Federal Budget Snapshot

Last night the Treasurer, Wayne Swan handed down his sixth budget.  Here are the highlights:-

Superannuation - the April 2013 proposed changes are now confirmed:-

• earnings in pension phase that exceed $100,000 pa to be taxed
• increasing the concessional contributions cap to $35,000 from 1 July 2013 for 60 and over and from 1 July 2014 for 50 and over
• increasing the ability to refund excess concessional contributions and allowing excess concessional contributions to be tax at marginal rates
• deeming account based pensions under the social security income test

Increase in the Medicare Levy from 1 July 2014 to 2%, with relief to lower income earners

Self Education Expenses Reforms from 1st July 2014 - $2,000 cap on tax deduction claims for work-related self-education expenses.  These expenses include tuition fees, textbooks, stationery & travel expenses

Net Medical Expenses Tax Offset to phase out from 1 July 2013

Deferral of proposed tax cuts that were due to come into effect 1 July 2015.

Foreign Resident CGT 10% withholding tax from 1 July 2016 on disposal of certain taxable Australian property but to exclude residential property transactions < $2.5 million

Baby Bonus $5,000 to cease from 1 March 2014 and replaced by a lower $2,000 supplement payable only to recipients of Family Tax Benefit A 

Family Tax Benefit A upper income cut-offs to be frozen until 1 July 2017 

Child Care Benefit & Rebate - indexation of annual cap frozen at $7,500 for another 3 years until 30 June 2017.  From 2012-13 year families now only have 12 months to make claim, rather than 2 years.

The Power of Positive Psychology

With Aussie politics heating up and the usual slanging matches and constant talk of our exploding deficit it seems to me that there needs to be more talk about positive policies and positive communities. 

As a global community we have endured some tough times of late.  What tools did we have available to us to cope with the GFC?  And what tools will we and our future generations have available to cope with growing unemployment, stressed businesses, unaffordable housing and terrorist attacks.

Wellbeing and positive psychology are important key elements to a happier existence and tools that enable us to “flourish” as individuals and as a community as a whole.

So what about at a business level?  What are we doing as business owners, managers or employees to foster wellbeing and positive relationships in our workplace, our colleagues, peers and with ourselves. The GFC showed us that we are absolutely part of the global economy and that our thinking in business needs to change beyond our front yard. 

What policies have you implemented in your own day to day functioning to cope with global crisis and what positive habits or tools can you tap into to cope with these. 

Need more information?  Checkout Professor Martin Seligman’s website here

Are you saving for your tax liabilities?

After a few years of leniency in the wake of the GFC, no more Mr Nice Guy...the tax office is now playing hard ball with Aussie businesses.

As reported in The Age last Friday, the tax office is now taking a much more aggressive approach on outstanding debts, not necessarily allowing payment arrangements, or, where payment arrangements are in place, making sure they are met within strict guidelines.  Some such guidelines include paying any other debt (PAYG or GST) in full whilst a payment arrangement is in place and if you default on a payment you could face immediate debt collection.  This is pretty hard going for a lot of businesses at the moment, particularly for those at the bottom of the food chain - if the big guns are slow paying this filters down to the smaller people and cashflow becomes extremely tight and stressful.  The tax office's view of if you can't pay maybe you're not a viable business and maybe you should shut shop is pretty frightening.  
Don't ignore anything from the tax office regarding an outstanding debt.  They can and are now promising to chase this in a take no prisoners way - you may be referred to a debt collector and maybe you will have legal proceedings issued against you.
If you can't pay a debt then speak to the tax office or your accountant immediately to find out what options are available to you. 
Implement a plan to save on an ongoing basis for your GST and income tax.  It is as easy as setting up another bank account and as soon as income comes in, shifting at least 1/11th (for GST only) to the second bank account....and then DON'T TOUCH.  This might mean rejigging how you pay your creditors and yourself so that your cashflow is not adversely impacted.
If you are having problems paying your bills, then seek advice.  A good accountant can help you with a cashflow budget - a great way to see on an ongoing basis where you are at and what's in the kitty.

Voluntarily Register for GST ?

When starting a small business there are a number of things to consider, one of which is registering for GST.  This can be done at the same time you apply for an ABN.

Under the current legislation:-

·          you are required to register for GST if your turnover (gross sales) is $75,000 or more.  If you provide any type of taxi travel as part of your business you are also required to register for GST, regardless of your turnover.

·         If your gross turnover is less than $75,000 you can choose to voluntarily register for GST.

What does GST registration mean?

·         you will need to charge an additional 10% on all sales income.

·         you can claim GST paid on all purchases

·         the net of what you charge and what you pay will then be remitted to or refunded by the tax office.

So should you voluntarily register for GST? 

Positives

1.    Projected Turnover to reach threshold over shorter term

If you project your income will increase to the $75,000 threshold over the shorter term (say 12-24 months) then it may be better to voluntarily register for GST at the commencement of business. Having to increase your prices by 10% once you do hit the threshold can cause negative issues with customers particularly if you want to also increase your prices by any sort of CPI. 

2.    Refund of GST credits

Many businesses experience major cash outflows in the start up stage and therefore it might be handy to have some GST refunded as this will have obvious cashflow positive implications. 

3.    Perceived Business Status

Not being registered for GST indicates to other businesses and customers that you are “small” with a turnover of less than $75,000.  This can be an issue as they may form the opinion you are “too small” to provide them with the service they want.

Negatives

4.    Administration

One of the biggest downsides of registering for GST is the extra administration for completion of your Business Activity Statement (BAS).  This can be minimised if you elect to report GST on an annual basis.

5.    Cash Outflow

We all want our business to make a profit so if you are achieving this and your sales are far greater than your expenses you will need to remit GST to the tax office periodically (monthly/quarterly/annually).  This can be a real problem with cashflow if you haven’t saved the GST you have been collecting.

I recommend seeking advice from your accountant before applying for an ABN to discuss your situation including short to medium term projections.  Every situation is different and what may work for your friend won’t necessarily work best for you.

If you do voluntarily register, make sure you are strict with saving the GST you charge.  Setup a separate bank account.  You need treat this extra money received as non-income. 

Please note that this is not advice and is for the purpose of general discussion only.  If you would like specific advice please contact Sarah Willoughby at sarah@willoughbys.com.au .