Guide to Setting Up a Business in Australia

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Setting up a business in any part of the world is a major decision. You need to research and plan carefully before you launch your business. In Australia, you have to learn all statutory requirements before applying for a business registration. You have to factor in certain things before starting a new business.

Do Research

You can save time, money and stress by doing research. Seeking assistance from a financial planner or business advisor is always recommended. Conducting a feasibility study is also beneficial. Moreover, be honest when you ask yourself whether this is just a hobby or a genuine business. This will help you draw up your goals in terms of revenue, deductions and losses.

Choose the Right Business Structure

It is also essential to choose the business structure. Choose the one that best fit your needs. You save time and money if you choose right. Every structure has its own pros and cons that you will have to study and learn as it will help you determine the right licenses to run your business. There are four major types of structures:

  • Sole trader – a single person operating the business on their own
  • Partnership – a group of individuals or entities collectively operating a business, not as a company
  • Trust – an entity that oversees property or income on behalf of others
  • Company – a legal entity distinct from its shareowners

Tax Obligations

Whichever structure you pick, there are important things you need to accomplish. You must properly handle invoices, payments and other paperwork and obviously you have to fulfil your tax obligations. You must also learn the laws and obligations as an employer before hiring people.

Individuals are required to file a tax return annually. Your return states your income for the year and the amount of tax you paid. In Australian, individuals in the labour force are required to file a tax return if they fall in any of the following cases:

  • tax was taken out from any payment you received for the financial year;
  • you reside in Australia and your taxable income exceeded the tax-free limit; and
  • you are an expatriate with an income of over $1.

Tax returns are filed from July 1 to October 31 for the past income year. If a registered tax agent prepared and filed your tax return on your behalf, you can file later than October 31 but your tax agent has to make this arrangement before October 31.

BAS & GST

For Australian businesses, a BAS (Business Activity Statement) is used to report and a pay multiple tax obligations, including fringe benefits, PAYG (pay as you go) instalments, PAYG withholding and GST. A BAS is also used by individuals who are required to pay PAYG instalments every quarter.

To assist in reporting against identified obligations, a BAS is tailored to each individual or company. Businesses make a self-assessment of their indirect taxes. The tax return can be filed and the amount paid electronically by person or by mail. File on time so you don’t incur fines and interest.

For businesses, they can file their activity statements using a paper form or online. Filing online is faster, and most of those who file quarterly receive an additional couple weeks to file (terms and conditions are applicable). An activity statement is used to report and pay the GST (Goods and Services Tax) that a business has accumulated and apply to get GST credits. A good number of companies report and pay GST quarterly and have an annual or monthly option.

GST is a 10% tax levied on most goods and services. It is imposed mostly on transactions in the manufacturing process, but is returned to all businesses in the manufacturing chain except the final consumer. Typically, businesses will add a GST in the products and services, and reimburse the GST collected from the sale of their goods and services.

Businesses and other enterprises, and specifically those with a GST turnover of $75,000 or higher, must register for GST (the cap for non-profit organisations is $150,000 or higher). Taxi drivers are required to register whatever their turnover is.

For registered businesses, GST is applicable to all goods and services you sell in Australia except if they are input-taxed or GST-free. GST is included in the price if the goods or service is taxable. Some education courses, most basic foods, and some medical, health and care products and services are GST free. All GST-registered businesses must provide tax invoices to their customers, collect GST and remit it to the ATO with your BAS.

Does your business need tax advice or guidance? Contact PJS Accountants. We offer skills and knowledge in managing your tax affairs with a full range of compliance, corporate and individual tax services. We service large companies, SMEs, family businesses and individuals. The ever-changing tax laws and requirements could put your businesses at risk. Avoid this risk by engaging the services of experts.

The Deadline for Superstream is Looming!

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Superstream will become mandatory by 30 June 2016, and employers are being advised to get it ready before the deadline.

You need a little time to set it up, but more than a quarter of business owners who have transitioned to Superstream have seen the time they spend on super decline, by 70% on average. That is equal to about 1.5 hours every cycle! If you have yet to make the change, here are the options to get Superstream ready:

  • Change your existing payroll system to a higher version
  • Utilise the online system of your superfund
  • Utilise a messaging portal
  • Utilise a clearing house (such as the free Small business superannuation clearing house provided by the ATO if less than 20 employees)

Your accountant or bookkeeper can also help guide you through the process.

Collecting your workers’ TFNs and their funds’ unique super identities (USIs) is an integral part of preparing for Superstream. The information can be inputted in your system before 28 January, the next quarterly due date. Use the time to make sure things are running without a hitch.

Here’s the ATO’s Employer Checklist to guide you on the process step by step.

PJS Accountants offer expertise in SMSF. We assist clients in setting up SMSF and we guide them in the right direction relating to matters such as contributions and rollovers, pay benefits, investing, winding up, and subsequent management and reporting to ascertain compliance. For enquiries, contact PJS Accountants.

The Reasons Why Self Managed Super Funds are Popular

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Planning for the future is increasingly becoming more important given the present economic conditions. The ageing population in Australia is expanding, and life expectancy is becoming longer which compels us to be forwarding thinking and make practical investments. When individuals begin working, they begin contemplating participating in a superannuation fund. This has brought the spotlight on the rising popularity of Self-Managed Superannuation as another option aside from retail or industry funds.

Why is Self-Managed Superannuation so popular? There are many reasons why, but there are a few that stand out, including:

  • Superannuation gives a sense of self-empowerment. There are various positive benefits to being in control of your own retirement fund. It gives you the power to choose which investment to purchase, particularly with real estate, and to take out a loan (gear) for asset acquisition.
  • Do you own a small business? If you are an owner of a commercial property purchased in your super fund, your business can lease the property and you earn rental income for yourself in the process. This has the extra benefit of constantly having an excellent renter!
  • SMSF can be cost-effective, depending on the fund’s balance. The management expenses, like accounting charges of SMSF, don’t automatically go up with the value of the fund. In comparison, the management expenses of the majority of retail and industry funds increase according to a percentage of fund balance.

You can save for your retirement through SMSF. It is very vital that they are established correctly and conform to law. The Australian Taxation Office recommends considering professional advice when establishing or managing a SMSF.

Things like determining your fund’s structure and guaranteeing the stress-free management of your fund are just two reasons why getting professional help is helpful in maximising the fund members’ interests and in guaranteeing conformity to the laws that apply to SMSFs.

PJS Accountants work with clients to give professional SMSF advice. We offer assistance in setting up SMSF and we guide you in the right direction relating to matters such as contributions and rollovers, pay benefits, investing, winding up, and subsequent management and reporting to ascertain compliance. For more information, contact PJS Accountants.

How to Find the Right Accountant

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Searching for the right accountant for your business is not as simple as it may seem. Here are some tips to help you find the right accountant:

1. Check their credentials

Don’t hesitate to do this. You can use LinkedIn to verify your accountant’s qualification or find out if they are members of professional associations like the Institute of Chartered Accountants.

By looking at your accountant’s qualifications, you learn of their expertise and you gain peace of mind knowing the right people are taking care of your business’ accounting needs. Doing this also gives you the chance to gauge whether they are the right fit for your business.

2. Make the right enquiries

Choose the accountant who will strive to know your business’ particular needs.

First, ask technical questions while evaluating the accountant, so you can assess their answers and accordingly to help you in determining whether they are suited for your business.

Second, find out their past experience working for related businesses. Accountants work with various businesses throughout a broad range of industries, but some accountants will be more knowledgeable and proficient with certain types of business and be more capable than others to help you.

The accountant you need may be one who is experienced in Self-Managed Super Funds, or one who is an expert in the Building and Construction industry. Making the right enquiries will take you a step closer towards finding the accountant that fits your business.

3. Proactive

Being proactive is an important ingredient in making your business successful, and it is the same case for your accountant.

Reliable accountants take a proactive approach to business, allowing them to always be three steps ahead. Aside from being a great asset for your business, a proactive accountant frees up your time to pay attention to other parts of your business expansion and ultimately provides you more time to reach your business targets.

Here’s how to know if your accountant is proactive:

First, ask technical questions and evaluate their answers. Second, check out client testimonials. This is a good way to gain insight on what their past and existing clients are saying about them.

4. Evaluate their rates

Find out upfront the rates for the services they will be providing to you. It is important to note that exorbitant fees don’t always mean quality. Some accountants charge a fixed rate. Surprise bills are the last thing you want or need. It is essential to set the right budget for your business, and feeling content with the accountant you’ve chosen can depend on the degree of transparency around rates for services provided.

Thus when searching for an accounting company, don’t forget to: find out their credentials and memberships; make the right enquiries; take a proactive approach; and ask about their rates so you won’t be surprised by hidden charges.

These tips can help in your search for the right accountant for your business and make your more prepared in picking the accountant that fits you and your business.

If you are looking for a partner to help you run your business, then you’d be satisfied working with PJS Accountants. We offer a full range of services, including tax planning and compliance, accounting and SMSF services, and bookkeeping. For enquiries, contact PJS Accountants.

Learn About Personal Service Income (PSI)

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What is Personal Service Income (PSI) and what are its disadvantages?

According to the Australian Taxation Office, PSI is money earned as a result of personal skills or efforts, and usually applies to contractors or consultants.

PSI regulations are relevant to single traders, companies, partnerships, or trusts. Personal services income can be made only by individuals.

For a start, you can check out the personal services income tests to find out how they apply to you. The tests are:

  1. Results Test
  2. The 80% Rule
  3. Unrelated Clients Test
  4. The Employment Test
  5. Business Premises Test

The Results Tests

This entails you getting paid per a contract or arrangement when you complete a particular work. You don’t pass the first results test if you get paid on an hourly or daily rate because you are not paid after you finish the work. You are getting paid a rate based on the time you spent on the work, rather than on your skills that are required to accomplish the work.

The 80% Rule

This is the case where you earn 80% or more of your personal services income from a single client (the entire income year), so you can’t determine if you pass the other tests. You have to go to the Australian Taxation Office to obtain a personal services business determination. Doing this is a must, or you forfeit the PSI.

Unrelated Clients Test

This involves you providing a service to client/s after you have made an offer to the public for your services.

The Employment Test

You have to answer a set of questions to find out if you meet the requirements of this test.

Business Premises Test

Like the employment test, you have to answer a series of questions to know if you pass this test. You have to answer “yes” to all questions in order to pass the Business Premises Test. Some examples of these questions include:

  • Did you own or lease your business premises throughout the income year?
  • Are your business premises utilised for personal services work over 50% of the entire income year?
  • Are your business premises located apart from your residence or the residences of your associates?

After you have determined which personal services income test is applicable to you, start working to move out of the personal services income regime. Take note that if your business is set up as a company or trust, the personal services income made by your business will significantly impact your capability to carry out tax planning strategies.

Because taxation is complicated, investing in good accounting services is highly recommended. PJS Accountants offers expertise in steering your business in the right direction and answering your questions about Personal Services Income and how your tax affairs can be impacted by it. We collaborate with our clients to ensure we give only the best and quality accounting services, including assisting clients with enquiries about Personal Services income.

For more information contact PJS Accountants and talk to one of our team members about how to go about moving your business away from earning personal income services to generating business income. This move allows you to expand your business by taking on more clients and spending more resources on hiring other people to do principle tasks, thus letting you capitalise on other people’s work and prepare to take on business risks.

New Vehicle Purchase: Novated Lease vs Bank Loan

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If you are considering purchasing a new car, it might be worth your while to learn about the pros and cons of two possible ways you can own your dream ride.

Novated Lease

This involves a business, on behalf of an employee, leases a vehicle from a finance company. The deed of novation, or contract, is between the employer/ employee and the finance company.

Novated Lease Pros

Lease payments are made through salary sacrificing, which means deducting the sum from your pre-tax income. In this situation, your taxable income is reduced, resulting in your total taxation liability being reduced as well. Since you are paying for a share of the car’s full value, not the whole amount, your payments are lower than loan payments.

With a Novated Lease, you can easily upgrade your car every few years after you have finished the lease. Industries that utilise perception to achieve commercial viability or those that rely on vehicles a lot will find this option attractive. Depending on the terms of the lease, maintenance costs and running costs may be added, which is advantageous when a car’s running costs are made a part of the budget.

Novated Lease Cons

One of the disadvantages of entering into a novated lease is that you will not be the owner of the car at the expiration of the lease. Moreover, a lot of companies will forbid salary packaging because of the administrative costs that it associated with. If you terminate your employment with the company that you have entered into a novated lease with, you have to personally take care of all obligations and your new employer may refuse to get involved in the novated lease. As a result, you might be paying the remaining lease payments in after tax dollars.

For personally using the motor vehicle, the employee would be obligated to pay Fringe Benefits Tax. This ups the cost to the business owner. In effect, you guarantee the vehicle’s residual value at the expiration of a novated lease, despite the fact that the vehicle’s value would depreciate much faster. And you also have to consider that the value of cars drops over time, instead of rise.

Loan

You can consider another option for buying a motor vehicle: a personal or a bank loan. This option entails entering into a loan agreement personally with a finance company.

Loan Pros

You own the vehicle when you take a personal or bank loan. Moreover, you can make changes to the vehicle, and you own the vehicle outright at the completion of the loan agreement.

This type of loan option allows you to sell the vehicle and clear up the loan at any time (of course, you may incur penalties depending on what type of loan you’ve chosen).

You are entitled to an income tax deduction, as long as utilise the vehicle for work using one of these three methods: cents per kilometre method, 12 per cent of the original value method, one third of actual expenses method and logbook method.

Loan Cons

With a bank or personal loan, the repayment costs are higher, you take care of the vehicle’s ongoing maintenance and running expenses, and you may not be able to claim tax deductions if the vehicle’s use is not work related.

By giving you an idea of the pros and cons of a Novated Lease vs a Bank Loan for the procurement of a vehicle, we hope to help you decide the best option for you. If you would like to seek our advice about the best options for your particular financial situation, or if you have any enquiries about our portfolio of chartered accounting and business services, please contact PJS Accountants.

How to Take on Risk the Right Way

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There is an element of risk in every decision we make. We are evaluating risks with the decisions we make every day. What is the best way to get to the office? Should I rent or purchase a house? Which restaurant should I choose to dine at? Every decision has a different result; every result has its own distinctive upshot or risks.

The case is similar in business. Normally, business leaders are naturally entrepreneurial. It is instinct for them to evaluate the potential and risk of every strategy or decision. Taking risks is par for the course.

Make the most out of every opportunity to prevent needless damage to your business and ensure that you make informed and structured decisions to help you reach your strategic targets. It is essential to factor in the risks accompanying the decision, not only the cost and opportunity.

Effective risk management involves distinguishing and countering the risk before a negative event happens. This safeguards the survival of your business and its success even in difficult economic times.

Step 1: Distinguish the risks.

It is important to inform yourself about the risk your particular business faces. Though it is a time investment, recognise the damage it could suffer over weeks, months and even years, if you fail to distinguish or minimise the risk.

The risk management practiced by most business owners covers tangible things, such as infrastructure and assets. The right insurance is arranged and physical security measures, such as CCTV and gates, are put in place. However, security and asset insurance are just a minor aspect of any risk management strategy by any quality business.

Think about the effect of your key management staff leaving the company. Would anybody step in to oversee the management or provide that order? What do you do in case of a data and intellectual property leak? What happens if your company reputation is trashed beyond repair?

It is in the operations and processes of a business, not in its tangible assets, where major risks are found in many small to medium enterprise. Here are some typical business risks:

  • businesses disruption (e.g. technology failure or fire)
  • injury to employee/s
  • loss of important business knowledge
  • unidentified and threatening changes in your industry
  • product recalls
  • harm to reputation or brand
  • loss of important staff
  • fraud
  • supply chain delays or disruption

Step 2: Gauge the level of your risks.

Risks are categorised by a business that implements sound risk management based on the following:

  1. The possibility of a risk incident happening (infrequent to nearly certain)
  2. The outcome of a risk incident happening (trivial to serious).

These items, known as risk criteria, have to be established by the company’s governance function, which is the audit committee or Board for most companies. For small enterprises, it is likely the business owner himself.

You derive a context for the risks when you set risk criteria. What is considered an acceptable risk? What risks do you consider unacceptable for your company? Using the risk criteria, you can create a combined risk rating. The rating is established according to a company’s evaluation of probability and outcome and can be graded from low to extreme. With the rating, you can find out what area you need to direct the company’s limited resources and time.

For instance, a typical risk that occurs in a company is an unexpected disruption like an earthquake. This type of risk is unlikely to happen. However, if it happens and the company has no plan of action, operations could stop due to that one event. The lack of plan to minimise the risk could have a major impact on the business.

Step 3: Handle the Risk.

When you have determined and rated the risks to your company, you can set up risk management measures to minimise the effect of the risks linked to your business decisions.

Here are some important risk management measures:

1. Elude risk

It’s impossible to escape all risks, but you can elude needless risk and its effects by keeping in mind that “prevention is better than the cure.”

2. Shift the risk

Allow another person to handle the risk. Mechanisms such as product warranties or insurance are the most common means of transferring risk.

3. Minimise risk event or its impact

You can minimise risk in many ways. In general, risk reduction is confined to an already known risk. For instance, all staff are required, as a condition of their employment, to undergo regular training on how to handle goods safely in order to minimise health and safety risk in the workplace.

4. Acknowledge the risk

There are times when the risk reduction strategy is very costly to carry out that it is best not to implement it at all. If this is the case, you have to accept in full or in part that probability and outcome of the risk of a negative event. For instance, the premium for full crop insurance may be steep and will compromise the farm’s return on investment. But insuring a portion of the farm (for example, 50%) lets you reduce some of the risk and accept part of the risk.

Don’t think that risk is all negative. Some business success has been due to risk taking. Certainly, failure can be the outcome too. However, none of the world’s most successful people achieved what they have achieved by not taking risks.

Risk management will help you get from failure to success. So, it is fine to take a risk. Just always remember to do it the right way.

PJS Accountants offers expertise in helping business owners minimise risk to their business. Based on the assessment of your business, we can design a plan to help you implement strategies to boost the potential of your business. If you need help, guidance or advice in this area, contact PJS Accountants.

The Top Eight Myths about SMSFs that you Should Know

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Here are the eight biggest untruths that you might have read or heard with regards to creating and/or running a self-managed super fund:

Myth #1 The Policies are Never Consistent.

You’ve probably heard that one of the disadvantages of owning a SMSF is that you have to be vigilant because the rules and regulations are always changing. While it is true that it is more complex than a retail fund (which can be set up and forgotten), amendments to the regulations are limited, and if you have hired an accountant or a financial advisor they will make sure you are up to date with the latest requirements.

Myth #2 SMSF is very complicated.

If you are considering having a SMSF to reap its various rewards and benefits but don’t have the time to manage it, bring in an accountant or financial advisor to do the task for you.

Myth #3 The performance of superannuation as an investment is below expectations.

Contrary to popular belief, superannuation is a structure for starting an investment, not an investment. If your superannuation is not as performing as well as you’ve expected, then it’s due to the fact the investments you’ve chosen are not performing well. Regardless of whether those investments were arranged as superannuation or via another structure, their performance would be exactly the same – (not good).

Myth #4 Having a SMSF costs more.

A number of factors influence this, including the number and type of assets you own, your fund balance, and the investment structure you picked. Talk to a financial advisor or an SMSF specialist to know whether SMSF is the right investment option for you.

Myth #5 You lack control over your SMSF.

You have major control if your super is invested in an SMSF. But even if you are participating in a retail super fund, there is a level of control with various investment types.

Myth #6 You don’t have to be concerned about your superannuation until you are older.

Like other investments, you increase your chances of reaching your ultimate goal if you invest longer. Begin planning in advance so you gain the flexibility to go after higher-risk strategies and the time to regain any possible losses.

Myth #7 You can do SMSF alone.

Even if you are not a member of an industry fund, it is wise not go at it alone when you open an SMSF. You need the help, the skill and the expertise of a financial advisor to guide you in the right investment strategy, and an accountant to make sure you are on top of the rules and regulations and that you’re getting great tax results.

Myth #8 You can extend your risk further and diversity your investments better with a super fund.

This depends. A large number of super funds own a big part of the fund invested in the share market. A SMSF lets you sell your shares if stock market declines are forecasted. In contrast, with a retail super fund this decision is someone else’s to make (eg. the trustee).

PJS Accountants works with clients to open and manage a SMSF. Contact PJS Accountants if you’d like to talk to us about your retirement goals and help you decide whether a SMSF is the best investment strategy for you.