Free Trade with Korea and Japan – Opportunities for Everyone?

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Australia formalised two Free Trade Agreements (FTAs) in April. Outside of the photo opportunity, what do the agreements with Korea and Japan really mean for business and more importantly, are there opportunities for all?

It’s important to remember that FTAs pick winners – so, the answer is no, not every sector is a winner. FTAs open markets and reduce tariffs in certain sectors only. They also create short term losers by removing any protection a sector has from global competition. But where everyone can win is in the millions of dollars of investment opportunities that flow from FTAs as the two economies create closer economic ties.

Opportunities in Korea

Korea is Australia’s third largest export market at $10 billion plus. Korean investment in Australia has grown rapidly since 2001, growing 25 fold to over $12 billion in 2012. The Korea-Australia Free Trade Agreement (KAFTA) is expected to add another $5 billion to the value of exports by 2030.

KAFTA is the broader of the two FTAs – but to be fair there is already a significant level of trade with Japan.

The winners are:

  • Agriculture – beef, sugar, dairy (cheese, butter and infant formula – but not milk), lamb, pork, goat, fruits and nuts not generally produced in Korea or counter seasonal (cherries, almonds, table grapes and dried grapes, macadamia nuts, fruit juice, mangoes, asparagus, lentils, chipping potatoes, oranges, and mandarins), wine, malt and malting barley, and some seafood products (Bluefin tuna, rock lobsters).
  • Industrial – liquefied natural gas, titanium dioxide, unwrought aluminium, automotive parts and sea salt.
  • Pharmaceutical products including vitamins.
  • Services – legal, financial services, accounting, telecommunications, education, film and television, engineering services.
  • Investment – introduction of mechanisms to protect investors, ownership and intellectual property.

While there will be winners from KAFTA, other sectors will face competitive pressures from Korean companies. For some this will be driven by nothing more than the bilateral removal of tariffs from sectors such as manufacturing, energy and resources. This levelling will mean some Australian businesses will become uncompetitive where there are disparate wage and manufacturing costs. General Motors (GM) has stated that when the company stops making cars in Australia in 2017 it is likely that the Australian market will be supplied by product shipped from Korea. While KAFTA was not a factor in GM’s decision, the “sustained strength of the Australian dollar, high cost of production, small domestic market” and fragmented market, was.

Some industries were locked out of KAFTA. Australian rice and honey were excluded from KAFTA. Honey, for example, currently faces tariffs of between 150% and 250% in Korea. Milk was also excluded.

Australia is not the first to formalise a trade agreement with Korea; the US, European Union, Chile and ASEAN nations already benefit from competitive access and the progressive lowering of the barriers to entry.

The details of the FTA with Korea have been available since December 2013 but only ratified with the signing in April this year. FTAs are all about access, to see if your industry has broader access to the Korean market, you can find the details on the Department of Foreign Affairs and Trade website.

Opportunities in Japan

Japan is Australia’s second largest export market at over $48 billion representing 16% of Australia’s overall exports. The winners are:

  • Agriculture – beef, dairy (cheese, milk, ice cream and frozen yoghurt), sugar, wine, fruits, nuts and juices including canned products, seafood (prawns, rock lobsters, abalone, oysters, crabs, Yellowfin and southern Bluefin tuna, sea urchins and fish oils), chocolate, honey and pork.
  • Industrial – Coke and semi coke of coal, petroleum oils, aluminium hydroxide, titanium dioxide.
  • Investment – cross border access for fund managers.

Japan’s tariffs on vehicles, automotive parts and most pharmaceuticals are already set at zero.

If you feel like you need support in making your way through the uncertainties and tough times ahead, or simply have a question or want more information, please contact PJS Accountants on (07) 33903177 or click here to contact us.

The PPSR & Your Business

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Easy come, easy go: The PPSR & your business

31 January 2014 should be seared into the brains of business owners and operators.

When the Personal Property Securities Act (PPSA) came into effect in January 2012, it provided a two year grace period to register security interests on the Personal Property Securities Register (PPSR). The PPSR is a national register of who has security over different forms of property (other than land and buildings). If you sell goods under retention of title or consignment arrangements, if your business hires or leases goods or equipment to others, if you buy or sell used goods, you need to register your security interests by midnight on 31 January 2014 or risk losing that property.

Imagine this… You are in business and have supplied stock to a retailer, you haven’t been paid for the stock but continue to supply to the retailer under normal terms of trade. When the next delivery arrives at the retailer, it can’t be delivered because the store is closed and chained up. Your business hasn’t been paid yet. You sold the goods on a retention of title basis so the stock belongs to you until the retailer pays you, right? The answer is not necessarily. If your security interest in the stock is not on the PPSR, then your rights may not be recognised even if you can prove you have legal title. One business has already learnt this lesson the hard way when they lost the rights to assets they held legal title over because they did not register their security interest on the PPSR but a financier did (see Maiden Civil v QES [2013] NSWSC 852[1]).

The PPSA is one of the most important changes to business in many years. It means that ownership is no longer king if you get into a stouch about who owns what. It’s important to review whether or not your business is affected, and if so, register quickly.

If you are buying assets or entering into agreements, it’s also important to check the register to find out who has a security interest over the property involved.

The PPSR is not just for business. If you are personally buying anything valuable that is second hand, for example a car, you should check the register.

See www.ppsr.gov.au for more information and to access the PPSR.

If you feel like you need support in making your way through the uncertainties and tough times ahead, or simply have a question or want more information, please contact PJS Accountants on (07) 33903177 or click here to contact us.

Tax Changes 2014 – Crystal Ball Gazing – What 2014 will Mean to You

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What a strange few years we’ve had. A two-speed economy meant that the day-to-day experiences of many people were not matched by Australia’s outstanding headlines. But right now, consumer sentiment appears to have picked up with retailers expecting over $15.1bn to have gone through the tills pre Christmas, the housing market is hotter than ever, and flowing from that, household wealth was at record highs rising by 6% across 2013. So, as Paris Hilton would say, we’re totally hot right now.

On the downside, the divide between rich and poor is greater than ever. Not everyone is riding the wave and those not on it are drowning not waving as the cost of living increases. More than 8,000 people lost their jobs in December 2013 and more have dropped out of the system as older workers and the disenfranchised stop trying to find work (according to Westpac, the actual unemployment rate would have been 6.8% not 5.8% if the participation rate had not fallen over the last 6 months). The Government has also stated that it will not be popular this year with Deputy Prime Minister Warren Truss saying “you cannot reduce expenditure without having an impact on people.” Hmmm.

For employers, almost all economic and business surveys are showing that confidence is up but this has not translated into jobs growth.

So, what can we expect in 2014?

What’s changing?

The Treasurer Joe Hockey has flagged that a structural overhaul of the economy is required to prevent a “decade of deficits.” The Mid Year Economic and Fiscal Outlook released in December stated that the Budget wouldn’t get back into surplus “even if there are no tax cuts for the next 10 years.” At the very least, you should expect the May Budget to be more like a renovation than a refresh with all options on the table. Welfare is a likely target, so are any concessions or benefits out of alignment with the overall tax system.

In addition to the big picture tax changes flagged during the election to repeal the mining tax and carbon tax (both Bills are currently before the Senate), you can expect a focus on: how money moves between individuals, companies and trusts and the tax paid; non-residents; and, a renewed attempt by the ATO to try and recover the almost $18b of tax that is currently owed.

Your business

While there will be a heavy focus on revenue raising over the next few years, there will also be structural change. The Abbott Government has pilfered the American concept of a ‘repeal day,’ and plans to axe more than 8,000 redundant Federal laws to reduce red tape.

The repeal day is scheduled for the House of Representatives on 26 March, following the introduction of an omnibus red tape reduction bill and a series of specific deregulation bills on 19 March.

The repeal day follows the scrapping of 71 unlegislated and unresolved tax and super announcements late last year. Among the items scrapped were the Gillard/Rudd Government’s announcements to cap self-education expenses at $2,000, remove the statutory method for car fringe benefits, and change tax on earnings on super assets.

For small business, many of the concessions encouraging you to purchase motor vehicles or invest in business assets have either already gone, or are likely to go. If the mining tax is abolished, a number of small business tax concessions will also go. For example, the immediate deduction for depreciating assets costing less than $6,500 will be reduced back to the old rate of $1,000. The start date for this is intended to be 1 January 2014.

Looking after No. 1 – protecting you

If you plan on quitting smoking then you are part of a nationwide trend. According to the Australian Bureau of Statistics (ABS), the smoking rate decreased from 22% in 2001 to 16% in 2011/2012.

Weight loss is another New Year’s resolution for many. However, despite the fact that we are all conscious of our weight, the ABS tells us that the proportion of adults who are overweight or obese in Australia rose to 63% in 2011/2012.

Your weight and whether or not you smoke not only have a major impact on your health, life expectancy, and wallet, but these two factors often determine what you pay for insurance.

The strange thing about life is that we live as if life is consistent. The reality is that it isn’t – accidents, illnesses, social issues always seem to come as a surprise despite the fact that we know problems commonly occur – just not to us. So, to protect yourself in 2014, here are our top 5 things you should do:

  • Get your insurance sorted – at the very least, you should have life insurance. Insurance for total and permanent disability and income protection is even better. If you have a SMSF, your investment strategy needs to consider life insurance for fund members. If you own or invest in a business, it’s important to consider what might happen if you, or one of your fellow directors dies or is permanently or temporarily incapacitated. There are some clever structures that can be put in place to manage all these eventualities.
  • Make a will or make sure it is updated – as life changes so should your will. When was the last time you reviewed it? Enduring Power of Attorney is also a major issue right now, particularly for those with SMSFs.
  • Plan ahead – while it seems that most personal financial planning strategies are all about retirement, this isn’t really the case (it’s just where the money is). There is a wide array of strategies that you can employ when you’re coming into and in your best income producing years to help build and maintain wealth.
  • Protect your personal health – your diet and exercise patterns make a difference. Exercise reduces your risk of heart attack, diabetes and unexpected disease. If that’s not enough, The Guardian also reports that there are some indications that exercise makes you smarter!
  • Invest in good advice – major personal, financial life or business decisions deserve attention. OK, yes we know coming from us this might sound self-serving but good advice can make the difference between a good and not so good result. You need to know what to look for when it comes to structuring, tax, planning, and strategy.

If you feel like you need support in making your way through the uncertainties and tough times ahead, or simply have a question or want more information, please contact PJS Accountants on (07) 33903177 or click here to contact us.

No surprises this Christmas

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Boom time or down time, every business needs to manage the Christmas period. Managing the holiday season well can make a big difference to how your business is positioned in the New Year. Here are our top tips:

The scrooge approach to outstanding debtors

Put extra effort into following up debtors. The closer we get to Christmas the more difficult it will be to collect the debt. If you leave these debtors until January, it will be almost impossible to collect the cash. Traditionally, February is one of the worst cash flow months for business. If you are not successful now, it might be some time before you actually get paid.

Staff management

Staffing is a major cost for many businesses and can run as high as 70% of expenditure. It’s essential that you review your staff rosters and only have the staff available who are absolutely necessary to manage anticipated trading levels. Encourage staff to take their holidays over this period so that they are available during peak trading periods. You can’t assume that it will be obvious to everyone who works in the business that a slow trading period equals less staff required. Many team members will have an expectation of continuity if you have not said anything.

And yes, a business can enforce a temporary close down. You can require staff to take leave during a down time but you cannot force them to take unpaid leave. So, take a look now to see if any staff will not have enough leave to cover a forced close down. If they don’t, you need to ensure your leave policy allows for team members to go into negative leave.

Stock management

Even very large businesses often have too much cash tied up in inventory. Keep your cash as liquid as possible and don’t tie it up unnecessarily in stock. Drive down stock in the lead up to Christmas and only order the bare minimum to meet your requirements over the holiday season. But don’t forget to plan for your New Year requirements to ensure that your suppliers have the stock you need available when you need it in the New Year. The number one reason why most Australian’s buy online is because they could not find what they needed when they visited a retailer or supplier.

Discount only if you have to

A business with a 30% gross profit margin that offers a 25% discount requires a 500% increase in sales volume just to maintain the same position. In almost all cases that’s just not going to happen. The result generally is the business will be trading below its break-even point and generating losses. Most SMEs simply can’t survive for any period of time trading at a loss. You have to compete but think very carefully about what it is you are offering the market.

If you feel like you need support in making your way through the uncertainties and tough times ahead, or simply have a question or want more information, please contact PJS Accountants on (07) 33903177 or click here to contact us.

What Does the New Government Mean To You?

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What does the new Government mean to you?

On the first day of the Coalition Government, the new Prime Minister Tony Abbott instructed the Department of Prime Minister and Cabinet to draft legislation to remove the Carbon Tax (to be completed within a month), with the intention of introducing the legislation on the first day of the new Parliament. It was the first foray into a myriad of tax and structural changes promised during the campaign. Let’s take a look at what changes you can expect and how to capitalise on the timing of change:

Will change occur?

The new Government’s major problem with bringing about legislative change is the Senate – they do not have a majority. This election was a half Senate election and as such, the Greens will control the balance of power until 30 June 2014 and then micro parties will hold control.

For controversial changes, such as the abolition of the Carbon Tax, the Government will not have the support of the Greens and the Labor Party have stated that they will not support the abolition of the tax – although a compromise position is possible. So either the Government can negotiate with the micro parties and their myriad of vested interests or call a double dissolution – but even then there is no certainty that the end result will give them greater control in the Senate.

Tax and Tax reform

There are a number of tax changes we know the Government intend to make. These include:

  • Abolition of the Minerals Resource Rent Tax (mining tax) and a series of related measures including the loss carry back scheme, increase to the instant asset write off, accelerated depreciation and rephrasing of the planned increases to the superannuation guarantee rate.
  • Abolition of the Carbon Tax
  • Company tax rate cut by 1.5% from 1 July 2015
  • Parental leave levy – 1.5% levy on companies with a taxable income above $5 million (and apply to taxable income in excess of $5 million).

And of course, there are the changes that will never happen that were announced by the Rudd Government during the election campaign including the abolition of the statutory formula method for calculating the taxable value of car fringe benefits.

Then there are the tax changes we don’t know. As part of their reform agenda, the Government intend to create a “comprehensive” White Paper on tax reform. There has been a lot of recent speculation about the intended reforms including a potential increase in the GST rate – since ruled out by the Prime Minister.

Business

If you are in small business, be aware that some tax concessions available to you are planned to be removed and some planned taxes will be removed. If you can take advantage of the tax concessions available under the former Government, do it now. As long as the changes are not retrospective (which is unlikely), whatever you can take advantage of, you get to keep. For example, the loss-carry back rules will be abolished in conjunction with the mining tax but you can utilise these measures until the law changes. The loss carry back rules offer a way for many businesses to offset tax they have paid in previous years against current year losses. So, if your company is likely to be in a loss position for the 2013 income year and paid tax in the 2012 income year, we encourage you to send in your tax return information as soon as possible as the company may be entitled to a cash refund from the ATO.

For small business, if you need to buy depreciating assets in your business – computers, machinery, cars, etc., – then the there is currently an upfront write-off of $6,500 per item up for grabs between now and when the law changes. Currently, if your business qualifies as a small business and can access the simplified depreciation rules, any depreciating assets you buy below $6,500 can be written off in the year of purchase. If your business is registered for GST the $6,500 is GST exclusive, if not, the $6,500 is the GST inclusive amount. The write off will potentially reduce back to $1,000 when the law changes.

It’s also worth noting the likely impact on business when and if the Carbon Tax is abolished. The Government has already warned that fines of up to $1.1m will apply to entities “that introduce or maintain price increases, surcharges attributable to the carbon tax.” So, If your business ever published any sort of commentary blaming the carbon tax for your price increases – and let’s face it, there was a stage there when the Carbon Tax was blamed for just about everything short of the high level of teenage pregnancy in Australia – then you might want to pay attention.

Superannuation

The good news on superannuation is that the Government has stated that it “will not make any unexpected detrimental changes to superannuation…we won’t move the goalposts.”

For employers, the Government had flagged that it will slow the phased increase to superannuation guarantee in conjunction with the removal of the mining tax. In addition, the Government intends to give small business the option to remit compulsory superannuation payments directly to the ATO.

For all those concerned about inadvertently breaching the contributions cap, the Government has noted that it will develop a process that addresses all inadvertent breaches of the contribution caps where an individual can show that their mistake was genuine and the error would result in a disproportionate penalty.

For those with a SMSF, there will be a review of minimum pension payment levels.

Individuals & families

Sometimes no change can be a good thing. The Government has stated that it will not change the current income tax thresholds or pension and benefit fortnightly rates.

The SchoolKids bonus – that offers up to $820 per child to cover education expenses – will be abolished. The bonus was funded by the mining tax.

One of the most controversial of the Government policies during the election campaign was the introduction of a paid parental leave scheme at replacement wage. Scheduled for 1 July 2015, the scheme provides mothers with 26 weeks of paid parental leave at their full replacement wage or the national minimum wage (whichever is greater) plus superannuation. The replacement salary is capped at $150,000. Fathers will also be able to take 2 weeks paid parental leave (concurrently with mothers or separately) at their actual wage.

Australia is currently one of only two countries with a paid parental leave scheme that doesn’t base its payment on a woman’s actual wage.

The intention is to fund the paid parental leave scheme with a 1.5% levy on companies with a taxable income above $5 million (the levy applies to the taxable income above $5m).

Infrastructure

It’s worth noting the level of infrastructure projects the Government has committed to. In addition to delivering the troubled National Broadband Network, the Government has promised billions of dollars in roadway projects including the Bruce Highway, Pacific Highway from Newcastle in NSW to Brisbane, the WestConnex project in Sydney, the Gateway motorway in Brisbane, Swan Valley Bypass, complete the Perth Gateway, upgrade Adelaide’s North-South Road Corridor and a whole lot more.

How business operates and develops projects across State borders will be assisted by a planned one-stop-shop for environmental approvals. The initiative, if they can make it work, will overcome many of the horror stories of national projects.

SMSFs top half a million mark

The ATO regularly releases a statistical report on Self Managed Superannuation Funds (SMSFs). The latest report shows that the growth in SMSFs dropped by around 10% over the last 12 months but establishments remain high. There are now over half a million SMSFs in Australia with almost a million SMSF members.

Australian SMSFs hold assets worth approximately $495bn at June 2013. A majority of SMSFs have a total asset value of between $500k and $1m with the median asset value per member at over $292k.

The material and contents provided in this publication are informative in nature only. It is not intended to be advice and you should not act specifically on the basis of this information alone. If expert assistance is required, professional advice should be obtained.

If you need expert advise in Accounting, Tax Services, Bookkeeping, Business Improvement SMSF, Succession & Estate Planning, Business Valuations and Asset Protection, contact PJS Accountants.

Quote of the month

“We are what we repeatedly do. Excellence, then, is not an act, but a habit.” –Aristotle

Losing it! How To Make the Most of Your Losses

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No one in business likes a loss at the end of the financial year. Most of us have grown up on the mantra ‘brackets are bad.’ Recent changes however might soften the blow by giving you access to a cash refund from the Australian Tax Office (ATO).

9Australia might have been a shining economic light in the global community maintaining an average growth rate of around 3% during the financial crisis, but for many businesses the resource boom boosted GDP headline was hiding a different picture. This year has seen a record number of business bankruptcies and a higher than usual level of debtors reaching a business related debt agreement.

For others, the brackets around the bottom line number are a result of high growth.

Whatever the reason for the loss, new rules offer a way for many businesses to offset tax they have paid in previous years against current year losses. In effect, you can carry-back your losses.

How do the loss carry-back rules work?

Prior to the introduction of the loss carry-back rules, companies could only carry forward their tax losses to deduct against taxable profits made in future income years, subject to meeting a few tests. The new rules give companies the ability to choose to carry-back up to $1m of certain tax losses rather than carrying them forward (limited to the company’s franking account balance for that year).

In most cases, the rules apply when a company carries-back a tax loss that is made in the current income year. From the 2014 income year onwards, losses can be claimed against tax liabilities of either of the two previous income years. However, in the 2013 income year it will only be possible to claim current year losses against the company’s tax liability for the 2012 income year.

So, if your company is likely to be in a loss position for the 2013 income year and paid tax in the 2012 income year, we encourage you to send in your tax return information as soon as possible as the company may be entitled to a cash refund from the ATO.

Let’s look at an example….

Company A is eligible to access the loss carry-back rules. In 2013/2014 they make $500,000 and pay tax of $150,000. In 2014/2015 they make $2m and pay tax of $600,000. In 2015/2016, they make a loss of $5m.

Company A can choose to carry-back $1m of the tax loss incurred in 2016. This equates to $300,000 of tax payable. While there are a number of options for carrying back the loss, the most likely approach is to carry-back $500,000 of losses to each of the 2014 and 2015 income years. This would produce a refundable offset of $300,000 and the company would still carry forward $4m of losses to future income years. A much better cash flow position for the company with $300,000 extra to use.

The losses are claimed in the company’s tax return.

Do I have to carry-back losses?

The loss carry-back rules are not compulsory and don’t automatically apply. You can choose whether to carry-back losses to prior income years as you see fit. This means there is no requirement for losses to be carried back to the earliest eligible income year or for the earliest losses to be carried back first. For example, you might want to limit the amount of a tax loss you carry back because of the impact this will have on the company’s franking account balance. You might prefer to retain franking credits to enable franked dividends to be paid to shareholders.

So, companies can choose:

  • Whether to claim a tax offset under the carry-back rules;
  • How much of the losses from the current year or prior year to carry-back; and
  • Which year or years to carry a loss back to.

Who can access the new rules?

Like with most tax benefits, there are a number of conditions that need to be satisfied. These are:

  • You need to be a corporate tax entity – generally, a company, corporate limited partnership, corporate unit trust, or public trading trust;
  • You have a tax loss from the current year or carried forward from the preceding income year;
  • You have an unutilised tax liability for the preceding income year or the year before that;
  • You have lodged all your tax returns for the current year and each of the previous five income years;
  • You have a positive franking account balance at the end of the current year; and
  • You do not fail the specific loss carry-back integrity rule – basically where there has been a change in control of the voting power of the company and someone connected with the change in control had the intention of benefiting from the loss carry back rules.

Also, there are a few types of losses that are not eligible such as capital losses, losses created by excess franking credits, and some types of losses transferred between companies.

If you are considering outsourcing your bookkeeping, accounting and other business-related processes, but still allow you to make the big decisions and remain in control, contact PJS Accountants. We have has over 30 years experience with local Redlands businesses. Our team will be at your disposal, always ready to receive your calls and provide services, to help you to stay in charge of all aspects of your business. Call us for enquiries on how PJS Accountants can help you improve your business.

ATO Fires First Warning Shot

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The Tax Office has fired the first warning shot in the war against naive, deceptive and dishonest taxpayers, revealing its targets for 2013/2014.

The big picture or big brother?

people vectorFundamentally, the way the Tax Office addresses compliance has changed. Gone are the days of comprehensive audits and visits. Instead, most compliance issues are identified by data-mining. In essence, the Tax Office looks at the information you report relative to a myriad of other information sources. Firstly, to identify differences between the information you report and the information held by third parties. And secondly, to identify whether your information is consistent with industry norms and patterns of behaviour. Once you are identified as being a potential problem, you are contacted by the Tax Office and asked to explain. The issue is then closed if not further action is warranted or progressed to the next step. Human intervention is for high risk taxpayers.

There are very few data sources the Tax Office does not have access to. Past data programs have included bank information (particularly low doc loans), credit card data, car and property sale data and much more. This year the Tax Office are looking at:

  • private health insurance rebate claims
  • flood levy exemptions
  • taxable government grants and payments
  • payments to contractors in the building and construction industry.

Trusts under attack

The number of trusts in Australia has grown and with it Tax Office concerns about their use. The Budget provided an additional $217m for a Trust Task Force and the Tax Office plans to put that into good use. Of particular concern to the Tax Office is the use of trusts to conceal income, mischaracterise transactions, artificially reduce trust income amounts and underpay tax. This year, there will be around 5,000 data-matching cases alone.

Building & construction industry

It’s the first full year of the new contractor reporting regime for the building and construction industry. The Tax Office will be using this data to review what contractors are reporting to identify under reporting.

The wealthy & complex business structures

The Tax Office has stated that “the blurring of distinctions between business and personal income and expenses is a common issue attracting our attention.”

This means that high income individuals who utilise trust, company and other structures will come under close scrutiny. For taxpayers affected, it will be important to make sure that there is clarity and documentation to support the flow of money from various entities to shareholders and beneficiaries.

Self funded retirees and tax planning

It seems that many self funded retirees are accessing tax planning schemes that promise high income returns and significant tax deductions. The Tax Office stands by the adage that if it looks too good to be true it probably is.

Online and global business – including e-business

Profit shifting – where businesses shift profits from Australia to another country to reduce their tax liability – is a major focus for this financial year. Already we have seen legislative changes designed to tighten the Tax Office’s controls in this area. Interestingly, it’s not just the big boys being targeted but the myriad of Australian online businesses that work globally.

Capital gains

The Tax Office is concerned about businesses reclassifying revenue and capital items to access concessional tax treatments. In other words, they think more people are accessing the CGT concessions than there should be. In addition, they are concerned about reclassifying revenue and capital items. So, if you have sold business assets, you can expect the Tax Office to be looking closely at how those proceeds are managed and taxed.

Income from overseas

Income from foreign sources is on the Tax Office watch list once again. The Tax Office is making sure that all taxable income is reported regardless of its source.

Changing business structures

Simply changing business structure could attract the Tax Office’s attention this year. In particular, complex business structures and changes will come under scrutiny where one of the impacts is on the tax paid by the entity.

If you are considering outsourcing your bookkeeping, accounting and other business-related processes, but still allow you to make the big decisions and remain in control, contact PJS Accountants. We have has over 30 years experience with local Redlands businesses. Our team will be at your disposal, always ready to receive your calls and provide services, to help you to stay in charge of all aspects of your business. Call us for enquiries on how PJS Accountants can help you improve your business.

Driving you crazy: FBT and cars

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In mid July, the Government sparked a frenzy when it announced plans to remove the statutory formula method for salary sacrificed and employer provided vehicles.

fbt-header-960x350The announcement has meant that most businesses, and as it turns out Governments, have postponed entering into any new agreements (e.g. novated leases) until there is greater clarity. The reason for the postponement is simple, if the FBT change goes ahead, it may fundamentally alter the tax outcome of the arrangement and impose a higher FBT liability on the employer (which would normally get passed onto the employee). As such, it’s impossible to understand the true financial impact of any car packaging arrangements until the result of the election is known.

Under the current fringe benefit rules, you can choose to use the log book method (also called the operating cost method) to physically record the business and private use of the car over a 12 week period, or the statutory formula which provides a flat 20% for personal use. So, if your business use of the car is high and personal use low, you would generally choose the log book method as this would often give you the lower FBT liability. Everyone else tends to use the statutory formula method. Fringe benefits tax applies to the personal use percentage.

The proposed changes

  • Applies to salary sacrificed and employer provided cars
  • Abolishes the 20% statutory method
  • New rules would apply to all new and materially varied contracts from 16 July 2013
  • Log book method will apply to all car fringe benefits from 1 April 2014

Under the announced changes, the option to apply a flat 20% statutory rate would be abolished. Everyone would need to use the log book method from 1 April 2014. The only exception would be for existing contracts as at 16 July 2013 (the date the announcement was made). As long as these arrangements are not materially varied after 16 July 2013, the statutory formula method will continue to be available until the contract ends. While it is unclear what ‘materially varied’ might mean (there is nothing more than a media release and basic fact sheet at this stage), if we look at other areas of recent FBT change, materially varied could mean renegotiating the residual value of a car, extending the term of the lease or making changes to the salary sacrifice arrangement between the employee and employer.

Who will be affected?

Outside of the car and car financing industry, the change if enacted is likely to apply to almost anyone who has a car salary sacrifice agreement in place, unless they are already using the log book method due to relatively high levels of business use.

What should you be doing now?

8Businesses or employees looking to enter into new arrangements should stop and consider whether the arrangements can be postponed until at least after the Federal election. If this is not possible, it will be necessary to work through some worst case scenario calculations and clarify in writing whether the employer or employee will bear the cost of any increased FBT liabilities.

In relation to existing arrangements it will be important to inform employees and other relevant people within the organisation of the risk of making any changes to those arrangements until there is more certainty in this area.

If you need help, please contact us today to discuss your options.

Expect the Unexpected

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As part of your cash flow forecast identify your capital expenditure requirements. Don’t deal with these on a one-off basis as they arise, plan them in advance.

Expect the unexpected

spring notebookGrowing to death is often the result of unplanned growth opportunities. It’s ironic that seizing a major sales contract or big new client can be your business’s ruin but its more common than you think.

Many business operators are very good at what they do. Most have an excellent knowledge of the business they conduct and understand their products and services. Most also have an in depth knowledge of sales performance and revenue. Few however, have a high level of financial management expertise, so when a big new opportunity presents, critical financial questions are not part of the vocabulary. As a result, there can be a sudden and unintended impact on their financial position. A rush of sales might be a great thing but it is not always counterbalanced by a rush of income and profit. Free cash and liquidity are the victims.

9For businesses without strong financial management and control, there is simply no way of understanding what impact the opportunity will have until they have experienced it. With no background history to rely on, the warning signs of impending financial crisis don’t appear.

Take all the tax advantages you can

For small business in particular there are a range of concessions and funding you can access. Many businesses simply don’t realise the opportunities available to them.

If you are considering outsourcing your bookkeeping, accounting and other business-related processes, but still allow you to make the big decisions and remain in control, contact PJS Accountants. We have has over 30 years experience with local Redlands businesses. Our team will be at your disposal, always ready to receive your calls and provide services, to help you to stay in charge of all aspects of your business. Call us for enquiries on how PJS Accountants can help you improve your business.

The Top 5 Issues Holding Back your Business

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Overcoming the biggest problems in business often comes down to the simple things. Here are a few simple things you can do to capitalise on your opportunities and reduce your risks in 2013/2014.

“I didn’t get time to…” No more excuses

1Most people simply don’t set aside the time to do the forward planning they know they need to do. Here’s a simple test: write down your goals for the business. Now ask yourself if you are doing something towards achieving those goals every day or every week? If not, it’s not a goal. It’s just a nice thought.

Set a realistic budget

Financially mapping your business reduces your risk and removes some of the surprises that can occur. Your budget needs to be realistic – not just a percentage increase on last year.

9Start with an operating budget and assess each line critically. Map your revenue to see where, how and when the money is coming in to create a reliable estimate of your income for the coming year. Once you have your revenue expectations in place, look at what is required to generate that income. For example, what advertising, marketing and resources will be required?

Once you are comfortable with your revenue, work up your expenditure budget. Be tough on costs. Don’t forget to allow for growth and the increases that are likely to flow through.

Once your budget is complete and you have a good idea of your likely profit margins, do a couple of alternative estimates for your key revenue drivers so you understand the impact of changes to your assumptions. Once you have all this in place, track and measure it throughout the year. Where possible, your management team should be a part of this process and take responsibility for achieving the budget numbers they give you. When people don’t take the steps that they knew were required to achieve the budget the gaps become obvious fairly quickly. Having a budget in place that you need to report on regularly makes you focus on what really needs to be done.

Map Your Cash

Even some very large businesses have failed because they ran out of cash. Understanding your cashflow needs is vital particularly for high growth business.

3Understanding your cash position is about understanding the timing differences: How long will it take for your customers to pay you? How much stock will you need to hold? And, what are the payment terms required by your suppliers? With your cash flow, don’t forget to allow for things like tax payments, loan repayments, dividends and any capital purchases that are planned. These can be ‘big ticket’ items and if you don’t allow for them then you will get caught out.

A simple example is trading stock valuations. Your trading stock is an asset that is recorded on your balance sheet. In most cases it should be tax neutral to you. The cost of purchasing stock is expensed in your profit and loss account and offset by the value of the stock asset, until you sell it. So, while the amount of stock you are carrying will impact on your cash position, because you have your funds tied up in it, there is no direct impact on your profits or taxable income until you sell that stock. However, if at June 30 some of your stock is worth less than its cost price, you have the option to value it at the lower figure and take the tax write off now, rather than wait until the stock is sold. This reduction in your stock value will produce a tax saving for you.

For tax purposes, there are a number of ways of valuing stock. Once you have done your stocktake (assuming you need to do one), you can choose what method to apply depending on the stock and your circumstances. The different ways of valuing stock can produce different results. Most businesses chose to value trading stock at cost – but you have the option of valuing your stock at the lower of cost, market or replacement value.

For example, if you have stock that is about to become obsolete valuing it at cost price for tax purposes is not going to help you. In this situation you would be better off to value the stock at market value, particularly if it is a large quantity. Take the example of vitamins with a use by date that only has a month or two left on it. Leading up to and once the vitamins reach their use by date they are unsaleable. In this case, you would estimate how much of the stock you are likely to sell prior to the use by date and at what price. Using previous sales as a guide, if you only expect to sell 15% of the stock prior to the use by date, you would use the market value of this 15%. Other than when you sell your stock, your tax return gives you a once a year opportunity to adjust your stock values and realise any losses.

4Another classic way small businesses disadvantage themselves is not taking the Government concessions available to them. The R&D concessions and Export Market Development Grants are a classic case. In the case of R&D concessions, if you develop new technologies or products, you might be eligible for a 45% refundable tax offset (equivalent to a 150% deduction). The Export Market Development Grant reimburses up to 50% of eligible export promotion expenses above $10,000 provided that the total expenses are at least $20,000 for existing and budding exporters. While it takes time to manage these grants and concessions, the outcome can be very rewarding.

We can help your business capitalise on the opportunities available to you and make the 2013/2014 financial year a great one for you.

If you are considering outsourcing your bookkeeping, accounting and other business-related processes, but still allow you to make the big decisions and remain in control, contact PJS Accountants. We have has over 30 years experience with local Redlands businesses. Our team will be at your disposal, always ready to receive your calls and provide services, to help you to stay in charge of all aspects of your business. Call us for enquiries on how PJS Accountants can help you improve your business.