Read the latest Blogs below or use the search function on the right hand side to find a specific blog.
Breaking up is hard to do. Beyond the emotional and financial turmoil divorce creates, there are a number of issues that need to be resolved.
Make succession planning a plan as it is true that "those who fail to plan, plan to fail."
The sale of a going concern may be exempt from GST if certain criteria are met as noted below:
GST On Sale Of Property Using The Margin Scheme
As an alternative to working out the GST under the normal method by applying 10% to the value of the property, the supplier may choose to adopt the margin scheme to work out the GST payable.
Using this method may result in a lower GST liability than using the normal method. GST is calculated on the margin between the valuation and the consideration for the supply.
How To Calculate The Margin
GST payable is 1/11th of the margin for the supply. The margin is the difference between the tax inclusive sale price and the original purchase price paid. If the property was held before 1 July 2000, a valuation is used instead of the "purchase price." The valuation point may not necessarily be at 1 July 2000, but when the vendor was required to be registered for GST purposes. Thus if the property was acquired before 1 July 2000, but you were not registered or required to be registered at 1 July 2000, the valuation of the property is at the date you became registered. The principle behind this is that GST is only to be charged on any increase in value from the date of registration.
Any improvements such as development or construction costs are not taken into account to reduce the margin. Incidental costs such as stamp duty, conveyancing fees etc which form part of the cost of acquiring the property are also not included as part of the costs of acquiring the property for GST margin calculation purposes.
However, the vendor is entitled to claim any GST credits on incidental or improvement costs as they arise in the tax period the acquisitions are attributable to.
Eligibility To Use The Margin Scheme
To be eligible to apply the margin scheme for property acquired after 30 June 2000, it must be acquired:
from an unregistered vendor, or
from another GST registered entity who used the margin scheme, or
under an input taxed sale
the property was acquired GST free under the going concern provisions or the farmland provisions and
at the time of acquisition the vendor is registered for GST (or is required to be registered), and
the vendor has acquired the entire interest through a taxable supply where the margin scheme was not applied.
It is important to note that you cannot use the margin scheme if you acquired the interest in real property where the vendor calculated the GST under the normal method.
As the legislation was passed into law on 28 June 2013 I have revisited my previous article re this topic.
A company can claim up to $300,000 as a refundable tax offset by carrying back tax losses for up to two years, instead of carrying forward the loss to deduct in later years.
In the transitional period, a company with a tax loss in the year ended 2013 that had a tax liability in the 2012 year, can make the choice to claim the offset in their 2013 tax return.
The main issues are:
1. Only companies or entities taxed like companies are eligible for the tax loss carry back rules.
2. These rules operate as a refundable tax offset to provide a cash refund for tax paid in a prior year.
3. For the 2014 & later years the tax offset can be used in respect of tax liabilities of either of the two income years preceding that year.
4. In the 2013 year the carry back of losses can only be used for tax liabilities of the 2012 year.
5. A company must have had a tax liability in the preceding income years, it is not a requirement that prior years' tax has been physically paid, but the tax must have been actually assessed to the company.
6. The maximum amount that can be refunded in a year is $300,000, i.e. limited to a loss of $1,000,000 x 30% company tax rate.
7. The offset cannot exceed the company's franking account balance at the end of the year that the offset is claimed and also the tax liability for the year to which it is carried back.
8. The offset is claimed in the company's income tax return.
9. Only income losses, not capital losses are eligible to be carried back.
10. The offset is not subject to the continuity of ownership and same business test as is the case with claiming carry forward losses. However integrity rules exist to disallow the offset where certain schemes are entered
into to enable other persons or entities to make use of the offset to which they were not initially in a position to do so e.g. certain schemes which result in a disposition of membership interests. It would be expected that a generational change in control of a family owned company would still enable the entity to be eligible to use the offset.
11. The company must have lodged its income tax return for the claim year & for each of the five years preceding that year if income tax returns were required to be lodged.
12. To carry back, (and the carry forward losses) rules are optional & not compulsory. All, or a portion of the losses may be used.
Finally, careful consideration of all factors should be considered before making a choice. One of these is the impact on the franking account and the ability to pay franked dividends in the future.
A Practical Guide To Implementing Cost Reductions
In the aftermath of the global financial crises many businesses have faced declining sales and debt pressures.
To neglect costs is to jeopardise survival.
This is so even in the aftermath of a commodities boom as we have experienced in Australia, as during these times businesses may have become complacent about managing costs.
Below are some approaches to implementing cost reduction.
Examine the three E's: economy, efficiency and effectiveness
Economy: Can we use less of the product or service by reducing waste or usage?
Efficiency: Can we lower the price by doing things right, better or more efficiently?
Effectiveness: Can we find a better way of achieving the aim by doing the right things?
e.g. selling costs could be reduced by visiting customers less often (economy), reducing per diem travel expenses (efficiency), or by using e-commerce (effectiveness).
A rigourous approach to the three questions may lead to quick savings. Economy and efficiency are the usual domain of the financial controllers where effectiveness may be more the domain of engineers or production managers.
Budgeting: zero based and priority based budgeting
Many businesses start their budgeting with an adjustment to last year's data.
Zero based budgeting requires that every cost is examined from scratch. It is unfortunately usual for whole areas to continue because they existed historically but no longer serve any useful function.
A periodic examination of all costs can highlight target areas.
An alternative is to start with a goal of reducing overheads with a target of say 15 or 20%, which will make managers accountable to prioritise expenditure. The focus would initially be on the larger items of expenditure.
Even fixed costs such as rents with upward only reviews can be reduced in a competitive market.
Many businesses over-engineer their product or services offering features which customers do not really value. The test is whether customers are willing or not to pay for the extra features. The marketing department should have a good knowledge of customers' wants and needs. An example may be airline travel where do customers prefer to have sustenance on short flights or cheaper air fares?
Renegotiate contracts with suppliers
Putting contracts out to tender often results in substantially reducing costs. Businesses often are willing to accept lower margins rather than lose important customers or business.
Often, key raw materials are carefully negotiated, but important overheads such as IT and insurance are neglected. The internet has helped to provide price transparency, but at time specialist knowledge may be required to be sourced by consultants.
If labour costs are too high as a key performance indicator for your business, natural wastage, the least painful remedy rarely is sufficient.
Traditional perks and subsidies need to be reviewed. When labour costs are too high for whatever reason (e.g. falling sales). the volume of labour must decline accordingly through reduced work hours, redundancies or mandatory leave.
The use of independent contractors by out-sourcing labour in may instances is more efficient (use only when needed) and hence reduces your cost structure.
Implementing changing costs
Hasty, emergency action should be avoided as risks, particularly to service and quality must be carefully assessed.
Excuses to avoid cost reduction are all too common, based on smugness, cynicism or lethargy. Self protection and fear are the usual causes of inaction.
Many managers accustomed to constant business growth find difficulty in adjusting to changed circumstances.
The business' accountant should play a pivotal role since strong financial control is vital to running an efficient successful business.
Salary packaging involves employees receiving part of their income in the form of fringe benefits of a non cash nature in addition to their cash salary.
The objective of salary packaging is to maximise an employee's net after tax income.
Salary packaging enables employees to maximise their after tax income by reducing the level of tax payable on their income and also to receive their salary in a way that suits their own personal circumstances.
In 1986 the government introduced the fringe benefits tax system to ensure all forms of income (including benefits of a non cash nature) was subject to some form of taxation.
There are three main types of tax on fringe benefits:
Full Value Of Items Received As A Fringe Benefit
The full value of items received is used when calculating fringe benefits tax payable on them.
Examples are mortgages, credit card payments, personal loan repayments and many other expenditures of a private nature.
Fringe Benefits Concessionally Taxed
These items have a reduced taxable value on which fringe benefits tax is calculated.
The fringe benefits tax rate is aligned with the top marginal tax rate but items concessionally taxed are done so at a lower rate.
The actual rate used will depend on the benefit provided as these vary.
Some items on which the value of the benefit provided is reduced are cars, remote area allowances and in-house benefits.
Fringe Benefits Exempt Items
These items are not subject to fringe benefits tax which means they are received tax free.
Examples are laptop computers, mobile phones, professional subscriptions, tools of trade and many others.
There are many types of fringe benefits that can be provided to employees.
Some of the more common ones are:
>> Novated car leases
>> Lap top computers
>> Tools of trade
>> Living away from home allowances
>> Relocation allowances
>> Remote area allowances
Negative Gearing Real Estate A Brief Overview
Whilst tax advantages of negative gearing are a huge incentive to purchase property there are other matters to consider to make the investment a successful one.
Obtain knowledge of the market you are investing in. There is a lot of information on the internet which you can access to do some initial homework.
Seek out the best professionals in the area you are interested in. They will have a more intricate knowledge & detailed information of the local market & alert you to opportunities as they arise.
Understand the information you have obtained from the internet and property professionals. Note the meaning of gross and net yields and average sales prices which can be skewed by one abnormally large sale. Be aware of the different classes of property such as residential, commercial and industrial besides other data such as vacancy rates.
Be extremely cautious if you are an "absentee landlord" and have virtually no knowledge of the local market in the first place e.g. interstate or overseas property.
There are many horror stories of disastrous property investments being made due to lack of knowledge of local council, government and tax laws.
Self Managed Super Funds (SMSF) are now able to invest in certain classes of real estate. Despite the many advantages of using a SMSF as the investing vehicle there are stringent rules and regulations that must be adhered to hence it is important that you obtain the advice of a professional specialising in this area.
An accurate valuation is critical as well as being required by financiers if you are borrowing to purchase the property or using a SMSF as the purchasing vehicle. Paying the right price is just as important as obtaining a good sale price when disposing of your investment.
Taxation benefits of negative gearing need to be fully understood to ensure you obtain the desired return over the life of the investment. Obtain advice from an accountant to obtain knowledge of the effects of capital and expense outlays and special depreciation allowances. It is also important to obtain advice as to which person, persons or entity should purchase the property.
Know the costs and legal risks of owning an investment property. There are many costs involved such as loan repayments, repairs, insurances, strata levies if appropriate, that must be considered to make sure you are able to afford to maintain the investment. Besides financial it is important that you are also aware of the legal risks involved in owning an investment property and that besides having the appropriate insurances in place you also comply with all statutory obligations.
Contact us for a free no obligation consultation re any of the above or any other tax, accounting, superannuation or business matters.
Key Performance Indicators (KPIs) Basics
KPIs are a measurement designed to assist in the decision making processes to enhance performance and increase profitability.
KPIs should be formulated from the key business drivers of the business to ensure that the entity performs at a high degree of efficiency at all times of the operating cycle.
Continual measurement of the KPIs enable adjustments or remedial action to be taken to prevent causes of inefficiences to prevail.
KPIs need to be defined and measured in a timely manner. A monthly measure cannot be a key measure to the business as it may well be too late to be timely.
British Airways (BA) was reportedly turned around by focusing on one KPI, late planes in the sky. Key personnel were notified immediately if a plane was delayed. The manager at the relevant airport knew that if a plane was delayed beyond a certain threshold, they would receive an immediate call from key personnel. With this focus it was not long before BA planes had a reputation for leaving on time.
There are at least seven characteristics of successful KPIs:
1. Are non financial measures i.e. not expressed in dollars.
2. Are measured frequently at all times during the operating cycle daily, or weekly.
3. Are acted upon by key personnel.
4. Clearly indicate what action is required by team members i.e. they understand the measures and know what to fix.
5. Are measures that can be allocated to a particular team that can take the necessary action and be held accountable.
6. Have a significant impact on performance of one type or another e.g. labour hours or units of materials.
7. Encourage appropriate action to be taken by team members using tested methods which will have positive impacts on performance.
It is the non financial nature of the measure that is the characteristic that is the key to the success of the KPIs.
Financial measures are a quantification of an activity. We have placed a value on the activity, hence behind every financial measure is an activity.
Financial measures may thus be referred to as result indicators and a summary measure.
It is the actual activity that you will want more or less of, it is the activity itself that drives the dollar value. Thus it is the non financial measure that is the true KPI.
Every measure can have a negative consequence. In order to make measures work they need to be discussed with team members to ascertain what actions they are likely to take.
Trial measures and observe behaviour, and then make adjustments as to how the measure is used so that the behaviours it will promote are appropriate. Team members will do what management inspects, not necessarily what management expects.
There are four Capital Gains concessions that may apply to reduce the capital gains tax (CGT) where a small business is sold on or after 21 September 1999.
. The 15 year exemption
. The 50% reduction
. The retirement concession
. Rollover relief
For a business to qualify for any of the above it must meet the basic conditions as noted below:
- is a small business entity for the year in which the CGT event occurs being a business which satisfies the $2m aggregate turnover test, or
- satisfies the maximum $6m net asset value test, or
- is a partnership that is a small business for the income year and the CGT asset is an asset of the partnership, or
- satisfies the asset ownership and use requirements
- the CGT asset must satisfy the active asset test, and
Where the asset is a share in a company or interest in a trust, one of the following two conditions must be met:
- the entity claiming the concession must be a CGT concession stakeholder in the object company or trust just before the CGT event, or
- the CGT concession stakeholders must together have a small business participation percentage of at least 90% in the entity claiming the concession just before the CGT event.
The 15 year exemption
A taxpayer can disregard a capital gain arising from a CGT event in relation to a CGT asset that it has owned for at least 15 years if:
. the basic conditions above are met, and
. the entity continuously owned the asset for 15 years before the CGT event, and
. if the entity is an individual, the individual retires (must be 55 years or older) or is permanently incapacitated, or
. if the individual is a company or trust, the entity had a significant individual (hold at least a 20% participation percentage) for a total for at least 15 years throughout its period of ownership and the individual who was the significant individual just before the CGT event retires or is permanently incapacitated. The 15 year period does not have to be continuous and the significant individual does not have to be the same significant individual during that 15 year period.
Where the 15 year exemption applies, there is no need to apply the other three exemptions.
The 50% Reduction
If the entity does not qualify for the 15 year exemption but still meets the basic conditions, the capital gain can be reduced by 50%. Current year & prior year capital losses must be applied first before applying the 50% reduction. This capital gain may be further reduced by applying the small business retirement exemption or small business rollover or both. You may also choose which order to apply these concessions.
The Retirement Concession
A taxpayer may be able to claim an exemption up to a maximum capital gain of $500,000 where the capital proceeds of a small business are used for retirement - although it is not necessary to retire. The capital gain may be disregarded where the basic conditions are met and, also other conditions depending upon whether the capital gain is made by an individual, company or trust.
An individual can apply the retirement exemption if:
. The basic conditions are met
. the taxpayer makes a written election which specifies the amount the taxpayer chooses to disregard (the CGT exempt amount), and
. where the taxpayer is aged 55 or older there is no requirement to pay an amount into a complying superannuation fund. Where the taxpayer is under 55 the CGT exempt amount must be rolled into a complying superannuation fund.
Companies and Trusts
Broadley, a company or trust can also choose to disregard an amount under the retirement exemption if:
. the basic conditions are met
. the entity satisfies the significant individual test
. the entity makes a written choice to apply the exemption and each CGT stakeholder's percentage of the exempt amount
. the entity makes a payment of any capital gain exempted under the retirement exemption to CGT concession stakeholders by the later of seven days after the choice is made by the entity to disregard the capital gain, or seven days after an amount of capital proceeds is received by the CGT concession stakeholder. The payment must be calculated by reference to each individual's percentage of the exempt amount, and
. if the CGT concession stakeholders is under 55 before the payment is made it must be made to a complying superannuation fund.
The $500,000 cap for the exempt retirement exemption amount is per each individual, hence if there were 3 concessional stakeholders the total exempt amount would be $1,500,000.
A taxpayer may claim rollover relief of the capital gains by acquiring one or more replacement assets if done within the replacement asset period. The replacement asset period is one year before and ending two years after the last CGT event in the income year for which the taxpayer obtains the rollover.
To obtain the rollover, the basic conditions must be met and the replacement asset must be an active asset at the end of the replacement period. Where the replacement asset is a share in a company or trust the taxpayer must be a concession stakeholder in the entity, or the CGT concession stakeholder must have a participation percentage in the small business entity of at least 90%.
The rollover relief may be applied typically in circumstances where a business is sold and another business is acquired within the replacement asset period.