EOFY 2016: It’s all about the money!

Siobhan article EOFY all about the money

First published in Business First Magazine’s June/July 2016 edition.

Now could be the time for a financial reboot that is going to make the future smoother by following 3 key criteria to improve your bottom line and bank balance.  Here are 3 key things for you to consider.

  1. Cash flow planning is paramount!

Regardless of size, cash flow management can be a challenge for business owners. Tips to help improve your cash position include:

  • Have a cash flow forecast for the coming year. This will help you better understand the ins and outs over the next 12 months.
  • Make sure you track your cash flow forecast against your actual cash in and out the door at least monthly.
  • Don’t use the cash in the business like a personal bank account! Break this habit if you are. Work out an amount you need each month and stick to it.
  • Be on top of your debtors and creditors. Understand what your collection days look like. Are you in line with industry average?
  1. Making the most of Technology

If you’re looking for the opportunity to save time, money and hassles consider turning to cloud-based software solutions. Whether you’re a fan of cloud accounting or not, current technology gives businesses opportunities, such as:

  • Access to valuable information in real time about business performance and benchmarks;
  • Save money by eliminating the purchase of software programs and servers to host the traditional accounting packages;
  • Allow seamless workflow amongst business teams and advisers by having data available to all authorised users at all times.

Now is the best time to talk to your advisers. Don’t just have the conversation about performance and results once a year – do it regularly and ask them how you can improve your business.

  1. Year-end tax planning

There are still opportunities for businesses to reduce an overall tax liability. Here are a few noteworthy items to have on your checklists:

  • Bring forward any creditors you know will come due in July or spending the money in June instead of deferring it until July;
  • Conduct a stocktake before year end to work out what stock can be written off;
  • Consider maximising the concessional superannuation contributions for key individuals. Don’t forget that you don’t get a tax deduction for super contributions until it has been paid into the fund;
  • Make sure you have met your superannuation guarantee obligations (9.5% for 2016) for all employees;
  • Review your debtors list and write off any bad debts;
  • Review your FBT costs and determine if it’s possible to reduce this cost;
  • Maximise work related car expense deductions. With changes applying from 1 July 2016 to limit the methods under which you can claim car expenses, it may be worth considering keeping a log book and record of expenses. Otherwise the maximum (under the only other available method) is 66 cents per business kilometre.

Understanding Small Business Entities

The big winners in terms of accessing various new and existing tax concessions are small business entities – businesses with an aggregated turnover less than $2m.  While in the Federal Budget the government announced a change to the definition of a small business entity, for the purposes of accessing a number of tax concessions, the current definition remains:

Reduction in company tax rate

The income tax rate payable by a company carrying on business has been reduced for the year ending 30 June 2016 by 1.5% to 28.5%.

Small Business Tax Offset

If you are an individual carrying on a business via a trust, partnership or sole trader and your taxable income includes assessable business income, then for the year ending 30 June 2016 you may be eligible to a maximum tax offset of $1,000.

Immediate Deduction for New Assets

One of the concessions for all small business is the ability to get an immediate deduction for depreciating assets that cost less than $20K (generally $1k).  You must ensure that the asset is first used or installed and ready for use by 30 June 2017. Note that the government did announce in the Federal Budget to extend this date further.

Restructuring

If you a small business operating via a trust and keen to access the lower company tax rate, changes to tax rules from 1 July 2016 will significantly broaden the landscape for small business owners to restructure with generally no immediate tax consequences.

Roll-over relief will be available where a small business entity transfers a business asset including goodwill to another small business entity that is part of the same family group under a “genuine business restructure”.

Together with the existing capital gains tax concessions for small business, the new concessions provide small business entities a significant opportunity to restructure for genuine commercial reasons such as asset protection, estate and succession planning.

There could also be the added benefit of tax savings that arise from a restructure so speak with your adviser about the options for your business.

 

What is technology doing to our businesses?

Businessman touching a modern interface

Business Services Associate Director and Asian Business Desk specialist, Ruby Cheung discusses the increasing use of apps and other technology to communicate in the fast paced business community. Her recent trip to Hong Kong highlighted how this technology is becoming the ‘norm’ and ponders whether we are still being security conscious in this new business world. 

I’m definitely not the most tech-savvy person especially when it comes to knowing the latest developments and trends, not in my household or work or social circle. But like many of us, we’re forced by innovation, creativity, intelligence and market trends to keep up with the pace if we are to survive and stay competitive in this modern technological environment.

Technology has shaped, and continues to shape, the way we do business. The use of emails, text messages, video conferencing, Skype, live chats and the like are just part of the “norm”.  In recent years, the increased use of “Apps” has added another level of complication, or is it a revolutionary convenience for our business dealings?

Often now people have their heads down on the street, bus, train, ferry, restaurants or just queuing. It doesn’t matter what age, whether you are 5 or 70, students, working or non-working, families, retirees, there are Apps which are suited to you.

Many of us would have heard of Apps like “whatsapp”, “WeChat”, “LINE” – amongst the most popular communication Apps (or as the Chinese would refer to, the “A” “P””P”) used in particular by the Asian community. What was originally designed to be social mobile messaging tools, I believe, have found their way into our business dealings.

In recent years, I have occasionally used text messages and mobile messaging Apps to communicate with my business clients, however, they were almost the last resort or necessitated by the urgent responses/instant attention required to progress with a certain matter. My recent trip to Hong Kong though, has confirmed that in fact this is the way that most people communicate now, whether for business or personal matters.

For those of us who have been to Hong Kong you would no doubt associate the city with its fast pace setting – this is a city where people are literally everywhere, and where the MTR (subway) stations are often packed at midnight. Put aside the association with food, shopping and its vibrant night life, it’s one of the most westernised, commercialised, South East Asian cities. My observation, as soon as I landed, is that there are no shortages of Smartphone or mobile Apps being used all around me!

In talking to people who work and live in Hong Kong, it’s clear that the use of Whatsapp or WeChat is “expected” of everyone. Not only is it a social media and messaging tool which allows business networking and promotion, it can often be the quickest, easiest and effective way to get a response or a decision made. I have learnt that (at least for SME businesses anyway), Whatsapp or WeChat are often used in business negotiation and even discussions on employment matters. I have seen them used on the run for intense discussions for business proposals, or just when you “don’t feel like having a face-to-face discussion” on pay reviews and appraisals! There is no holding back in messaging your boss or client or suppliers and anticipating an almost instant response or acknowledgement. It seems there is no hierarchy or much emphasis on formality anymore. The availability of these Apps at our finger tips means that they can be used on the go and allow us to “clear a few things” in between meetings, stuck in traffic or on the way to school pickups. As I expanded my horizons in Hong Kong and spoke to a few more people, it became apparent that this method of communication is also very common and widely accepted in the Middle East and other locations especially when internet connections are not reliable. Sending short messages or use of voice or video messaging via one of these Apps has become a more reliable alternative then emails and video conferencing for business conversations.

So if this is the way technology is trending us in business dealings, where does it leave us with data integrity, security and quality control?  Or do they not matter as much anymore?

In my opinion, I think technology is requiring us to be more self-disciplined on our acts as the speed of data flow means there are potentially multiplying damaging effects if we are not careful in what we say or share – and how quickly. Business etiquette also appears to be less important as often messages are direct and brief, without necessarily having the full sentences or correct grammar or spell-checker!

Although we may be caught up with the latest App/technology usages, are we up to speed with our document management system, data integrity and security? Is your business information secure? Have you got adequate measures to ensure your data is protected and all communications captured? It might be time to think again to make sure that your business is ready for this fast-paced environment – it certainly demands a continuous review and recognition of upgrade requirements.

I wonder if business dealings in Australia are trending the same way as in these other locations?

If the stress of selling or buying a $2m plus property isnt enough…dont forget about informing the Tax Office

expsnsive house

If you are thinking about selling Australian property valued at $2m or more, your ever growing To Do list should include this item: “Get Tax Office clearance certificate”.

Sweeping tax law changes from 1 July 2016 mean that unless you get special tax clearance as a “resident”, the purchaser of your property must deduct 10% from the purchase price and pay that amount to the Australian Taxation Office (ATO).

Put simply, affected ‘soon to be property vendors’ who are expecting to receive 100% of the sales proceeds (ignoring any bank debt) will have to enter into a formal ATO “vetting” process in order to prove their residency status.

The obligation to withhold only applies for transactions entered into post 1 July 2016. This means that property deals executed before 1 July but which do not settle until afterwards will not be caught by these rules.

While the broad objective of these requirements appears to be aimed at combating perceived tax avoidance by foreign vendors of Aussie property, the legislation is designed in such a way to capture all sales of Australian property interests valued at $2m or more.

In other words, the default position from the start of the next financial year is that you will effectively be classified as an overseas investor unless you provide the purchaser with an ATO clearance certificate. Even if you were born and raised in Australia and continue to live here, you’ll still need the blessing of the tax office to ensure that 100% of the sales proceeds are available to you.  Notably, the fact that the purchaser knows the vendor to be a resident is irrelevant.

The clearance certificate comprises a six page form and is now available to download from the ATO website. Fortunately, there is no fee for clearance certificate applications. Clearance certificates are valid for 12 months from issue, and must be valid at the time it is made available to the buyer.  For applications submitted online, most certificates will be issued electronically within a few days. Paper applications may take up to 2–4 weeks to process.

Penalties for purchasers who don’t withhold the required amount are severe, basically 100% of the amount not remitted to the ATO ie. a further 10% of the purchase price.

Some transactions are excluded from these rules, namely property valued at less than $2m and transactions involving company title interests valued at less than $2m and transactions that are already subject to an existing ATO withholding arrangement.

The legislation incorporates a variation measure (similar to PAYG on salary and wages variation) which if approved by the ATO would enable the transaction to be completed without having to withhold.  Reasons the ATO may permit variation would include that no tax liability will arise or that there are multiple vendors with only one foreign resident.

Importantly, the only way vendors can get a refund for any amounts paid to the ATO is by lodging a tax return. This could prove problematic for some particularly those vendors who are not up to speed with their annual tax return filings or whose reported levels of taxable income raise speculation about the affordability of the property being sold.

It will be interesting to see if the Government increases the threshold beyond $2m in years to come as rising property prices will inevitably bring more people into the system.

An important implication under these rules is early ATO engagement…one wonders how this might ultimately play out from an ATO compliance and audit perspective.