Tax. The three-letter word that is not incredibly exciting and probably creates a sense of dread above everything else. Unfortunately, as one renowned politician once said, tax and death are the only things in life that remain constant.
Starting a new business can be exciting and exhilarating both on a professional and personal level. While it’s a new milestone in your life, challenges do exist and one of the most common problem faced by business owners, is the proper setup, administration and ongoing management of your finances and business accounts.
Building a business is hard work. Successfully maintaining it’s growth is another challenge altogether. As a business owner, running a business is incredibly overwhelming especially when you’re expected to be competent across all areas of operations.
Operating a small business can be a challenge, but one of the biggest difficulties is making the most out of your valuable resources: time, skills and knowledge. As experienced professionals in small business consulting, we often see business owners working harder and longer, but still failing to achieve their business goals and objectives.
The Liberals have tried to butter-up voters in this budget, but they have to be re-elected for any of this to happen. Here is what they are promising:
1. Individual Tax Cuts
No cuts to the tax rates for now, but they’ve tinkered with some of the offsets as follows:
Taxpayers with income between $48,000 and $90,000 will be eligible for a maximum $1,080 tax offset, phasing out up to incomes of $126,000. Ends on 30th June 2022.
The low income tax offset will increase from $645 to $700 per year.
Then, from 1 July 2022 the tax rates will be manipulated as follows:
income tax threshold for the 19% income tax rate will increase from $41,000 to $45,000 per annum;
From 1 July 2024 the 32.5% personal tax rate will reduce to 30%, with the 37% tax rate abolished, and the 30% tax rate applying up to income of $200,000. There are some real tax savings in here for middle Australia.
The Medicare levy low-income thresholds for singles, families, seniors and pensioners will be increased from the 2018/19 income year.
2. Business Asset Write Offs
The instant asset write-off threshold for businesses with combined turnover of less than $10m will be increased from $20,000 to $30,000 for eligible assets that are first used, or installed ready for use, from 7.30 pm (AEDT) on 2 April 2019 to 30 June 2020.
Medium sized businesses with a combined turnover of $10m or more but less than $50m will now also be able to immediately deduct purchases of eligible assets costing less than $30,000 that are first used, or installed ready for use, from 7.30 pm (AEDT) on 2 April 2019 to 30 June 2020.
Some good stuff announced here:
Members of regulated superannuation funds will not have to meet the work test after 1 July 2020 if they are 65 or 66 years of age.
The restrictions on claiming the spouse contribution tax offset will be eased from 1 July 2020, giving 70 to 74 year old spouses eligibility.
4. Indirect taxes and grants
NO changes affecting GST.
For vehicles acquired on or after 1 July 2019, eligible primary producers and tourism operators will be able to apply for a refund of any luxury car tax (LCT) paid, up to a maximum of $10,000.
Currently these businesses may be eligible for a partial refund of LCT up to a maximum of $3,000 on 4-wheel or all-wheel drive cars.
The Budget confirmed that the Government will contribute an additional $60m towards the Export Development Grant Scheme over the next 3 years.
And Labor’s Reply?
Don’t bank on any of this stuff happening. The Liberals have to be re-elected first. However, they will match the tax cuts proposed by the Liberals for those earning between $48,000 and $126,000.
Labor will extend the tax cuts to those earning less than $40,000 – but they will limit the tax benefits for those earning more than $125,000.
Labor will boost payments for cancer patients through Medicare, restore public health funding cut by Liberals, put $1Bn into TAFE and apprenticeships – looking to put 150,000 new apprenticeships out there.
Labor will give $2000 to families looking to install a battery storage system
How are they going to pay for all this?
Labor will change negative gearing to remove “unfairness”
Labor will take away refunds of franking credits
Labor will reduce the 50% discount on capital gains
If Labor gets in, expect no changes on day-one. They will do a mid-year economic statement around September, and then set the platform for their changes after that.
How much PAYG (provisional) tax you’ve paid in advance…ie how much tax you have in the kitty.
What options you have to reduce tax (that is where the accountant comes in).
All of which will produce the amount left to pay (or refund) in March/April 2020. How good would it be to know how much you are up for – 12 months in advance! Heaven.
There are a couple of leg-ups that the government has given us this year
the main one being you can immediately write-off any expenditure of $25,000 or less (ex-GST) in one hit (was $20,000…now lifted to $25,000).
Superannuation is always a winner…but the rules are a bit onerous…you need to plan ahead to get it right and maximise the deduction.
If you are a farmer, you can claim fencing and fodder storage expenditure in one hit also…and there is no limit…provided they are installed and ready for use after 19th August 2018. This covers pretty much everything, except for stockyards, pens, and portable fencing. Definitely worth thinking about, especially as spending on infrastructure is always put off due to the size and the usually disappointing tax benefits. This is one of those rare years where you actually get a bang for your buck.
I’ve made it sound easy…there is the usual “fine print” so you do need to talk to a professional about it. There is always an opportunity to defer income or bring forward expenditure…but you need to do it right…and you need to weigh up whether it is worth it. That is what the discussion should be about. If you have to spend 3 times the amount of tax you are trying to save, you need to ask yourself if this is worthwhile…and does it fit in with your financial goals? If your main goal is to reduce debt, you might be better off paying a bit more tax, and applying the extra cash towards getting that overdraft or term loan down instead. If you already have alot of debt, then paying it down will shield you from future economic downturns. If you just blindly try to minimise tax, you may be setting yourself up to fail later on.
On the other hand, if you are trying to grow your business, maybe there is a case for putting on more staff or investing in a piece of equipment. There is no “right” answer…it all depends on your circumstances and what you are trying to achieve. The main benefit you will get out of this is you’ll know how much tax you are up for – 12 months in advance – and also you’ll know why you are doing things and also why you are not doing things. It will help you relax and focus on what is important…AND it will help you allow for it in your cash flow planning.
Call us to discuss. We love working all this out for you.
There is a lot of talk going on around this at the moment. Everybody has to jump on board from 1st July 2019. Here is what you need to do:
Check if your software can handle it:
If you are using Xero software, you don’t have to do anything extra…payroll is included in the standard package.
Agrimaster users will need to buy Wagemaster package – which is an add-on to Agrimaster and not too expensive.
MYOB, Intuit and Reckon have a $10 per month add-on product (but check first, because some of you may be on a package that includes payroll already).
If you don’t have any of these computer programs, you can access the government cheap stand-alone options ($10 per month or less), namely:
Single Touch Pty Ltd
Cloudpayroll Pty Ltd
AccXite Pty Ltd
Free Accounting Software Pty Ltd
(there are more software providers to come, but they haven’t been approved by the ATO yet)
Once you have chosen your software provider, install the program and set up the payroll system (or get us to help you with it). You will need the employees’ full details – name, address, telephone numbers, emergency contact numbers, tax file number, the date they started working with you, leave balances etc…
Then, start using the program to run the pays now…so you can get used to it before 1st July comes along. That way, we can iron out any bugs before you go live on 1st July 2019. The most difficult bit is installing the add-on and inputting all the employees’ details all over again (you probably have a book somewhere with all this in). Also, some programs will require timesheets (if the pay varies with overtime or extra hours worked etc).
It actually is a positive thing, because it will make the production of Payment Summaries (previously called Group Certificates) easier, it will work the tax and super out for you…plus it will also help with tracking leave and hours per employee…avoiding any unpleasantness when it comes to taking leave or calculating final pays.
So, don’t dilly-dally…get into it and call us if you get stuck.
GST and Income Tax Law don’t always follow suit, so be careful not to assume too much when doing your coding/reconciling your books – logic doesn’t always prevail, and there are always exceptions to the rules. Here are the most common areas in which we find errors:
Get your chart of accounts (code list) right. You can save 99% of errors if you get a qualified bookkeeper or accountant to review your setup. They can help you get all the default tax codes right…so all you have to do is allocate the income or expense to the right code, and it will all fall into place for you.
Loans are complicated. Generally speaking, if you take out a loan, the receipt of the loan doesn’t have any GST in it…nor do the repayments that you make on the loan. So when receiving or paying off a loan, there is no GST. The item that you have bought with the loan funds may have GST on it (and you can claim that) but anything to do with the loan itself will not. This applies to bank loans, Hire Purchase and Chattel Mortgages. It also includes insurance premium funding. The GST on the insurance premium is deductible, but the loan repayment on the insurance funding is not. The exception to the rule is a lease. In this case, you don’t own the asset, you are hiring it from the loan provider…which means there will be GST on the payments. When in doubt, call your bookkeeper or accountant.
As a general rule, you can’t claim GST on anything that is private in nature: Food, Clothing, House Rent, Home Repayments, Directors Fees etc.
Most Government departments are not registered for GST, so there won’t be GST on some items, eg: Motor Vehicle Registrations, Rates, Water, ASIC fees etc.
Other tricky items are Bank Charges, Paypal fees, Google Adwords, interest, Goods or services purchased overseas. No GST on any of this stuff.
Not all Sales have GST on them either. Basic human services like medical and health care, water, fruit, raw meat, bread etc don’t have GST in them.
Don’t forget to include trade-ins of business vehicles and plant when you buy a new one. There is GST on both sides of that transaction.
Don’t mix up your wages with the other business expenses. Wages, PAYG tax and superannuation don’t have GST on them, they are reported separately on your BAS…if you mix them up with the other expenses in G10 or G11, you may inadvertently claim GST on them. Wages appear at W1 and the PAYG tax deducted from your employees’ wages appears at W2.
Above all, read the invoice. Make sure there is GST on it – sometimes you will be dealing with small businesses that are not registered.
When in doubt, consult your bookkeeper or accountant.