Tax relief on the way!

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We know small business owners are desperate for some serious tax relief and it looks like there is hope on the horizon. The whole country is set to gain from more than three million small businesses having a lower tax rate, allowing them to invest more, grow more and employ more, Small Business Minister Michael McCormack says.

“We know lower taxes means small businesses can grow, pursue new ideas and create more jobs,” says McCormack.

Tax relief on the way
The change was confirmed in an extended Senate session under a deal struck by the Government with the Nick Xenophon Team and will cost $5.2 billion over the next four years.

It will mean businesses with turnovers of up to $10 million will pay 27.5 per cent this financial year. From July 1, companies with turnovers up to $25 million will pay 27.5 per cent and, from 2018-19, the tax rate will apply to those with $50 million annual turnovers.

Global market place
The Australian Small Business and Family Enterprise Ombudsman (ASBFEO) complied a statistics report which brings together data and analysis from a range of sources including the ATO, ABS and Austrade, and has been released to mark the office’s one year anniversary.

“This report provides a unique insight into the sector; it ultimately reinforces the size and importance of the small businesses to the Australian economy, and outlines its growing diversity,” says Ombudsman Kate Carnell.

Carnell says the number of small business currently venturing into offshore markets is on the rise. While many small businesses are at the cutting edge of innovation, she has made it clear that she would like to see more small businesses go down this path.

“Encouragingly, ABS data shows more and more small businesses are entering export markets, with 44 per cent of goods-exporting firms classified as small business. Many are also entering the global market place at an early stage of their development, giving rise to the ‘born-global’ phenomenon,” she adds.

THIS VITAL TAX CUT IS A CONFIDENCE BOOST FOR HARDWORKING AUSSIES

Positive step forward
In 2016 a survey by MYOB revealed more than half (56 per cent) of small businesses believed that lowering the company tax rate to 27.5 per cent for businesses with up to $10 million in revenue would have a positive impact.

“It’s good that those barriers to growth have been removed. The old system discouraged SMEs to grow beyond $2 million in revenue because of the benefits they lost from being counted as a small business,” says McCormack.

“We hope the Government is able to secure support for its ongoing programme of company tax cuts. The simple fact is that lower corporate taxes across the board would have made Australian business more internationally competitive.

“For every dollar small business spend with big businesses, big businesses spend $2 with small businesses. This is the nature of the economic ecosystem we have – and we need the whole thing to be healthy.

“I know this vital tax cut is an important injection of confidence for the hardworking Australians in small business who contribute $380 billion to our gross domestic product,” says McCormack.

Categories: Tax

Why small business tax cuts aren’t likely to boost ‘jobs and growth’

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The Turnbull government’s signature economic policy at last year’s election was a 5% cut in the company tax rate, over a ten-year period, at a cost to revenue estimated to be in excess of A$48 billion. As the government itself has conceded, this now stands very little prospect of being passed by the Senate.

However, there is one element of the government’s proposal which appears to enjoy almost universal political support – the idea that “small” companies should get a tax cut. The only disagreement among the Coalition, Labor and the Greens on this score is how small a company should be in order to be deserving of paying a lower rate of tax.

From the standpoint of good economic policy this is surprising. There has been a lively debate for a while among economists as to whether cutting company tax rates will boost economic growth, employment and real wages – and the extent to which this theory is supported by evidence. But there is no evidence at all to support the notion that preferentially taxing small businesses will do anything to boost “jobs and growth”.

Advocates of tax and other preferences for small businesses often argue that small businesses are the “engine room of the economy” – because, for example, 96% of all businesses are small businesses, or because small businesses employ more than 4.5 million people.

According to the latest available ANS data, small businesses (defined as those with fewer than 20 employees) employed just under 45% of the private sector workforce in June 2015. Despite this, small businesses accounted for only 5.2% of the increase in private sector employment over the five years to June 2015.

By contrast, large businesses (defined as those with 200 or more employees) employed less than 32% of the private sector workforce in June 2015 – but they accounted for more than 66% of the increase in private sector employment over the five years to June 2015.

Employment and employment growth by size of business

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Similarly, a smaller proportion of these small businesses engage in any of the four categories of innovation which the ABS recognises in its annual survey of business innovation than of medium or large businesses.

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So on the basis of the available evidence, a policy which sought to encourage employment creation and innovation via the use of preferential tax treatment would surely preference large businesses, rather than small ones.

However, that would be politically challenging, given that a large majority of voters think that big companies should pay more tax, not less.

What sort of businesses create jobs and growth when tax is reduced?
An alternative approach, which would be much more likely to have positive effects on employment, investment and innovation, would be to tax new companies at a lower rate.

OECD research shows that young businesses are the primary drivers of job creation. And new companies are more likely to be at the frontier of productivity growth.

New businesses are of course likely to be small, at least initially. Confining preferential tax breaks to new businesses – for example, by prescribing that a lower tax rate is only available to a business for the first (say) three years after its incorporation – focuses the assistance on those businesses which are actually likely to innovate, and to create jobs. This is instead of dissipating it on the much larger number of businesses who have no desire, intention or ability to do either.

Preferentially taxing new businesses is therefore much more likely to achieve the stated goals of boosting jobs and growth, and of encouraging innovation, at much lower cost.

In addition to this, preferentially taxing new businesses avoids the perverse incentives that inevitably arise when the eligibility for some form of preferential treatment is determined by a business’ size. This is frequently demonstrated by the reluctance of businesses to put on an extra worker when doing so would render them liable to pay state payroll tax.

Of course, there would need to be compliance measures designed to forestall “rebirthing” of companies in order to prolong access to tax preferences intended to benefit new companies, but that would not be difficult to provide.

The Coalition’s support for a preferential tax rate for small businesses appears to owe more to its long-standing, almost religious, belief that there is something inherently more noble or worthy about owning and operating a small business, than there is about managing or working for a large one (or a government agency). Also that this belief should be reflected in the tax system, rather than basing it on any evidence that taxing small businesses at a lower rate than large ones will have any positive impact on economic or employment growth.

Why Labor and the Greens should support this view is much more of a mystery.

Categories: Tax

No time to get sorted for EOFY? 5 must-dos for businesses

With End of Financial Year upon us, here are five tips to help you remain on top of your business finances at tax time.

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At the End of Financial Year for small to medium enterprises (SMEs), business owners can be forgiven for never wanting to pick up a calculator again, with stocktakes, tax declarations and payroll summaries all requiring completion before 30 June.

Accounting fatigue is real, but the temptation to scrimp on the detail can harm your business.

Five essential tips that can help you remain on top of your finances at tax time and generate long-term benefits for your business.

1. Take advantage of deductible expenses

With significant benefits offered to SMEs in the past two Federal Budgets, there has never been a more important time for business owners to be across tax deductable expenses. For example, the previous threshold for instant tax write -offs for depreciable assets was $1,000 but was expanded in May last year to $20,000 until 30 June 2017.

Considerable tax savings can be made as a result, especially if you need to make a major purchase in the near-future. Some small businesses are even eligible to bring forward deductions on known expenses for the next financial year.

2. Review debtors and write off bad debts

Like many small businesses, you may have accrued bad debt in the past as the result of unpaid invoices. One option to address bad debts is to write it off, this may provide your business with a tax deductable expense. The amount owing must be 12 months overdue to be classified as bad debt and the debt must be written off during the year.

Make sure you try all options for collecting your Accounts Receivable balance before deciding to write off bad debt as it will impact your profit.

3. Be charitable

Charity contributions might seem trivial but in 2014, in total $6.8 billion was donated to Australian non-profit organisations.1 It is common for businesses, especially community-minded small businesses to make contributions, which can be tax deductable. Check your donation is to an organisation with a deductible gift recipient (DGR) endorsement on the ABN Lookup, and you are able to declare anything above $2.

Keep track of your donations and you might find you’ve not only helped someone else but also helped reduce your tax as well.

4. Keep detailed records

Make sure you keep track of your business records. Receipts, invoices and even a decrease in the value of your inventory found during a stocktake can be major sources for a tax deduction. Consider using online accounting software which automatically backs up to the cloud.

This will protect your business from losing valuable information through a computer failure or misplaced papers.

“Accounting fatigue is real, but the temptation to scrimp on the detail can harm your business.”

5. Don’t fear seeking expert advice

If you’re a sole trader or operate a very small business it can be tempting to take tax matters into your own hands. The simple truth is that if you don’t understand, it makes good sense to seek advice.

An accounting professional may cost money, but in the long run they will help you gear your business towards growth by putting in place a plan to best minimise your tax burden and take advantage of small business incentives.

Categories: Tax

The Hidden Gems You Can Claim On Your Tax Return

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It isn’t often that you wake up with a big wad of cash in your pocket. But when it comes to tax return time, that’s actually what you get.

Sure, you might have to put a few papers together, but tax time is the one time of the year you can get some quick cash  – and put it towards something you really want, like a much-needed overseas holiday.

It’s too good to pass up.

And here’s the thing: you can make tax time even better. Claiming work related expenses is a great way to reduce your taxable income – the amount the ATO actually taxes – and overall, pay less tax.

It’s too bad some are leaving cash on the table. According to a national survey undertaken by Officeworks, not only are many Australians not getting the most out of their refund, young people are missing out– 59% of 18-24 year olds only claim up to the $300 threshold amount which requires no invoices or receipts.

It’s young people who need cash the most. With many of them saving up for a home deposit and unable to access many types of quick finance, a well-needed cash boost such as a tax return can be a life-saver.

Tax deductions are a great way to get some of that cash in an easy way.

Australians claim about $20 billion in work-related expenses each year. Now, while some industries have their own specific deductions – real-estate agents claimed, on average, $8,000 in work-related expenses in 2013 – there are still claims everyone can make.

When claiming your deductions, there are just a few rules to keep in mind:

  • You need to have spent the money yourself, and not have been reimbursed
  • The expense must be related to your job
  • You need a record to prove it

Pretty simple.

Here are some hidden gems you need to keep in mind when you’re doing your tax come July.


Working from home? The ATO has you covered


Do you work from home? In fact, do you spend any time working out of a home office? Then you could be eligible for deductions.

The ATO allows for you to deduct expenses relating to the upkeep of a home office, including any utilities, rent, and internet expenses related to the running of your business.

Now, this might sound complicated, but don’t worry, it’s actually pretty simple. For instance, if you have a dedicated home office, all you need to do is figure out how big the floor plan is in relation to the entire property. (Your real estate agent may be able to help with this!)

And when it comes to internet use, all you need to do is keep a diary for a few weeks so you can prove how much time is spent on business, versus personal use. You don’t even have to keep a diary for the full year – just a few weeks.

By the way – you can also claim depreciation on the equipment in your office, and the ATO allows for deductions in maintaining a “professional library” of books and publications, as long as it’s associated with your industry. 


Technology


Bought a laptop or a projector and use it for work? You’re able to claim the depreciation on both over a certain amount of time.

You can even claim costs for smartphones, tablets, and other tech that costs more than $300. Just be sure that you’re really using it for work!


Self-education expenses


If you’ve taken a course to increase your skills in your profession, then you can deduct it. That includes seminars or conferences, too.

You just have to make sure the function of the course is to help you in your current job. 


Charitable contributions


Given some cash to a legitimate charity? Deduct it. But remember, you still need to have the record of your deduction.

And not every charity is able to have deductions claimed against it. Head to the ATO website to check out which charities are on the official list, and which aren’t – it can change every year.


Travel


You can claim travel if you’re going to a client site, if you had shifting job sites, or if you travelled to somewhere irregular first, and then back to the normal place of work.

If you’re using a car, you can use different methods to work out your expenses – using cents per kilometer, 12% of original value, one-third of actual expenses, or by using a log-book.


Tax affairs


Paid an accountant to do your tax? Claim it.


Laundry


Do you maintain a uniform for work? Protective clothing, or even occupation-specific clothing that isn’t a uniform? Then you can claim the cost of buying and maintaining that clothing, including repairs.


ATO interest


If you were on a payment plan with the ATO for a tax bill, then you can claim any interest that was charged on your debt.

 

Categories: Tax

Research shows small businesses are falling behind on their end of year tax obligations

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With a couple of days to go before the end of the 2015-16 financial year, new research has revealed that more than one in five Australian small businesses admit to lodging their tax returns late and 10 percent say they run out of time.

The study conducted by Xero, a global leader in cloud accounting software, found that found that 40 percent of small business owners are unsure of the business deductions they are able to claim, showing a lack of financial literacy among some business owners.

The managing director of Xero Australia, Trent Innes, is often in contact with small businesses to see what they are doing and discussing what they use to help with their tax time obligations.

“It blows me away how hard this segment of the economy works. It’s not easy being a small business. They’re very passionate, they work very hard and they don’t typically go into business to do accounting and compliance work. They go into it to follow a passion or a dream or to make a living and yet they spend an exuberant amount of time doing compliance work,” said Innes.

The survey showed that 54 percent of Australian small businesses either directly manage their own tax time obligations or work with their accountant to manage them. But owners and operators trying to do it themselves don’t have the time to focus on things such as deductions and that’s why many are missing out.

“It is still a reasonably complex area and you need to understand it quite well. So one of the things we always recommend wherever possible is a small business owner connecting with a bookkeeper who can help them through that process,” said Innes.

The second annual Xero EOFY Survey provides a snapshot of Australian small business owners’ attitudes to the end of financial year period, revealing that many find the time stressful and difficult to navigate.

“The survey also showed us that two thirds of them are quite stressed at this time of year as well so as it gets down to having to meet all of their obligations they start to get a bit stressed and it’s probably because they run out of time and leave it to the last minute.”

“Businesses should be trying to get organised as early as possible to try and take some of that stress away in order to be as prepared as possible.”

When asked what could be improved, half of Australia’s small business owners indicated that easier government compliance requirements would make tax time less stressful, over a third suggested an easier way of doing taxes, and a fifth would like less paperwork to complete.

Last year, the 2015 Xero EOFY Survey found nearly 60 percent of small businesses were planning to take advantage of the immediate asset deduction. However, this year’s research revealed that only 46 percent had done so to date.

“Half of Australian small businesses that we surveyed stated that easier government compliance would make tax time less stressful. And we clearly understand that the Federal Government in the last budget had discussed this point of making it easier. But that’s not translating down into small business at the moment where they’re definitely looking for more help in this area,” commented Innes.

Give us a call today to see how Wamit Bookkeeping Services can help you

Categories: Tax

Backpacker tax delay creating uncertainty for farmers.

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The Federal Government has announced a six-month delay to any decision over its proposed ‘backpacker tax’, creating great uncertainly in sourcing labour for farmers, producers and graziers.

The Assistant Treasurer, Kelly O’Dwyer, stated that the Government will be conducting a review into working holiday visas and has postponed any changes or amendments to the current systems until January 2017.

The delay has been welcomed by some Liberal MPS who believe it will be enough to kill the policy altogether while National MP are in support of backpackers paying the tax.

Deputy Prime Minister, Barnaby Joyce, was in favour of the delay, stating, “I’m just very happy that today we have got a further extension so we can continue on attracting season workers to Australia to 1 January to give us enough time to get to a longer term solution.”

“I’ve been in negotiations with the Liberal party and Mr Morrison and Mr Turnbull, people have heard my commentary on this. I’ve been vitally aware of concerns in the industry and I gave a commitment we’ve have a resolution on this issue.”

The delay creates significant workforce uncertainty for farmers who need to secure workers for later in the year, said the National Farmers’ Federation (NFF) which has opposed the measure with an online petition gaining 50,000 signatures.

President of the NFF, Brent Finlay, said that a long-term solution is needed to addresses agricultural workforce shortages and that the tax would not help encourage backpackers to find employment in rural areas.

Backpackers are heavily relied upon by agriculture to meet seasonal work requirements at peak times, said Brent Finlay, particularly during harvest.

“We have heard stories from farmers across the nation who have found themselves unable to move forward with basic farm management, facing much lower production levels than usual, because of the impact this tax will have.”

“A six-month delay doesn’t alleviate that concern, and for many means that the tax will now take effect half way through their busiest time of the year. Farmers across the country will be wondering how much area to put under crop if already dwindling backpacker numbers drop off even further at that time. The last thing we want is to be in the same situation in six months time, with no workable solution,” he said.

“Backpackers are an integral part of the Australian agricultural workforce. We must make sure they have every reason to come here to work and to spend valuable tourism dollars in our regional communities.”

“If the Government is serious about jobs and growth and is really listening to the farm sector, they will deliver a fairer tax rate for backpackers so that farmers have a fighting chance of finding the workers they need, not just next year, but this year as well.”

Categories: Tax

EOFY: Making the most of the government’s small business tax cuts

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The 2016 federal budget gave small businesses a reason to be excited about the end of the financial year – a company tax cut to 27.5% with the threshold lifted to include businesses with less than $10 million turnover (up from $2 million). For profitable small businesses, that’s potentially thousands of extra dollars each year to reinvest back in the business.

The budget measures, which come into effect on 1 July this year, mean business owners need to start planning what needs to change about their tax strategies. Here are a few tips on how to optimise your small business tax planning by timing your income and expenses, and ensuring you make the most of the new tax measures.

Balance your expenses

The first and second rules of business, as always, are maximise income and keep expenses to a minimum. At tax time however, the rules reverse – you want minimise income and maximise expenses in order to reduce your assessable income and the amount of tax you ultimately have to pay for that financial year.

Care is needed to make sure you don’t forgo potential income or needlessly buy things that you don’t really need. But by timing these right – like bringing forward expenses into the current tax year and deferring income into the following tax year – you can reach an optimal outcome for your business and be left with a bit extra to reinvest.

Move from cash accounting to accruals

While most small businesses start out using cash accounting methods – a simple method that counts income and expenses when they are physically paid – accrual accounting can give you greater control over your end of year financial position.

Instead of recognising money as it physically comes in or goes out, accrual accounting recognises a business’s income and expenses when an invoice is issued or a bill is received.

While useful for managing your finances, it creates some complexity by creating debtors and creditors, so it’s a good idea to use online accounting software like Xero, which makes it easy for you to keep track of your business’s cash flow and its true financial position.

Maximising the impact of your expenditure

Forecast what regular expenses you have coming up in your business. Are there bills that need paying, equipment you need to purchase, or fees like insurance, rent and membership costs you need to pay? If so, it’s probably worthwhile bringing those expenses forward to before 30 June instead of waiting for them to fall in July or later.

And for those small businesses with less than $2m turnover you could prepay certain expenses (like rent for the next 12 months) and claim an immediate deduction for the full amount.

If you’re on accrual accounting, that doesn’t mean you need to physically spend the money before 30 June to get the deduction; just that the invoice has been issued to you before that date. Talk to your suppliers about bringing the invoice date forward so it’s before the end of the tax year and, even if you don’t pay it straight away, you can still get a tax deduction for the expense.

This is also important when it comes to the asset deductions the government introduced over the last two federal budgets. If your business turnover is less than $2 million, you can immediately deduct purchases under $20,000, even if they were incurred before 1 July, and the new rules that will come into effect. However, businesses with turnover of between $2 million and $10 million will need to wait until after 1 July to make use of the new asset deduction measures if the legislation is passed.

It is also important to note that with the reduction in the tax rate to 27.5% recognising your expenses in this financial year will give you a permanent gain, not just a timing difference as the effect of the tax deduction will be greater in the 2016 financial year compared to the 2017 financial year and beyond.

Don’t forget though, that the whole point of this strategy is to maximise your business’s cash by increasing tax deductions. Don’t go overboard and bring too many expenses forward as there’s little point in buying supplies or equipment you won’t use for months. Use this technique for those expenses you know are coming up soon, where a slight adjustment would be of benefit.

Get clients to pay later

It seems to go against any reasonable business owners’ instinct – why would you get clients to pay invoices later than they otherwise would normally? But when it comes to tax, legally deferring that income until after the end of the financial year means you can declare a lower assessable income, and therefore pay a smaller tax bill.

When on a cash basis getting your clients to pay you after 30 June means that tax is payable in the following financial year. When finalising jobs at year end, under the accruals system, as soon as you finish a job you become entitled to that income so it is important to time this so that invoices can legally be issued post 30 June 2016 which assist with minimising your revenue this year.

However, don’t delay too many invoices, or for too long, just for the sake of saving a few thousand dollars.

The same logic applies to asset sales, such as any property or goodwill you have. Any capital gains your business makes will be taxable, so think about deferring sales until the new tax year where legally possible.

Conversely, if you’re likely to make a loss on an asset sale, bringing forward the sale to the current tax year will let you offset that capital loss against other capital gains you may have made during the financial year, bringing down your tax obligations further. There are also tax concessions available to small business for the sale of some assets, so check with your accountant before you offload anything.

Don’t wait to plan your tax

It can be tempting to not think about your tax obligations unless you absolutely must. But once it hits 1 July, any chance you had of reducing your tax bill is lost, so it’s best to start planning now. By laying the groundwork now, you could benefit from some useful tax savings down the track and have more cash to spend on growing your business in the future.

Categories: Tax

How to stop falling behind with your business tax payments

Many small businesses find it hard to keep on top of both current and future tax obligations. This leads them to being in debt to the ATO and the unenviable need to negotiate payment terms.

Part of our role as small business accountants is to act as a barrier or intermediary between the tax office and the small businesses of Australia. It’s not that we don’t trust the two different interests to get along; it’s more about using our experience and knowledge to protect the best interests of the client.

When called upon by the ATO our clients find it hard to converse about their business finances in a way that gets the true picture across, and this can lead to them being dealt payments terms they cannot meet, especially when it comes to overdue debts.

How do these overdue debts occur? The reasons include:

  • Poor cash flow management
  • Using the wrong legal structure
  • Accounting for GST on the wrong basis
  • Not budgeting for cyclical cash flow
  • Business owners spending unassigned cash in the bank
  • Not utilising accountants or bookkeepers to monitor future tax amounts to be paid
  • While it’s rare, these issues can also be caused by “acts of nature”

So the issue here is how to deal with the tax office and keep your debts under control once they have happened.

“The way to keep on top of your obligations is to know what they are and when they are due.”

Negotiating a payment arrangement with the tax office is normally the first option clients look to. Our advice is always to seek alternative finance to cover ATO debts as they can often be spread over more lenient time frames. Sadly, many small businesses think this is where the process stops but this is not the case. Once a payment arrangement is in place it is your obligation to make both those regular payments as well as your current lodgments for both income tax and BAS purposes. Should you stick to your payment arrangement but not lodge and pay your most recent BAS on time then your payment arrangement will default. And every time you default it will become increasingly difficult to negotiate a new arrangement.

This is how businesses fall further and further behind.

So what’s the key takeaway today?

Don’t fall behind!

The only way to keep on top of your obligations is to know what they are and when they are due. And you can only do this by taking up the services of a bookkeeper or accountant from the very start of setting up your small business.

So many of our new clients have waited a year or two before seeking help and ended up paying two years of tax in one year. This is a recipe for disaster and places further cash flow stress on new small businesses that are already running in a very lean state.

Have you ever found yourself a few years behind with regard to your business tax obligations?

Categories: Tax