Essential 2017 year end tax tips

First published in Kochie’s Business Builders

It’s that time of year when businesses can benefit by considering strategies to minimise their tax burden.

This is the first of a three part series on tax we are doing to help prepare you for tax time. Here, we look at some actions small businesses can consider in order to reduce their tax for 2017.

When evaluating these strategies you should always keep in mind that spending money for the pure purpose of gaining a tax deduction can be counter-productive if the expenditure is not necessary for the business or expected to create a net improvement in profitability. With all transactions, the business decision should be made first with taxation considerations a secondary influencing factor.

The specific circumstances of each business can also impact on tax planning. For example, if a business is not currently making taxable profits it is of no use bringing forward tax deductions into the current year.

A welcome change for 2017 is the increase in the small business turnover threshold from $2m to $10m. This significantly extends access to a range of concessions, however unfortunately the Small Business CGT Concessions remain limited to $2m.

Ready to get more bang for your buck at tax time?

$20,000 Instant Asset Write-off
This has been a big attraction for a few years now but as it currently stands this is the last year it will be available. An immediate deduction is available for business acquisitions less than $20,000 and depreciation pools that fall below $20,000 can also be written off. The threshold is a GST-exclusive amount if registered for GST (therefore $21,999 maximum total spend on any one asset). The asset needs to be installed ready for use prior to 30 June. Excluded assets are those leased out to another party, capital works and certain in-house software.

Avoid a Credit Reference from the ATO
This is not really a tax tip as such, but could avoid enormous headaches. From 1 July 2017 the ATO will commence reporting outstanding tax debts of businesses to credit reporting agencies. This will only occur where the debt is in excess of $10,000, unpaid for over 90 days, not in dispute and no payment plan has been established (or an existing one has been defaulted).

We are informed that the ATO will notify businesses prior to referring a debt to credit bureaus however it’s strongly advised to contact the ATO promptly if any tax debt arises and arrange a payment plan. If a plan is defaulted, contact them again. It would also be prudent to review the ATO business portal, to ensure no overdue tax debts exist.

Consider restructuring
Restructuring can achieve various goals including asset protection, estate planning, income splitting and commercial objectives. It is often critical to complete these transactions while a business remains eligible for benefits such as the Small Business CGT Concessions and Restructure Rollover. It is also usually ideal to complete the transaction at the end of the financial year to simplify the accounting processes required.

To ensure sufficient time to analyse cost/benefits of restructuring and plan for implementation now is the time to be speaking with your accountant if anything is to occur this year.

The business of hospitality – using data for growth

(First published in Business First Magazine)

Tourism is on the rise in Australia against a backdrop of unease in other key tourism locations, and it’s shaping up to be a boom for the hospitality sector writes Steve Gagel, Director, Prosperity Advisers Group.

Fresh from a European holiday and close to the Nice attacks, I had a good opportunity to discuss holiday destinations with many locals in countries across Europe. The tension is palpable in the major cities. From the moment we stepped off a plane or train, we were met with multiple army personnel carrying machine guns and walking in formations up to six at a time. Understandably, citizens are nervous, and react to anything out of the ordinary in fear of another terrorist attack.

Europeans seem to be in awe of our watery boarders and in-the-main tend to like Australia’s “turn back the boats” policy. The Australian policy of not letting anyone in does disadvantage the many legitimate refugees trying to escape oppression and to make a better life from themselves, with some thinking it might keep out the extremists at the same time.

TOURISM ON THE UP
With the above in mind and the Australian dollar a long way under our previous highs of $1.10 to the US Dollar (currently A$ buying around US$0.76) there is effectively a 31% increase in buying power that international visitors now have in deciding to visit Australia.
Tourism Research Australia tells us there’s a healthy increase in total expenditure on international overnight visitors across all three eastern seaboard states – with the average for Australia up 17%. Perhaps the combined effects of safety and lower cost (due to the dollar dropping) is indeed creating more in-bound hospitality for Australia?

Domestically, it appears that Australians are turning their noses up at overseas destinations with domestic overnight spend increasing by 4.7% and domestic day trips also up by 4.6%. The scene is certainly set for growth among hospitality operators if they can leverage the current climate to their advantage.

HOW TO CAPITALISE ON THE INFLOWS
Further analysis of the data from Tourism Australia confirms the hotspot is with holiday makers who are up 20.7% year on year to June 2016, whilst the convention and conference market seems to have suffered a downturn of 10.7%. For the actual month of June 2016 these two markets seem to be gathering speed in opposite directions with holiday makers up 29.4% and convention and conference visitors down 17.7%.

So what can participants in the hospitality sector do to capitalise on the swinging tide of tourism? Data can be your friend here. Getting to know the local Hotels Association representatives in your area and getting closer to Tourism Australia and the local “destinations” organisations in your district can give you the information you need to anticipate tourism flows and to appeal to the type of visitors expected.

For example, if there are delegations from specific nations expected in your area then getting to know the organisers and promoting a tailored option to attract them to your venue may be appealing – such as a special menu, entertainment or drink. Then capitalising on these visits through social media can help reinforce your venue as a destination for that type of visitor going forward.

Data can also help you in other ways. It could be as simple as asking visitors to your venue what postcode they come from or their home country. After collecting data for a given period you can analyse to see if you could tailor aspects of your offer (food, beverage, gaming, entertainment, special events) to the standout groups.  Again, using social media to promote these changes and how you appeal to specific groups can help you target your advertising at very little cost.

Above all, briefing your staff and engaging them in what you are trying to do and why is going to have a significant impact. Frontline staff can collect valuable data at each shift such as approximate ages and gender of your visitors. They will also have ideas for how you can make the most of tourism flows in your area. If you want to make your area more attractive to local or overseas visitors, getting together with other publicans or venues in your area and jointly approaching delegation organisers or tourism operators could see a step change in the type and quality of visitor you experience.

Competing for the consumer dollar is never easy but with a lower exchange rate on your side and a greater number of visitors to our shores it certainly makes it more interesting and exciting.

‘Backpacker Tax’ Back-Pedal

Sad businessman pushing hand truck with taxes. Tax time and taxpayer finance concept

Jacqui Lambie’s push for a reduction in the ‘backpacker tax’ to 10.5% has won senate approval yesterday. The 10.5% rate is in line with New Zealand. The pressure is back on the coalition in the lower house to agree to lower its proposed 19% rate to 10.5%, or the impending 32.5% rate will apply from January 2017.

The requirement for employers to register with the ATO as employers of working holiday makers (WHMs) to withhold at the new rate appears likely to remain. This is despite some concern raised in the senate report issued on 9 November about the regulatory burden, particularly on smaller employers. The ATO are describing it as a simple, once-off registration, so it is hoped that the ATO will make the process relatively straight-forward.

The 19% rate to be applicable to incomes up to $37,000 was included in a bill that was passed in the lower house last month. This aligns with the tax rate for residents for incomes between $18,200 and $37,000.  It applies to Subclass 417 (Working Holiday) and Subclass 462 (Work and Holiday) visas that allow people aged between 18 and 30 years of age from 38 partner countries to work in Australia for up to 12 months (Subclass 417 visa holders can apply for a second year visa).

The debate has dominated question time with both sides of parliament arguing that the other is threatening to make Australia internationally uncompetitive. Malcolm Turnbull stating that the backpackers affected may be considered non-residents, so the 19% represents a benefit to them which labour was effectively blocking by demanding 10.5%. Scott Morrison further arguing that under the 10.5% rate backpackers could be better off than Australian residents in certain circumstances. Barnaby Joyce pointing to the loss of revenue under a 10.5% rate.

Labour are arguing that the 10.5% supports Australian tourism and agriculture, backpackers spend their income in Australia and if the government does not agree it will force the 32.5% rate to apply.

It is humbly proposed that perhaps a 10.5% rate applying only up to 18,200 may be a compromise both sides could swallow, however we could very well end up with a 12 – 15% rate based in part on comments by Pauline Hanson.

 

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.

Why Small Business Owners Should Make and Keep These New Year’s Tax Resolutions

To view article please click here.

Are you an importer or exporter with more than 50 transactions each year?

Empty road and containers in harbor at sunset

Import and/or export trade reviews

In today’s financial environment, cost minimisation is a key driver in the logistical cost structure of each good’s cost of goods calculation. Costs associated with the importation of goods are variable, not fixed. It is therefore essential that such variable costs are minimised. Additionally, administrative penalties arising from compliance errors (e.g. Australian Border Force (ABF) – previously Customs, Department of Agriculture and the ATO) can impact on product costs long after the relevant goods have been imported and on-sold.

The Prosperity Advisers customs and trade review service offering, in conjunction with Trade Consultants, is relevant for any importer or exporter with more than 50 transactions each year. Whether you pay import duty or not, cost and charge savings are able to be identified when there are sufficient transactions each year.

We can help your business save on cross border regulatory costs, customs duty and other related taxes, identify and mitigate risks, and develop a compliance framework for the future.

Our approach

We use a multi-phased approach to border compliance. You can achieve significant cost savings with limited input.

Phase One – To determine whether there are sufficient opportunities to proceed to our savings and risk review, we typically undertake a high level review so we can quickly identify potential target areas for a more detailed savings and risk review. This involves only a visual examination of a previous import/export activity period (up to four years) and reporting back to you on what we see.

Phase Two – Once it is determined that a detailed savings and risk review is warranted, we analyse the data that you (or your customs broker) have declared to the ABF at the time of import or export over the previous four years. We typically review all the key factors that affect the customs duty and GST payments made by your business, including:

  • Tariff classification of your imported or exported goods
  • Use of import customs duty concessions (e.g. TCOs or the Enhanced Project By-law Scheme)
  • Use of export incentives and concessions (e.g. duty drawback or Tradex schemes)
  • Customs valuation, particularly for multinational companies and branded goods
  • The correct identification of the country of origin and use of preferences including Free Trade Agreements
  • Purchase and/or sales contracts

Phase Three – We review your purchase/order cycle, including relevant purchase orders and documentation relating to the physical receipt of goods into store. From such a review, we are better able to provide you with systems improvement advice.

Recent results

For a client in the furnishing industry, more than AU$184,000 was identified in overpaid GST plus more than AU$25,000 in overpaid customs duty. Demurrage charges and excess freight
charges were also identified requiring amended systems controls.

For another importer in the trucking spare parts and components industry, more than AU$1 million in overpaid GST was identified plus AU$15,000 in overpaid customs duty. Demurrage charges and excess freight charges were also identified requiring amended systems controls. Significant savings from using a different supply chain function are
currently being negotiated.

Another client was found to be using more than thirty different customs brokers to make binding declarations to Customs. Over 30% of the client’s importations did not gain release from Customs and Agriculture within a normal processing time, potentially incurring material additional storage charges. The client had insufficient documentation available at the time of clearance to allow proper declarations to be made. It purchased over 30% of its importations from related overseas companies, none of which were declared to Customs as
related, thereby potentially exposing it to multiple repetitive penalties. The client was unaware of any of these exposures to administrative penalties and imbedded costs.

Fees

We are offering “Phase one” at no cost. It is simple to commence “Phase one” – you will only need to provide us with a signed letter of authorisation to the ABF for us to start our review.

Before undertaking “Phase two” and “Phase three”, we will provide and agree a fee quote with you.

Contact your adviser for more information.

Prosperity helps clients make sense of data

iStock_000014169773Medium

Below is an excerpt of CEO Allan McKeown’s comment in an article published by the Australian Financial Review 17 June 2015 by Agnes King

Technology is completely changing the face of accountancy workplaces.

Prosperity Advisers wants to be on the front end of this trend.

It embarked on a move to cloud-based accounting software some years ago, but has since expanded that initiative into a client-facing service, called Prosperity Predict, helping clients make sense of the reams of data they generate in real time.

The firm has half a dozen pilots in train with clients in retail and medical services that revolve around benchmarking and dashboards.

“The intepretation of this data is the value add, that’s the bit accountants can do,” Prosperity chief exceutive Allan McKeown said.

He said the desire to interpret and make sense of data – and to benchmark against competitors – is a gap in the market. “If we don’t fill it, someone else will,” Mr McKeown said.

Prosperity has recruited the aid of a young tech entrepreneur, Mat Vandervoort, to steer its Prosperity Predict program.

“Our aim is to get where clients will need us to be in five years time rather than a slight improvement on last year’s model,” Mr McKeown said.

“Input from younger, edgier team members like Mat give us a greater chance of success in being there.”

To view full original article click here

 

Create a financial roadmap for 2015

As we bounce back after the Christmas break it’s timely to spend a few moments to think about how we can make sure 2015 is more financially rewarding than this year.

Everyone’s individual circumstances will be different and our goals will be affected by our particular life stage, be it an early 20s accumulator or a retiree. Nevertheless the opportunities that may be available to you in the fields of finance and investment are both varied and complex.

Like any project such as getting fit or learning a hobby, there is an important framework that is followed by those who get results.

Firstly, it’s important to start with the end in mind and understand your financial goals whatever they may be. They may be challenging longer term ones such as retiring debt free with $1 million in investable assets or equally worthwhile shorter term targets like reducing your mortgage by an extra $50k this year.

This isn’t novel advice but most Australians don’t follow it. Be as specific and realistic as possible.

The second important step is to get some assistance. Money management is now a team sport and some initial advice can ensure you have the right goals and understand the journey necessary to achieve them. Importantly, an adviser or a friend with similar financial goals can also act as an accountability partner and help you to measure and review your plan.

The third piece is to actually design your plan. It may be a complex set of professional recommendations or on a simpler level setting out an action list including the five most important things you need to do in the next year to move closer towards your stated financial goal. While the five things will all be important, identifying the top priority will help you maintain your focus.

Finally, it will be important to set up a review and measurement process with your adviser or accountability buddy that will not only keep you on track but will help you maintain your momentum by gaining a sense of progress.

Even professionals need to have a financial plan. For what it’s worth here are my top 5 for 2015.

  1. Reduce non deductible debt. I am undertaking some major renovations on a new home so after a long period of having only tax deductible debt, I now have a large ‘bad debt’ loan that needs attention.
  2.  Improve the returns in my SMSF. Due to inattention and some conservatism I have more cash on deposit in the fund than desirable. I am in the process of selecting some investments that will increase the yield at an acceptable risk level.
  3. Diversify my assets. I have some investments that it may be opportune to reduce or cash out of entirely to take advantage of some potentially higher growth opportunities.
  4. Structure my affairs for better tax efficiency. Tax laws are continually changing and I am aware of some opportunities that need examining that may legally reduce my overall tax impost.
  5. Improve the discipline in regularly reviewing and measuring results and progress. EVERYONE needs an accountability buddy or coach.

Share scheme changes herald clever country thinking

A significant concession, and improvement, was announced to the Employee Share Scheme rules on Tuesday by the Federal Government. Employee shares schemes in emerging businesses had faded from relevance over the last 5 years following the implementation by the former Government in 2009 of measures that had the broad effect of taxing any discount on shares or options issued upfront to employees of most businesses.

Taxation occurred at a time prior to the employee shareholder having any cash flow with which to pay their tax bill – clearly a killer consequence. This removed the major form of employee remuneration that emerging businesses could use as an incentive to employees without affecting free cash flow. It also led to clumsy arrangements where a company would have to “loan” the employee the value of their shares to prevent then obtaining any taxable benefit.

The Tax Office become notorious for 20:20 hindsight valuation reviews which left employees unwilling to expose themselves. Many employees just would not buy the idea of their employer becoming a major creditor. What if the shares tanked? The employee could be stuck with repayment of a loan without any benefit.

The shareholder/ employee loan created a variety of difficulties ranging from potential requirements for the employee to use real cash flow to repay the loan under statutory “Division 7A” private shareholder rules. In some cases the loan became a problem for the employer who was required to manage it under the FBT regime. An employee might make a long term commitment to a company and be subject to a vesting period of 3-5 years before they became entitled to deal with the shares. However when this period expired, the employee would be obligated to “cash-out” their loan, often by taking a fully taxable one-off bonus.  This one off bonus often distorted the employee’s real earning position over their period of employment and forced them to be taxed on this component at a tax rate which was unfairly high.

Phasing issues emerged with the 50% CGT discount which generally applies to long term shareholdings. Deficiencies in these rules became so profound for early stage IT companies it became part of the reason emerging businesses began to leave the country. Most notably the IT success story Atlassian. The new rules remove some of the obstacles.

Actions to consider

  • If you presently have any form of share or rights scheme in place, it is likely that it can be “rebooted” under the new rules to drive significantly improved outcomes to employees.
  • Remuneration contracts currently being negotiated should be reviewed for the effect of the new rules.  The rules you thought applied when you inked the deal may not apply for the term of the arrangement.
  • Share schemes are not just for IT businesses.  If you have a SME business where you want to incentivise and tie employees into the growth of your business without a cash flow impact on your businesses – there is no better incentive. Costs of administration have dropped significantly in recent years.
  • If you are an SME owned “stuck” with the problem of how to exit the business and collateralise ownership interests into cash, employee share schemes can be a key tool in opening a dialogue and pathway to business succession.
  • Employee share schemes also have relevance to family businesses where they can be used as a tool to incentivise high performance in the next generation family owners. They are a form of participation which is not just a “gift”. They can be a key tool to assist with perceptions of fairness between family members who are “in the business” and those that are not.

A summary of key points in the new rules

  • Discounted options will generally be taxed when they are exercised (converted to shares), rather than when the employee receives the options.
  • Shares provided at a small discount by eligible start-up companies to will not be subject to up-front taxation, if held for three years. Options under certain conditions will have taxation deferred until sale.
  • Small discounts will be exempt from tax
    • The maximum time for tax deferral is lifted from seven years to 15 years.
  • The existing $1,000 up-front tax concession for employees who earn less than $180,000 per year will be retained.
  • The rules are expected to become effective from 1 July 2015.  Transitional arrangements are presently unclear.