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.
Single Touch Payroll becomes a reality on 1st July 2019. This is what you need to do to make sure you are ready for it:
Get your systems sorted
By now, you should have made your choice as to how you are going to record your payroll payments (ie what sort of software you are going to use). We recommend Xero, but there are a number of other software providers that can do the same thing – try this link: Single Touch Payroll Software
Setup your employees
Once you have your software installed, setup your employees, their superannuation funds, leave balances, pay rates, dates of birth, award rates etc
Do a couple of pay runs and iron out any bugs
You don’t have to send the information to the ATO just yet, so it is okay if you make mistakes at this point. You can use info from a previous pay run and see if it all works out the same.
Register with ATO
If you are lodging your own BAS through the business portal or MyGov account, then you need to advise the ATO of the software’s SSID (software service ID). You can do this by calling the ATO and giving them the SSID or using the prompts in your payroll software to do it. If you opt to use the software prompts and you’re having trouble, try typing it all in capital letters…that seems to help.
If your Accountant or Bookkeeper does this for you, you don’t need to worry…as they will set this bit up with the ATO.
Even if you have no money in the bank, and don’t think that you have any tax to pay, it is still worth having a chat with your accountant. This is why:
Crunch the numbers and see where you are at. Just because there is no money in the bank – doesn’t mean that you haven’t made a profit. You may still have tax to pay because you’ve spent the money on yourself, your house, bought some “toys” or paid off some debt – none of these amounts are tax-deductible. We are finding that the banks have upped the ante after the Royal Commission, and are forcing everybody to pay principal+interest on their loans (which is a good thing) but the amount you pay off the principal is not a tax deduction. So, your cash flow is down, but you don’t’ get a corresponding bang for your buck on the tax side of things.
If your accountant determines you don’t have any tax to pay, you can
look to reduce the upcoming PAYG installment that is due on 28th July 2019
Enquire as to whether any money is available through Centrelink/government assistance to help you
Do some cash flow planning and compare how you are going to industry benchmarks, and determine if there are any areas you need to address
Your accountant can refer you to marketing experts to help you increase your sales (or if you are a farmer, your accountant can refer you to a farm consultant to do a financial health check on your business).
Write off Any Bad Debts
The debt must be bad…and not just “doubtful”. It depends on the steps you’ve taken to recover the debt (which includes debt collection, legal notices, writs etc) keep records of all of that. Note: if you are reporting on a cash basis (so you only pay tax when the money hits the bank) there is a good chance you haven’t paid tax on it (because it hasn’t hit the bank) so you can’t claim back what you’ve never claimed. Talk to your accountant about that.
Stock – Do a rough stock valuation and get rid of anything that is old, not up to scratch, or no-good
If the stock valuation is more than last year, that will be part of the reason that there is no money in the bank. Worse still, the higher the stock value; the higher your profit, which equals more tax to pay.
This applies to farmers too. Do a head count now…and determine how many will be left on 30th June.
In both cases, get rid of anything that is old, not up to scratch, or no-good. When I say “get rid of” I mean we can value these at $Nil if they are unsellable. The lower the stock valuation, the less tax you pay. You are allowed to value your stock at what it cost you or what you can sell it for – whichever is the lower. So go for it.
If your cash flow is good enough, hold off invoicing your customers until July (but only you can handle if financially…make sure you do the numbers on that first).
Bring Forward Expenditure
Need something in July or August? If your cash flow can handle it, do it now. I’m talking business inputs, not vehicles, plant or equipment (see below for that). Again, run the numbers and make sure you can handle it first.
You can pre-pay some expenses in advance up to 12 months in advance. Talk to your accountant about this before you do anything…there are rules to consider.
Plant, Machinery, and Equipment
You can claim an immediate deduction for any item (from a phone to a truck or any other vehicle) that cost $29,999 or less (ex GST). So, if you are looking for a 2nd hand Ute, or some computer gear, a bobcat or even a light truck…this could work for you. Note that it has to cost BELOW $30,000 (ex GST) don’t buy something for bang-on $30K or you won’t get it.
Farmers – you get this PLUS you get automatic write-offs for fencing, grain storage, hay storage, and water storage/conveyancing equipment.
Review your depreciation schedules now to identify assets that can be written off before 30th June 2019.
For Your Workers: Pay your workers superannuation before the end of June (if you know how much it is going to be). Most of us wait until 28th July to pay it (which is the deadline) but not many people know that – if you pay it in July – you won’t get the deduction for that payment until July either.
For yourself: If your superannuation balance is less than $500,000 – and you haven’t paid the maximum $25,000 deductions for yourself over the last 3 years…you can “catch up” and make up the difference between what you have paid and the 3 x $25,000 that you “could have” paid. You can do this as a five-year rolling balance catch up from now-on.
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.