at the two most common ways that experts determine a business’s value.

 

Asset-based valuation
This method adds up the value of the business’s assets and subtracts its liabilities. It takes into account tangible assets such as cash, equipment and property. It should also include any intangible assets – that is, non-physical items that also generate revenue, such as goodwill and intellectual property.

 

Goodwill can include anything from the location of the business to brand recognition, staff performance and the number and quality of customer relationships. Liabilities are items such as bank debts and payments due.

 

An asset-based valuation is often used when the business has underperformed and goodwill is low. Whatever the case, it’s important that your valuation doesn’t overvalue your business assets, as it can bring unwanted attention from government regulators. The Australian Securities and Investments Commission (ASIC) is now publicising audit results that uncovered irregularities in financial reporting. This has resulted in asset write-downs across a number of high-profile companies.

 

Valuing business assets is often a complicated process, guided by the valuer’s past experience in selling and evaluating businesses in the same industry.

 

Earnings-based valuation
If your business is expected to grow, a prospective buyer will be interested in both its existing assets and any profits it will generate. There are two popular methods for valuing a business in this context:

-Return on investment (ROI): also referred to as capitalised future earnings, this considers the annual ROI a buyer can expect from the business after purchasing it. For example, if the business is generating profits of $100,000 per year and is offered for sale at $500,000, the ROI associated with the sale is 20 per cent.

-Earnings before interest and tax (EBIT): This is where the business’s annual earnings before interest and tax are multiplied by a number based on its expected future profitability and growth potential. For well-established businesses that have shown consistent solid performance, this multiple might go as high as six – so a business with an EBIT of $200,000 might sell for as high as $1.2 million.
Every industry has its own formulas and rules of thumb for calculating a business’s current market value. The Australian Bureau of Statistics (ABS) can be a valuable source of information for checking the reliability of these valuation methods.

 

Cash flow and other considerations
It’s important to remember that income and cash flow are not the same. How quickly do your customers pay their bills, relative to outgoing expenses? If your earnings look good on paper but cash flow is a problem, this must be factored in.

Another consideration is the impact of change of ownership. If you left the business tomorrow, could a new owner maintain the critical customer relationships and processes? In other words, how much of the business is inseparable from its current owner? This could apply to any number of key people who work in the business.

Finally, does technological disruption have the potential to affect your business’s value? Most companies can update their systems and processes to keep up with the latest technologies. In some cases, however, losses are inevitable – cloud computing, for example, has affected many traditional hardware and software businesses.

 

Want to know more?
No business valuation method is perfect, and it’s worth remembering that your business is worth whatever someone is prepared to pay for it. Whatever you decide, getting expert advice is essential – and that’s where we can help. Speak to us today to clarify your situation and make sure you’re working from up-to-date advice and information.

Compensation From The ATO

With all the media attention around the ATO’s alleged rough treatment of the small business segment. Many of these small business owners may think that they have a case for compensation from the ATO for everything that they have been through. Although is getting compensation from the ATO even possible? The answer it turns out is yes, but it is very limited in scope.

 

Since the ABC Four Corners program aired allegations of misconduct in some of ATO’s dealings with small businesses, the Inspector-General of Taxation has revealed that complaints to his office has increased significantly. For many of these small business owners, thoughts of justice and compensation may be at the front of their minds. Although getting compensation from the ATO is technically possible, in reality, it is limited in scope and a great deal of supporting information is required for any claim.

 

To apply for compensation, businesses will need to complete the “Applying for compensation form” on the ATO website. The form requires some basic information (such as business name, TFN, address) as well as questions relating to why you think you’re entitled to compensation from the ATO. Once the form is received, the ATO’s service standards indicates that it will be acknowledged in writing within 7 business days of receipt, and initial claims should be processed within 56 days.

 

Broadly, claims for compensation is assessed in two ways, either compensation for legal liability (eg negligence) or compensation under the scheme for detriment caused by defective administration (CDDA Scheme). 

 

The claims are considered by officers in the ATO’s General Counsel and the decision makers are independent of the area which originally dealt with the taxation matter. If it is determined that compensation of either type (ie legal liability or CDDA) is not appropriate, small businesses may still be eligible for an “act of grace” payment.

 

If you’re intending to apply for compensation, you should know that the compensation scheme is very narrow and only financial losses with a direct connection to ATO’s actions will be allowed. This includes for example, reasonable professional fees, interest for delays in providing funds in some cases, and bank or other administrative fees incurred due to the ATO’s actions. Losses relating to the following will not be considered:

 

-claims for personal time spent resolving an issue;
-claims for stress, anxiety, inconvenience;
-claims for delay in receiving funds from the ATO where statutory interest was paid;
-claims for costs associated with complying with the tax system including costs associated with audits, objections and appeals, even where it is found you complied with your obligations;
-costs of putting in a claim or conducting a claim for compensation; and
-claims for taxation or other Commonwealth liabilities with substantive review rights that can be or could have been pursued.

 

Further limiting the scheme is the need to provide concise details of the actions of the ATO that you consider have caused your loss supported by evidence. The ATO considers that a claim or allegation that is expressed too “generally or broadly” is difficult to assess and that an allegation no matter how serious or how strongly it is expressed is not evidence itself. Therefore, to be successful at the limited range of compensation available, you will need to provide documentary evidence to support your allegations and detail the financial losses that were suffered (such as invoices or statement of accounts from professional advisers or banks).

 

If you’re unsuccessful in your compensation claim you can apply for an internal review in cases where you can provide new or relevant information in support of your claim. Otherwise, you may also apply to the Inspector-General of Taxation to investigate the ATO’s handling of your compensation claim. Whilst the Inspector-General does not have power to overturn or vary an ATO decision, they may make recommendations to the ATO about how the claim was handled.

 

Ready to pursue a compensation claim?

If you think you have a legitimate compensation claim that qualifies under the scheme, contact us today, we can help you sort out what information you need and make an application to the ATO on your behalf.

Cash is No Longer King: Moving Your Business out of the Cash Economy

EFTPOS, payWave, Apple Pay, Android Pay, PayPal – electronic payment is increasingly the transactional method of choice. But cash still feels good in the hands, and is seen by many as the “real currency,” particularly in times of financial crisis. So why is it no longer king? The ATO is cracking down on businesses and individuals who – whether deliberately or by accident – fail to declare their cash income or use cash to avoid paying employee benefits and the appropriate rates of tax.

 

Historically, many Australian businesses have favoured the cash model and, regrettably, also favoured non-disclosure of “cash-in-hand” earnings and outgoing payments. Cash is untraceable, an attribute that has seen it play the role of an accomplice in the “black economy” and allow the production of wealth and avoidance of tax and employment laws to be hidden. This costs the Australian economy an estimated $15 billion in lost taxes and welfare payments each year. Not everyone who uses cash does it to get around the rules, of course, but all cash-only businesses are now under greater government and ATO scrutiny.

 

We take a look at what this means for your business, including why you might need to transition to a non-cash model.

 

Who is the ATO targeting?
The ATO has been investigating many small service sector businesses that use a cash-in-hand model. In its sights are cafes and restaurants, carpentry and electrical services, hair, beauty and nail specialists, building tradespeople, road freight businesses, waste skip operators and house cleaners.

 

Typically there are three types of problem player in the cash economy:

-businesses and people who don’t understand the law;
-businesses and individuals who deliberately avoid their tax obligations; and
-people who use cash payments to hide income, to avoid losing Centrelink payments, or who are breaching visa restrictions.

Through its extensive data-matching programs, the ATO can now easily create a profile of a business in any geographic area and compare its income, profit margins and level of profitability with similar others. This means that if you’re not providing the whole story in your records and tax returns, the ATO will be able to pick up on the gaps and you may face penalties.

 

 

Benefits of a non-cash business model
There are many benefits of a non-cash model that can help your business to grow, such as:

-access to tax incentives that you might not have been aware were on offer if your cash activities mean you have been, even accidentally, not accurately declaring your full income;
-more and happier customers – many people expect to be able to pay, even for small items and services, with a card or smartphone;
-increased access to your market through the digital world – you could consider adding an online aspect to your business;
-the clear visibility of your business’s financial health that comes with electronic payment and recordkeeping facilities; and
-avoiding possible penalties for tax debts and allegations about improperly documented or underpaid employee entitlements.

 

Further incentives to move away from cash are on the horizon. As part of its terms of reference, the Federal Government’s Black Economy Taskforce will look into possible tax and other incentives for small businesses that adopt a non-cash business model.

 

How can you transform your business?
We understand that changing a business model requires planning and time to implement, but whatever your circumstances, we can help your business to transition to a non-cash model.

 

Where should you start? With your recordkeeping. This means accurately recording every sale and purchase in your accounting software, providing a receipt whenever you make a sale and collecting an accurate invoice whenever you make a purchase. This will give you a clear audit trail to prove that you are declaring all income. Talk to us about your particular activities and needs – we’re here to help you plan, and can provide advice on what you’ll need to do to ensure the best outcomes for your business.

Growing Your Super

 

Are you nearing retirement or just want to put a little extra away for the future without putting a strain on your household budget? Contributing to superannuation might be your best bet. There are two main ways to boost your super balance, salary sacrificing super (if your employer has made that option available) and personal super contributions.

 

The end of the financial year is nearly upon us, and there is no better time than now to get your financial plans in place for next year. If you’re nearing retirement or just want to put a little extra away for the future, contributing to superannuation might be your best bet, this is especially true if you’re female. Research has previously shown that women retire with an average of $120,000 less in their superannuation than men due to a combination of the gender pay gap, taking time off paid work, and working part-time.

 

There are two main ways to increase your super balance without putting too much strain on your weekly household budget, salary sacrificing super (if your employer has made that option available) and personal super contributions.

 

Salary sacrificing super

Put simply, salary sacrifice is an arrangement where you forego part of your salary in return for your employer providing the amount sacrificed into super. You should beware that your salary sacrificed contributions are considered to be contributions from your employer (eg if you decide to salary sacrifice 5% into your super your employer would only legally have to contribute 4.5% instead of the 9.5%).

 

Therefore, before you commence any salary sacrifice arrangement, it is advisable that you and your employer clearly state and agree on all the terms of the agreement. This may involve an explicit agreement between you and your employer that specify that they continue to pay the minimum super guarantee amount ignoring any salary sacrifice contributions you may make.

Salary sacrifice is a tax-effective way to boost your super, as the sacrificed component is not counted as your assessable income for tax purposes (provided the salary sacrifice arrangement itself is “effective”) and hence is not subject to PAYG withholding tax. Although there are no limits per se to salary sacrificing superannuation, any sacrificed amounts are counted towards your annual concessional contributions cap. Therefore, tax-effective salary sacrificing arrangements are effectively limited to the concessional contributions cap.

 

Personal super contributions

Personal super contributions are the amounts you contribute to your super fund from your after-tax income (ie take home pay). These contributions are in addition to the compulsory super contributions your employer makes and does not include any contributions made through salary sacrifice arrangements.

 

Prior to 1 July 2017, only self-employed people could claim a deduction for personal super contributions, but from 1 July 2017, most people (regardless of their employment arrangement) are able to claim a full deduction for personal super contributions they make to their super until they turn 75. However, if you’re between the age of 65 and 75, you will need to meet the “work test” to be eligible to claim the deduction.

 

If you have made a personal super contribution and want to claim a tax deduction, you will need to complete and lodge the form “Notice of intent to claim or vary a deduction for person super contributions” with your super fund and have this notice acknowledged in writing by your fund. You will need to do this before you lodge your tax return for the income year in which you are claiming a deduction for.

 

Interested in making a personal contribution?

Would like to make a personal contribution and claim a deduction for tax time? Or maybe you would like to find out whether or not you qualify for the work test? Whatever it is, from setting up an effective salary sacrifice arrangement for the next financial year, to other strategies to make the most of your super, we can help you avoid all the pitfalls and get it right.

 

Accounting and Bookkeeping Services: 3 Reasons Cash Flow Is the Lifeblood of Your Business

 

bookkeeping services

 

Cash is king – especially when it comes to start-ups and small enterprises. Bookkeeping services can help you get accurate cash flow forecasts for your business. This will enhance your ability to foresee potential problems that may arise later on and enable you to make sound decisions for growth, progress and prosperity. Like oxygen for a business, cash flow forecasting prepared by an experienced tax accountant in Sydney eliminates the element of chance. Let’s have a look at a few reasons why you should discuss cash flow forecasting with your tax agent in Sydney right now.

 

  1. Visualizing your options: Cash flow forecasting will enable you to clearly see all the possible scenarios that could result from your business decisions in 2016. Cash flow forecasting, managed with the help of trusted experts who specialize in bookkeeping services and accounting for small and medium size businesses, can help you make critical decisions including:
  • – Product/Service price modelling
  • – When to hire more staff
  • – The right time for a new project
  • – When to change suppliers
  • – When change premises, and so on
  1. Saving time: Cash flow forecasting empowers you to take full financial control of your business. You don’t have to go through endless spreadsheets when a new business idea strikes your mind. With cash flow forecasting in place, all you have to do is test some statistics and equations to know if an idea is profitable. It takes away much of the guesswork!
  1. Planning growth: Though there are numerous ways you can grow your business, choosing the right one is often confusing. With cash flow forecasting, you can clearly see various feasible growth options and you can easily choose the one that fits your business the best. Furthermore, if you choose a trusted provider of accounting solutions and bookkeeping services, you can choose to do cash-flow forecasting at any stage in your business. If something has changed in your business and you’re not sure whether to continue or not, stop and simply take a closer look at your forecasted options.

It’s important to take an outside perspective and analyse your organisation’s cash flow. This is essential to identify opportunities for growth because you might be too busy to see such opportunities. So, what can you do about it? Take action right now! Call DSV Partners. Trusted accounting and bookkeeping services can deliver beyond your expectations!

 

 

 

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