Blog

Tax Alert: June 2019

With the end of financial year only weeks away, the ATO has announced that one of its key areas of focus this financial year-end will be rental properties, although returns from taxpayers using cryptocurrency assets are also expected to come in for close attention.

To help you prepare for this year's tax time, here's a roundup of some recent developments in the world of tax.

Watch your property deductions and income

Rental property owners are being warned to check their claims are correct before lodging their tax return, with the ATO announcing plans to double the number of audits it will be conducting on deductions linked to rental properties. Failing to declare income received from renting out a room in your home via an online platform like Airbnb is also a good way to get the tax man's attention this year.

ATO sampling of tax returns last financial year found nine out of ten returns contained an error related to rental property deductions, so the regulator says it will be "looking very closely at claims this year".i The ATO will be focussing on over-claimed interest, capital works claimed as repairs and incorrect apportionment of expenses for holiday homes, as well as taxpayers omitting income earned from accommodation sharing.

As part of the crackdown, the ATO is using sophisticated analytics and third party information from banks, rental bonds and online accommodation booking platforms to "scrutinise every tax return". During an audit, the data searched could include your utility bills, tolls, social media and online content.

Cryptocurrencies under tax spotlight

Returns lodged by taxpayers using cryptocurrencies will also receive more attention, with the ATO currently collecting bulk records from Australian cryptocurrency designated service providers (DSPs) to include in its data-matching program.

Data being supplied by DSPs includes cryptocurrency purchase and sale information to enable the tax office to identify taxpayers failing to disclose their income details correctly. If you are one of the estimated 500,000 to one million Australian invested in crypto-assets, you can expect to have your tax return pre-filled with the relevant information by the ATO in the same way as bank interest.

Calls for standardised work-related deductions

With statistics showing total work-related expense deductions cost almost $22 billion in 2016-17, the Inspector-General of Taxation (IGT) has called for the introduction of a standard deduction for work-related expenses.i

The recommendation in the IGT's Future of the Tax Profession report comes despite comments by the ATO that its efforts to target incorrectly reported or overclaimed work related expenses resulted in fewer claims in the past financial year.

According to the ATO, common mistakes are taxpayers assuming there is a standard work-related deduction they can claim of up to $300 without needing to substantiate it.

Many taxpayers also assume that because up to 5,000 kilometers of car travel does not require a log book, they are entitled to claim this deduction.

Instant asset write-off rises again

The threshold for the instant asset write-off has risen again by $5,000 after the Treasurer announced the new annual limit of $30,000 with immediate effect from Budget night (2 April 2019). The immediate write-off has also been extended to include businesses with a turnover less than $50 million.

Eligible firms can claim a tax deduction on purchases of business equipment where the entire cost of the asset is less than the $30,000 threshold.

Although the instant asset write-off has been around since 2011 and has been extended until 30 June 2020, there is no guarantee it will be retained in future years. So if you have a small business and are interested in taking advantage of this benefit, it makes sense to keep this in mind come 30 June and next financial year.

Small business benchmarks updated

Small business owners interested in benchmarking their performance against similar businesses in the same industry have some new statistics they can use now the ATO has updated its business benchmark information with data from the 2016-17 financial year.

The Business Performance Check tool in the ATO app allows you to see how your business compares to your competitors using data from across more than 100 industries and 1.5 million small businesses in Australia.

https://www.ato.gov.au/Media-centre/Media-releases/Tax-office-to-double-audits-of-dodgy-rental-deductions/

Guide to Travel-Related Work Expenses

Travelling for work can be expensive, whether it's visiting clients locally or attending a conference overseas, so it's important to claim everything you are entitled to in your tax return. But be aware that the ATO is paying increasing attention to claims in this area.

The essential thing to consider when claiming any travel expense in your tax return is that it must be work-related and only take you away from home for a relatively short period of time. Any expenses you have paid and already been reimbursed for by your employer can't be claimed. Here are some tips on what you can and can't claim, and the records you need to keep.

Home to work travel expenses

Employees generally can't claim for the cost of travel from home to work as this is considered a private expense. It's worth noting, however, that there are some circumstances where you may be entitled for a deduction.

You can claim the cost of work-related travel if you are travelling directly between two separate workplaces, such as if you have a second job at another location. Travel from your normal workplace to an alternative workplace (such as your client's premises) and back to your normal workplace or directly home is also claimable.

You can also claim the travel costs of carrying bulky work tools or equipment that can't be left at your workplace.

The ATO is quite strict in this area, however, so you need to take care. Claims for the cost of driving your car between work and home and completing a minor work related task like picking up the mail will not be accepted.

Staying overnight for work

If your work takes you away from home for one or more nights, the rules change slightly. For your travel expenses to be deductible, you need written evidence of all expenses, and if the trip is for six or more consecutive nights, you need to keep a travel diary.

Some employers pay a travel allowance  to cover your travel costs rather than asking you to pay for your expenses and reimbursing you later.

Each year the ATO releases a list of 'reasonable amounts' for accommodation, meals and incidentals. Reasonable amounts are the maximum you can claim without written evidence of the expense and are not an automatic deduction - you must have actually incurred the expense.

Travelling for work and play

When you travel for work - especially overseas - it's tempting to add a short holiday to the trip, but you need to be careful about what you claim.

You can only claim travel expenses where there is a direct connection between your employment and the expense. This means if you add a short holiday to a work trip, you can't claim all your expenses for the entire time you are away from home.

The ATO accepts some elements of business travel will be private, but these must be incidental to the overall purpose of the trip, not its main purpose. For example, if the main reason for your trip is business and you spend a few hours visiting family, all the airfare can still be claimed.

If part of your trip is for private enjoyment, your travel expenses must be carefully apportioned between private and business components. For example, if you stay in a hotel for four days, with three days spend in business-related activities and the final day on private enjoyment, you can only claim three-quarters of your expenses. In this situation you can still claim the full airfare, as the primary purpose of the trip was work-related.

If the situation is reversed, however, your business activities would be considered minor and incidental to the purpose of the trip, making it harder to claim your expenses.

Generally, costs incurred by your spouse or family members who accompany you are not deductible unless they are involved in the business activities in some way.

Recordkeeping rules

If all this isn't complicated enough, there are specific recordkeeping requirements for travel expenses depending on your occupation, whether a travel allowance is shown on your payment summary, if the travel was domestic or international, and the number of nights you are away.

To claim your expenses when you are paid a travel allowance and it appears on your payment summary, you must have written evidence for the whole claim, not just any excess over the reasonable amount.

When keeping a travel diary, ensure you record the dates, places, times and duration of your activities and travel.

If you would like to know what travel-related expenses you should be claiming in your annual tax return, give us a call.

 

Is your business financially fit?

The secret to a successful business is to make sure you are not just working IN your business but you are also working ON your business. As the end of the financial year approaches, there's no better time to give your business a financial fitness check.

Of course, the best policy is to continually monitor how your business is faring throughout the year. But if you've been caught up in the day-to-day management then now is a good time to get back on track because you will be looking at your figures for tax time anyway.

How do you compare?

There are a number of ways to work out just how well your business is faring but an easy first step is to use the Australian Tax Office's small business benchmarks.i

This tool lets you compare your business with others in your industry using appropriate benchmarks such as turnover range and expenses.

If you are outside the benchmarks, whether above or below, then it may be worthwhile looking at such things as the rate you pay for inputs, the price you sell, the level of inventory you carry or whether you are reporting your expenses accurately.

Check your ratios

Financial ratios are another useful method to determine fitness. You can check your business' liquidity, solvency, profitability, management and balance sheet through ratios.ii

For example, working out your solvency ratios shows how easily you can meet your debt obligations from sources other than cash flow. Management ratios can identify how quickly you can replace stock, how often you collect debts and how frequently you pay your suppliers.

It might be good to talk with us about how to calculate and interpret these ratios for your future planning.

Key warning signs

Generally there are five key warning signs that your business is not performing well and could be heading for trouble.

These are:

  1. an inability to pay debts
  2. poor profitability
  3. no access to finance
  4. high staff turnover, and
  5. inadequate financial records.

If any of these are occurring in your company, then we can help you make changes to rectify the situation.

For instance, if you are facing difficulty paying your bills, it may be time to improve your cash flow either by selling old stock at a discount, chasing outstanding debts or talking to your bank to alleviate your situation. Looking forward, you could prepare weekly cash flow forecasts so you control your outgoings and income.

If your profitability appears to be failing, take a look at what may have triggered this state of affairs. Perhaps you are failing to pass on cost increases sufficiently to your customers or maybe you are carrying more staff than your turnover can support.

If your issue is high staff turnover, then focus on the attributes you want in new employees and develop a recruitment plan. You might also consider ways to improve employee engagement, such as encouraging and rewarding them to put forward ideas to improve the business.

Managing risk

In a challenging business environment, all businesses can be at risk of failure. The key is to manage your risk.

Risks can come in many forms - strategic, compliance, financial, operational, environmental and reputational. Today's businesses are also facing new challenges, from structural changes in their industry to cybercrime and the potential for disgruntled customers to damage your reputation in online forums.

By recognising the risks your business is exposed to and having a strategy, you can head off problems before they become critical. What's more, you may be able to use your relative strength to take advantage of opportunities in the marketplace.

Even if you are confident your business is fundamentally sound, constant financial monitoring will ensure it stays that way.

If you would like assistance in determining how your business is shaping us, give us a call.

i https://www.ato.gov.au/Newsroom/smallbusiness/General/Is-your-business-healthy-/

ii https://www.business.vic.gov.au/money-profit-and-accounting/financial-processes-and-procedures/check-your-financial-health

Are stretch goals right for your business?

Much has been written in various business journals about the mythical stretch goal. Above and beyond your standard SMART goal (specific, measurable, achievable, relevant, time-bound) stretch goals aim to totally transform businesses, pushing them to new heights.

Elon Musk is a famous proponent of this 'shoot for the moon' approach. His company SpaceX aims to do nothing short of put people on Mars. The sheer audacity of the goal has meant they've made some terrific progress.i

On the hand, sister company Tesla recently failed to meet more than 20 of their ambitious projections.ii So, while stretch goals can be transformative, they are also risky business, and only some companies are in a position to take them on.

What do you need to make them work?

Outlandish goals often mean periods of high risk and low yield. Months of experimentation where for every one breakthrough there are five setbacks. Given this, before you take on a stretch goal it's imperative to do an appraisal of your business's resources and track record. The inset table by Harvard Business Review is a good place to start.

As you can see, the main indicators of whether stretch goals are right for you are morale - have you come off a series of wins - and capacity, do you have the slack resources to be able to make the necessary experimentation feasible. Without both these factors working in tandem, it's probably not the right time to pursue a stretch goal.

The consequences of pursuing them at the wrong time

Paradoxically, often companies most likely to pursue stretch goals are those that are least likely to succeed. Flailing businesses sometimes set unreasonable goals in the hope of a quick turnaround, as Yahoo notoriously did before its merger with Verizon.iii The safer bet is to pursue a strategy of small victories, where the little wins mean you begin to build back confidence, and meet your bottom line.

There's also the risk that in an effort to meet difficult KPIs, you team may start cutting corners, or worse engage in unethical behaviour.

This is more likely to occur when the goal is financial in nature. Monetary growth should be the result of exceptional vision, not the goal itself. So, in setting your stretch goals, make sure they are either product- or operations-focused. Anyone can put an impossibly high number on the table, but it takes creativity to think of ideas outside the box.

How do I set a stretch goal?

If you've read all this and think stretch goals are for you, here's some tips on how to do them right.

1) Get active buy-in from your team.

Stretch goals are only going to work if you not only consult with but actively engage your whole team. From the outset, you'll need open lines of communication to avoid pushback. And endeavour to engage all levels of your organisation. You never know who might have that brilliant idea.

2) Keep morale high.

Failure is an inevitable risk of a stretch goal. You may not get it right the first time. So, it's important to foster a culture of resilience and positivity.

3) Set aside time just to be creative.

This is imperative as stretch goals will most likely entail a set of actions way outside of your day-to-day operations.

It can pay to think big in business. If you're in a successful position and your team is agile, by all means shoot for the moon. If, on the other hand, cashflow is down or interval culture is wanting, aim for some small victories and stretch yourself when you're back on track.

i https://edusource.us/elon-musk-sets-stretch-goals/

ii https://www.wsj.com/articles/elon-musk-sets-ambitious-goals-at-teslaand-often-falls-short-1471275436

iii https://hbr.org/2017/01/the-stretch-goal-paradox

Are you ready for Single Touch Payroll?

If you haven't heard about the introduction of Single Touch Payroll (STP) for employers with less than 20 employees, it might be a good idea to keep reading as this new system represents a big challenge for many small businesses.

With an estimated 730,000 employers required to begin electronically reporting their payroll information directly to the ATO from 1 July 2019, lots of small business operators need to get their head around STP, and quickly.

What STP means for small employers

Sometimes called real-time payroll reporting, STP involves sending tax and super information to the ATO directly from your payroll or accounting software each time you pay your employees. STP has been in place for employers with 20 or more employees since 1 July 2018, but is now being extended to smaller employers. It means every time you run your payroll and pay your employees, salary information such as wages, deductions, allowances and super will be forwarded to the ATO.

Although this information will cover your year-to-date payment amounts, when you pay your employees (weekly, fortnightly or monthly) does not need to change. The good news is Pay-As-You-Go withholding activity statements are no longer required.

Employers will also no longer need to provide employees with a payment summary document for payments reported through STP, as the ATO will make this information available to employees through the myGov portal.

Digital payroll makes things easy

If you already pay your employees using a digital solution like MYOB, Xero or QuickBooks, moving to STP reporting should be simple, as most software packages now offer STP reporting.

For employers not using digital payroll packages, the ATO has said it will not force businesses to purchase one, but it will be tricky - and time-consuming - to comply if you remain with a manual system. The regulator encouraging small businesses to recognise the ongoing shift to digital solutions occurring throughout the business world.

Micro-employers (four or fewer) employees) will be permitted by the ATO to comply with STP reporting quarterly for the first few years but will eventually move to reporting each pay cycle.

Hints for getting STP ready

For smaller employers, the key step in preparing for STP is deciding how you will report an STP pay event to the ATO. If you do not currently use a digital payroll solution offering STP reporting, the ATO has compiled a list of low-cost (less than $10 per month) STP software providers suitable for micro-employers.

Alternatively, you can also ask us or a payroll service provider to report to the ATO on your behalf.

STP reports will need to be submitted to the ATO on an approved form and an authorised person needs to declare the information is true and correct. This is similar to the declaration on the current quarterly BAS form.

Before you start reporting through STP, it is essential to review your business's current payroll processes. This means cleaning up any anomalies in the data and checking the accuracy of employee information such as name, address and date of birth.

You should also check you are addressing any employee overpayments and calculating pay entitlements correctly. Super entitlements for your employees should also be checked.

Call soon to avoid the rush

It's important to talk to us early about how you plan to comply with the STP requirements and any changes you need to make to existing business processes. With the new requirements applying from 1 July, it's crucial to start planning for the changes as soon as possible.

Employers also need to ensure they complete a finalisation declaration at the end of each financial year or your STP information will not be tax ready. STP information will be pre-filled into the myTax system for employees who prepare their own tax returns, so employers will need to ensure they complete all their paperwork promptly.

Call us today if you would like to discuss what your business needs to do to get ready for STP, or for assistance in selecting a digital payroll solution.


For more information about STP,
download and print our Information Sheet
This includes further details of:
- deadlines
- reporting requirements
- options for reporting
Plus a bonus Employer Checklist to make sure you're on the right track.

 

 

 

 

 

 

Selling a business? Don't forget about tax

It can take many years and a lot of hard work to build a successful small business. When you finally decide it's time to sell, tax is often the last thing on your mind. Yet it can have a big impact on how much of the sale price you get to keep - and how much goes to the taxman.

The biggest tax issue to consider is capital gains tax (CGT). Although the Government tightened eligibility for its small business capital gains tax (CGT) concessions in 2018, there are still generous discounts available for those who qualify.

Read more…

Take Control of the Future of Your Business

What are your plans for the future of the business? Are you wanting to find more time to relax and enjoy your lifestyle? Are your children prepared to take on the family business when you retire? Have you actually had a family discussion about succession plans?

Succession planning is very much more than about making sure there is enough money in the bank. It is about ensuring the future generation is able to be successful with the day-to-day running of the business without struggling with the weight of a job they are unprepared for, or with experience they don't have.

With the knowledge that every business and family is different, Symes Accountants provides a 5-Step Succession Plan Process which works with every family circumstance.

For more information, download our Family Business Succession Planning brochure here, or contact our team today to arrange your first succession planning meeting.

Attitude is Everything

In August 2018, Symes Accountants hosted work experience student Lauren for the week. She gained a great insight into working as an Accountant during the busy ITR season and the importance of good working relationships. Below is her personal account of her experience.

Attitude goes a long way, this is shown through the everyday life at Symes Accountants. At Symes everyone has the right attitude towards their work and especially towards their clients, this is shown through their hard work and determination to ensure that they can do everything in their power to help their clients. Seeing Symes employees interact with their clients was an experience that can never be forgotten, they are open and honest with their clients, they ask about their client's family and make sure that they are doing everything within their power to help. Having a helpful and determined attitude makes Symes a successful business. Everyone within the Symes community has a role to play, and it is their attitude toward that role that can ensure their continued success.

Read more…

In May 2018 Symes Accountants hosted local high school student, Brett for a week of work experience. Brett is interested in owning his own business in the future and below is his personal account of his experience with our team.

As a Year 11 student currently completing a Certificate III in Business, I have completed work experience at Symes Accountants to help better my understanding of what it is like owning a business and how the inner workings of a business actually operate. This work experience was extremely valuable to me as I have been able to learn so much through completing it.

Read more…