“Ignorance is not bliss” when it Comes to Succession Planning

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You probably have encountered all types of clients – those who have to take drastic action right this minute; those who live happily outside of their means; and those who believe that long term is next week.

It’s fun living your life now and not thinking about your obligations for the future. But when the fun stops, you’ll find that you have a lot of catching up and tidying up to do.

Fortunately for those individuals who’ve chosen to act early, they can enjoy their life today and still expect to experience the same enjoyment in the years ahead.

You can realise genuine financial security by adopting a practical long term approach, planning early, and implementing a financial planning plan gradually but surely – starting immediately.

Planners set up their practices for many notable reasons:

  • To fulfil a need to improve and safeguard the lives of people
  • To build a viable business that will earn money and let work opportunities and careers to grow
  • To establish an asset that in the future will be important to another person with similar client-based objectives

Most successful planners can easily fulfil the first two points above, but struggle with the third item, which is referred to in financial/accounting circles as “succession planning.”

It is important to establish a business and make it successful that clients will flock to you, they wish to be your employee, they want to invest in your business, years after your retirement.

Sadly, a number of practice owners don’t bother with succession until they begin planning the details of their retirement party. By that time, you have turned into a price taker, not a price maker.

According to practice owners, they began succession planning roughly 10 years before their retirement. This is sufficient time to fulfil the following:

  • Determine the right candidates who will own and operate the business in the years to come
  • Present the new advisers to the clients
  • Attain growth objectives to allow optimal valuation
  • Obtain financing to allow the implementation of strategy

What’s even more challenging for these firms is resolving succession. There are questions that need to be answered, such as who has the funds to purchase the business, over what time period, and what the purchase price is?

A critical, but often disregarded, issue to take into account is “what’re the buyers’ intentions?”

Granted the pool of buyers is likely fewer for large-sized business, nonetheless the practice owner has to evaluate the real intention of the buyer.

  • Do they intend to continue the client relationship that you have painstakingly nurtured over the years?
  • Are they really committed to building a viable business that will allow careers to grow?
  • Or they simply have lots of money and are eyeing high return on equity?

This succession-planning challenge is coming to the fore as the industry’s biggest and profitable firms begin to see manifestations of the problem. Over the past few years, we’ve witnessed listings, acquisitions by institutions, and management buyouts. These moves are largely driven by a party requiring an exit plan and a different party needing a growth plan.

What impedes this is that “exiting” and “growing” are two contrary concepts. Studies done over the years have shown that acquisitions rarely result in a win-win situation. It is the buyer and/or the client who lose out more often than not.

This is not something that should make vendors happy. A winning succession requires the convergence of similar interests. The only way this can happen is if the vendor begins planning in advance so that they can devise an exit plan while still working towards growth, This way the interests of both buyer and seller can be satisfied, while still continuing to sustainably serve the clients, employees and the community.

Begin planning today to allow you to take control of your future. It is only right that you do this for the sake of your clients and your employees. If you begin considering succession immediately, you’ll find that there are genuinely aligned options available to you.

Always keep your motives in mind and remain faithful to them. In doing so, you can always look back on your professional life and feel proud that you made a difference.

Seek financial advice today regarding succession planning to secure your future and that of your employees and your community. PJS Accountants offers a full range of services, including tax planning and compliance, accounting and SMSF services, and bookkeeping. For enquiries regarding our services, contact PJS Accountants.

Tax Changes for Small Business

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The Australian government announced some major changes as part of 2015’s federal budget. These changes, presented in May 2015, indicate huge benefits and incentives for small businesses.

Here are some notable changes in small business tax:

An immediate write-off of $20,000

  • Up to $20,000 for asset purchased can be claimed by small businesses. Though the number of assets that can be claimed is unlimited, the value of every asset purchase should not be more than $20,000, including installation costs or related items.
  • Eligible businesses are those with a yearly turnover of $2 million or less.
  • This new rule only applies to small businesses that are considering replacing or buying assets for business use.

Cut in tax rate

  • The present tax rate for unincorporated enterprises – single traders, partnerships and trusts – with a turnover below $2 million will be reduced by 5% to up to $1000, granted as a tax credit when employers submit their tax return.
  • The tax rate for incorporated small enterprises with turnover of less than $2 million will be cut from 30% to 28.5%.
  • Eligible small businesses will see the amount of tax they pay at the end of the financial year reduced because of this tax rate cut.

Start-up costs, capital gains and fringe benefit taxes

  • Capital gains tax will no longer be paid by small business that modify their legal structure (for instance, to an incorporation) beginning the July 2015 to Jun 2016 year. In addition, start-up costs incurred by a small business, specifically professional fees for accounting, advice and other professional services, can be claimed in its entirety as a tax write off.
  • Starting April 2016, fringe benefit tax exemption can be claimed by small businesses for one or more qualifying work-related portable electronic devices they provide to employees.

See a qualified tax advisor, accountant or bookkeeper for tax enquiries, including capital tax gains, fringe benefits, and more. PJS Accountants can help you organise your tax affairs. We work with large companies, SMEs, family businesses and individuals. For enquiries, contact PJS Accountants.

An Overview of the Major Changes in Tax Time 2016

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Some of the changes that are worth noting are the tax benefits for small businesses, the new tax procedure for managed investment trusts, and strengthening access to company losses.

Depreciation for small businesses made simple

Small businesses are entitled to an immediate deduction to the business part of most assets of they are valued below $20,000 and were purchased between 7:30 pm on 12 May 2015 and 30 June 2017.

The deduction can be claimed through the tax return of the small business. They can also immediately deduct the remainder in the small business pool if the amount is below $20,000 at the conclusion of an income year that terminates on or subsequent to the same period stated above including a current pool.

Depreciation for primary producers accelerated

Starting 12 May 2015, immediate deductions for the following costs are allowed for primary producers:

  • Fencing: withheld before over a period of as many as 30 years
  • Water facilities: withheld before over 3 years

Instead of over a period of up to 50 years, the cost of fodder storage assets can now be deducted over 3 years.

Small business tax concessions

For income tax years starting on or after 1 July 2015, the small business company tax rate will be cut down from 30% to 28.5%. This change covers small businesses identified as corporates, unit trusts and public trading trusts.

For companies that are not small businesses, or those earning a yearly accumulated turnover over $2 million, the tax rate remains at 30%.

Start-up costs now immediately deductible

Certain start-up costs, including expenses related to raising capital, can be immediately deducted starting on 1 July 2015.

Phase out of the net medical expenses tax offset

Starting 1 July 2015, taxpayers can only claim the net medical expenses tax offset if they have net expenses for disability aids, attendant care or aged care. The offset, which is income tested, will be phased out commencing on 1 July 2019.

Phase out of first home savers accounts

On 1 July 2015, the first home saver accounts (FHSA) were phased out and converted into ordinary savings accounts. Account holders are required to put earnings in their tax returns.
Account providers will no longer need to pay tax on FHSA earnings for any period subsequent to 30 June 2015.

Creation of new tax system for managed investment trusts

The ATO has created a new tax system for managed investments trusts (MITs) designed to modernise the tax laws for qualified MITs and improves certainty for investors.

If ratified, the proposed laws will commence on 1 July 2016. Qualified MITs can decide to start applying the new rules on 1 July 2015. The trust income can be assigned to beneficiaries based on a “fair and reasonable” manner per their ownership shares in the MIT. A qualified MIT choosing the system is identified as an attribution managed investment trust (AMIT).

In addition, the new system establishes provisos regarding amounts that impact the cost base of a member’s share in the trust.

Business services wage assessment tool payment

A person getting a lump sum in arrears business services wage assessment tool (BSWAT) payment may claim a lump sum in arrears tax offset.

The BSWAT lump sum arrears payment is not wages and salary or the government pension or allowance.

The lump sum tax offset can be claimed by taxpayers by reporting the payment at label 14 (other Australian income).

Entity tax information reporting

Starting December 2015, the following will be published by the Commissioner of Taxation, per the income tax transparency requirements:

  • Public and foreign held corporate tax entities with an overall income of $100 million or higher
  • Australian-owned private entities with an overall income of $200 million or higher

The data will be derived from tax returns on 1 September in the year after the income year being reported. The ATO intends to publish the information around December. For instance, data from the income year of 2014-2015 will be derived on 1 September 2016 and made available around December 2016.

Improving access to company losses

On 7 December 2015, the government announced that the existing “same business test” for company losses will be eased to let businesses retrieve previous year losses when they have engaged into new business activities or transactions.

The government will introduce a new “predominantly similar business test.” The new text will give companies access to losses where their business is the same relating to:

  • The degree to which the business make assessable income from similar assets and sources
  • Whether any modifications to the business are modifications that would be realistically be projected to have been generated to a similarly placed business.

This law is anticipated to be introduced starting 1 July 2015.

See a qualified tax advisor, accountant or bookkeeper to keep you in compliance with tax rules and policies. PJS Accountants can help you organise your tax affairs. We work with large companies, SMEs, family businesses and individuals. For enquiries, contact PJS Accountants.

Two SMSF Accounts May Benefit you More in your Retirement

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To save on fees, superannuation members are advised to consolidate their accounts. However, doubling up may sometimes be advantageous.

Utilising two or more funds could benefit some in relation to tax, estate planning and insurance. And there is no rule saying that it is not legal to have more than one fund.

A number of super strategies centre on two kinds of contributions that members make: concessional contributions like salary sacrifice that provide deductions and are taxed; and non-concessional contributions paid from after-tax money.

Pre-retirees can avoid a death benefits tax of a minimum of 15% being applied on SMSF willed to their adult children by splitting these kinds of contributions, because just the taxable part is taxed.

Estate planning is currently the primary driver, however, a future-proofing element is definitely present now. The reason is that both sides of government can’t help but get involved in super, and individuals who split their SMSFs may be able to act quicker when adjustments are made to the guidelines again.

If health problems are hindering you from obtaining adequate insurance to cover your family, an option available to you is to sign up with a number of funds, which automatically provides basic insurance to new members. For example, if the man of the house dies unexpectedly, he could leave his family with a $1 million life insurance payout, if he has not consolidated several funds that provide life insurance.

It is rather common for people who set up an SMSF to leave a balance in whatever fund they have joined before to keep the insurance intact.

Any of these strategies are great on paper, but when it’s time to put it into practice, there’s nothing better than seeking advice.

Some people benefit from being creative with their super, but it is largely smart to keep super as uncomplicated as possible. Carefully consider the pluses and minuses before messing around with your super.

Expect more additional fees and administration responsibilities when you set up or join a second fund.

In some cases, there are potential benefits to joining two super funds. Generally, this strategy is ideal for holders of SMSF, those individuals in their mid-50s and beyond, aiming to split concessional and non-concessional contributions to secure longer term tax savings.

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 strategize to get the most out of your super fund.

Tips to Audit Proof your Business

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Audit proofing your business is a sign of good corporate governance. The essentials to the concept of audit proofing your business is your manner of handling record keeping for your business and your knowledge of the laws that affect you on a day-to-day basis.

Make sure your record keeping is outstanding

Using a professional online accounting software solution should be your first order of business. Accounting software allows you to monitor your cash flow and your trading performance. It will also be of great help when you calculate your GST and PAYG payables.

In case you are subjected to a Business Records Audit by the tax office, the first thing they will ask is “How do you handle your income and expenses?” Utilising professionals to maintain your records and file official documents, such as ASIC forms, Tax Returns and Payroll Tax returns, will be of great benefit to you.

It is also recommended that you seek the help of a professional if you don’t know how to keep up with your taxation record keeping requirements, or if you’re not aware of what you can and cannot claim.

Keep a motor vehicle logbook

You may be exposing yourself to the risk of a rejected claim if you’re not aware that you must maintain a logbook for business motor vehicles for a 12-week period every five years. Things would be a lot easier for you if you can keep and record more supporting information relative to your business claims.

Maintain home office records

Do you need proof to support the fact that you are using part of your home as an office and making a claim based on that point? Then, take a picture of that area assigned as your home office. There may come a time when you could outgrow your home office and decide to move it outside the home. You could have converted your old home office for a different function. By then, it would be too late for you to take a picture!

Record travel activities

Record your travel activities by the hour if you are travelling for business for five nights or more. This way you’d know the percentage of your travel expenses allocated to your business activities.

Also take note that international business activities should be substantial. For example, if you’re in an arts-related job, going to galleries and museums and claiming that it is part of your job is not acceptable. Most people visit those places when they are on overseas holiday. To back your claim for airline tickets, meals and accommodations, you have to go to a work-related conference or attend several business meetings and negotiations.

Lastly, consider the corporate structure of your business. Would it be advantageous now to change to a corporate structure for limited liability protection? Keep in mind that the systems you implement from the very start will safeguard you and your business in the long term.

See a qualified tax advisor, accountant or bookkeeper to help guide you in making a tax change for the better. PJS Accountants can help you organise your tax, accounting and bookkeeping affairs. We work with large companies, SMEs, family businesses and individuals. For enquiries, contact PJS Accountants.

ABR will Automatically Cancel ABNs of Inactive Trusts

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The Australian Business Register will be revoking the Australian Business Numbers (ABNs) of inactive trusts starting February 2016.

Those that will be targeted are entities with tax records showing that they have ceased to operate a business, meaning they have no filings of business activity statements (BAS) and/or income tax returns over the last two years.

According to the business register, about 220,000 trusts could have their ABNs cancelled.

Trusts that are listed with the Australian Charities and Not for Profits Commission, or are a non-reporting member of an income tax group or GST, are exempted from the ABN cancellations. However, a significant number of charities that had been inactive or had no compliance activity have already been de-registered.

A letter will be sent to trustees if their ABN has been revoked. The reason for the cancellation will be stated in the letter, as well as a phone number to call to have their registration restored. According to the government, the reinstatement will be acted upon immediately if the trustee disputes the decision, though it’s unclear if proof of activity or viability will be needed.

If your trust’s ABN is cancelled and you don’t get a letter, it’s probably because your contact information is not current on the ABN database of the Australian Business Register.

Contact your business adviser for any questions regarding ABN cancellation. Work with your accountant or bookkeeper to ensure you are compliant with BAS and/or income tax return lodgements.

PJS Accountants can help you organise your tax, accounting and bookkeeping affairs. We work with large companies, SMEs, family businesses and individuals. For enquiries, contact PJS Accountants.

Tax Returns and Annual Reports Tips

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Tax time is here once again. Have you found time to evaluate your business to determine how it is performing? Or is your schedule to hectic to slot that task in? Being full of activity doesn’t always translate to profitability. For your business to grow, it’s important to evaluate performance regularly. It is also a smart move to review the accounts prior to the end of the year.

The availability of a great variety of cloud solutions had made it easy for business owners to be updated. Efficiency and productivity are also easier to achieve with cloud enablement. In addition, it is now easier to collaborate with accountants and bookkeepers because they can easily get a hold of data to help you with being prepared and up to date.

You can make your year-end smoother by being organised in advance and establishing good systems. Your tax planning will be easier because of your access to live information. You can ready your year-end tax planning well before the end of the year with the help of your accountant.

You can utilise your online accounting software to complete your payroll year end compliance task promptly and efficiently. You can also do your GST, PAYG, payroll and superannuation tasks more easily. And with access to reporting features found in the cloud solutions, you can get information quickly for your compliance filings.

Linking your live feed banks directly with your file allows you to keep your data updated. Setting up your bank rules will let you automate your data processing so it doesn’t accumulate. This will provide you with data that is up to date.

Do the following when preparing for Financial Year End:

  • Bank/credit card accounts must be reconciled
  • Loan accounts, including intercompany loans, must be reconciled
  • Receivables and Payables must be balanced
  • Bad debts must be written off
  • Stocktake must be completed by 30 June
  • Payroll/PAYG withholding and Superannuation Accounts must be reconciled
  • Payroll payments and the totals reported for Payroll tax and workcover must be reviewed
  • GST control accounts must be reconciled
  • The sums reported to the ATO in the Business Activity Statement and Instalment Activity Statement must be reviewed to make sure the totals reported for the relevant year is right
  • Profit and Loss and Balance Sheet reports must be run and reviewed

Other items that must be considered when preparing tax:

  • Expenses prepayment
  • Interest prepayment
  • Asset and Depreciation Schedule preparation
  • If you have executed the acquisition of minor assets properly – know the allowable cap for immediate write off from your accountant
  • Sale of assets
  • Deductions for motor vehicle expenses
  • Unpaid expenses that can be deducted
  • Donate to charities
  • Defer income
  • Make payments to you superannuation before 30 June if you wish to make a claim for the expense in the present financial year
  • Sales orders must be checked twice in the event they are completed and must be invoiced
  • Purchase orders must be checked twice in the event they are delivered and must be billed
  • Invoices must reviewed to make sure that the products or services have been delivered – in case the products or services haven’t been delivered by 30 June, chances are they can’t be treated as income in the relevant year.

Doing some of these things above before the end of the year enables you to lessen the chance of paying more than what you actually owe. This is the reason why it is not advisable to postpone completing the tasks that is important to your business.

Advance planning paves the way for improved business performance and growth. There’s no need for business owners to be buried in paperwork when they possess all the means to build such efficiencies in the marketplace.

With the availability of online accounting solutions and the help of your trusted accountant, you should avoid encountering cash flow problems. Reporting and live information will be right at your fingertips anywhere anytime.

PJS Accountants offers a full range of services, including tax planning and compliance, accounting and SMSF services, and bookkeeping. For enquiries regarding our services, contact PJS Accountants.

What You Need to Know About Small Business Tax

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It is important for business owners to know about their tax obligations.

The Structure of your Business

You probably have already chosen the structure by which to operate your business, whether as a sole trader, a partnership, a trust or a company. You may have already applied for and received your ABN with the Australian Business Register. It is vital to set up your business correctly.

If you are an Australian resident for tax purposes, you’re not taxed on the initial $18,200 of your income. This is termed as the tax-free threshold.

Allowable deductions for businesses

The list of expenditures or allowable deductions that businesses can claim is comprehensive. Here are some of them:

  1. Advertising
  2. Bank fees, charges and tax agent fees
  3. Business travel including transport and freight
  4. Depreciation of assets used in your business
  5. Electricity including other home office expenses
  6. Hired or leased equipment
  7. Interest on borrowed money
  8. Motor vehicle expenses
  9. Phone expenses

You need to keep:

  • a logbook to calculate the business use percentage
  • odometer readings for the start and end of the period you owned or leased the car, and
  • written evidence for all car expenses, except for fuel and oil costs.  Your logbook is valid for five years. You must have kept a logbook during the first year this method is used. The logbook must cover at least 12 continuous weeks

Applying for GST registration

A business with a turnover or gross income of $75,000 or higher, or a non-profit group with a gross income of $150,000 or higher, is required to register for GST. How do businesses collect GST for the government? It’s by including GST into the prices of their products or services. They then get their GST back from the ATO monies used on business expenditures.

Hiring employees

You may have to employ additional staff as your business expands. Hiring employees is quite clear-cut. However, if you are not familiar with payroll systems and laws, you may end up being penalised.

You may need to withhold taxes from monies you pay to your employees and other staff and disburse these sums to the tax agency. To perform this process, you use the Pay As You Go (PAYG) withholding system. It is recommended that employers register for PAYG withholding prior to making their first payment.

Making super contributions

The ATO is implementing a government initiative called SuperStream, which is designed to make the superannuation system more efficient. It is a new system for handling information and payments that employers have to follow when paying the superannuation contributions for their workers.

Business owners are now mandated to submit data and payments electronically in line with the SuperStream guidelines when making super payments on behalf of their workers.

If you employ 20 or more staff, you have to implement SuperStream contributions as soon as possible. If you have 19 or fewer workers, you have to implement SuperStream beginning 1 July 2015. For larger businesses, the ATO has given them a grace period of until 30 June 2016 to have a plan in place.

SuperStream offers many benefits. One of which is that you can make unlimited super payments fast and easy without leaving the online accounting software that you are using.

BAS submission

GST registered small businesses report and pay several tax duties by submitting activity statements. A form issued by the Australian Taxation Office, the Business Activity Statement (BAS), is submitted monthly or quarterly. Included in your BAS is a summary of the sums of GST that your business should pay and should recover in a specific period.

PJS Accountants can help you organise your tax, accounting and bookkeeping affairs. We work with large companies, SMEs, family businesses and individuals. For enquiries, contact PJS Accountants.

Where are you in the Five Stages of Small Business Growth?

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If it has been years since you started your own business, you undoubtedly can relive what you went through and realise that it has transformed dramatically over the years. A good number of businesses experience a life cycle with distinctive stages. It’s fascinating to observe the normal stages and learn what stage you are in presently so you can determine the best way to plan for your future.

Stage 1: Start up

Maybe you are employed in a company and always think you could do a better job and make yourself financially free. Or perhaps you just possess a keen business sense and are inspired to do things independently, so hand in your resignation and open your own business. If you’ve gone through this, or know of a person who has, you have knowledge of the fact that during the initial phases, it’s fairly simple to develop it. You are a newbie in the market and have something of value to offer, which on its own will lure in customers. In every occasion when you meet people, you mention that you have started up your own business and enquire if they know of someone who’d be interested in your product or service. Whenever the phone rings, you get it, hopeful that it is a prospective customer. You attend networking events to secure new projects. You start your business and you see it grow. Then comes Stage 2.

Stage 2: You are full of activities

This stage is when you cease doing the things your normally do when you were just starting. Every time the phone rings, you hesitate and stress a bit because it may be a customer calling to complain. You can’t go to networking events anymore because you’re too busy. You’ve ceased chasing after referrals, seeing that you already have your hands full with your present projects. And wonder of wonders, your growth rates go slack or stop. During this phase, you begin to feel discouraged and perhaps think it would have been in your best interest to continue working for someone else.

What you would also be aware of is the financial freedom that you wanted to achieve when you started your own business appears to be not happening as you expected. Yes, you may be making a decent amount of money, but it is rare for you to have the time to spend it. Stage 2 offers three options:

  1. Return to being a small operation to recover time for yourself
  2. Don’t take action and stay stressed and overworked
  3. Opt to expand and prepare for this by hiring more employees

A good number of businesses pick option 2, which in reality is the worst option. As Einstein said, “doing the same things over and over again is a great definition of insanity.”

Stage 3: Regulated growth

You choose growth if you pick option 3. Studies reveal that a small number of businesses go this route. It is common to see small businesses fail before the five year phase, and a very tiny percentage reach a turnover of $10 M. However, if you choose to grow, take note of the following important points:

  • You have to be content with success, not perfection. Obviously, no one will be able to match your passion to your business, and you might think only a handful of people are capable of doing the work you put out. Learn to be satisfied with it because you can’t do everything by yourself.
  • While growing, learn to accept that you need to employ people who are more capable than you are. You will need them to improve your business.
  • Search for more helpful measures to grow. What do you need: new products or more customers or both? What’s better: remain in your local area or expand outside it?
  • Hiring marketing specialists with experience on lead generation activities. You will not be able to sustain the growth of your business through personal relationships alone. A new marketing campaign is needed for your business to gain new customers.

Stage 4: The ‘next’ stage

This sounds ambiguous but there is a good explanation for this. The landscape in most industries is constantly changing. They experience change, set in motion by many factors including legislation, technology, environmental issues, new opportunities, and availability of offshore labour. Whether you enter Stage 4, or skip it and enter Stage 5, is determined by how you respond to change. This means that you have to be mindful of the changes occurring in your industry and be prepared to adjust to it. Be the first to capitalise on new opportunities. You can do this by having time to think – another reason you should employ capable people.

Stage 5: Deterioration

There’s a good chance your business will decline if you miss Stage 4. You will see your sales slow or drop. Getting new work will become harder and harder. You’re more nimble competitors adopting new technology will cause your prices to drop. You may experience hardships in attracting or keeping good staff as leading-edge competitors is luring them away.

How do these stages align with your business?

A huge number of businesses go through this stage without intending to. If you are running a solid business and you wish to escape a decline, do something now to determine what your Stage 4 may be and begin doing things differently to extend the life of your business.

Contact PJS Accountants to determine what you and your business needs. We offer a full range of services including accounting, taxation, business improvement, superannuation, business valuations, asset protection, succession planning and bookkeeping. We have over 30 years’ experience with local businesses in Capalaba, Cleveland and the Redlands. Our team will be at your disposal, ready for your call to assist you to stay in charge of all aspects of your business.