Tag: Small Business Entity

The Tax Advantages of Superannuation

Superannuation is a concessionally taxed environment as follows  

* Superannuation earnings (such as interest, dividends, rent etc.) are taxed at 15% when your account is in accumulation mode (i.e. not in pension mode). These earnings are tax-free when your account is in pension mode. By contrast, investment earnings on assets (such as shares, property, term deposits etc.) held outside of superannuation are taxed at your marginal tax

* Capital gains made by superannuation funds are likewise taxed at 15% when your account is in accumulation mode. Where a CGT assets supports a pension, any capital gain made when those assets are sold is tax-free. Any capital gain made by your superannuation fund is reduced to 10% (a 33% discount) where that asset has been held for 12 months or more.  Although this is a lesser discount than the 50% discount available to trusts and individuals, this is negated by the base CGT superannuation taxation rate of 15%.

Therefore, as well as making provision for your retirement, by contributing to superannuation you can also enjoy the above tax concessions. From 1 July 2017 all individuals up to age 75 can claim an income tax deduction for personal superannuation contributions. Before this date, you could only claim a deduction for your personal contributions where less than 10% of your assessable income, your reportable fringe benefits and your reportable employer superannuation contributions (e.g. salary sacrifice contributions) for the year were from being an employee – this was known as the 10% Rule. This rule prevented most employees from claiming a tax deduction for this type of contribution. However, under the new rules, to claim a deduction, the following requirements must be met:

* Age – All individuals under the age of 65 are eligible. Those aged 65 to 74 meet the superannuation ‘work test’ (work for at least 40 hours in a period of not more than 30 consecutive days in the financial year in which you plan to make the contribution). For those aged 75, the contribution must be made no later than 28 days after the end of the month in which you turn 75. Older taxpayers are ineligible.

* Minors –  If the individual is under 18 at the end of the income year in which the contribution is made, they must derive income in that year from being an employee or carrying on a business.

* Complying Fund – The contribution must be made to a complying superannuation fund.

* Notice Requirements – To claim the deduction you must provide your superannuation fund with a Notice of intention to claim a deduction form before you lodge your tax return in respect of that financial year.

Superannuation is also a great asset protection strategy. If a person becomes bankrupt, they may lose most (or all) of their assets. However, the Bankruptcy Act provides that the interest of the bankrupt in a regulated superannuation fund at the time of the commencement of the bankruptcy is not ‘property’ that can vest in their trustee in bankruptcy to be divided among creditors. Furthermore, if the superannuation fund pays a lump sum to a bankrupt (though not a pension) after the date of the bankruptcy, this money is also not divisible among creditors.

 

#News Flash# Single Touch Payroll Legislation Passes Parliament

Smaller employers (those with 19 or less employees) must commence reporting via Single Touch Payroll (STP) from 1 July 2019 after legislation passed Parliament this morning (12/02/2019).  

The STP regime revolutionises the way employers report payroll information to the ATO. In essence, STP is a new reporting mechanism whereby employers report employee payments (such as salary and wages, allowances etc.) and PAYG withholding to the ATO directly through their STP solution (e.g. upgraded Standard Business Reporting-enabled software) at the same time they pay their employees. To be clear, no additional reporting is required – just a new method of reporting.

Standard business reporting-enabled software (SBR-enabled software) is essential to reporting under STP. Employers must adopt an STP solution by the due date. Solutions will vary depending on an employer’s current payroll processes.

  •  Accountant or Bookkeeper – Employers who use an Accountant or Bookkeeper to process their pays will simply rely on them to provide an STP solution (SBR-enabled software) by the deadline. Even where an Accountant or Bookkeeper does not process employer payroll, employers may turn to them for advice around how they can become STP-compliant.
  • Software Upgrades – If an employer uses commercial payroll software, then they should contact their software provider as the deadline nears and ensure that they offer an updated Standard Business Reporting-enabled version of the software. Major software houses have this software available.
  • In-House Method – If an employer uses an in-house method of payroll or manual method (such as paying employees by EFT and manually providing them with pay-slips and Payment Summaries)…then they will likely need to adopt STP-compliant payroll software. Such employers may lean heavily on their Bookkeeper or Accountant when installing this software, and may need upfront training. Alternatively, they may choose to outsource their payroll to a payroll service provider such as a payroll bureau, or an Accountant or Bookkeeper.

The ATO is acknowledging that there are a significant number of smaller employers who do not use any type of payroll software when processing the pays each week/fortnight etc. Consequently, micro businesses (employers with 1 to 4 employees) will not be required to adopt/buy payroll software in order to comply with Single Touch Payroll (STP) reporting. Whilst for most employers their STP solution will be adopting STP-compliant software, micro-businesses will according to the ATO be provided with different STP compliance options. Speaking on a recent ATO webcast, ATO Assistant Commissioner, John Shepherd confirmed this:

“You won’t need to buy payroll software, that’s why we’re looking for those alternate solutions- some of which might be an app, something that’s fit for purpose to get the STP information in but is easy to use, doesn’t take much time and doesn’t cost that business money to do so ,” said Mr Shepherd.

“We’ve spoken to some different banks and the possibilities around as people pay staff through internet banking being able to submit the single touch pay run information at the same time and we expect that to be part of the list of options that come forward over the next 12 months.

“There are obviously lots of other benefits from using payroll software but we’re not saying for STP that you need to go out and buy a product to do STP.”

MYOB and Xero and other major software houses have already developed these low cost STP-solutions for micro-business. You should contact your Accountant or Bookkeeper for further guidance in this area.

 

 

Drought Assistance

With large swathes of Eastern Australia in the midst of one of the most severe droughts in years (indeed Autumn rainfall was the least since 1902). Be mindful that there are a number of assistance measures open to affected clients across a range of Government departments. On the ATO front, they can help by giving affected taxpayers more time to pay, waiving penalties or interest charged at a time a client was affected by drought, offering payment plans with interest free periods, and adjusting PAYG instalments to better suit the circustances. Furthermore, in special circumstances the ATO can release clients from paying some taxes, if the paying of those taxes would cause serious financial hardship.

$20,000 instant asset write off

This is the final year of the $20,000 instant asset write-off – to be abolished from 1 July 2018. 

Until 30 June 2018, Small Business Entities (SBE’s) can claim an immediate write-off for most depreciating assets used in their business if the asset costs less than $20,000 and the below time frames are met. In broad terms, SBE’s are entities (including sole traders) that are carrying on a business and have an annual turnover of under $2 million. This includes the turnover of any connected entities and affiliates. 

Being in its final year of operation, the timing requirements around the instant asset write-off are important.

To claim a deduction in 2017/2018, the asset must have been acquired on or after 1 July 2017 and first used or installed ready for use in your business on or before 30 June 2018.  To be claimable in full in 2017/2018.  

If you miss the deadline (i.e. if the asset is not being used in your business or installed ready for use on or before 30 June 2018) then the write-off threshold reverts to $1,000. 

Missing the deadline will result in a worse cash-flow outcome for your business than if the deadline is met . 

WHAT’S THE BENEFIT?

The real benefit from the $20,000 write-off is an improvement to your cash-flow. The write-off improves small business cash-flow by bringing forward deductions rather than having them spread out over more than one year. Cash-flow can be a significant issue for small business, particularly start-ups. That said, it is important to have perspective. You are only getting back the tax rate on the asset, not the full value of the asset. This is the same as the old law where the write-off was $1,000 (which will apply from 1 July 2018).  You don’t get any extra cash than you would otherwise have received under the old rules – you simply get it sooner.

Consequently, you should not let tax distort or blur your commercial instincts – as you don’t get any extra cash than you would otherwise have under the old rules, you should continue to only buy assets that fit within your business plan .

Immediate Deduction for SBE Start-up Expenses

IMMEDIATE DEDUCTION FOR SBE START-UP EXPENSES

This allows taxpayers who are not in business or are a Small Business Entity (SBE) (turnover of less that $10 million) to immediately deduct certain expenses relating to the proposed structure or operation of a business. The expenses must relate to a business that is proposed to be carried on, including certain Government fees and charges and costs associated with raising capital, where these expenses would otherwise be deductible over five years. Eligible expenses generally fall into two categories:

  • Expenditure on advice or services relating to the structure or operation of the proposed business.
  • Payments to Australian Government agencies.

Allowing SBE’s to deduct their start-up expenditure in the year it is incurred provides them with a cash-flow benefit. The deductions are brought forward rather than spread out over a number of years. Cash-flow is one of the main killers of start-up businesses.

TAX TIP
Given that the threshold increase is backdated to 1 July 2016, if your business incurred these expenses but failed to claim them in full in the 2016/2017 tax return, you may wish to amend that return.

Subscribers – for the full article on all SBE Opportunities please log-in to your Members Area, July/August Newsletter, page 17.
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SMALL BUSINESS REDIFINED

On 31 March, the Government secured Senate support for the passage through Parliament of legislation to assist small to medium businesses. While company tax cuts were the headline measure, included in the changes was an increase to the Small Business Entity (SBE) turnover threshold. Backdated to 1 July 2016, the SBE turnover threshold has been increased from $2 million to $10 million. Treasury estimates that this will allow an additional 90 000 to 100 000 businesses to qualify for a range of SBE tax concessions including:

 

  • Immediate deductibility for small business start-up expenses
  • Simpler depreciation rules
  • Simplified trading stock rules
  • Roll-over relief for restructures of small businesses
  • Deductions for certain prepaid business expenses immediately
  • Accounting for GST on a cash basis
  • Annual apportionment of input tax credits for acquisitions and importations that are partly creditable
  • Paying GST by quarterly instalments worked out by the ATO
  • Fringe benefits tax (FBT) car‑parking exemption and
  • Pay‑As‑You‑Go (PAYG) instalments based on gross domestic product (GDP)‑adjusted notional tax.

 

With the legislation and therefore increased SBE eligibilty backdated to 1 July 2016, this presents a tax planning opportunity for business. Among the depreciation concessions is the $20 000 instant asset write-off – giving SBEs the ability to claim as a deduction the full cost of the asset in the year of purchase and installation (rather than having the item depreciated over a number of years). The real benefit of the write-off is an improvement to your cash-flow – bringing forward deductions rather than having them spread out over more than one year. To claim a deduction in 2016/2017, the asset must have been acquired on or after 1 July 2016 and first used or installed ready for use in your business on or before 30 June 2017. So if you are contemplating purchasing a depreciating asset for your business (such as furniture, machinery, tools, equipment, small motor vehicle etc.) you may wish to bring forward that purchase to before 1 July 2017 and enjoy the cash-flow benefit.

 

Over the coming months we will be detailing the other various concessions listed above.