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 .  

Year End Tax Planning

It's that time of the year again when we start scrambling to get in all those last minute deductions.

Here are some tips on reducing your income before 30 June and therefore reducing your tax bill:-

• Prepay up to 12 months of expenses - like rent, income protection insurance, interest on investment loans, subscriptions
• Donate - there are many worthy causes out there that need our help.  But if you want a tax deduction make sure they have the 'Deductible Gift Recipient' status otherwise your donation won't count towards reducing your tax
• Contribute to super - you can contribute to super but be aware of the deductible contribution caps - $25,000 for  under 50 and $50,000 for over 50. 
• Fancy an iPad?  small business concessions allow business to claim up front a deduction for most assets costing less than $1,000.

This time of year is also a great time to get organised.  Why not see your accountant earlier rather than later and then give yourself time to budget for possible tax payable.

Here are some great ways to get organised and save money on your next visit to the accountant:-

• Tally up your receipts under specific headings such as Stationery, Parking, Subscriptions in an Excel spreadsheet.  
• File your receipts in an expanding folder for easy access and easy storage.
• Scan receipts and credit card statements saving them on your computer and/or portable hard drive.
• Get in early and see your accountant.  If you have tax to pay, you may be able to delay payment until May 2012.  Give yourself time to plan and save and whilst you are seeing your accountant, embark on a tax planning strategy for the new financial year at the same time

Not sure if something is tax deductible or not?  Keep a separate folder/file for all those "not sure" items with a list so it is easy to address with your accountant.

Feeling the Financial Squeeze

This week I purchased 5 bananas for $15.07.  I have to say, I was almost tempted to say no thanks.

The cost of food on the rise, 2 year high for petrol with no relief in sight, it is no wonder households are feeling the pinch and yet just this week the Sydney Morning Herald ran a story on how Aussies are wealthier than ever

To lots of us though, we don't feel wealthier.  Listening to clients and friends, we are more stressed now with making our dollar go further and are frightened with the prospect of increasing household costs and interest rate rises on the horizon.

For many of my younger clients, owning their home is nothing short of a dream.  Think back 10 years ago when saving $10,000-$20,000 meant a deposit on a home.  These days, it is at least $100,000-$200,000.

So how do you survive and save in this sort of climate?
Denial and spiraling out of control debt is a recipe for disaster.  Sometimes luxury items and holidays are a necessary casualty.
1. Understand your net position - what is coming in and what is going out
2. The next thing is to look at your cashflow.  What expenses are paid when and how does this impact on your cash position.  For example, quarterly bills can be really tough to pay.  So why not change the payments to weekly or fortnightly.  This can easily be done say for Council Rates, where you work out the weekly cost then setup a direct debit.
For other quarterly expenses, set up a weekly savings plan.  ING Direct is a terrific no fees Internet based bank account that can be used for saving.
What about those credit card debts?  Again, setting up a weekly or fortnightly payment system can help manage this debt a lot better.  And if you have a balance that you can't repay, then stop using the card!
Looking out for bargains on line is another way to save money and perhaps still enjoy a little luxury with the AUD so strong.
If you can't manage your money or don't know where to start, then seek advice.  Most clients who have sought advice and implemented a budget and better cashflow have actually ending up saving money along the way.

Paid Parental Leave - What Does it all mean?

Something to celebrate for some of my pregnant clients and friends...Australia's first national paid parental scheme, funded by the federal government commenced on 1st January 2011.  In addition to this, the government will also maintain the baby bonus scheme, which gives cash grants of just over $5,000 to new parents earning less than $75,000 after a child's birth.

Paid at $570 per week, before income tax, women earring less than $150,000 a year can take up to 18 weeks' paid leave, transferable to their partners within the first year of a child's birth.

So who exactly is eligible?
The employee must become the primary carer of the baby and must be an Australian Resident and have received an adjusted taxable income of $150,000 or less in the previous financial year.  The term 'employee' covers full-time, part-time, casual workers, contractors and self employed who satisfy the work test, ie, you must have worked just over 1 day a week for at least 10 out of the 13 months prior to the birth or adoption of the child.  Note, if you choose to return to work before you have received the full leave entitlement, you will become ineligible to receive the remainder of the payment unless your partner becomes the primary caregiver, in which case, they will then receive the remainder of the payment.

There is also a significant benefit to those running a business as being able to offer a government funded parental leave is likely to increase the number of employees returning to work after maternity leave, meaning a cost effective means for employers of retaining skilled workers.  However, from 1st July 2011, the onus will be on employers to administer the payments.

So how does it work for employers?
The Family Assistance Office (FAO) will transfer the funds to the employer, either fortnightly or in 3 instalments.  The employer will then pay the employee the parental leave payments in the normal payroll cycle, with the applicable tax deducted.  Superannuation is not payable and nor will the paid parental leave be included for payroll tax purposes.  The employer also has the choice to opt out of making parental leave payments to employees who have worked for them for less than 12 months or if they are accessing less than eight weeks of parental leave pay.  In this instance, the FAO will make the payments.

To Insure or not To Insure

Having recently reviewed our personal insurances, my hubby and I were chatting to a newly pregnant friend about income protection insurance.  On the fast train to 40, income protection insurance can be expensive.  My friend concluded the monthly premium could be money "better spent elsewhere".
Personally, I find this extraordinary.  People, without question, insure their car, house and home contents but often fail to see the enormous importance of insuring one's ability to earn money.  After all, if the main breadwinner is laid up in bed for several months, even years, how will all those "fixed" insurance costs get paid?
Yes it is expensive, but can you afford to not have it?
What would you do if you suddenly lost one income and not only that were faced with medical and hospital bills?

The other thing is that it can also be a headache to complete - and becomes "all too hard" basket.  A simple increase in our insurances meant completing the entire application again only to be faced with, a week later, a "we've received your application but have a million more questions" letter.  It doesn't matter how good your financial adviser is or how great the product compares, there is no getting away from the fact that this needs some time and effort to complete.  Put aside the time.  Answer the questions or get the statement from your doctor and then send it off.
We are not immortal.  Anything can happen, at any time and any age, so be prepared.

And of course, income protection premiums (not paid through super) is tax deductible.  Prepay the annual premium upfront for an even bigger deduction.

Are You Being Paid Correctly For Leave Entitlements

A meeting with a client this week once again highlighted to me the lack of understanding leave entitlements by payroll office staff. 

My client, employed for 9 years by a Victorian based company undertook all of his duties in South Australia.

Trying to figure out how long he could "holiday" before looking for a new job, he asked the payroll office to supply him with an estimate of the payout and then he dropped in to see me to run some budget figures. 

This isn't necessarily a dig at the payroll personnel as payroll packages can be lacking in this area.

However, people, you should know that Long Service Leave (LSL) is calculated based on the state in which you work (similar to Payroll Tax and Workcover).

My client's payroll office had calculated, incorrectly, his LSL entitlement based on Victorian law.  Lucky for him he came in to see me as under SA law, he was entitled to a further $4,300.

If you think you are entitled to LSL, contact your state industrial relations office to ensure your payroll office pays you properly.

The Cost of Educating Children

The most recent figures suggest it costs $400,000 to educate your child through the private system or $80,000 through the public system.  Pretty staggering. How does one afford this?

As you would expect the accountant to say, and like everything, planning and budgeting are a must. 

Someone said to me when I was first pregnant that I needed to book my child's school placement ASAP to ensure he or she got in.  So why not then also plan a budget or start to save at this time also.

Setting up another bank account with a direct debit each month is a pretty easy way to save without thinking, just as long as you can resist temptation to send those funds back to your every day working account.  If you can start saving whilst you are pregnant and for the first few years before your child starts pre-school, you are not only taking the stress out of how to educate your child but also more likely to add to your savings as the balance grows.

If you are looking for something longer term, what about a discretionary trust.  There are capital gains tax advantages of using this sort of structure.

My partner and I setup a discretionary family trust specifically for our children when we were planning to get pregnant.  This isn't so much for education but rather for future big ticket items like a car or deposit for a home.  Once we reached a decent balance we started to buy shares, a favourite of mine Argo Investments, which has the option of a Share Purchase Plan and Dividend Reinvestment Plan, perfect for us where we want to build the investment rather than needing income.  

Tightening the Net on International Transactions

The tax office is slowly but surely tightening the net on our assets and income.  In Australia alone over the last few years we have seen an incredible stream of data now fed directly to the tax office from banking institutions and public companies.  This isn't necessarily a bad thing for clients who lose documents as finding and tracing income has been much easier. 

But be warned, as IT progresses and globalisation takes hold so too does our government's ability to tap into our every transaction, no matter how complex your structure.

In the last 12 months, the tax office has undertaken a program to target international activities.  No longer will Australian residents be able to "hide" assets or income in offshore accounts.  Specifically, the tax office has entered into Tax Information Exchange Agreements (TIEA) with various countries overseas for the purpose of elimination tax avoidance and evasion practices.  Mauritius being the latest of 27 countries to sign up.

If you are hiding income and think you are home free, think again.  Seek advice from a tax lawyer.

Tax Office Help for Qld Flood Victims

1. Extension of deadline for December monthly acitivity statement - now due 21st February 2011

2. Reasonable Estimate for Documents Destroyed in natural disaster:  Use this form if you have lost documents in the floods

3. The Tax Office can also help those affected by the Qld floods by:

• fast tracking refunds
• giving people extra time to pay debts – without interest charges
• giving more time to meet BAS and other lodgement obligations – without penalties
• helping reconstruct tax records where documents have been destroyed, and make reasonable estimates where necessary
• offering visits from field officers to help reconcile lost records, and
• helping them claim tax hardship concessions.

Ring the tax office on 1800 806 218  or contact your accountant

Help for Flood Victims in Qld

Help From the Tax Office
The tax office has automatically granted an extension for the December monthly activity statement, normally due 21st January 2011, to 21st February 2011.
The tax office is also implementing General Interest Charge stoppers for businesses and tax payers.

Make a donation
If you would like to help support those affected by Queensland floods, donate and receive a tax deduction.  Visit any NAB branch or donate via internet banking using the following EFT information
Account Name: Premier’s Disaster Relief Appeal, BSB: 064-013 Account Number: 1000-6800

High Court Decision Paves Way for tax deductions for students

The High Court today has ruled in favour of student Symone Anstis who claimed self-education expenses as tax deductions while working part-time and receiving the youth allowance.

Read the full story here

Not sure if this applies to you?  Email me at sarah@willoughbys.com.au

Don't Ignore Money Owing to the ATO

Over the last few years the tax office has implemented tight measures to recover outstanding tax and GST debts including the use of debt recovery agents and issuing of legal proceedings.

However, with the recent financial crisis and cashflow problems experienced across the board for small businesses, the tax office is allowing interest free terms for repayment of debt under certain conditions.

Want more information?  email me at sarah@willoughbys.com.au

New To Family Tax?

Click here for information on the following:-

• Paid Parental Leave
• Income Tests for Government benefits
• Same Sex Couples
• Family Tax Benefit & Child Care Rebate

Tax Return Deadline for Individuals

Haven't done your tax?  Don't panic.  If you engage an accountant (tax agent) not only will you receive good tax advice regarding your situation, but the 31st October deadline will not apply.

Are you paying too much for Private Health Insurance

Click here for comparisons


Why have Private Hospital Cover?

If you earn more than $77,000 as a single or $154,000 as a couple and don't have private hospital cover, you will be liable for the Medicare Levy Surchage, an additional 1% tax payable.

If you are aged over 30 and don't have private hospital cover, and later decide to take it out, you will pay a loading of 2% for each year were not covered from age 30.

A New Year, A New Resolution

I often hear "next financial year I will be more organised". Now is the time to put those words into action.

There are some simple steps to getting organised for tax.

1. If you run a small business or purchase a lot of goods for work, use a dedicated credit card. This eliminates the need to keep multiple receipts.
2. Setup a dedicated file for tax. Whether you receive statements electronically or by paper setup a separate file to help keep track of your documents. Do this by either setting up a folder in your Inbox specifically for tax OR a manila folder or alike for paper statements. This is a time efficient way to file everything you think might be tax related
3. If you have had a change in your job or business structure seek advice now about what you can and cannot claim as a tax deduction
4. If you are expecting an increase in income this year, seek advice now about how to minimise tax

If you would like any further information or assistance with minimisation of tax, please email me at sarah.willoughby@willoughbys.com.au

Gillard's Proposal a Win / Lose

A Win for Mining Companies
Today the PM Julia Gillard announced a deal with mining companies. The changes as follows have been welcomed not only by industry but investors:-

Super Profit Tax, now renamed the Mineral Resource Rent Tax, has been reduced from 40% to 30% kicking in when profit exceeds the long term bond rate plus 7%, ie at around 12%
The tax will only apply to Iron Ore and Coal and will exclude smaller mining companies.

But what the government giveth, the government also taketh away.

A Loss for Small Business
As this comprise means a reduction of approximately $1.5billion in revenue for the government over the next four years, the government have also announced the company rate will continue to be cut to 29% from 2013/14 but will not be further reduced.

This is somewhat tough for small businesses as lifting of superannuation will remain.

Time To Review Your Trust Deed ?

Creating an effective trust distribution is critical.
What is income and how do we distribute?
IncomeUnder s97(1) of the ITAA 1936, a beneficiary (who is not under a legal disability) is presently entitled to a share of the trust’s income, and the assessable income of that beneficiary includes their share of the trust’s net income.
Under s95(1) of the ITAA 1936, net income is defined, broadly, as the total assessable income of the trust estate calculated as if the trustee were a resident taxpayer for that income, less all allowable deductions.
Due to the terminology used in these two sections, there has been some uncertainty in relation to the calculation and taxation of trust income.
In the case of Bamford, The Court decided that the terms of the trust deed should prevail in determining the ‘income of the trust’ to which beneficiaries are presently entitled and are assessed to tax.:-
• If the trust deed is silent - then “income of the trust estate” is determined according to ordinary concepts;
• If the trust deed adopts income determined according to Australian Accounting Standards - then that is the prevailing income concept; or
• If section 95 concepts are adopted - then the calculations used to determine “net income” prevail.
This clearly highlights the importance of having a relevant and up to date definition of income in every trust deed, regardless of when the trust deed was executed.
In particular, with capital gains, does the deed provide the ability to redefine capital gains as “income of the trust estate”?

How To Distribute the Income
In the case of Bamford, the Court decided that a beneficiary’s liability to tax in respect of the trust’s taxable income is governed by their proportionate interest in the income, even in circumstances where a beneficiary is only allocated a particular dollar sum.
It follows that if deeds (and in the case of discretionary trusts, resolutions) are not appropriately drafted, that beneficiaries may be taxed on more than they receive.

It is critical then, that the financial statements (and minutes) reflect the trust’s income as defined in the deed.

If you would like more information or advice in relation to your Trust Deed, please contact me at sarah.willoughby@willoughbys.com.au

Tax Time - Take Control

Here we are again roaring towards another new financial year. If you haven't already considered tax planning, now is the time.

There are many smart ways to reduce your tax liability, however, here are a couple of simple things to do last minute.

1. Prepayments

A couple of goodies are prepaying interest on investment loans or the annual premium on an income protection insurance policy.
However, it is important to be aware of the 12 month rule, which will be satisified if

• you incur an eligible prepaid expense for something to be done over a service period of 12 months or less, and
• the service period ends in the income year following the year you incur the expense.

2. Super Contributions
Another good deduction is contributing to super; for those on a lower taxable income contributing to super may also include the benefit of the government co-contribution.
Government Co-Contribution
If your taxable income is below $31,920 the government will match $1 for $1 contributions up to a maximum co-contribution of $1,000.
If your taxable income is above $31,920 but below $61,920 your entitlement will be reduced 3.333 cents for every dollar of your taxable income over $31,920

Any contribution to super shouldn't be left to the last minute; many retail/wholesale funds close off on around the 27th June.

The 2010-11 Federal Budget

The budget at a glance for individuals...

Personal Tax

50% Savings Discount on Interest Earned
From 1 July 2011, a proposed 50% discounted tax on up to $1,000 interest earned. Conditions will apply with respect to taxable income and adjusted taxable income.

Standard Tax Deduction for Work Related Expenses
The government will provide individuals with a standard $500 deduction for work related expenses and cost of managing taxation affairs from 1st July 2012, increasing to $1,000 from 1st July 2013. Those taxpayers with higher deductions will still be able to claim these in lieu of the standard amount. This is part of introducing a 'tick and flick' system of prefilled tax returns.
Personal Tax Ratesno change to already legislated rates for 2010/11 year
Residents: rates and tax payable from 1 July 2010
Taxable income ($) Tax payable ($)
0 - 6,000 Nil
6,001 - 37,000 Nil + 15% of excess over 6,000
37,001 - 80,000 4,650 + 30% of excess over 37,000
80,001 - 180,000 17,550 + 37% of excess over 80,000
180,001+ 54,550 + 45% of excess over 180,000

Low income tax offset
For the current 2009-10 income year, taxpayers are entitled to the low income tax offset of $1,350 if their taxable income is less than $63,750. For 2010-11, this upper threshold will increase to $67,500 to accommodate the previously legislated increase in the offset to $1,500. The low income tax offset will continue to phase out at a rate of 4 cents in the dollar for every dollar of income over $30,000.

Medicare levy
The Medicare levy threshold amount for individuals eligible for the senior Australians tax offset will increase t $30,685 from 1 July 2010 (up from $29,867 for 2009-10).
Medical expenses rebate threshold raisedThe medical expenses rebate threshold will increase from $1,500 to $2,000 from 1 July 2010.

Superannuation
Co-contribution matching rate permanently reduced to 100%
The Government announced that it will look to permanently set the matching rate for the superannuation co-contribution at 100% and the maximum co-contribution that is payable on an individual’s eligible personal non-concessional superannuation contributions at $1,000.

Eligible income thresholds frozen
The Government said it will freeze the indexation applied on the income threshold
above which the maximum superannuation co-contribution begins to phase down for the 2010-11 and 2011-12 years.


There are also a number of proposals for business taxation and GST measures. If you would like further information on these, please email me at sarah.willoughby@willoughbys.com.au