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December 2016

Late payments hitting SMEs hard

 

Late client payments are having an increasingly significant impact on the personal finances of SME owners and often affecting their ability to cover basic business expenses, new research from MYOB has found.

         

 

MYOB’s SME Snapshot found 77 per cent of businesses felt some sort of business impact due to a customer not paying their bills on time, while only 23 per cent saw no impact at all.

Thirty-five per cent of business owners cited an impact on their personal finances, and 32 per cent said it affected their ability to cover expenses such as rent and power.

Late payment also takes an emotional toll on SME owners, with 52 per cent confirming it impacts their stress and anxiety levels.

A further 72 per cent agree regulations should be introduced by the government to ensure prompt payment, a sentiment that MYOB chief executive Tim Reed echoed.

“The financial health of Australia’s small business owners should be a top priority and the research indicates this also has a direct impact to their own personal wellbeing,” said Mr Reed.

“Improving this situation to ensure all businesses are being paid on time should be a shared responsibility across federal government and businesses of all sizes,” he added.

“Given the overwhelming support for this initiative, it would be a positive move to see the government and big businesses put forward an initiative to implement a national prompt payment protocol to ensure small businesses are not being delayed payments by other businesses.”

 

KATARINA TAURIAN
Thursday, 27 October 2016
accountantsdaily.com.au

Research reveals key to ‘high-performing’ firms

 

New research from Macquarie, surveying hundreds of small to mid-tier accounting firms, has identified the points of difference of firms effectively driving growth and profitability.

         

 

The Accounting and Financial Services Benchmarking Report looked specifically at the key trends among firms earning above average profits, and at how they approach their business. 

Importantly, the report found that high-performing firms are “significantly more effective” at driving growth and profitability through leveraging the capabilities within their business, and value-adding with existing clients.

“Nearly 80 per cent of high-performing businesses say adding value to their existing client base is the most effective profitability lever they have in the current market. In comparison, firms achieving below average profit are most likely to look outside their business for profitability growth, with 50 per cent reporting new client acquisition as a key profitability driver, compared to 32 per cent of high performers,” said David Clatworthy, division director for Macquarie Wealth Management.

“By doing more with the resources and client base they already have inside their business for growth, high-performing firms are focusing on creating value that will both drive referrals from existing clients and grow revenue per client. These practices have spent more time understanding their clients’ needs and in turn have introduced additional services, resulting in a higher proportion of multidisciplinary clients,” he said.

“This ultimately means high performers are leveraging the factors they have greater control over, allowing them to provide better value to clients and flexibility to adapt to and make the most of market conditions,” he said.

High performers also differentiate themselves by their focus on improving the technologies they use and retaining quality staff.

Fifty-seven per cent of high-profit firms rate retaining quality staff as one of their key strategies for profit performance, compared to 35 per cent of businesses with below average profit.

While all firms reported that the service and expertise they deliver are what clients value most, higher-performing businesses believe their clients are also likely to focus on the expertise and capability side of the equation.

“In an evolving industry, it will be critical for businesses of all shapes and sizes to position themselves strongly for growth. Accounting and financial services firms need to look at ways to ensure they are continuously innovating to meet the opportunities and challenges ahead,” Mr Clatworthy said.

KATARINA TAURIAN
Thursday, 20 October 2016
accountantsdaily.com.au

‘Beware the tax man’ eyeing holiday period activity

 

The ATO is poised to home in on fringe benefits tax (FBT) on celebrations and gifts this festive season, according to one mid-tier firm.

           

 

Depending on where a Christmas party is held, how much is spent on each guest, and whether gifts count as entertainment, FBT may be applicable, said Mariana von-Lucken, tax partner at HLB Mann Judd Sydney.

“Businesses should keep in mind that there are two main methods for reporting FBT, the ‘actual’ and the ’50-50’ split method, and understanding how each of these work can help minimise the FBT liability,” she said.

“With the 50-50 method, FBT exemptions generally do not apply, regardless of the cost of any entertainment, so as a general rule, businesses are better off using the ‘actual’ method if entertainment expenses are likely to be under $300 a head,” she said.

Ms von-Lucken stressed the importance of keeping accurate records, adding that while the 50-50 split method usually requires less record-keeping, it can mean more FBT needs to be paid.

“It will depend on who is being entertained – clients or staff. If more staff attend, then the 50-50 method may help reduce the FBT liability,” she said.

“The 50-50 method basically means that FBT is payable on 50 per cent of the expense of providing meal entertainment to all guests, whether staff, clients or family.

“The actual method, on the other hand, means FBT is paid on all expenses for staff, but if any clients attend the event then there is no FBT payable on their expenses. Keep in mind that the client portion is not tax deductible and employers are not able to claim the GST in their business activity statements.

“Generally, using the actual method to report liabilities tends to ensure a lesser FBT liability; however it is important accurate records are kept to verify claims.

“Also, the method chosen applies for the entire FBT year, not per event, although for many businesses a Christmas party is the sole event they host for the year.”

Using business premises for a Christmas party is a fairly safe bet, however.

If the party is held on the business’ premises, on a normal working day, with just employees attending, there will be no FBT liability as long as the actual method of reporting is used, said Ms von-Lucken.

“There is also no limit on the amount that can be spent, and this includes expenses such as taxi fares for employees to get home after the party,” Ms von-Lucken said.

“If other people attend the party, such as spouses, the total cost per person must be less than $300 (including GST) to remain FBT-exempt.

“If the 50-50 method is used, then 50 per cent of all expenses will be subject to FBT regardless of how much or little is spent per guest. However, a GST credit is claimable for 50 per cent of the GST-inclusive cost of the food and drink, and a deduction is available for 50 per cent of the GST-inclusive cost, less any GST credit claimable.”

Further, if the party is held off the business premises, it will still be exempt from FBT if the cost per head is less than $300 as long as the actual method is used. No tax deduction is available or GST credits claimable in this instance.

KATARINA TAURIAN
Wednesday 20 November 2016
accountantsdaily.com.au

Employee Christmas Parties and Gifts – Any FBT?

 

The Christmas break-up party and/or gifts to employees can be exempt from Fringe Benefits if a few rules are followed.

         

 

The cost can be exempt as either an exempt property benefit or an exempt minor benefit.

Exempt Property Benefits

  • Costs like food and drinks provided for employees as part of a Christmas party, provided on a working day on business premises and consumed by current employees of that business.

Exempt Minor Benefits

The rule can apply when the property benefits exemption doesn’t apply, i.e. because the party is held at a restaurant or separate venue.

  • Cost per employee must be less than $300 (GST inclusive)
  • Associates of employees such as spouses and children are regarded as employees (hence the limit for an employee and partner would be $300 each)

Gifts are also considered separately from the Christmas party, so provided the cost of a gift and the party are each less than $300, then both would be exempt from FBT.

The minor benefits threshold of less than $300 applies to each benefit provided, not to the total value of all associated benefits.

 

AcctWeb

FBT – Christmas Parties and Taxi Fares

 

Some employers, who are commendably anxious to protect their employees and clients from the drink/driving laws, also pay for taxis to take employees to and from the place of entertainment.

         

 

For FBT purposes there may be different consequences for payment of the taxi fare.  In respect of clients, the taxi fare is considered to be part of the entertainment expense and no deduction is allowable.  For employees, if the fare is for travel from home to the place of entertainment (not being their place of employment) and return home again, the benefit is considered to be for the facilitation of entertainment and is not a separate benefit from the entertainment itself.

The result is that the employer would then have to rely on the total entertainment package being under $300 for the minor benefit rule to apply.

However, if the Christmas function is held on the employer’s premises and the employer chooses to send the employee home by taxi, the taxi trip is FBT exempt provided that the trip is a single trip, which began at the employee’s place of work.  The exemption would apply if the employee went from the work place to home, or any other place.  However, the exemption would not apply if the trip was broken and continued at some other time.  For example, the employee gets a taxi from the workplace and goes to a nightclub; that trip is deductible and exempt from FBT.  If the employee later gets another cab to home, that leg of the trip would be deductible to the employer but FBT would be payable.

Note however, that if the employer is using the 50/50 split method of calculating FBT and deductions, the taxi travel would always be included in the cost of entertainment, and there would be no exempt journey for travel from the workplace to home.

 

 

AcctWeb

Big-ticket tax set for government review

 

The government has announced it will make moves to ensure that multinationals pay the appropriate amount of tax on their activities in Australia.

         

 

Treasurer Scott Morrison yesterday announced a review into the operation of the petroleum resource rent tax (PRRT), the crude oil excise and associated Commonwealth royalties. 

Independent expert Michael Callaghan AM will lead the review with the support of a secretariat within the Commonwealth Treasury.

The review will advise the government on the extent to which the PRRT is operating as originally intended, and address the reasons for the rapid decline of Australian PRRT revenue.

“We will ensure that the PRRT provides an equitable return to the Australian community from the recovery of petroleum resources without discouraging investment in exploration and development that is vital to the industry,” a statement from Mr Morrison read.

“The government welcomes the recognition and support to date from the industry on the potential for reform to the PRRT and we look forward to working with the industry on how we can ensure this important tax measure is working in the way it was intended.”

The review will invite submissions from the public and report back to the government by April 2017 with its recommendations for the reform of the PRRT.

 

LARA BULLOCK
Thursday 1 December 2016
accountantsdaily.com.au

Getting a tax valuation from the ATO

 

We all know that the ATO is the guardian of the tax laws, administers tax regulations and can provide advice and guidance on how they apply. But ….

…. not every personal situation fits neatly with the tax laws as they stand. Sometimes, an individual may need help understanding and meeting their tax obligations. In such circumstances, private rulings are one form of ATO advice that you can access.

         

 

Under the tax law, you can apply for a private ruling about the value of an asset, such as an item of plant. Particularly under capital gains tax, there are a number of instances where a valuation may be necessary.

In doing this, there are two choices:

  • ask the ATO to provide the valuation, or
  • provide the ATO with a valuation of the item and ask it to confirm that valuation.

The ATO may take the option to use a professional valuer to undertake or review your own valuation. The valuer usually charges the ATO a fee, which the law allows it to pass onto you. Consequently, when you apply for a private ruling requiring a valuation, it is also required that you pay for the work of the valuer.

The ATO cannot provide a private ruling to determine or confirm either the:

  • appropriateness of a valuation methodology, or
  • value for a future event.

Cost to you for valuation

Whenever the ATO uses a professional valuer, it will first give an estimate of how much the valuer will charge. This amount is generally required to be paid before the ATO will proceed.

You can however withdraw your application for a private ruling if you do not want to proceed with, or pay the cost of, the valuation, which will be confirmed in writing by the ATO. If however the valuation work has already started, it will generally be required that you pay for the work already undertaken.

If you provide the ATO with a valuation that meets the requirements set out in the ATO guidance Market valuation for tax purposes, it will generally cost less to confirm it than to undertake a new valuation.

If the ATO decides that the valuation you have provided is not acceptable, before it issues a private ruling the ATO will ask if you want to either:
•    submit a new valuation for review, or
•    ask the ATO to provide the valuation.

You will need to pay any further costs the professional valuer charges to the ATO. And if the ATO does not receive any such advice, it generally will issue a private ruling stating that your valuation is not acceptable and that it will not provide an alternative valuation.

What happens when applying for a private ruling about the value of an item?

When the ATO receives the application for a private ruling that asks to determine or confirm the value of an asset, the following occurs:

  • if it needs to use a professional valuer, before it starts the valuation process it will tell you, and ask you to agree in writing, to use a professional valuer
  • it will ask for your input when selecting and instructing a valuer
  • it will ask the professional valuer to provide a quote for the work – either to value the thing, or to review the valuation that has been supplied
  • the ATO will provide you, perhaps via your tax agent, with a copy of the valuer's quote, which contains
    • the cost of their work
    • the time it will take to provide a report
    • any additional information they require to complete the work.

For complex valuation cases, the valuer may need to do the work in stages. In these situations, they will provide a quote for each stage before starting work on it. And before the valuer starts work, the ATO will ask you to:

  • pay the estimated amount for the relevant stage, and
  • provide any additional information the valuer requests.

Within 28 days of receiving the quote, you need to pay the quoted amount, which may be the whole amount or the amount for the stage in question.

he ATO generally does not ask the valuer to do the work until payment is received. Once the ATO receives your payment, it will:

  • ask the valuer to start the work, and
  • send you a receipt for your payment.

The receipt the ATO issues is also a tax invoice – and note that you may be able to claim the GST included in the valuer’s fee as a GST credit. Also note that as the cost of the valuation work is considered to be a cost of managing your tax affairs, it may be deductible for income tax purposes.

The ATO will tell you:

  • when the valuation is finished or confirmed, and
  • if there are any changes to the final cost of the valuation or review.

It will then either:

  • refund any extra amount you paid, or
  • ask you to pay any shortfall.

If there is a shortfall, this will need to be paid this before the ATO will provide your private ruling. Generally however, it can complete your private ruling within 28 days of receiving the valuer's report.
Private rulings involving a valuation may take longer than other private rulings because of the possibility of having to engage a professional valuer. Generally, the ATO will make contact within 14 days of receiving such an application to discuss an appropriate reply date.

 

Tax & Super Australia 
www.taxandsuperaustralia.com.au

5 tips to get home office deductions right

 

You might be sick of the daily commute, or want more flexibility of hours – or it could be that you have a talent or skill and feel sure that this can translate into a fulfilling career in your own business.

         

 

Or it could just be that the idea of working from home seems to offer a better work/life balance.

So if you’re in the position to be able to have your cake and eat it too, there just may be icing for that cake in the form of tax advantages. 

Indeed Australian Bureau of Statistics (ABS) reports indicate that home-based work is prevalent in the Australian community. The 2006 Census showed that 426,523 Australians said they worked from home, and the 2011 survey had 443,939 similarly employed. The upward trend is expected to continue, and it will be interesting to see what data comes out of the recently completed 2016 Census.

Deductible expenses that crop up from working at home are generally classified by the ATO as being either: 

  • “occupancy” expenses, or
  • “running” expenses.

As a rule of thumb, someone operating a home business from a dedicated area of the house will be able to claim both types of expenses. Employees who do some work from home for convenience are generally only entitled to claim running expenses but not occupancy costs. Of course there are exceptions to this general rule and it depends on the person’s circumstances.

Occupancy cost deductions

These relate to expenses for using the home obviously, but not necessarily directly tied to the business itself. These can be rental costs, perhaps mortgage interest if you qualify, council rates or insurance premiums.

To claim a deduction for any occupancy expense, the area you set aside for working needs to have the “character of a place of business”. In other words, the room in your house that hosts “Hilda's Hair Salon” or “Collin’s Consulting” should have the characteristics of a place that is exclusively set aside to offer whatever product or service that home-based business is involved in. 

Taxpayers can generally claim the same percentage of occupancy expenses as the percentage area of their home that is used to make income (for example, if the home office is 10% of the total area of the home, then you can claim 10% rent costs, council rates and so on). However opting to claim occupancy expenses, especially mortgage interest, will mean you will be expected to account for any capital gain attributable to that same business area of the home when the house is sold.

The physical size of the business area is not always the most appropriate measure. The ATO may for example also accept an apportionment based on the proportionate market value of the area used for the business compared to the rest of the property, if this differs markedly from proportionate size. The ATO will also expect you to pro-rate your deductions on a time basis if you use the room for private purposes for a part of the year.

No specific work area – no occupancy expense deductions

You may still work from home but may not have a particular area set aside primarily or exclusively for these income-producing activities. Tim the teacher, for example, could be writing student reports next to the kitchen radio one day or on the front porch another day. There is no defined area from which the work is done, but Tim can still claim deductions for some utility usage such as gas or electricity (running expenses – see below). He just needs to apportion expenses and be able to show how he reached these amounts. 

Then there are phone costs for business use, and even the decline in value of “plant and equipment” (chair, desk, computer) to the extent that those items were used for his income producing activities. He will however be unable to make any claims based on renting or owning the house, and also rates or insurance (that is, occupancy costs).

Running expenses

These can generally be viewed as those costs that directly result from using facilities in the home to help run the business, or to enable you to do a bit of work from home. These would include electricity, gas, phone bills and perhaps cleaning costs. 

Running expenses may be deductible where someone with a home office can establish that they have incurred additional expenditure on the running expenses as a result of their income producing activities. Essentially, taxpayers can claim a deduction actually incurred through their income earning activities that is additional to their private expenditure (our emphasis). 

Bundled phone and internet plans

It is common for households to subscribe to “bundle” plans. These subscriptions typically give the household access to two or more services (typically phone, internet, and subscription television services) from the same service provider. One periodic (usually monthly) fee is charged for the single bundle. 

The bundle fee is always lower than the sum of the fees that the taxpayer would have to pay if they subscribe to each service separately. This is a critical characteristic of a service bundle as it affects the calculation of the amount that is deductible. 

It is necessary to appropriately match work-related use to particular costs. The ATO suggests that the bundle cost can be separated into different components as follows: 

  • an apportionment based on the supplier’s breakdown of the relative cost of the bundled components 
  • an apportionment based on the relative costs of the bundled components as if they were purchased separately from the same supplier, or 
  • if there is no breakdown available, then an apportionment based on information obtained from a comparable supplier. 

The “cents per hour” method – an easier way to calculate running expenses deductions

The ATO offers taxpayers an administrative concession for calculating running expenses deductions. The home office deduction can be calculated at the rate of 45 cents per hour. (This rate applies from 2014-15, and was 34 cents per hour from 2010-11 to 2013-14.)

You are still required to keep a record of number of hours worked at home, but are relieved of the burden of calculating the precise deductible amount for each type of running expense.

So if you’ve been diligently working away at home, whether as an employee or in your own business, it could pay to find out more about claiming all your rightful deductions.

 

Tax & Super Australia 
www.taxandsuperaustralia.com.au

ATO fires warning shots at cash economy exploiters

 

The ATO has warned businesses in the cash economy are a major focus area for the regulator as it ramps up its scrutiny of third party data, in an effort to ensure  a fair marketplace for businesses doing the right thing.

           

 

Looking ahead to 2017, ATO assistant commissioner Colin Walker told AccountantsDaily that the ATO will continue to home in on the cash economy.

“We're very much looking at the cash and hidden economy,” Mr Walker said.

“That is a major focus for us and in the past it would've been viewed as catching people who are involved in the cash economy. The focus these days is very much around protecting the honest businesses from unfair competition.”

Mr Walker said the ATO now understands that it needs to deal with the impact of wrongdoers on law-abiding businesses.

“We don't want to have a situation where businesses are struggling because they are suffering from unfair competition,” he said.

“So we're very focused there in areas such as the restaurant and cafe, hair and beauty, and building and construction [sectors], and other areas such as the sharing economy industries will be focuses into the future in that space.”

IPA senior tax adviser Tony Greco added that the increased amount of third-party data available to the ATO is helping to facilitate its crackdown on the cash economy.

“For small business there are benchmarks: the cash economy benchmarks, for example. They've been up and running a while and they use those quite extensively,” Mr Greco said.

“If a business is looking like it’s under-reporting income or is not as profitable on paper as the average, then what they'll do is they'll match that up with other data.”

Mr Greco said third-party data is useful because the benchmarks are averages and don’t take into consideration factors like location and number of hours worked.

“So there's a lot of third-party data making its way into the ATO and the ATO has that at its disposal, and it also has the ability to ask for information,” he said.

“It can go to eBay, it can go to Airbnb, it can go Uber, and it can basically suck up all that information and then compare it to its record of activity that has been lodged,” he said.

“There's no limit to the amount of data. The issue nowadays is how effectively that data is mined, what's coming in to the black box and comparing it to what returns have been lodged.”

 

LARA BULLOCK
Monday 12 December 2016
accountantsdaily.com.au