BDH Leaders

ATO take “Gloves off” on overseas income

Fri, 06 Sep 2019 02:12:00 GMT

How you are taxed and what you are taxed on depends on your residency status for tax purposes. As tax residency can be different to your general residency status it’s important to seek clarification. The residency tests don’t necessarily work on ‘common sense.’ For tax purposes:

There is no tax-free threshold. Australian sourced income might include Australian rental income and income for work performed in Australia.

Just because you work outside of Australia for a period of time does not mean you are not a resident for tax purposes during that period. And, for those with international investments, it’s important to understand the tax status of earnings from those assets. Just because the asset might be located overseas does not mean they are safe from Australian tax law, even if the cash stays outside Australia. Don’t assume that just because your foreign income has already been taxed overseas or qualifies for an exemption overseas that it is not taxable in Australia.

How your money is being tracked

A lot of Australians have international dealings in one form or another. The ATO’s analysis shows China, the United Kingdom, Switzerland, Singapore and the United States are popular countries for Australians.

The ATO shares the data of foreign tax residents with over 65 foreign tax jurisdictions. This includes information on account holders, balances, interest and dividend payments, proceeds from the sale of assets, and other income. There is also data obtained from information exchange agreements with foreign jurisdictions.

In addition, the Australian Transaction Reporting and Analysis Centre (AUSTRAC) provides data to the ATO (and the Department of Human Services) on flows of money to identify individuals that are not declaring income or paying their tax.

It’s not uncommon for taxpayers to forget to declare income from a foreign investment like a rental property or a business because they have had it for a long time and deal with it in the local jurisdiction with income earned ‘parked’ in that country. However, problems occur when the taxpayer wants to bring that income to Australia, AUSTRAC or the ATO’s data matching picks up on the transaction and then the taxpayer is contacted about the nature of the income. If the income is identifiable as taxable income (for example, from a property sale or income from a business), you can expect the ATO to look very closely at the details with an assessment and potentially penalties and interest charges following not long after. There is no point telling the ATO the money is a gift if it wasn’t, they can generally find the source of the transaction and will know it’s not from a very generous grandmother – misdirection is only going to annoy them and ensure that there is no leniency.

What you need to declare in your tax return

If you are an Australian resident, you need to declare all worldwide income in your tax return unless a specific exemption applies, although in some cases even exempt income needs to be reported. Income is anything you earn from:

You do not need to declare prizes such as lotto or game show prizes, or ad-hoc gifts.

Do I need to declare money from family overseas?

A gift of money is generally not taxable but there are limits to what is considered a gift and what is income. If the ‘gift’ is from an entity (such as a distribution from a company or trust), if it is regular and supports your lifestyle, or is in exchange for your services, then the ATO may not consider this money to be a genuine gift.

I have overseas assets that I have not declared

Your only two choices are to do nothing (and be prepared to face the full weight of the law) or work with the ATO to make a voluntary disclosure. Disclosing undeclared assets and income will often significantly reduce penalties and interest charges, particularly where the oversight is a genuine mistake.

How to repatriate income or assets

Before moving funds out of an overseas account, company or trust it is important to ensure that you seek advice on the implications in Australia and the other country involved. This is a complex area and the interaction between the tax laws of different countries requires careful consideration to avoid unexpected consequences.

If you need to clarify your residency status for tax purposes or are uncertain about the tax treatment of income, please contact us today

Are all your SMSF eggs in one basket?

The investment strategies of Self Managed Superannuation Funds (SMSFs) are under scrutiny with the Australian Taxation Office (ATO) contacting 17,700 trustees about a lack of asset diversity.

The ATO is concerned that, “a lack of diversification or concentration risk, can expose the SMSF and its members to unnecessary risk if a significant investment fails.”

This does not mean that you must have diversity in your fund. A lack of diversity might be a strategic decision by the trustees but you need to be able to prove that the strategy was an active decision. Section 4.09 of the Superannuation Industry (Supervision) Regulations require that trustees “formulate, review regularly and give effect to an investment strategy that has regard to the whole of the circumstances of the entity.” To do that you need to:

Importantly, you need to be able to justify how you formulated your strategy if the ATO asks.

The 17,700 people being contacted by the ATO hold 90% or more of the fund’s assets in a single asset or single asset class.

Property is one of the problem areas the ATO is looking at. With property prices at a low point, the asset value of many funds has diminished.

In addition, debt taken on by SMSFs has significantly increased. The number of SMSFs using Limited Recourse Borrowing Arrangements (LRBAs) to purchase property has increased significantly from 13,929 (or 2.9% of all SMSFs) in 2013, to 42,102 (or 8.9% of all SMSFs) in 2017. For SMSFs that have purchased property through an LRBAs, on average, these LRBAs represent 68% of total assets of the funds.

LRBAs are most common in SMSFs with a net fund size (total assets excluding the value of the amount borrowed) of between $200,000 and $500,000. In 2017, the average borrowing under a LRBA was $380,000 and the average value of assets was $768,600.

Rental property expenses – what you can and can’t claim

It’s not uncommon for landlords to be confused about what they can and can’t claim for their rental properties. What often seems to make perfect sense in the real world does not always make sense for the Australian Tax Office (ATO).

In general, deductions can only be claimed if they were incurred in the period that you rented the property or during the period the property was genuinely available for rent. This means a tenant needs to be in the property or you are actively looking for a tenant. If, for example, you keep the property vacant while you are renovating it, then you might not be able to claim the expenses during the renovation period if it was not rented or available for rent during this time (there are some exceptions to this general rule). There needs to be a relationship between the money you make and the deductions you claim. Here are a few common problem areas:

Interest on bank loans

Only the interest on repayments for investment property loans, and bank charges, are deductible – not the actual loan itself. Also, if a loan facility is used for multiple purposes then only some of the interest expenses might be deductible. For example, if some of the loan is used to acquire or renovate a rental property but further funds are drawn down to pay for a holiday then this is a mixed purpose loan and an apportionment needs to be undertaken.

Repairs or maintenance?

Deductions claimed for repairs and maintenance is an area that the ATO is looking very closely at so it’s important to understand the rules. An area of major confusion is the difference between repairs and maintenance, and capital works. While repairs and maintenance can often be claimed immediately, the deduction for capital works is generally spread over a number of years.

Repairs must relate directly to the wear and tear resulting from the property being rented out. This generally involves restoring a worn out or broken part – for example, replacing damaged palings of a fence or fixing a broken toilet. The following expenses will not qualify as deductible repairs, but are capital:

Also remember that any repairs and maintenance undertaken to fix problems that existed at the time the property was purchased are not deductible, even if you didn’t find out about the problem until later.

The sharing economy

The deductions you can claim for ‘sharing’ a room or an entire house are similar to rental properties. You can claim tax deductions for expenses such as the interest on your home loan, professional cleaning, fees charged by the facilitator, council rates, insurance, etc. But, these deductions need to be in proportion to how much and how long you rent your home out. For example, if you rent your home for two months of the financial year, then you can only claim up to 1/6th of expenses such as interest on your home loan as a deduction. This would need to be further reduced if you only rented out a specific portion of the home.

Friends, family and holiday homes

If you have a rental property in a known holiday location, the ATO is likely to be looking closely at what you are claiming. If you rent out your holiday home, you can only claim expenses for the property based on the time the property was rented out or genuinely available for rent and only if the property was not actually being used for private purposes at that time.

If you, friends or relatives use the property for free or at a reduced rent, it is unlikely to be genuinely available for rent and as a result, this may reduce the deductions available. It’s a tricky balance particularly when you are only allowing friends or relatives to use the property in the down time when renting it out is unlikely.

A property is more likely to be considered unavailable if it is not advertised widely, is located somewhere unappealing or difficult to access, and the rental conditions – price, no children clause, references for short terms stays, etc., – make it unappealing and noncompetitive.

The $11.1bn small business tax shortfall

Last month, the ATO released statistics showing small business is responsible for 12.5% ($11.1 billion) of the total estimated ‘tax gap’.

These new figures give visibility to tax compliance issues within the small business sector and indicate where we can expect ATO resources to be focused now and in the future.

The tax gap estimates the difference between the tax collected and the amount that would have been collected if everyone was fully compliant with the law.

Australia’s small business community is doing comparatively well with international figures showing gaps in this same sector of between 9% and 30%.

ATO Deputy Commissioner Deborah Jenkins says that some small businesses are making mistakes with their tax, but these are often unintentional errors which are easily fixed.

To combat these errors, the ATO have ramped up their ‘visits’ to small businesses to monitor compliance, and educate business operators on compliance expectations with the goal of reducing the black economy (estimated to be 64% of the total small business tax gap). The ATO plans to visit almost 10,000 businesses this financial year.

If the ATO turn up at your business, they may spot check how you are recording your sales and the records for the past day or so. They may also check payroll records to ensure that staff are ‘on the books’ and superannuation entitlements are being met. If something does not look right in an initial assessment, it’s likely the ATO will expand their enquiries to other elements of the business.

The ATO states that the three main drivers of the small business income tax gap are:

The small business tax gap estimate is based on a sample of 1,398 randomly selected businesses for the 2015-16 income year (around 0.03% of the small business population). The ATO are looking to expand that sample to 2,000 businesses. However, one of the criticisms of the tax gap analysis has been the size of the sample group, particularly given that ATO resources are allocated on a return on investment basis.

Quote of the month

“…we know what we are, but not what we may be.”

William Shakespeare, Hamlet, act 4, scene 5

The material and contents provided in this publication are informative in nature only. It is not intended to be advice and you should not act specifically on the basis of this information alone. If expert assistance is required, professional advice should be obtained.

The post ATO take “Gloves off” on overseas income appeared first on BDH Leaders .

Tax Time: Are you in the ATO’s sights?

Sun, 16 Jun 2019 01:18:00 GMT

What’s new

Live reporting through Single touch payroll

Single touch payroll (STP) reporting has changed the way businesses report salary and wages, PAYG withholding and superannuation contribution information to the ATO. For the 2018-19 financial year, only businesses with 20 or more employees were required to use STP. From 1 July 2019, all businesses will need to use STP although there is some leniency for micro businesses struggling with implementation.

STP means that employers will no longer issue Payment Summaries , instead a finalisation declaration will generally need to be made by 14 July (the deadline is 31 July 2019 for businesses using single touch payroll for the first time in 2018-19).

Single touch payroll (STP) reporting has changed the way businesses report salary and wages, PAYG withholding and superannuation contribution information to the ATO. For the 2018-19 financial year, only businesses with 20 or more employees were required to use STP. From 1 July 2019, all businesses will need to use STP although there is some leniency for micro businesses struggling with implementation.

STP means that employers will no longer issue Payment Summaries , instead a finalisation declaration will generally need to be made by 14 July (the deadline is 31 July 2019 for businesses using single touch payroll for the first time in 2018-19).

If your employer has used STP in 2018-19, you can access your Income Statement from myGov . Through your myGov account, you will be able to see your year to date tax and superannuation information within a few days of your employer paying you.

If your employer has used STP in 2018-19, you can access your Income Statement from myGov . Through your myGov account, you will be able to see your year to date tax and superannuation information within a few days of your employer paying you.

For you

Work related deductions

Last financial year, over 8.8 million taxpayers claimed $21.98 billion in deductions for work related expenses. It’s an area under intense review by the ATO. If you claim work-related deductions, it’s important to ensure that you are able to substantiate any claim you make.

To claim a deduction, you need to have incurred the expense yourself and not been reimbursed by your employer or business, in most cases you need a record proving you incurred the expense, and the expense has to be directly related to how you earn your income – that is, the expense is directly (not sort of) related to your work. This also means ensuring that you only claim the work-related portion of items you use personally, such as mobile phones or internet services.

When you don’t have to keep records

If your claim for work related deductions is below $300 you do not have to keep a record of the expense, such as a receipt. Work related clothing has a $150 record keeping limit. However, the ATO is concerned that taxpayers are ‘automatically’ claiming these deductions without incurring any expenses because of a belief that you don’t have to support the claim. If you have claimed an amount up to the record keeping threshold, you may find that the ATO will ask you to explain how you came to that amount. If you don’t have diary entries or a good explanation, your claim might be denied.

If your claim for work related deductions is below $300 you do not have to keep a record of the expense, such as a receipt. Work related clothing has a $150 record keeping limit. However, the ATO is concerned that taxpayers are ‘automatically’ claiming these deductions without incurring any expenses because of a belief that you don’t have to support the claim. If you have claimed an amount up to the record keeping threshold, you may find that the ATO will ask you to explain how you came to that amount. If you don’t have diary entries or a good explanation, your claim might be denied.

Working from home

If you don’t have a dedicated work area but you do some work on the couch or at the dining room table, you can claim some of your expenses like the work-related portion of your phone and internet expenses and the decline in value of your computer. If you have a dedicated work area, there are a few more expenses you can claim including some of the running costs of your home such as a portion of your electricity expenses and the decline in value of office equipment.

If you don’t have a dedicated work area but you do some work on the couch or at the dining room table, you can claim some of your expenses like the work-related portion of your phone and internet expenses and the decline in value of your computer. If you have a dedicated work area, there are a few more expenses you can claim including some of the running costs of your home such as a portion of your electricity expenses and the decline in value of office equipment.

If your home is your principal place of business, you might be able to claim a range of expenses related to the portion of your home set aside for your business. What the ATO is looking for is an identifiable area of the home used for business.

If your home is your principal place of business, you might be able to claim a range of expenses related to the portion of your home set aside for your business. What the ATO is looking for is an identifiable area of the home used for business.

Ensure any claims are in proportion to the work related use. You can’t, for example, claim all of your internet expenses because you do a bit of work from home in the evenings and need the internet.

Ensure any claims are in proportion to the work related use. You can’t, for example, claim all of your internet expenses because you do a bit of work from home in the evenings and need the internet.

Work related clothing

In general, you cannot claim the cost of your work clothes or dry cleaning expenses unless the clothes are occupation specific, such as chefs whites or a uniform with a logo, or protective gear because your workplace has hazards (jeans don’t count as protective wear).

In general, you cannot claim the cost of your work clothes or dry cleaning expenses unless the clothes are occupation specific, such as chefs whites or a uniform with a logo, or protective gear because your workplace has hazards (jeans don’t count as protective wear).

Just because you have to wear a suit to work does not make it deductible.

Cryptocurrency

The ATO has a special taskforce dealing specifically with cryptocurrency. Cryptocurrency is considered an asset for tax purposes, rather than a form of currency. This means that gains or losses made on disposal or exchange of cryptocurrency will often be captured under the tax system – regardless of whether you’re switching between currencies or ‘cashing out’ your asset into AUD.

The ATO has a special taskforce dealing specifically with cryptocurrency. Cryptocurrency is considered an asset for tax purposes, rather than a form of currency. This means that gains or losses made on disposal or exchange of cryptocurrency will often be captured under the tax system – regardless of whether you’re switching between currencies or ‘cashing out’ your asset into AUD.

You will need to keep records of all of your trades in order to work out whether you’ve made a taxable gain or loss each time you dispose of an asset.

Capital gains tax can be complex and this is an area that the ATO is looking very closely at, particularly where taxpayers are claiming large losses. Also, some disposals can be taxed as ordinary income which means the CGT discount cannot apply and capital losses cannot be applied against the gains that have been made.

Capital gains tax can be complex and this is an area that the ATO is looking very closely at, particularly where taxpayers are claiming large losses. Also, some disposals can be taxed as ordinary income which means the CGT discount cannot apply and capital losses cannot be applied against the gains that have been made.

Rental property deductions

In the 2017-18 financial year, more than 2.2 million Australians claimed over $47 billon in deductions and the ATO believes that is too much – one in ten is estimated to contain errors.

What you can claim for your rental property has been significantly curbed. For example, you can no longer claim deductions for the cost of travelling to inspect the property. And, you can no longer claim depreciation deductions for second hand plant and equipment. Previously, you could for example, buy a rental property from someone else and then claim depreciation on the assets already in the property such as the kitchen appliances and carpet. From 1 July 2017, you can only claim deductions for new assets you purchase and install in the property.

What you can claim for your rental property has been significantly curbed. For example, you can no longer claim deductions for the cost of travelling to inspect the property. And, you can no longer claim depreciation deductions for second hand plant and equipment. Previously, you could for example, buy a rental property from someone else and then claim depreciation on the assets already in the property such as the kitchen appliances and carpet. From 1 July 2017, you can only claim deductions for new assets you purchase and install in the property.

4,500 audits of rental property deductions will be undertaken this year with the focus on over-claimed interest, capital works claimed as repairs, incorrect apportionment of expenses for holiday homes let out to others, and omitted income from accommodation sharing. Deliberate cases of over-claiming are treated harshly with penalties of up to 75% of the claim.

When you own a share in a property

For tax purposes, rental income and expenses need to be recognised in line with the legal ownership of the property, except in very limited circumstances where it can be shown that the equitable interest in the property is different from the legal title. The ATO will assume that where the taxpayers are related, the equitable right is the same as the legal title (unless there is evidence to suggest otherwise such as a deed of trust etc.,).

For tax purposes, rental income and expenses need to be recognised in line with the legal ownership of the property, except in very limited circumstances where it can be shown that the equitable interest in the property is different from the legal title. The ATO will assume that where the taxpayers are related, the equitable right is the same as the legal title (unless there is evidence to suggest otherwise such as a deed of trust etc.,).

This means that if you hold a 25% legal interest in a property then you should recognise 25% of the rental income and rental expenses in your tax returns even if you pay most or all of the rental property expenses (the ATO would treat this as a private arrangement between the owners).

This means that if you hold a 25% legal interest in a property then you should recognise 25% of the rental income and rental expenses in your tax returns even if you pay most or all of the rental property expenses (the ATO would treat this as a private arrangement between the owners).

The main exception is that if the parties have separately borrowed money to acquire their interest in the property then they would claim their own interest deductions.

Earning money from the sharing economy

Income earned from the sharing economy, AirBNB, Uber, AirTasker etc., must be declared in your tax return. But you may also be able to claim proportional expenses associated to providing the service. Ensure that any deductions you claim are related to providing the service itself (not just switching on the app or making yourself available).

Income earned from the sharing economy, AirBNB, Uber, AirTasker etc., must be declared in your tax return. But you may also be able to claim proportional expenses associated to providing the service. Ensure that any deductions you claim are related to providing the service itself (not just switching on the app or making yourself available).

If you are a driver with Uber or another platform, you will need to be registered for GST regardless of how often you drive.

Your business

There are around 3.8 million small businesses, including 1.6 million sole traders in Australia. They employ around 5.5 million people and contribute $380bn to the economy. Small business is also in debt to the ATO to the tune of $15bn.

There are around 3.8 million small businesses, including 1.6 million sole traders in Australia. They employ around 5.5 million people and contribute $380bn to the economy. Small business is also in debt to the ATO to the tune of $15bn.

This tax time, the ATO has stated they are looking closely at taxpayers:

setting up or changing to a company structure

claiming motor vehicle expenses

who may not be correctly apportioning between personal and business use

There are a multitude of data-matching programs and benchmarks to catch out those attempting to rort the system.

For wealthy groups and medium businesses, the focus is on structuring to avoid tax:

international risk – international profit shifting and corporate restructuring

inappropriate arrangements that seek to extract profits or capital without the right amount of tax being paid

high risk trust arrangements attempting to gain advantage beyond ordinary trust arrangements or tax planning associated with genuine business or family dealings.

If the ATO suspect there is a problem, you may be contacted to justify why decisions were made to structure your affairs or the affairs of your company in a particular way.

No tax deductions if you don’t meet your tax obligations

From 1 July 2019, if taxpayers do not meet their PAYG withholding and reporting obligations, they will not be able to claim a tax deduction for payments:

of salary, wages, commissions, bonuses or allowances to an employee;

of directors’ fees;

to a religious practitioner;

under a labour hire arrangement; or

made for services where the supplier does not provide their ABN.

The main exception is where you realise there is a mistake and voluntarily correct it before the ATO begins a review or audit. In these circumstances, a deduction may still be available if you voluntarily correct the problem but penalties may still apply for the failure to withhold the correct amount of tax. There is also an exception for situations where you make payments to a contractor but then later realise that they should have been paid as an employee, as long as the worker has provided an ABN.

The main exception is where you realise there is a mistake and voluntarily correct it before the ATO begins a review or audit. In these circumstances, a deduction may still be available if you voluntarily correct the problem but penalties may still apply for the failure to withhold the correct amount of tax. There is also an exception for situations where you make payments to a contractor but then later realise that they should have been paid as an employee, as long as the worker has provided an ABN.

The Government has also proposed that from 1 July 2021, the ABNs of those required to lodge a tax return but have not done so will be cancelled, and from 1 July 2022, ABN holders will be required to confirm the accuracy of their Australian Business Register details each year.

The Government has also proposed that from 1 July 2021, the ABNs of those required to lodge a tax return but have not done so will be cancelled, and from 1 July 2022, ABN holders will be required to confirm the accuracy of their Australian Business Register details each year.

Recording payments to contractors

The taxable payments reporting system requires businesses in certain industries to record and report payments made to contractors to the ATO.

From 1 July 2019, security providers and investigation services, road freight transport, and computer system design and related services businesses will need to collect specific information in relation to payments made to contractors (individual payments and total for the year). These businesses will need to lodge an additional report to the ATO with this information. The first report will be due by 28 August 2020.

From 1 July 2019, security providers and investigation services, road freight transport, and computer system design and related services businesses will need to collect specific information in relation to payments made to contractors (individual payments and total for the year). These businesses will need to lodge an additional report to the ATO with this information. The first report will be due by 28 August 2020.

Businesses within the building and construction industry, cleaning, and courier services need to report payments to contractors in the year ending 30 June 2019 by 28 August 2019.

This reporting requirement is focused on industries identified as active participants in the black economy, raising around $2.7bn per year in income and GST liabilities.

Your trust

Timing of resolutions

Trustees (or directors of a trustee company) need to consider and decide on the distributions they plan to make by 30 June 2019 at the latest (the trust deed may actually require this to be done earlier). Decisions made by the trustees should be documented in writing, preferably by 30 June 2019.

Trustees (or directors of a trustee company) need to consider and decide on the distributions they plan to make by 30 June 2019 at the latest (the trust deed may actually require this to be done earlier). Decisions made by the trustees should be documented in writing, preferably by 30 June 2019.

If valid resolutions are not in place by 30 June 2019, the risk is that the taxable income of the trust will be assessed in the hands of a default beneficiary (if the trust deed provides for this) or the trustee (in which case the highest marginal rate of tax would normally apply).

If valid resolutions are not in place by 30 June 2019, the risk is that the taxable income of the trust will be assessed in the hands of a default beneficiary (if the trust deed provides for this) or the trustee (in which case the highest marginal rate of tax would normally apply).

TFN reporting

Has your trust lodged TFN reports for all beneficiaries?

Trustees of closely held trusts have some additional reporting obligations outside the lodgement of the trust tax return each year. The ATO is currently reviewing trustees to ensure their compliance with these obligations, particularly the requirement to lodge TFN reports for beneficiaries.

Trustees of closely held trusts have some additional reporting obligations outside the lodgement of the trust tax return each year. The ATO is currently reviewing trustees to ensure their compliance with these obligations, particularly the requirement to lodge TFN reports for beneficiaries.

Where beneficiaries have quoted their TFN to the trustee, trustees are required to lodge a TFN report for each beneficiary. The TFN report must be lodged by the end of the month following the end of the quarter in which a beneficiary quoted their TFN. For example, if the trustee receives a beneficiary’s TFN in April, they must lodge a TFN report by the end of July.

Where beneficiaries have quoted their TFN to the trustee, trustees are required to lodge a TFN report for each beneficiary. The TFN report must be lodged by the end of the month following the end of the quarter in which a beneficiary quoted their TFN. For example, if the trustee receives a beneficiary’s TFN in April, they must lodge a TFN report by the end of July.

Where a TFN has not been provided by a beneficiary, the trustee is required to withhold tax at a rate of 47% and pay this to the ATO. The trustee must also lodge an annual report of all amounts withheld.

Where a TFN has not been provided by a beneficiary, the trustee is required to withhold tax at a rate of 47% and pay this to the ATO. The trustee must also lodge an annual report of all amounts withheld.

Failure to comply with the TFN reporting and withholding requirements may incur penaltie s.

Your superannuation

Not making your full superannuation contribution? Now you can catch up

This year is the first year of new measures that enable people who have been out of the work force, like new Mums, to top up their superannuation.

If you have:

A total superannuation balance below $500,000 as at 30 June; and

Not utilised your entire concessional contributions cap ($25,000) for the year

then you can ‘carry forward’ the unused amount on a rolling 5 year basis.

For example, if your total concessional contributions in the 2018-19 financial year were $10,000 and you meet the eligibility criteria, then you can carry forward the unused $15,000 over the next 5 years. You may then be able to make a higher deductible personal contribution in a later financial year. If you are selling an asset and likely to make a taxable capital gain, a higher deductible personal contribution may assist in reducing your tax liability in the year of sale.

For example, if your total concessional contributions in the 2018-19 financial year were $10,000 and you meet the eligibility criteria, then you can carry forward the unused $15,000 over the next 5 years. You may then be able to make a higher deductible personal contribution in a later financial year. If you are selling an asset and likely to make a taxable capital gain, a higher deductible personal contribution may assist in reducing your tax liability in the year of sale.

Remember:

Your total superannuation balance must be below $500,000 as at 30 June of the prior year before you utilise any carried forward amount (within the 5 year term); and

In some cases, an additional 15% tax can apply (30% total) to concessional contributions made to super where income and concessional contributions exceeds certain thresholds ($250,000 in 2018-19). Your income could be higher than usual in the year when you sell an asset for a capital gain.

How to Prepare for a Tax Office Visit

The Tax Office is actively targeting geographic areas for special visits as part of a nationwide crackdown on the black economy.

This financial year, the ATO has visited 22 regions with another four in progress. Next financial year they plan on visiting over 10,000 businesses.

The ATO is seeking to identify businesses that are hiding sales, paying cash in hand, or are underpaying workers. We have all seen businesses that prefer cash payments (and give discounts for cash), or do not run sales through the cash register. It’s likely that in many of these cases this income is not being reported.

The ATO is seeking to identify businesses that are hiding sales, paying cash in hand, or are underpaying workers. We have all seen businesses that prefer cash payments (and give discounts for cash), or do not run sales through the cash register. It’s likely that in many of these cases this income is not being reported.

The ATO has a plethora of case studies to support these visits, like the $2 million in undeclared income for a series of nail salons owned by the one taxpayer. The ATO’s interest was initially piqued by anomalies between the owner’s lifestyle and assets, and the income being declared from the salons. In another case a restaurant owner was only declaring eftpos payments and not cash payments received (the cash was kept in a shoe box). An audit revealed unreported income and overclaimed expenses of around $1.1m.

The ATO has a plethora of case studies to support these visits, like the $2 million in undeclared income for a series of nail salons owned by the one taxpayer. The ATO’s interest was initially piqued by anomalies between the owner’s lifestyle and assets, and the income being declared from the salons. In another case a restaurant owner was only declaring eftpos payments and not cash payments received (the cash was kept in a shoe box). An audit revealed unreported income and overclaimed expenses of around $1.1m.

So why these areas? The ATO says these areas exhibit some statistical anomalies, for example, a higher number of businesses not registered for PAYG or GST. Other indicators that set off the ATO ‘alarm bells’ include businesses that:

So why these areas? The ATO says these areas exhibit some statistical anomalies, for example, a higher number of businesses not registered for PAYG or GST. Other indicators that set off the ATO ‘alarm bells’ include businesses that:

operate and advertise as ‘cash only’ or mainly deal in cash

ATO data matching suggest don’t take electronic payments

are part of an industry where cash payments are common

indicate unrealistic income relative to the assets and lifestyle of the business and its owner

fail to register for GST or lodge activity statements or tax returns

under-report transactions and income according to third-party data

fail to meet super or employer obligations

operate outside the normal small business benchmarks for their industry

are reported to the ATO by the community for potential tax evasion – the number of reports received by the ATO shows that the community is less tolerant of unfair practices in these industries.

While it is ok for your business to be outside of the statistical norm, you need to be able to explain why. For example, you might be a gardener with very high deduction claims for equipment outside of what is normal for your industry, but a recent large contract meant that you had to upgrade all of your equipment.

While it is ok for your business to be outside of the statistical norm, you need to be able to explain why. For example, you might be a gardener with very high deduction claims for equipment outside of what is normal for your industry, but a recent large contract meant that you had to upgrade all of your equipment.

If ATO officers turn up at your business, they may ask you to show them how you record your sales and ask to see the records for the past day or so. If there appear to be anomalies in your reporting, further action might be taken.

If ATO officers turn up at your business, they may ask you to show them how you record your sales and ask to see the records for the past day or so. If there appear to be anomalies in your reporting, further action might be taken.

They may also check payroll records to ensure that staff are ‘on the books’ and superannuation entitlements are being met. A classic problem area is cash payments or poor records of family members working in the business. If a family member is employed, unless they are a Director of the business, you need to meet the same standards as if they were not related including minimum wage, PAYG withholding and superannuation guarantee payments.

They may also check payroll records to ensure that staff are ‘on the books’ and superannuation entitlements are being met. A classic problem area is cash payments or poor records of family members working in the business. If a family member is employed, unless they are a Director of the business, you need to meet the same standards as if they were not related including minimum wage, PAYG withholding and superannuation guarantee payments.

What you can do to prepare for an ATO visit:

Have great records, particularly if your business predominantly uses cash

Make sure your paperwork is up to date – invoicing for services provided, recognition of expenses (with receipts), salaries and cash taken out of the business by the owners

Ensure staff are recording sales and expenses correctly

Ensure your business has a separate bank account – it cannot be your personal bank account.

The post Tax Time: Are you in the ATO’s sights? appeared first on BDH Leaders .

What you can expect after the Election

Fri, 03 May 2019 02:19:00 GMT

Budget 2019-20: The pre-election announcements that are now law

The Federal Budget announced a series of measures, some of which were legislated before the election was called.

Extension and increase to the instant asset write-off

The popular instant asset write-off for small business has been extended and increased. The new laws:

Assets will need to be used or installed ready for use from Budget night until by 30 June 2020 to qualify for the higher threshold. Anything previously purchased does not qualify for the higher rate but may qualify for the $20,000 or $25,000 threshold. Similarly, anything purchased but not installed ready for use by 30 June 2020 will not qualify.

The instant asset write-off only applies to certain depreciable assets. There are some assets, like horticultural plants, capital works (building construction costs etc.), assets leased to another party on a depreciating asset lease, etc., that don’t qualify.

For assets costing $30,000 or more

For small businesses (aggregated turnover under $10m), assets costing $30,000 or more can be allocated to a pool and depreciated at a rate of 15% in the first year and 30% for each year thereafter. If the closing balance of the pool, adjusted for current year depreciation deductions (i.e., these are added back), is less than $30,000 at the end of the income year, then the remaining pool balance can be written off as well.

The ‘lock out’ laws for the simplified depreciation rules (these prevent small businesses from re-entering the simplified depreciation regime for five years if they opt-out) will continue to be suspended until 30 June 2020.

Pooling is not available for medium sized businesses which means that the normal depreciation rules based on the effective life of the asset will apply to assets that don’t qualify for an immediate deduction.

The amendments apply from 7.30 pm legal time in the Australian Capital Territory on 2 April 2019 until 30 June 2020

One-off energy assistance payments

A one-off energy assistance payment of $75 for singles and $62.50 for each eligible member of a couple, will be made to predominantly pension and social welfare recipients who were residing in Australia on 2 April 2019. The payments are expected to be completed by 30 June 2019.

Medicare levy and surcharge income threshold increase

The Medicare levy low income thresholds for singles, families, and seniors and pensioners will increase from the 2018-19 income year, meaning more people will be excluded from paying the levy.

North QLD flood recovery

Grants are treated as non-assessable non-exempt income if they:

As a result, Category C and D measure grants to small businesses, primary producers and non-profit organisations affected by floods in North Queensland in late January 2019 and that continued into February 2019 are non-assessable non-exempt income.

And, grants to primary producers are non-assessable non-exempt income if the grants are for repairing or replacing farm infrastructure, restocking or replanting, and they are provided for the purposes of an agreement between the Commonwealth and a State or Territory to assist primary producers affected by the flooding.

As a result, such grants to primary producers in North Queensland affected by floods in late January 2019 that continued into February 2019 are non-assessable non-exempt income.

A Labor Government on Tax & Super

Tax on investment property

In general, taxpayers are able to deduct from their assessible income any expenses they incur generating or producing that income. An investment is negatively geared when the cost of owning the asset is more than the return. Negative gearing is not limited to property but can apply to other assets such as shares. In 2016-17, Australians claimed $47.5 billion in rental deductions against gross rental income of around $44.1 billion.

A number of capital gains tax (CGT) exemptions potentially apply to investment property. For Australian resident individuals, a 50% CGT discount applies to net capital gains made on investments held for longer than 12 months.

In addition, a taxpayer’s main residence is exempt from CGT. As part of this exemption, a taxpayer can be absent from their main residence for up to 6 years and still claim the property as their main residence (assuming they do not treat any other property as their main residence). So, the property can be used as an investment property for 6 years but then sold as the taxpayer’s main residence.

Labor’s plan seeks to:

There is no policy statement from the ALP on the main residence exemption. The Morison Government had introduced legislation to remove access to the main residence CGT exemption for non-resident taxpayers, but this Bill stalled in the Senate. Chris Bowen told the Australian Financial Review that it will be up to the ALP to work through outstanding tax measures and “iron out any unintended consequences” including the impact on expats and retrospectivity.

More information

Dividend imputation and the impact on self-funded retirees

One of the more controversial measures announced by the ALP is the reforms to the dividend imputation credit system to remove refundable franking credits from shares. The measure, as announced, would apply to individuals and superannuation funds, and exclude Australian Government pension and allowance recipients, and tax-exempt bodies such as charities and universities. SMSFs with at least one pensioner or allowance recipient before 28 March 2018 will also be exempt from the changes. The policy is intended to apply from 1 July 2019.

How does the system currently work?

A dividend is a shareholder’s share of a company’s earnings (profits). When a dividend is paid from an Australian company’s after-tax profits, these are known as franked dividends and include a franking credit (imputation credit), which represents the amount of tax already paid by the company on the underlying profits that are being paid out in the form of a dividend.

An Australian resident shareholder pays tax on dividends they receive (as dividends are treated as income). If the dividend received is a franked dividend, the shareholder includes the franking credits in their income (i.e., a gross-up occurs) but they can then use the franking credit attached to the dividend to reduce their tax liability. If the credit exceeds their tax liability for the year then they receive a cash refund for the excess amount.

For example, an SMSF owns shares in a company. The company pays the SMSF a fully franked dividend of $7,000. The dividend statement says there is a franking credit of $3,000. The $3,000 represents the tax the company has already paid on its profits. This means the profit, before company tax was subtracted, would have been $10,000 ($7,000 + $3,000). The SMSF must declare $10,000 worth of income, and will receive the $3,000 as an offset.

The dividend imputation system was introduced in 1987 by the Hawke/Keating Government to remove the investment bias against shares which taxed interest income once but dividend income twice (once at the company level on profits and the second time at the taxpayer level on income). In 2001, the Howard Government amended the rules to enable franking credits to be paid as a cash refund where the taxpayer paid less tax than the company tax rate. In the absence of refundability, the taxpayer pays tax up to the company tax rate and any surplus franking credit is wasted.

The sensitivity of the issue

The sensitivity of this issue is how the dividend imputation system interacts with the way superannuation is taxed. Currently, income an SMSF earns from assets held to support retirement phase income streams (i.e., a pension), such as dividends from shares, is tax-free. That is, a self-funded retiree in some circumstances pays no tax on the income they earn from dividends. If they pay no tax, then any franking credits are paid as a cash refund.

If the ALP policy comes to fruition, these self-funded retirees lose this cash payment unless they are also Australian Government pension and allowance recipients. The policy effectively unwinds the Howard reforms and returns the imputation system to its original Hawke/Keating design.

Who will be impacted by the change?

Based on information from Treasury, 85% of the value of franking credit refunds go to individuals with a taxable income below $87,000. That is, 97% of taxpayers receiving refunds have a taxable income below $87,000. And, more than half of those receiving a franking credit refund have a taxable income below the tax-free threshold of $18,200. Around 40% of SMSFs receive a franking credit refund.

Around 1.1 million individuals received a franking credit refund in 2014-15 with more than half of these over the age of 65. And, more than two thirds of refunds to SMSFs are to those whose fund balance per member is greater than $1 million. However, this figure is likely to be diminished by the 1 July 2017 reforms that imposed a $1.6m cap on retirement phase superannuation accounts and tax earnings on accumulation accounts.

The Parliamentary Budget Office has also outlined what behavioural changes they expect to see in the market as a result of making franking credits non-refundable. These include:

The most significant behavioural change is expected to be from SMSF trustees: “ The assumed behavioural response for SMSFs in 2019‐20 is equivalent to these funds, in aggregate, moving around a quarter of the value of their listed Australian shares into APRA‐regulated funds that are in a net tax‐paying position.”

The alternative, of course, is for SMSFs to change their composition of Australian shares to reduce their holding. The Parliamentary Budget Office also notes that one potential outcome is that SMSFs will increase the number of taxpaying members. “For instance, a couple with an SMSF in the pension phase could invite two additional working‐aged children into their fund, allowing them to use their excess franking credits to offset the contributions and earnings tax payable on the assets owned by their children.”

More information

Minimum 30% tax on discretionary trust distributions

There are around more than 690,500 discretionary trusts, also known as family trusts, in Australia. Discretionary trusts are popular as the trustee has the discretion on how to pay the income or capital of the trust to the beneficiaries – beneficiaries do not have an interest in the trust. Income can be apportioned by the trust to the beneficiaries on a discretionary basis, for example, to beneficiaries on a lower income tax bracket. As a result, discretionary trusts are often used to protect assets within family groups, manage succession, and to distribute income tax effectively within that group.

From 1 July 1979, laws were introduced to ensure that distributions to minors were taxed at the top marginal tax rate to prevent trusts distributing funds to children at minimum tax rates.

The proposed reforms

The ALP reforms address the ability for distributions to be channelled to beneficiaries in low income tax brackets. Instead, a new standard minimum rate of tax for discretionary trust distributions to mature beneficiaries (aged over 18) of 30% will apply.

More information

Capping deductions for managing tax affairs

The ALP intends to cap the tax deduction available for the cost of managing tax affairs to $3,000. While clients can spend more than this, the portion above $3,000 will not be tax deductible.

No further details are available at present.

Tightening of superannuation framework

Mr Shorten told a media conference in April that the ALP had “no plans to increase taxes on superannuation.” However, ALP policy does make changes in a series of areas. These include:

Other tax and business policies

ATO doubles rental deduction audits

In the 2017-18 financial year, more than 2.2 million Australians claimed over $47 billon in deductions and the Australian Taxation Office (ATO) thinks that is too much – one in ten is estimated to contain errors.

4,500 audits of rental property deductions will be undertaken this year with the focus on over-claimed interest, capital works claimed as repairs, incorrect apportionment of expenses for holiday homes let out to others, and omitted income from accommodation sharing. Deliberate cases of over-claiming are treated harshly with penalties of up to 75% of the claim. In one case exposed by the ATO, a taxpayer had to pay back $12,000 in claims for deductions against a holiday home that was not genuinely available for rent and was blocked out during the holiday season. In another, a taxpayer paid back $5,500 because they had not apportioned their rental interest deduction to account for redraws on their investment loan to pay for living expenses.

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Borrowing in the post Banking Royal Commission era

Mon, 17 Dec 2018 02:12:00 GMT

The fallout from the Banking Royal Commission is reverberating across the economy. Banks are simplifying their business models, cutting costs and tightening their lending practices. Boards are streamlining their product offerings in the wake of some pretty astounding findings by the Commission.

The impact of the Banking Royal Commission is not only being felt by banks. The property markets continue to fall as banks limit borrowings as a result of APRA’s 2017 changes to regulatory requirements. The two-pronged hit of stricter lending criteria and a cooling housing market has led many to raise concerns over a further downturn, which then further impacts the banks willingness to lend. These tighter lending practices, coupled with the findings of the Royal Commission and the criticisms directed at ASIC has eroded trust in the big banks in particular and this paves the way for smaller banks and other institution to increase market share.

From a borrower’s perspective, banks are already being much more vigilant in assessing your ability to service the loan, as well as requiring lower loan to value ratios. This means they want to make sure that you have the capacity to make repayments both at the current interest rate and in the event of several rate rises over the course of the loan. A home loan may currently be tested at 8% and a business loan fractionally higher at 9%.

Banks often use their own methodology to determine your living expenses. No matter how frugal you know you are, the banks can make living expenses assumptions that may be significantly more than what you actually spend. Banks require much more substantive documentation in support of loan applications and are taking longer to critically evaluate and check the documentation.

Predictions are that the housing market still has some way to fall and this, combined with other factors such as the ongoing reset for interest-only loans, negligible wage growth, rising personal living costs, rising bank funding costs and negative gearing changes under a possible Labor government, are likely to make it harder to access finance.

Small to medium sized businesses (SMEs) are also feeling the effects of the Royal Commission as banks are more risk aware than ever. They are taking longer to make a loan decision and as they seek to maintain their earnings margins, fees are likely to increase.

The ABA’s revised Code of Banking Practise will be mandatory from July 1 2019 and that will certainly impact bank lending practises to SMEs. The revised Code applies to all consumers and to small businesses borrowing up to $3m and replaces the previous version, The Code of Banking Practice 2013 The changes will make banking products more transparent but also requires banks to be more ‘responsible’ in terms of lending.

There are a range of non-bank lenders who may enter the market as the fallout from the Royal Commission is properly evaluated and actioned and the new code comes into effect. These include challenger banks, fintechs, specialist asset financiers and merchant cash advance lenders. These lenders tend to be more flexible but it’s still important that you don’t commit to unrealistic repayments.

BDH Leaders can help you navigate financing options in the post Banking Royal Commission landscape. Contact us for expert advice .

THE INFORMATION IN THIS ARTICLE IS GENERAL GUIDANCE ONLY. CONSIDER YOUR OWN CIRCUMSTANCES, AND OBTAIN YOUR OWN ADVICE, BEFORE RELYING ON THIS INFORMATION. CONTACT BDH LEADERS FOR FURTHER INFORMATION.

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Is a Limited Recourse Borrowing Arrangement right for my SMSF?

Mon, 17 Dec 2018 01:33:00 GMT

We borrow all the time to acquire assets; you may borrow to purchase a home or investment property which usually involves a mortgage, you may borrow from a finance company for a car which uses the car as collateral, you may take out a margin loan to purchase equities. These are just some examples but there is another: Limited Recourse Borrowing (LRB).

A Limited Recourse Borrowing Arrangement (LRBA) is entered into by the Trustee or Trustees of a self-managed superannuation fund (SMSF) to purchase an investment for the SMSF. The asset is held in a separate trust to the SMSF trust and the loan is tied to the asset purchased and not to the entirety of the assets held in the SMSF – that’s the meaning of ‘limited recourse’. This goes some way to protecting the other assets held in the SMSF because in the event of a loan default, the lender may only seek to recover the specific asset acquired under the LRBA.

The interest is generally similar to a variable home loan rate and there are good resources to help you work out which lender may suit you best, such as Canstar .

Your financial adviser may suggest a LRBA to you but be aware that they are most suited to those with a significant super balance and experience in financial matters. Limited recourse borrowing may involve a package which includes an allocation to property, shares and warrants and it can get complicated – a good financial adviser is important even if you believe you have the necessary skills to traverse the complicated PDS.

A good financial adviser will understand the Superannuation Industry (Supervision) Act (SISA) and the conditions, amendments and in-house asset rules set out in SISA. If the SISA conditions are not met, this will result in a contravention of super laws which may have civil or criminal consequences. The importance of a good financial adviser cannot be over stated.

LRB arrangements can also be costly so make sure you look at the establishment and ongoing fees and other costs (including commission) plus any additional payments you may be required to pay from the SMSF (such annual accounting costs as well as insurance and home maintenance). Work out what those costs will amount to over the course of the loan and ascertain if the SMSF can pay those costs now and into the future – such as when you transition into pension phase. Do all those costs, when compared to the likely value of the asset purchased, make this a worthwhile exercise?

The benefits on a LRBA

If you feel like a LRBA might be right for you, please contact us . We are happy to discuss your particular circumstance and go through this option in greater detail.

The information in this article is general guidance only. Consider your own circumstances, and obtain your own advice, before relying on this information. Contact BDH Leaders for further information.

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Building wealth with stocks, bonds and funds

Tue, 21 Aug 2018 04:25:00 GMT

Investing in revenue-producing assets can be confusing. There is a lot of financial jargon to wade through and it’s often not easy to decide which asset best suits your needs and financial goals. In this article we will simplify stocks, bonds and funds.

Stocks

Stock (equity) is when you purchase shares in a company. The price of a share, purchased via an exchange such as the Australian Securities Exchange (ASX), is largely determined by supply and demand. Generally, more buyers than sellers will increase the stock price and more sellers than buyers will see the share price fall.

The share price multiplied by the number of issued shares equates to the ‘market capitalisation’ of the company, effectively what the market views as its present total value.

Shareholders may be entitled to receive dividends (a distribution of the company’s profit) taken as cash or further equity.

Bonds

Bonds are debt instruments and are classified as a liability for the issuer. You do not become an owner of the business, rather you make a loan to the business which is repaid to you with interest.

Bonds are usually classified by the type of interest paid (fixed, floating or indexed) and split into categories based on the issuer (corporate or government bonds).

Government Bonds are one of the safest investments in Australia as the interest and the face value payment at maturity are guaranteed by the government. The cost of a bond is tied to interest rates so when interest rates rise, bond costs fall. You can sell a bond back to the government rather than waiting until it matures but you may be faced with a capital loss if you do so.

Managed funds & exchange traded funds

Managed funds are investment schemes whereby your money is pooled together with other investors and professionally managed by a fund manager. Investors purchase units in the fund. The unit price is determined by the net asset value of the fund divided by the number of unitholders and there will be a buy/sell spread which accounts for transaction costs. The unit price rises and falls in line with the value of the underlying assets.

You are usually paid bi-annual distributions which may be taken as cash or reinvested into additional units.

Managed funds can be unlisted and bought directly from the fund manager, a broker or intermediary, or listed on a securities exchange.

Managed funds offer substantial diversification due to your investment being used to purchase a myriad of researched stocks across a wide range of markets or sectors by the professional fund manager. A fund may invest in a single asset class or a combination of many, such as value vs growth, low-cap, medium-cap, high cap, international vs Australian equities and GICS 1

Exchange traded funds are a lower feee and more liquied alt to man funds.

A Listed Investment company (LIC)

A Listed Investment company (LIC) is another investment option. They are similar to a managed fund and available on a securities exchange such as the ASX. The price you pay per share may be at a premium or a discount to the net asset value of the portfolio.

In summary

Ultimately, the key to a well balanced long-term portfolio of investments is diversification, so whether you use a fund manager to achieve this, purchase stocks or bonds directly or invest in other assets (such as real estate) the best portfolio includes a range of investments.

BDH Leaders provides a full range of wealth management services aimed at assisting you to achieve your financial goals. Contact us for further information.

1 Global Industry Classification Standard

The information in this article is general guidance only. Consider your own circumstances, and obtain your own advice. Should you require any further information please contact us.

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The rise and rise of investing ethically

Tue, 21 Aug 2018 04:18:00 GMT

Making an investment decision is not always based on the possible return you may receive from that investment. An increasing number of people are basing their choice of fund, or company, on issues around social responsibility, sustainability and corporate governance.

In Australia, ethical investing started in earnest in 1986 with the launch of Australian Ethical , followed in 1994 by Hunter Hall (which merged with Pengana in 2017). In those early days, it was sometimes difficult to persuade investors that there was no correlation between investing in an ethical manner and mediocre performance. In fact, quite the opposite is true and, according to the Responsible Investment Benchmark Report 2016 released by Responsible Investment Association Australasia ( RIAA ), almost half of Australia’s investments are now being invested responsibly, with consumer demand being a major driver of this increase.

This consumer demand is being driven by two factors; people want to invest in companies which fit their sensibilities and people want a good return on their investment. The performance of various funds within the ethical space can vary significantly, but as you can see in the table below, you do not have to sacrifice returns to invest with your conscience.

* Returns are as at 31 March 2018 and are net of fees. Source: Each fund’s website.

These funds are just a small sample of what is on offer in the ever-growing ethical investment space, and each has their own set of exclusions (their negative screen) and inclusions (their positive screen). Managers describe their products from “light green” to “deep green” and the specific ethical objectives of these funds are detailed on their websites and in their charters.

Responsible Returns, an initiative of RIAA, has a comprehensive listing of funds on their website, including their mandates, which can be found here . Some of the more common possible exclusions include fossil fuels, logging, tobacco, nuclear energy, uranium mining, human rights abuses, labour rights violations, armaments, cruelty to animals, alcohol and gambling, and some funds screen ‘in’ companies that provide renewable energy, clean water or endeavour to provide a product or service that many would deem beneficial to the planet. This means you are sure to find a fund that suits your preferences.

BDH Leaders can advise you on your investment portfolio strategy. More information on our services can be found here .

The information in this article is general guidance only should not be interpreted as an endorsement of any particular fund. Past performance is no guarantee of future performance. Consider your own circumstances, and obtain your own advice.

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Let me be Frank

Tue, 21 Aug 2018 04:14:00 GMT

What is a Franking Credit? You have probably seen this phrase on tax statements provided to you by a company you invest in but what does it actually mean?

Franking Credits are the means whereby Australian companies can give credit for tax paid at the company level to their shareholders, which can then be used by the shareholder to avoid double taxation of the profits paid out as dividends.

A company is required to pay tax to the Australian Taxation Office (ATO). It is left with its profit and may distribute some of that profit to its shareholders. Profit distributed by way of dividends has already been subject to tax at the 30% company tax level, so franking credits are attached to those dividends in order to prevent double taxation. Shareholders tax liability is calculated as if they had received the before-tax profit (dividend plus franking credit) but the franking credit, available as a tax offset, ensures that they are only required to pay the difference between the corporate tax rate and their own marginal tax rate on those dividends.

To calculate your assessable income, you include both the dividend and the franking credits as income (grossed up dividend) on which tax is calculated at your marginal tax rate, and then you can use the franking credits to reduce the resultant tax liability, or even generate a tax refund under current rules.

For example, Jill receives a fully franked dividend of $350 with a franking credit (representing tax the company has already paid) of $150. Grossed up, the profits paid out as that dividend would have been $500. On her tax return, Jill must declare $500 as her taxable income even though she only received $350. If her marginal tax rate is 20% then she would have to pay $100 tax on the grossed-up dividend; however, because the company has already paid $150 in tax (the franking credit amount on her statement), under current rules she is entitled to a refund of the $50 difference. Alternatively, the $50 unused offset can be used to reduce tax payable on Jill’s other sources of income.

Investments with attached franking credits are therefore very appealing to non-taxpayers, low-income earners or pensioners. If a taxpayer has a marginal tax rate higher than 30%, this would result in them owing more money to the ATO. For example, if your marginal tax rate is 37% (+ 2% Medicare levy) and you receive a fully franked dividend of $350 with a franking credit of $150. Grossed up, the dividend would be $500 which is the amount you would declare. The company has already paid $150 tax on the dividend but, at your marginal tax rate of 37% (+ 2% Medicare levy), the total tax and levy payable would be $195. Therefore you would owe an additional $45 to the ATO. Owing additional tax may seem problematic but remember that you received a $350 dividend.

The ATO website provides detailed information regarding franking credits and you may also contact us at BDH Leaders for further information.

The information in this article is general information only. Investments and taxation are complex matters and we encourage you to consider your own circumstances and obtain your own advice.

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IPOs vs ICOs – what’s right for you?

Tue, 21 Aug 2018 04:10:00 GMT

There are significant differences between an initial public offering (IPO) and an initial coin offering (ICO) and before you invest in either option, it is important to understand those differences and the risks associated with each.

What is an IPO

An IPO is the first sale of a company’s stock issued to the public via a stock exchange, usually to accelerate the growth of the company with the increase in capital. There are a multitude of steps required to turn a company from a private one to a public one; meeting eligibility thresholds, significant compliance with ASIC and the ASX, securing a sponsoring broker or underwriter, independent financial due diligence, Board appointments and a detailed prospectus. These steps are required before any funds can be raised from potential future shareholders.

What is an ICO

An ICO is a way to crowdfund a cryptocurrency or blockchain project. There are no legal requirements prior to undertaking an ICO (yet) and it is largely unregulated (at the moment). Rather than a prospectus, most ICOs produce a whitepaper and a roadmap. The whitepaper contains key information about the project, including the details of the team behind the token or coin and the roadmap contains a timeline. An ICO investment is high risk as you are investing in the project’s future; whereas with an IPO, you are becoming an owner of the business.

As an investor in an IPO, you will own a piece of the business and may receive dividends. These dividends may have attached franking credits which can form part of your overall taxation and investment strategy. An ICO token or coin may provide a dividend in the form of additional tokens or coins but these are not paid to you in fiat currency, so if you want that value in dollars in your bank account, you will need to sell them on an exchange and realise the tax implications of that sale.

An IPO is a slow process, often taking months from the time you completed your application form until the time you may be issued the equity. Allocations to traditional retail investors may be limited as preference is often given to, for example, the underwriting broker. An ICO is much faster and, provided you have completed some initial paperwork on the ICO’s site and have your cryptocurrency ready to trade for the token or coin, you can participate.

The return on your investment obviously depends on several factors. Many IPOs have had lacklustre performance and many ICOs have failed but there are success stories. Infant formula manufacturer Wattle Health Australia listed on the Australian Securities Exchange in March 2017 at 20 cents per share and last traded at $2.26. Antshares (now NEO) held its first ICO in October 2015. The ICO lasted for 10 days and the price was 23 cents. It is now approximately $87 per coin. These results are seductive but for every IPO and ICO success story, there are several that fail. There is less of a likelihood of this happening in the IPO space due to regulatory requirements outlined above.

A sensible investment portfolio will be weighted according to your own risk profile and other factors. BDH Leaders can assist you in determining the right balance for your needs. Contact us for further information.

Source: ASX: www.asx.com.au , Coinmarketcap: www.coinmarketcap.com

The information in this article is general guidance only and should not be interpreted as an endorsement of any particular investment. All investments carry risks and past performance is no guarantee of future performance. Consider your own circumstances, and obtain your own advice, before relying on this information.

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Is your business about to have a growth spurt (and are you ready)?

Tue, 21 Aug 2018 04:06:00 GMT

Besides the launch phase, growth spurts are the second riskiest time for many businesses. An unexpectedly successful marketing campaign, a sudden change in consumer needs, a ‘hot’ market for a particular type of product or service – any of these things can cause challenges for your business.

The question is – will your business cope?

Consider the following points when determining whether or not your business can handle a growth spurt.

Financial resources

With sudden growth, often comes an influx of revenue and while it can be tempting to splurge on the many things on your business ‘wish-list’ or start splashing out the bonuses, one of the best investments you can make at this juncture is in solid financial advice.

The costs involved in surviving sudden growth are often not evident until later. Additional tax responsibilities, new salaries and super commitments, as well as additional equipment, stock and leasing more space, will all pile up.

Expert financial advice will help you plan your way through the changes that are happening and set your business up with the right kind of cash flow and reserves to cope with the upcoming costs, as well as keeping things running while you scale up.

Keep up-to-date financial information readily available so you can quickly assess what resources you have available. Besides available funds, each business must have the resources to manage the increase in incomings and outgoings. You’ll also need to analyse your payables and receivables, as well as staying on top of cash flow forecasts.

Taking preventative steps now, could save a lot of trouble later and make the difference between business survival and extinction.

Solid infrastructure

If you assessed your current infrastructure today, would you be able to identify the processes and roles who would bear the brunt of additional business?

A solid business infrastructure ensures the proper coordination of all human resources, processes and other operational tools necessary to ensure profitable growth.

A solid infrastructure in place also ensures your business doesn’t crumble under the pressures of expansion, has a solid and replicable foundation and consistency in the delivery of your product and/or service.

The right staff

If expansion is on the cards, it’s important that you are equipped with a solid recruitment strategy that will help you have the right staff on board. Having a strong team of HR professionals is crucial for any growing business as they will facilitate the transition as you begin to grow. Remember to also look at additional skills and knowledge your business requires as you grow.

Roles such as project managers, property managers and human resources are often the stress points within a business when things get busy.

Do you know how much more time each of your team has in their day before they are regularly tipping into overtime?

Understanding your team’s stress-points can help you plan for a rapid scale-up, what support do they need to maximise their strengths, and who can fill those roles.

Spend time considering the future and how many staff members you’ll need to grow. Mapping out teams is a critical part of this process as well as employee growth plans that will help you attract the right staff. Outsourcing

Evaluating how you spend your time is crucial during a growth spurt. Outsourcing allows you to expand your capacity without hiring staff, leasing a larger space, or investing in additional equipment. Focus on performing activities that have a high return on investment and consider outsourcing or completely eliminating the rest. Long-term plan

Ensure that you have a long-term game plan for your business, and that includes setting up to accommodate for future growth spurts. Know what you are aiming for and be extremely clear on what you are targeting and more importantly why.

At BDH Leaders, we advise you how to strategically expand your business. View more information on our business services here.

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How not to panic when the stock market crashes

Thu, 26 Jul 2018 03:55:00 GMT

Stock market crashes are a regular occurrence

A stock market crash is when a stock index (the ASX, S&P 500, the NASDAQ or the Dow Jones) drops severely in a short space of time. A correction is more gradual and occurs when the market drops 10 percent from its 52-week high.

Since 1900 there have been at least 29 stock market crashes around the world and on 5 February 2018 the Dow Jones plummeted by almost 1,600 points. Some economists and commentators are presently bearish regarding the global economy and, given this possibility, it is important to have a plan in the event of your investment portfolio declining.

Firstly, don’t panic. If you have built a diversified portfolio, designed for long-term growth, resist the urge to sell, be patient and understand that there is likely to be a rebound in time. Warren Buffett, arguably one of the world’s most successful investors, states “The stock market is a device for transferring money from the impatient to the patient”. When prices drop significantly many investors join the herd and sell, which feeds the cycle.

Secondly, consider buying if you can. A crash, or correction, has historically allowed investors the opportunity to find good quality businesses selling at a large discount to their intrinsic value. Research is a key component to building a strong and diversified portfolio that will weather the storm of a crash more successfully. Ensure that you understand the business, its debt levels and potential future growth and buy it while it’s on sale. Chances are you won’t see that price again.

In the meantime:

Your objective should be to create a portfolio that you can hold on to during any downturn, as you are confident in its long-term recovery.

BDH Leaders provides a full range of wealth management services aimed at assisting you to achieve your financial goals. Contact us f or further information.

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Balancing a profitable year and THAT tax bill

Thu, 12 Apr 2018 04:50:00 GMT

Often with a booming business comes a burgeoning tax bill.

In 99% of situations, businesses experiencing a growth spurt, almost always get slapped with a huge bill come tax time.

So how can a business reduce their tax bill and implement strategies to ensure they don’t get left with a hefty tax bill? Here are some of the main ways you can reduce your bill.

Defer your income

Consider deferring any invoices at the end of the financial year to the following year so you can take advantage of tax breaks. It’s important to note that deferring for too long means you could end up on the Australian Tax Offices (ATO) watch list.

The Federal Government last year announced that for the 2017–18 income year, the lower company tax rate decreased to 27.5% for companies with a turnover of less than $25 million.

Write off bad debts

Chasing invoices you think will never get paid? It’s crucial you write off any bad debts, so you can get some tax relief. A debt that remains unpaid is an allowable deduction but it must be included in as assessable income.

Superannuation contributions

Putting your businesses superannuation contributions through before the June 30th deadline should earn you a tax deduction. Make sure the contribution actually flows through into the super fund before June 30 so you can claim the deduction.

The golden rule: keep up-to-date records

The easiest way to end up on the ATO’s bad side is by keeping sloppy records. By keeping up-to-date records, you not only minimise tax challenges but it helps you run your business effectively.

Having the right accounting software and filing system are critical components come tax time. Not to mention the fact that keeping your business organised is a tax deduction in itself!

The ATO can help…sort of

The ATO allows businesses to make tax prepayments and enter their pay as you go (PAYG) instalment scheme. A tax prepayment is a voluntary payment made in advance for an expected tax bill. You can make prepayments at any time and as often as you like to make it easier for you to manage your tax bill.

Also, don’t panic if your company can’t pay a tax debt when it is due – but make sure you lodge your returns. The ATO is relatively generous when is comes to setting up payment plans for any outstanding monies owed.

Get expert advice

Last but not least, it is crucial that you seek expert guidance. A 2016 survey by The Voice of Australian Business revealed only 26 percent of Australian SMEs are using external consultants such as accountants in their decision-making processes.

By not using an expert you are missing out on taking advantage of numerous tax breaks that can help minimise your end of year bill.

At BDH Leaders , we pride ourselves on giving the best advice that suits your business and personal finances.

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Micro-investment platforms disrupt the piggy banks

Thu, 12 Apr 2018 02:37:00 GMT

Minimum initial deposit. Those three words often pose a significant roadblock for many who are seeking more than the small percentage they earn from their bank’s savings account, or for those who are interested in beginning their investment journey. However, micro-investing and smartphones have revolutionised the investment space and it is now easier than ever before to start building your wealth.

Micro-investing refers to investing small amounts of money at regular intervals. You create an account on a platform and link it to your bank account. Then, whenever you make a purchase from your bank account, the purchase amount is rounded up to the nearest dollar and that amount is deposited into your micro-investing account. For example, when you purchase a cup of coffee for $3.50, the $3.50 is rounded up to $4 and the 50 cent difference is swept into your micro-investment account.

The new contenders:

Possibly the most well-known micro-investing platform is Raiz (previously Acorns). Once you open a Raiz account, you may make a lump sum deposit, activate ‘Round-Ups’ (as detailed above) or initiate a recurring deposit. The minimum investment amount is $5.00. The money in your account is invested in a mix of Exchange Traded Funds (ETFs) in a portfolio of your choice. There are no fees on zero balances, $1.25 per month for accounts with a balance under $5,000 and 0.275% per annum (charged monthly) for accounts with a balance of $5,000 or more.

Similar to Raiz, First Step Fund is an Australian company which also allows users to invest their rounded-up purchase amounts, or additional contributions, into ETFs. Fees include 0.275% per annum plus $1.25 per month if you link a bank account to your FirstStep account.

Similar toRaiz and First Step is Bamboo . This micro savings platform will be a way to buy cryptocurrency by rounding up spare change from your card purchases and investing that amount in diversified blockchain holdings. The platform is currently in closed beta testing but should be launched mid 2018.

Carrott is a savings app that allows you to sweep the virtual spare change from your purchases into your superannuation fund or mortgage. There are significant taxation benefits to adding to your superannuation, but the Carrot fees are high at 3.86% of the gross transaction and an account maintenance fee of $1.50 per month.

BrickX is a micro-investment platform tied to real estate, specifically Sydney and Melbourne residential properties. This platform allows investors to purchase fractional amounts of property. Each property purchased by BrickX is divided into 10,000 bricks and individual bricks for your chosen property can be purchased for as little as $58.00. The brick price will rise, or fall, in line with the valuation of the property and rental income is distributed to brick holders in proportion to their holding.

The peer-to-peer lender Ratesetter allows you to loan as little as $10 for a time period you determine and with an interest rate agreed on by you and your borrower. Interest is generally paid monthly. Current rates, after fees, are 4.2% for a month, 4.9% for a year, 7.7% for three years and 8.9% for five years.

Stake is an online platform which allows investors to purchase fractions of U.S. stocks and ETFs. There are zero brokerage costs, but there are FX fees when you transfer funds between AUD and USD as well as other regulatory fees on sales. You need to deposit $500 into your account to get started.

Keep an eye out for another Bamboo – not to be confused with the Bamboo mentioned above. This, soon to be launched, Australian financial planning platform, backed by BlackRock, will be a robo-adviser with a difference. The platform will allow you to open a separately managed account (SMA) with as little as $100, a choice of investment portfolios and fees and costs capped to a maximum of 0.8%.

With so many options to invest your spare change, there is sure to be a platform that suits your investment style, interests and risk profile.

The information in this article is general guidance only and the product and fee information is subject to change. Consider your own circumstances, and obtain your own advice, before relying on this information.

BDH Leaders can advise you on your investment and wealth building strategies.

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Fringe benefits tax and company cars explained

Thu, 12 Apr 2018 02:18:00 GMT

If you have employees and you provide them with cars, car parking, entertainment, employee discounts, reimburse private expenses, then you are likely to be providing a fringe benefit and you will need to register your business for Fringe Benefits Tax (FBT).

FBT is a tax payable by employers for benefits paid to an employee (or a family member) in place of salary or wages. Whilst fringe benefits may help attract top-notch employees, they also come with a string of tax obligations, especially when it comes to vehicles.

If a car you own or lease available for the private use of your employee, you may provide a car fringe benefit.

The Australian Tax Office (ATO) website defines a car is any of the following:

*a sedan or station wagon
*any other goods-carrying vehicle with a carrying capacity of less than one tonne, for example, a panel van or utility (including four-wheel drive vehicles)
*any other passenger-carrying vehicle designed to carry fewer than nine passengers.

The ATO has introduced a ‘simplified method’ for employers with 20 or more ‘tools of trade’ cars. Conditions that need to be met include the following; –

• valid log books must be maintained for at least 75% of the cars in the log book year;
• the employer must choose the make and model of the car;
• each vehicle must be purchased for less than $64,132 in (2016/2017);
• the cars aren’t provided under a salary packaging arrangement/employee remuneration package; and
• your employees can’t choose to receive additional remuneration in lieu of using the cars.

Think apps

There are various apps that can help you keep track of your vehicles. Pricing ranges from $5 and $10 and are tax deductible.

There are some alternatives that are free of charge but don’t include as many features.

Logbookme

LogbookMe is a cloud-based platform that logs your trips automatically using GPS and vehicle data. The ‘plug and play’ set up is relatively simple and can make logging all those vehicles a lot easier. Out of pocket costs for 12 weeks are $248 +GST per vehicle. For 52 weeks it jumps up to $480 +GST per vehicle. For more information, visit www .logbookme.com.au

ATO Vehicle Log Book

This free app, made by the ATO and available for download from the iTunes app store. The app is fully compliant ATO Vehicle Log Bookith ATO requirements where the logbook method is used to claim the percentage business use of a vehicle. It also allows you to send the completed log directly to your employer, accountant or tax agent in excel / CSV format.

Vehicle Logger

Vehicle Logger: This free app available for download at Google Play store , is designed to create, share and report vehicle log books for mileage, fuel, expenses, and tax purposes. It also steps up to that requirement with data storage /sharing options available for Google Drive, DropBox, Box & OneDrive.

Fringe benefits are an important part of business, and can be a useful way of attracting quality staff. However, if you’re going to provide fringe benefits to your staff, you need to be up to speed on the tac obligations.

At BDH Leaders, we advise you on the best strategies to help manage your fringe benefits tax. View more information on our tax services here

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A bit(coin) of information – cryptocurrency and tax

Thu, 12 Apr 2018 01:03:00 GMT

Although in its infancy, relatively speaking, cryptocurrencies are rapidly gaining in popularity as a wealth-building tool in a diversified investment portfolio. In April 2017, the combined market value of all cryptocurrencies was $35 billion; it is now over $388 billion.

The increasing interest and use of digitised assets and blockchain technology have created a new paradigm for investors and for the Australian Taxation Office (ATO). The issue of regulatory and taxation compliance will be a moveable feast, but for now the ATO has taken the view that cryptocurrencies (coins and tokens) are property and assets for capital gains tax (CGT) purposes, rather than money or fiat currency.

From your personal tax point of view, you need to determine whether you purchased cryptocurrency as an investor, in which case a sale, trade or exchange of cryptocurrency will be a capital gains event; a trader or miner, in which case a sale, trade or exchange will be a revenue event; or as a personal use asset, in which case a trade or exchange is likely to be a tax-free event. In all cases, the location of the exchange you use is irrelevant to your taxation obligations.

Investors

If you sell, trade or exchange your cryptocurrency, a CGT event has occurred and gains may be taxed. As with gains on shares, the gain is added to your other income and taxed at your marginal rate. Holding the cryptocurrency for 12 months or longer will result in a 50% discount on the gain.

A capital loss may reduce capital gains made in the same year or deferred to a later year. Net capital losses cannot be offset against other income.
Trading one cryptocurrency for another is a taxable event so you must determine the profit or loss on each trade.

Traders and miners

If you are trading or mining cryptocurrencies as a business, all profits you make on disposal or trade will be assessable as ordinary income, not as a capital gain. You may claim the costs of running your business as deductions and any cryptocurrency you hold at the end of the year will be considered as trading stock.

Personal use asset

Cryptocurrency may be a personal use asset if it is acquired and used to purchase items for personal use or consumption. It will not be regarded as a personal use asset if it is used as an investment, to make profits or as part of a business venture.

Capital gains from personal use assets acquired for less than $10,000 are disregarded for CGT purposes and all capital losses you make are disregarded. The 50% CGT discount will apply to purchases greater than $10,000 and held for 12 months or more.

Other considerations

If you receive cryptocurrency as payment in lieu of money, then you need to determine that amount in Australian dollars and factor that into your ordinary income. A reputable exchange will be able to provide the exchange rate. Similarly, when you use cryptocurrency to purchase items for a business transaction, you are entitled to a deduction based on the dollar value equivalent.

It is vital that you keep accurate records of all purchases, trades and sales. This includes the date of the transaction, the dollar value and the details of the transaction, for example if it was traded for another cryptocurrency or sent to a third party.

The ATO website details its current view on cryptocurrency but it is subject to change, so we strongly recommend that you obtain advice from a qualified accountant regarding your personal tax obligations.

The information in this article is general guidance only should not be interpreted as an endorsement of cryptocurrency which are complex, volatile and involve significant risks. Past performance is no guarantee of future performance. Consider your own circumstances, and obtain your own advice, before relying on this information.

View more taxation information on our website.

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What are your responsibilities if the ATO audits your company?

Thu, 12 Apr 2018 00:56:00 GMT

A lot of the finance industry will agree that the Australian Taxation Office (ATO) is more targeted and aggressive than ever. But it’s important that you don’t bolt for the panic button when the tax office sends you an audit notice.

Actions that catch the ATO’s attention include financial performance that is not comparable to your industry, poor record keeping, low transparency of tax affairs and large one off transactions to name a few.
If your business finds itself in the ATO’s firing line, you can follow these steps for a quick and relatively hassle free audit.

Take it seriously

It’s important that you take the audit seriously. If the ATO undertakes a review or audit, they generally have a set revenue target in mind. Therefore any ATO contact with you, be it a review, audit or ‘friendly educational call’ should be treated seriously.

Call for backup

If you are going to be audited you will receive a notice from the ATO outlining the scope of the audit. Do not do anything until you have spoken with your accountant. It’s also imperative that you do not try and take on the ATO solo. Allowing your accountant to handle the process from start to finish will mean a better outcome for all.

Know the type of audit

Do you know the type of audit you’re up against? Some audits involve a brief review of invoices, whilst a full audit takes an immense amount of time and documentation.

If you fail to provide the ATO with requested documentation, then the audit process will become significantly more difficult.
Keep up-to-date records

Poor record keeping is the biggest reason businesses find themselves in hot water with the ATO. Consider getting your hands on some accounting software and remember that you are responsible for any mistakes.

Be honest

Owning up to known mistakes early can help reduce penalties. Save yourself the hardship in the long run and fess up to any known errors.
Cooperation is key
An uncooperative, cursory or even flippant attitude will ring alarm bells for the ATO and prolong the audit process. Meanwhile, a cooperative and well thought out response means you can take more control of the direction of the audit. In short, don’t leave the ATO to ‘fill in the blanks’.

An audit is never welcome, but by keeping your finances well organised, and communications clear with the ATO, you can reduce the inconvenience of an audit and get through it with a bit more confidence.

At BDH Leaders we pride ourselves on giving advice that best suits your business and personal finances.

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The importance of a business plan for an established business

Mon, 26 Feb 2018 01:41:00 GMT

Business plans are not only for start-ups.

Established businesses also need a well thought out business plan that aims to minimise risk and help better make decisions that affect their businesses future. A business plan will also help monitor expenses, define your strategy and benchmark your progress.

Besides the usual process of defining your products and services and vision, established businesses should consider the following factors when putting together a business plan.

Look at your key suppliers

Existing businesses that are reliant on the supply of certain materials to deliver a final product/s must ensure they are managing costs from their key suppliers.

Reviewing all contracts annually, conducting spend assessments, aggregating volume buys across the organisation and exploring alternatives, should make up a vital part of your business plan.
Remember, in order for your business to meet its financial goals, it must produce a profit margin. Meeting this goal means obtaining to best possible price on al purchased items.

Manage your cash flow

Cash flow is what keeps businesses running, so it’s imperative that every business understands the importance of having enough in the tank to keep the engine running. When it comes to established businesses, cash is often caught up in illiquid assets such as stock, and sales on credit, which can cause cash flow issues.
Both business planning and cash flow forecasting can help businesses with peace of mind, but also ensure your business finance remains as stable as possible.

Performance is key

Your business needs SMART objectives. SMART is an acronym for the 5 elements of specific, measurable, achievable, relevant, and time-based goals. It helps businesses set an actionable plan for results.
Once you define your SMART goals, you need to identify the personnel responsible for meeting these objectives. Management can then undertake variance analysis plotting actual figures against planned figures.

Managing risks

An established business must look at both internal and external risks to their business. Don’t limit your risk assessment to obvious concerns such as fire, theft and market competition.
Effective business planning can help firms identify such risks and help firms put in place processes to minimise any negative effects. Understanding the scope of possible risks will help you develop realistic, cost-effective strategies for dealing with them.

Have a backup plan

Businesses must have a contingency plan. This means you must look at an array of ‘what if’ scenarios and ensure that you can keep operating in the face of a minor or serious disruption.
Investing time and resources in creating a valuable business plan is one of the most critical activities your business can undertake. Whether you’re a startup or an established business, a business plan will provide you with a roadmap for your business’s future success.

Make sure your business plan is up to date, contact us for advice on financial and business planning .

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The foundations of good business planning

Mon, 26 Feb 2018 01:26:00 GMT

Business experts across the globe unanimously agree on one thing: every successful business needs a plan.

Multi-billionaire and iconic entrepreneur, Richard Branson recently revealed that he drafted his very first business plan at just 15 years of age.
Whether you want to expand your business, be more competitive or hit certain goals, a business plan is an absolute must.

Here are the three things every business needs to understand about successful business planning.

Define your purpose

Clarifying the purpose and direction of your business is a must for any business plan as it allows you to see where your business will be over a period of time. Establishing your businesses direction also allows you to visualise another crucial aspect of business growth: what needs to be done for forward movement.

Without clarifying your purpose of why you are in business, it will be difficult to maintain goal oriented growth.

A three, five and ten year plan

One of the most popular questions when it comes to strategic planning is how many years should we plan? Thirty years ago experts said planning every ten years would suffice. However with technological advances, globalisation and market volatility, businesses need to develop three, five and ten year plans so they can stay in front of changes affecting their area.
Business planning is to a business what a scalpel is to a surgeon. It defines the routes that when taken will lead to profit and growth. And like a surgeon, strategic plans can meet detours and obstacles that call for adapting and adjusting, which is why it’s important to review plans on a regular basis.

Financial strategy

No matter what your driving passion is, without sustainable financial success, you might as well work for someone else. That is why taking the time to construct a financial plan is a must for any business. A financial plan or budget will guide a business on day-to-day decision making and will yield information on the overall health of your company.
A well thought out financial strategy will factor in an additional injection of capital to fund growth and expansion such as bootstrapping, venture capital and even angel investors.

Bootstrapping essentially means the business funds itself because as the business grows, it re-absorbs profit to enable further growth. Venture capital involves firms that provide early-stage funding but are looking to gain a significant share of the company. Meanwhile, angel investing is, in most cases, affluent individuals willing to invest in businesses.

We’ve all heard the saying, “Failing to plan is planning to fail”, so it goes without saying that investing time in a business plan is time well spent.

Make sure your business plan is up to date, contact us for advice on financial and business planning .

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Flexible business planning for early stage start-ups

Mon, 26 Feb 2018 01:04:00 GMT

Nearly every successful business has a business plan which they follow to help achieve their goals. It is crucial that these plans contain some flexibility, especially when it comes to early-stage start-ups.

A business plan is a summary of your business’s goals and how they will be attained. Plans are drawn up to attract funding, assess future growth and even build partnerships.
However, the reality is that business moves fast. Fluctuations in the market, product changes and new competitors highlight the need for your startup to have a flexible business plan, so you don’t end up causing unnecessary financial harm.

Why you need to be flexible

A business plan should be a living document on the premise that business moves fast and you’ll need to a flexible business plan that allows you to twist and turn so you can respond quickly to opportunities and challenges as they present themselves.

William Sahlman, Harvard Business School professor and author of How to Write a Great Business Plan, advises that “when you think about a business plan, think about the distinction between a snapshot and a moving picture”. What you need is something that will move with your business.

What to include in your business plan

Your business plan should clearly stipulate your businesses aim, structure and desirable outcomes. On top of that you should demonstrate a clear understanding of your market, who your customers are and any funding requirements.
It’s also important that you focus on these elements to ensure your business plan is fluid and flexible.

Detail your product or service

Start off by detailing your product or service, including what makes it stand out from competitors. It is also important to define your biggest asset, such as talent, and ensure it is prioritised in your plan.

Your progress to date

Documenting your progress to include what has and has not worked is a crucial component of any successful business plan. Start documenting from day one; note key progress milestones as well as any changes of direction that have been taken.

Steps required to achieve success

It’s also important that your business plan outlines the steps you need to take to achieve success. This will help uncover whether you have the capacity within your business to achieve the targets mentioned in your plan.
Realistic forecasts

Be realistic about your forecasts and assumptions. Over-optimistic sales forecasts can lead to increased overheads, resulting in a cash-flow crisis and cost-cutting, all of which can damage company culture.

Risks and contingency plans

You can’t expect everything to go according to plan, so detailing the risks and how you will overcome them will help to keep your plan dynamic.

Revisit on a regular basis

Last but certainly not least, it’s important that you revisit your business plan on a regular basis. This is to ensure your business is staying in line with your original vision and for any updates on progress and vision.

Leaving some flexibility in a business plan can open many doors for a company or organisation. For a business plan to be truly effective, it needs to evolve with your company and stay relevant in the face of uncertainty.

Our experienced team of financial advisers can help you create a business plan to help your business thrive from inception to next level growth.

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Strategies to manage a fast growth business

Mon, 26 Feb 2018 00:29:00 GMT

It’s almost paradoxical but some businesses can fail because of their growth. Yes, you heard right. Without a well thought out growth strategy in place, fast-growing businesses can crumble because of the many changes that accompany business growth.

On one hand, you have a boom in sales. On the other hand, you have to adjust and scale, which means inevitable organisational changes.

Most business owners dream of quick success but few understand the additional challenges.

A step-by-step strategy can help make it easier to handle and manage potential pitfalls that accompany a rapid expansion.

Grow strategically

Companies often fall into the trap of defining short and long term goals but fail to plan for the period in between. It’s important that you map out the operational, financial, and human resource needs during any growth period. Simply put, there is no leaving growth to chance.

Focus on the systems

Businesses that experience fast growth must ensure they build scalable back-end systems for delivering services. By having an effective system of operations and administration, businesses can keep delivering in the face of quick growth.

This is especially true when it comes to adjusting your financial systems. Businesses that can swiftly implement formal financial mechanisms – such as operation budgets, cash budgets, and financial monitoring systems (tools that measure profitability, customer acquisition costs, variance from actual budget, and so forth) are in the long-term proven to be more successful.

Hire the right staff

Hiring the right staff is an absolute must as these are the people that will steer your company to success. This is particularly true when it comes to your leadership team. It’s crucial to implement a management team that can be both flexible and agile enough to adapt to the challenges of scaling. It’s imperative that you monitor the quality of new hires too as they will be required to take on evolving and broadening responsibilities and roles.

Once a company begins expanding, the quality of new hires becomes more critical than ever because each employee will be required to take on extra tasks and roles in order to put out fires, manage growth, and continue the same level of innovation that helped the company grow rapidly in the first place.

Our experienced team of financial advisers can help you create a business plan to help your business thrive no matter how fast things are moving.

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How to plan an investment portfolio

Sun, 25 Feb 2018 23:24:00 GMT

An investment portfolio is a collection of assets owned by an individual or by an institution. These assets can consist of anything from real estate to gold. However standard investment portfolios are normally made up of mainly of securities, such as stocks, bonds, mutual funds.

Before you begin building your investment portfolio, it’s important that you jot down absolutely everything you own. Include assets such as cars, stocks, bonds and cash bank accounts. A balance sheet outlining your current financial state is a necessity and it is important that you are brutally honest as this is a crucial element in building your net worth. With that in mind, here are some tips on how to best plan your investment portfolio. Understand the risk

Before you set your investment goals, it’s important that you determine exactly how much risk you want to take in order to achieve investment goals. There are two factors that affect risk tolerance the amount of time you have to invest and your attitude to risk. Long-term investments generally ride through the market’s ups and downs over time. Meanwhile, short-term investors take a more conservative approach because investors don’t have time on their side. Define your goals

Next up, you need to set your investment goals. Your investment goals should be broken up into short, medium and long-term goals. A short-term goals might be planning for a wedding or buying a car in the next six months to two years. A medium-term goal may be buying a property or saving funds to start a new business in the next two to five years. Meanwhile a long-term goal, such as saving for retirement or a child’s education, is more than five years away.

Type of investments

There are many types of investments and investing styles to choose from.

Investing with super

Superannuation offers some tax breaks you simply cannot get anywhere else. If you are planning to access your superannuation money before retirement, then investing outside of super will probably suit more. Read more about the latest superannuation legislation here.

Review regularly

The investment landscape changes; tax rules around investment are consistently updated, new opportunities arise and the value of your investment can change overnight. Whatever your strategy is, it’s not set-and-forget, you will need to regularly make sure your investments and your goals are congruent.

In today’s financial marketplace, a well-maintained portfolio is vital to any investor’s success. Our experienced team of financial advisers can help you find the right financial solutions to help build your investment portfolio .

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Next level growth planning

Sun, 25 Feb 2018 23:23:00 GMT

Today’s economy is a turbulent one, so the task of guiding your organisation to and through its next level of growth phase can be a daunting one.

Before we delve into potential avenues for growth, it is important you have a well thought out business model and plan. A business plan aims to not only minimise risk but help guide decisions that will have a positive impact on your business. A business plan will also help monitor expenses, define your strategy and benchmark your progress.

With that in mind, here are some tips on how you can successfully guide your business into its next growth phase.

Explore new ways to sell your product or service

Exploring new sales channels for your offering can help diversify your brand and attract new customers. Just like a high-street retailer could consider selling its products online, your business should explore other avenues too. Could you sell more via social media? Have you considered affiliate, targeted or influencer marketing? If done right, expanding your sales channels will no doubt increase your bottom line.

Think tech

Take into consideration the quality of the technology – equipment, machinery, or computer software – in your business. Efficient technology can streamline your processes, run operations more efficiently and save on your long-term costs.
Automating administrative and non-customer facing processes can also save time and money and allow for scalability in a growth phase.

Where possible, add value

Can you add value to your product or service? Can you offer a limited edition product that can entice customers? Consider the exclusivity route by rewarding customers with a loyalty program or offering them a first chance to buy a product or service before it is made available to the public.

Make your customers a priority

Taking your business to new heights isn’t just about acquiring customers. It’s about keeping them too. The difference between successful businesses and underperforming ones often lies with their customer service. The top performing organisations – measured by their growth, profitability and customer satisfaction – understand that customer focus is key.

Focus on marketing

A solid marketing plan that encompasses social media, content marketing and SEO is an absolute must. A staggering 71% of consumers who have had a good social media service experience with a brand are likely to recommend it to others. Meanwhile, customers are 6x more likely to purchase a product if the page includes pictures from social media. In short, a brand doesn’t really exist online if you’re not represented online and across social media channels.

Employ and delegate

Last but not least, a huge part of next level growth planning is having the skills to back you up. This means hiring the right people, in particular, senior members who can take your business forward.

The act of delegating cannot be overlooked. By delegating tasks to key staff, you can focus on other key areas of your business’s development.
The term “Next Level” represents a position at which your business has never been before. Ensuring you have a solid business plan that encompasses the above-mentioned elements, will allow you to grow with as few headaches as possible.

BDH Leaders have a team of experts with the right advice to help your organisation grow to the next level .

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New superannuation changes from July 1 2017: How will they affect you?

Sun, 05 Nov 2017 21:26:00 GMT

The Federal Government has passed its changes to Australia’s superannuation system, making it the most significant round of changes to super laws in the past decade.

The new laws affect individuals with relatively high super balances, and will change contributions rules and the tax breaks available to individuals.

While these changes do not apply until 1 July 2017, anyone who is affected by these changes are encouraged to get planning soon.

So what are some of the biggest changes? Let’s take a look.

Wealth accumulation restrictions

Anyone with an existing pension over $1.6 million will be required to reduce their balance to the new limit. In short, when it comes to converting super into an income stream, individuals with high balances – who at present are not restricted on the amount they can accumulate – will be restricted to $1.6 million in their pension accounts.

Transitioning to retirement

Effective from 1 July 2017, the Government will impose a ‘transfer cap’ of $1.6 million on the amount of super that can be held in a superannuation pension. It’s important to note that your overall super balance can be higher than $1.6 million, but anything over $1.6 million will be subject to an excess transfer balance tax.

Attention accumulators

There will be caps placed on the amounts you’re able to contribute to your super from 1 July 2017. The current $180,000 after-tax cap (also known as non-concessional contributions), and the three-year $540,000 bring-forward cap remains in place until June 30, 2017. From 1 July 2017, the annual non-concessional contribution cap will be reduced to $100,000 and the three-year ‘bring forward’ cap will subsequently be reduced to $300,000.

So what does all this mean for you? If you approaching retirement age, you have until June 30, 2017 to use the current caps and contribute up to $540,000 this financial year. Remember, the ‘bring forward’ rule allows you to bring forward three years of non-concessional contributions. In short, this rule allows you to make up to $540,000 in non-concessional contributions in a single financial year. You can always contact us to work out your options.

High earners

The new super reforms are designed to trim back on advantages for people with large super balances. The Government’s sole aim here is to reduce the number of people who aren’t using superannuation for its intended purpose of funding their retirement. From 1 July 2017, those earning more than $250,000 will pay 30% tax on their contributions while everyone else pays 15%.

Always seek professional advice

While we’ve outlined the main superannuation changes in this article, now is a good time to start planning and seek professional advice, so you can maximise your superannuation’s performance.

At BDH Leaders, we can advise you on how to best manage your superannuation so your future is secure.

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The pros and cons of bootstrapping your new business

Sun, 05 Nov 2017 03:26:00 GMT

One of the biggest questions every entrepreneur is faced with when starting out is how to fund their venture.

Bootstrapping means starting a business without any external funding. This means no help from venture capitalists or angel investors. It also means that most of the money made is reinvested back into the business.

Bootstrappers depend on personal income, savings and sweat equity. They function with the lowest possible operating costs and focus on fast inventory turnaround.

There are an array of triumphs and challenges for those that decide to take the bootstrapping route. Let’s take a closer look.

PROS

Total control

It goes without saying that one of the biggest pros when it comes to bootstrapping is control. Business owners have zero obligation to investors, equity firms or a board of directors. Often, investors and equity firms will have their own interests, and motivations when they decide to invest in a company. And investor interests may not match up with the business owners.

Focus

With zero outside influence, bootstrappers can focus on what their company does best. It also goes without saying that instead of chasing investor money, they can focus on the business development process, which will make their startup unquestionably stronger.

Innovation

With no pressure to please outside investors, bootstrappers can focus on driving innovation within the company. This means they have free reign to invent, re-invent and innovate their own vision. It’s also important to note, that when your savings – and in some cases home – are on the line, the pressure is on to constantly innovate.

CONS

Revenue

One of the main reasons businesses fail is because there is not enough money to grow. Launching a startup with no funding also means that a successful profit plan must be implemented early to help keep the company afloat for the first few months. In some cases, these profit plans can be hurt future growth down the track.

Credibility

There’s no denying that venture capitalists and angel investors can add credibility and valuable expertise to your company. Because of the money invested, they have their name and wallet on the line. Having the backing of credible investor/s gives many potential customers the confidence to buy in. Self-funding, on the other hand, may illustrate a company’s lack of business expertise.

Organic development

Limited funds means self-funded startups rely on organic growth, which can be long winded to say the least. Revenue is needed for research and development, hiring and more importantly, marketing. In some cases the reliance on organic development means innovative ideas are left to stagnate.

Wellbeing

Re-mortgaging the home or borrowing money from friends or family to start your business is stressful to say the least. In most cases, a move as such requires a complete lifestyle change. Having that pressure to succeed means devoting long hours in the office which undoubtedly puts extra pressure on friendships, relationships and a person’s general wellbeing.

To make sure you are structuring your new business the right way, get the right advice from the start and end up where you want to go.

At BDH Leaders, we advise you on the best growth strategy for your business no matter where you are starting from. View more information on our business services here.

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Estate planning

Sun, 05 Nov 2017 03:05:00 GMT

Nobody can predict the future, and if we leave unanswered questions about how to settle our affairs, life for those we leave behind could become stressful.

Estate planning involves deciding how you want your assets distributed after you die or become unable to make your own financial decisions. When it comes to estate planning there are two main aims; avoid the next of kin suffering financial hardship and minimise the amount of bickering over who gets what.

It’s important to note that an estate plan goes beyond a will. Estate planning encompasses other facets of your life including:

Creating a comprehensive estate plan boils down to the following these steps;

It is crucial that you do your own initial research and seek the advice of a professional for further guidance. Professionals can talk you through the process and give you tips based on your individual situation. They can also bring up questions that are normally overlooked.

There really isn’t one set time to start estate planning. This will depend entirely on your individual situation. There are however trigger events such as getting married, having kids, and buying a first home. It’s never too early to start thinking about who you would leave your assets to if you were to pass away.

Last but not least, it’s important that you review your estate plan every 3-5 years. Circumstances change, so it’s important that you make sure the provisions and distributions are still in line with what you want to happen.

BDH Leaders can advise you on the best structure for your estate planning. View more information on wealth creation and estate planning here.

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Understanding your critical role as a trustee of a self-managed superannuation fund

Sun, 05 Nov 2017 02:56:00 GMT

There are a number of obligations an individual takes on when you become a trustee of a self-managed super fund (SMSF).

Close to 600,000 SMSFs are now active in Australia, according to statistics released by the Australian Taxation Office. Statistics also show the average balance of a SMSF now exceeds $1 million, with the average fund balance around $1,050,000.

While taking control of your retirement money is the driving factor in the growth of SMSFs, this control also leads to greater responsibilities as a Trustee of your own superannuation fund.

Being a trustee of an SMSF brings with it a range of legislative and regulatory obligations.

Under the Superannuation Industry (Supervision) Act 1993 (SIS Act) and Superannuation Industry (Supervision) Regulations 1994, a trustee is required to; –

On top of legislative requirements, there are rules set out in the trust deed of your SMSF. As a trustee you must meet the following criteria.

Comply with the sole purpose test

A self-managed super fund’s sole purpose is to provide its members with retirement benefits. Therefore, it is the trustee’s responsibility to ensure this requirement is being fulfilled.

Investment strategy and restrictions

It is the trustee’s responsibility to develop and implement an investment strategy. Ideally, this is a written document that can be presented to an auditor.
Trustees are also limited to the investments they are permitted to make with superannuation funds. This includes lending money to a member of the fund or buying assets with the superannuation money that has not been approved.

Accepting contributions and paying benefits

It is the trustees responsibility to understand and adhere to the rules for accepting contributions and paying benefits. Eligibility depends on the member’s age, their employment status and the type of contribution to be made. Trustees are also required to allocate super contributions to members’ accounts within 28 days after the end of the month in which they were received.

Properly administer your SMSF

Last but not least, it is a trustee’s responsibility to properly administer the SMSF. This includes keeping accurate records, arranging an annual return for the SMSF and notifying the Australian Tax Office (ATO) of any changes details. Trustees are also required to record minutes of all trustee meetings and appoint an approved auditor to audit the fund for each income year and provide any documents the auditor may request.

At BDH Leaders, we have the right advice for your SMSF. View more information on our SMSF service here .

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How to avoid unwanted attention from the ATO

Sun, 05 Nov 2017 02:37:00 GMT

It’s crucial to lodge an accurate tax return to avoid unwanted attention by the Australian Taxation Office (ATO).

Businesses and individuals who do a poor job at record keeping will undoubtedly find themselves in hot water with the ATO.

Here are some common mistakes to avoid unwanted scrutiny, and ensure you’re in line with the ATO’s compliance program.

Poor record keeping

First and foremost, it’s imperative that you keep accurate records. Inaccuracy is one of the most common tax return mistakes and can spark the ATO’s interest.

Good organisation can not only help legally maximise your tax return, but it can help you better understand your businesses financial progress.

Economic variations

The ATO has made it known that it compares the performance of businesses to their industry peers. If your business is inconsistent, or there is a large fluctuation year-on-year, then you might find your company’s records being scrutinised from top to bottom.

You also need to make sure you reconcile the information on your company tax return with your business activity statement. Any sizeable variations will no doubt catch the eye of the ATO.

Living large

It’s no secret that the ATO targets businesses who have bought big-ticket items like boats, antiques and luxury cars. So if you’ve splashed the cash, then you can expect the ATO to check your returns to see if you can actually afford the item/s.

Unusual transactions

Large, one-off or unusual transactions, including transfer or shifting of wealth could put you on the ATO’s radar. Failure to disclose items on a tax return could also spell disaster too. For example, if you receive cash and and fail to declare it then your expenses will look high and the ATO use red flag indicators such as unusually high expenses to target businesses for further inspection.

International transactions

This is a big red flag and will almost always result in an audit. The ATO are constantly on the lookout for businesses making international transactions, especially within tax havens.

Late lodgements

Consistently lodging late returns could trigger an audit as the ATO will view this as poor compliance.

With the right financial advice, your tax return is a breeze. At BDH Leaders, we advise you on how to maximise your tax return and keep you on the right side of the ATO. View more information on our tax services here.

At BDH Leaders, we advise you on the best growth strategy for your business to get where you want to go. View more information on our business services

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Key considerations when structuring a joint venture

Sun, 05 Nov 2017 02:28:00 GMT

If you are looking increase market reach, watch your revenue soar, increase capacity, or simply become more competitive, then a joint venture could be for you.

A joint venture is a legal term used to define the relationship between two or more parties that combine resources, knowledge and skills to achieve a goal. It’s important to note that a joint venture differs from a merger in the sense that there is no transfer of ownership in the deal, and both parties remain separate entities.

When setting up a joint venture, both parties need to decide whether they will establish an ‘incorporated joint venture’ or ‘unincorporated joint venture’.

An incorporated venture means parties will create a new company that will undertake the joint venture. As a result, each party will hold shares in the company. An unincorporated joint venture, on the other hand, means that a joint venture agreement will define the relationship of each participant and each participant will own a share of the property.

Agreement requirements

Regardless of which structure you choose, both will require a joint venture agreement.

A written joint venture agreement should cover the following; –

Other considerations

It’s important that you also take into consideration the following factors when setting up a joint venture; –

If you approach your joint venture in a thoughtful way, you can improve your chances of success and ROI. Once a joint venture is established, effective communication of the business plan to everyone involved is crucial.

If done correctly, joint ventures can be highly profitable. However it is imperative that you seek the right advice before entering into such an agreement.

At BDH Leaders, we advise you on the best growth strategy for your business to get where you want to go. View more information on our business services

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Key factors that influence the valuation of a business

Sun, 05 Nov 2017 02:19:00 GMT

If you’re thinking of selling your business, then it’s important you know what it’s worth.

But what you value, is not always what the bank will value.   The worth of a business comes down to how much profit it will make, and the risks involved. If you’re thinking of selling, then it is important you know where the true value of your business lies.

Here are the things a business valuer will look at when assessing your business for a sale:

Finance

The value of a business is dependent on its future performance, so it is essential to look at historical, current and projected profits and cashflow. A potential buyer will also look at how well you control costs and the need for capital expenditure in the near future.

External factors

The state of the economy, including interest rate levels, will be considered, as well as the level of demand in your market. Other external factors that will be considered include:

Tangible versus intangible assets

A prospective buyer will look at tangible versus intangible assets. Tangible assets include property, machinery or stock-in-hand. Intangible assets, which are just as valuable, include; well-respected brand, customer goodwill, or intellectual property such as patents and intellectual property.

Assets and liabilities

One method of valuing a business includes adding up the assets of a business and subtracting the liabilities. A prospective buyer will look at assets such as property, equipment, debtors and stock-in-hand. They will no doubt look at your future orders, as well as level of debt and other existing liabilities.

People

A team is a reflection of the leadership, so a prospective buyer will look at experience and commitment of key staff, as well as the management’s record of success. Last but certainly not least, they will look at how dependent the business is on your own skills.

Other factors

Circumstances of the sale will be taken into consideration and a forced sale will likely drive the value down. Years of operation will also be taken into consideration because the longer the business has been in action, the better the track record.

At the end of the day the true value of a business is always what someone is willing to pay for it.

Get the right advice. At BDH Leaders, we advise you on growth strategy and business structure so you can get the best value. View more information on our business services

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When business partnerships turn bad: how to navigate your way to resolution

Sun, 05 Nov 2017 00:07:00 GMT

All relationships, including business partnerships, can go bad.

Running a business with the right ownership team in place is absolutely crucial to your long-term success. And teaming up with the wrong partner is a recipe for disaster.

Before you jump ship, you should determine if the partnership is salvageable.

Consider the following factors;

If you agree to disagree or if your partner does not keep their end of the agreement, then you must be prepared to walk away. You may decide to close the doors, sell the business, sell your share to the partner, buy him or her out or any other option that will allow you to pursue your goals.

Dissolve the partnership

First things first: refer to your Partnership Agreement. Focus on the clause that discusses the dissolution of the partnership. Normally, to dissolve a partnership, one must give written notice to all other partners.

Remember dissolving a business includes completing income tax returns, calculating the tax owed for any capital gains and keeping on top of financial records for the partnership. This is why we strongly recommend getting professional legal and financial advice.

Buy out your partner

There are an array of factors that need to be considered when buying out a partner. This includes getting a business valuation to determine the full value of the business. Once this is established you will have to seek professional advice so you’re aware of all the options available to you and to ensure a fair and legal breakup. This also includes the completion of all the paperwork that comes with it.

Sell the business

If you take this route, you need to establish a closing date immediately. This will give you time to notify your employees, customers and suppliers. By notifying customers it will minimise their inconvenience, and may also maximise your profits right up until the date you close. Remember to end lease agreements, sell business assets and pay outstanding bills and deal with any tax and legal matters. We also recommend keeping a record of documents garnered throughout this process.

Remember, for some companies, the biggest roadblock to growth isn’t a lack of ideas, it is a business partner who has other priorities. More information on our services can be found here .

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Why your business needs a succession plan

Thu, 02 Nov 2017 21:28:00 GMT

Every business needs a succession plan. Whether you like to admit it or not, the day will come where you will leave your business and it is absolutely imperative that you plan for that day.

A succession plan ensures a business can continue to grow and perform when they lose key talent. It is setting out provisions for the development, replacement and strategic application of key people over time. So how do you create an effective succession plan? Whether you are developing a plan for a small, medium or large enterprise, an effective succession plan boils down to the following steps.

Establish the type of plan you need

In order for a succession plan to be effective, you must establish clear goals and objectives. In short, you need to define the type of succession plan your business needs. What concerns are leading you to create a succession plan? Are you worried about high turnover? Are staff getting more competitive offers elsewhere?
Clarifying the why will help you put together a plan that meets your businesses needs.

Define key influencers

This is a crucial point to consider. Part of putting together an effective succession plan means defining future factors that will influence your company. You may see emerging trends in your field that will have to be factored into your succession plan.

Make sure the plan fits

You have to ensure your succession plan fits with your company’s overall strategic vision. Your strategic vision defines who you are and where your business is going. Any business plan that ignores their existing strategic plan is doomed to fail – plain and simple.

Identify sources for successor candidates

Now it is time for you to identify successor candidates. Essentially you are developing a potential candidate pool based on the positions identified in your plan. Make sure you provide training to peak performers in your business and do not be afraid to do a trial with potential successors.

Shape action plans.

Last but certainly not least, a succession plan by itself is pointless without a clearly defined plan. You need to compile a plan with concrete action plans, timelines and measurable goals. Make sure you outline who is responsible for tasks or applying processes.

Last but not least, it is handy to remember that a succession plan can help identify gaps in your business and where to focus your recruiting efforts.
At BDH Leaders, we can advise you on how to create the most effective succession plan. View all our services here

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What the 2017/18 Federal Budget means to property

Thu, 26 Oct 2017 23:41:00 GMT

There’s no denying property was a hot topic for the 2017/18 Federal Budget. There are a number of new measures that will have an impact on current and future property investment structures.

From first home buyer savings to what investors can claim at tax time, here are some key changes to note if you’re in the property market.

First home buyers

From July 1, 2017, first home buyers will have the option of using up to $30,000 of voluntary superannuation contributions to place a deposit on a property. The measure, which is aimed at helping young people crack the property market, is expected to cost the federal government $250 million over the next four years.
First home buyers will be allowed to withdraw any contributions beyond the current 9.5% super guarantee to buy property. The maximum withdrawal amount is $30,000 effective from July 1 2018, and contributions can be made from July 1, 2017.

Travel expenses

Tax deductions relating to expenses incurred while visiting properties will be completely scrapped. Previously, investors could claim travel costs when visiting an investment property, with no limit on the number of visits per year.

Foreign investors

Tougher rules will be implemented in an effort to tighten compliance around foreign investing. This includes a move to ban developers from selling more than 50 per cent of a new project to foreign investors.

Under the new Budget, foreign investors will also be hit by a new $5,000 annual levy if their property is left vacant for more than six months.

There are also new rules surrounding foreign investment and capital gains tax. From July 1, foreign and temporary tax residents will no longer be exempt from a capital gains tax when selling their main residence in Australia. It’s important to note that existing properties held prior to this date will be grandfathered until June 30, 2019. Moreover, foreign investors will now pay a 12.5% capital gains withholding tax when they sell their property, up from 10%.

Interest rate hike

Australia’s big four banks will be slapped with a new tax on the majority of their funding. Starting from July 1, a 0.06 per cent annual levy will be added to certain key funding sources. This measure will only affect banks with liabilities over $100 billion, including Commonwealth Bank, Westpac, National Australia Bank, ANZ and Macquarie.

This new bank levy means homeowners and property investors could feel the pinch, with a potential interest rate increase on the cards.

Depreciation limitations

There will be a tightening of depreciation deductions for investment properties. Investors of negatively geared properties will be unable to claim depreciation deductions on items such as dishwashers, washing machines and ceiling fans.

The federal government will also introduce a plan to no longer allow subsequent owners of a property to claim deductions on items purchased by the previous owners of the property.

Incentivised to downsize

Australians over the age of 65 will be incentivised to downsize. From 1 July 2018, those over 65 who sell their residential property of a decade or more will be able to put up to $300,000 in sale proceeds into their superannuation.

For more on the advice we have for your property interests, view our Services.

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Why a business growth strategy is essential

Thu, 12 Oct 2017 01:11:00 GMT

Record breaking baseball player Yogi Berra once said

The same is true in business. Unless you have a business growth strategy, you are essentially flying blind. A business growth strategy is a method a business employs to grow. It is largely dependant upon the company’s financial situation, competition and in some cases government regulation. In short, a business strategy, is a documented plan on how an organisation is setting out to achieve their goals. So what are some of the most effective short and long term business growth strategies? Let’s take a look. Short term Expand One of the quickest ways to grow your business is to expand. Bringing on new staff or increasing your product offering are a few sure fire ways to expand. Remember to do you research and do not be afraid to think outside the box. Customers Improving your customer service will not only allow you to sell more to your existing customer base but help you find a new client base through referrals. Franchising Franchising is perhaps one of the fastest ways to grow your market share and attract new customers. It is important to remember that franchisees are invested and passionate about making it a success, which is great news for you.

Long term Profits You must keep your profits in perspective and maintain a firm hold on what is coming in and going out is essential. Why? Because it will allow you to plan how much you can spend on new technology and new marketing campaigns that will boost your business in the long term. Customers Maintaining impeccable customers service is a must in both a short and long term growth strategy. Retaining a customer base increases profit and helps it grow via referrals. Innovation It is absolutely crucial to monitor trends and understand how your business can grow and develop to solve new problems and fill more gaps in the market. Marketing It is crucial that you keep on top of market research. This will not only help you understand your territory, it will also give you an understanding of what your competitors are doing, so you can make the necessary changes.

Former U.S. President, Dwight D. Eisenhower once said, “A finished plan is generally worthless, but careful planning is absolutely essential.” In short, taking the time to thoroughly examine where your business is headed is absolutely crucial. It gives you the information to make smart changes, with your business strategy in the backdrop. At BDH Leaders, we advise you on the best growth strategy for your business to get where you want to go. View more information on our business services here.

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Mergers and acquisitions, which is better for you?

Thu, 21 Sep 2017 02:07:00 GMT

To merge or to acquire, that is the question.

Mergers and acquisitions have become a popular business growth strategy for companies looking to expand into new markets

A merger occurs when two separate companies join forces to create a new, joint business. An acquisition, on the other hand, is the takeover of one company by another.

So what are the pros and cons of both mergers and acquisitions? Let’s take a closer look.

Mergers

PROS

Increased revenue
One of the most obvious pros of a merger is the increased revenue a business can experience. This generally occurs when a company acquires a subsidiary that operates in a different market or creates a different product or service.

Increased market impact
With a successful merger comes market penetration and core competencies that your business may not have had access to previously. It also means competition in the market is reduced overall and the company generally acquires a portion of the market the business had.

Protects industries from closing
Mergers can be extremely beneficial in a declining industry where firms are struggling to survive. A good example of this is when the UK government approved a merger between Lloyds TSB and Bank of Scotland solely because the banking industry was at crisis point.

CONS

Job losses
One of the most obvious cons of a merger is job losses. Most mergers lay off employees because of smaller and combined workflow requirements. It is also important to note that mergers can lead to restructuring the work environment, which can lead to demotions or pay changes.

Higher prices
In some cases, a merger leads to a monopoly of the service. This can result in higher prices for the customer due to reduced or lack of competition.

Culture clash
A culture clash can kill a merger. When two companies merge, it is the joining of two groups who already have corporate cultures in place. In 2014, U.S. based advertising giant Omnicom attributed their merger collapse with French counterpart, Publicis, due to cultural clashes.

Acquisitions

PROS

Agility
Acquiring a company is a time-efficient growth strategy because it allows you to quickly acquire the resources and expertise your company does not maintain. You also have quick entry into new product lines and markets.

Market power
There is no denying that an acquisition leads to a greater market presence. An acquisition can also help reduce your competition’s stronghold.

Economies of scale
Acquisitions can create cost efficiency through the implementation of what is called, economies of scale. Whether it is purchasing stationary or a new range of computing software, a bigger company, placing a large order, can save big.

CONS

Financial pain
Acquisitions can come with financial repercussions. Returns may not benefit stakeholders to the extent forecast or the acquisition process may have taken longer to materialise than initially anticipated.

Brand damage
Acquiring the wrong type of business can do more harm to your brand than good. Ultimately, this could result in damage to your company’s image in the marketplace.

Increased debt
A lot of companies that are acquired have money issues. Hence, if you borrow money to acquire a company, the debt goes on the books of the old company. This in turn means the financial problems of the acquired company may hinder your chance of generating the income you need to pay the new debt.

The pros and cons of mergers and acquisitions show this business transaction should not be something that is rushed into without thought. At BDH Leaders, we advise you on whether a merger or acquisition is right for you. View more information on our business services here.

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Begin with the end in mind – why you should start with your exit strategy

Thu, 21 Sep 2017 02:05:00 GMT

The legendary Neil Armstrong once said, “You only have to solve two problems when going to the moon: first, how to get there; and second, how to get back. The key is don’t leave until you have solved both problems.”

A lot of businesses get caught up in the excitement of starting a business and focus on the “how to get there”, instead of the all important exit strategy.

First, let’s define “exit strategy”. An exit strategy is a strategic plan to help sell an investment in a company. In short, it enables one to limit their loss and make a substantial profit when they reduce or eliminate their stake in the business.

Compiling an exit strategy should not be left until you decide to sell your business. Experienced entrepreneurs plan an exit strategy before they make a single penny from their new business. Why? Because business owners that have mapped out their exit plan can then make decisions that will get them closer to that plan.

There are numerous exit strategies and they will vary depending on the type of business you are working in. An IPO is one option, where you sell part of your company in the public markets. There is also the strategic acquisition option, where another company purchases your business with cash or stock.

It also helps to look at what a potential buyer looks for in a business. Your business will be much easier to sell if it includes the following characteristics:

Remember, to succeed in any business you absolutely must start at the end by clearly defining the desired outcome and then plan the steps needed to achieve success. The bottom line is the sooner you create an exit strategy, the more time you will have to create processes and systems that will help maximise your profits when selling your business.

Make sure you’ve considered your exit strategy as part of your business planning. BDH Leaders can advise you on the best way to structure your business.

The post Begin with the end in mind – why you should start with your exit strategy appeared first on BDH Leaders .

Have you structured your business the right way for future growth?

Thu, 21 Sep 2017 02:05:00 GMT

Choosing the right business structure is a critical step when setting up a business.

Far too many businesses neglect to create a proper business structure, despite it impacting on how much you pay in taxes, the amount of paperwork your business is required to do, personal liability and how much freedom you have in running your business.

In Australia, there are four main types of business structures commonly used by businesses. It’s worth noting you are not locked into any structure and you can change the structure as your business evolves and grows.

Sole trader
A sole trader is an individual trading on their own and is considered the most simple and least expensive business structure.
A sole trader is legally responsible for every aspect of the business and is obligated to register a business name and obtain an ABN. Sole trader’s are also subject to the same tax rates as individuals.

Company
A company is a legal entity that is separate from its shareholders and is able to do business in its own right. The words ‘Pty Ltd’, after a business name, indicate that it’s a registered legal entity trading in its own right.
It’s worth noting that the shareholders own the company and the directors run the company and profits are either shared out among the shareholders in the form of dividends or reinvested in the company.

Partnership
A partnership is a group of individuals/entities running a business, but not as a company. An agreement is created that outlines several issues including salaries, drawings, profit share, loan agreements and termination clauses.
The partnership will need an ABN and its own tax file number and each partner will pay their share of tax on net partnership income.

Trust
A Trust isn’t an organisation, but instead a legal structure to hold assets. For example, you might set up a Trust to hold your business assets, then appoint a Trustee to manage them.
A trust is by far the most complicated business structure because there are multiple types of trusts and a bevy of ways they can be created and managed. Trusts, like partnerships, require an ABN and an independent tax file number.

Setting up a business structure is important not only for the immediate running of your organisation, but for the future of your business as well. By understanding the implications of each possible structure, you are setting a good foundation for the future of your business.

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At BDH Leaders, we advise businesses of all shapes and sizes on the best structure for your situation.

The post Have you structured your business the right way for future growth? appeared first on BDH Leaders .

The Pros and Cons of Managing Your Own Superannuation

Thu, 21 Sep 2017 02:04:00 GMT

In simple terms, a self-managed superannuation fund (SMSF) is different to regular super funds because it is run by you.

A SMSF will give you more control over your super and retirement planning, but it’s not a decision to be taken lightly as it carries responsibilities. So, is a SMSF right for you? Let’s take a look at the pros and cons.

Pros

Complete control
One of the biggest benefits of having a SMSF is control. Considering superannuation is the second biggest asset behind the family home, running an SMSF gives you greater control over your choices in the financial space.

Investment choice
Did you know SMSFs provide more investment options than any other super fund? Trustees can access direct shares, high-yielding cash accounts, term deposits, income investments, direct property, unlisted assets, international markets, collectables and more.

Tax benefits
SMSFs come with tax concessions dependent on your personal circumstances and investment strategy. In the accumulation phase, tax on investment income is capped at 15% and in the pension phase, there is no tax payable.

Cost effective
SMSFs with balances above $200,000 or so, may have lower fees than many industry super funds.

Consider consolidation
A SMSF allows up to three other members, including a partner, spouse or other family members. Consolidating allows for the creation of a bigger balance, which increases investment opportunities.

Cons

Time-consuming
Managing your SMSF involves significant time and effort. You need to invest the time in complying with trustee responsibilities, as failure to do so can result in serious consequences.

High cost
The Australian Securities & Investments Commission (ASIC) suggests the costs of establishing and operating an SMSF with a balance of $200,000 or less is unlikely to be competitive compared to a large super fund.

Harsh penalties
As trustee, you are responsible for keeping records and meeting other requirements. Failure to comply with superannuation laws have severe consequences. The Tax Office, as the regulator of SMSFs, has the power remove a fund’s complying status.

Investment knowledge
Are you aware of all the legalities involved when it comes to SMSFs? Do you understand the different investment markets? Do you know the tax implications? Ideally, SMSF members should have a more in-depth understanding of at least the basics of sound investment practices than members of big funds.

If you’re thinking about setting up your own SMSF, you need to do be committed. As the administrator of a SMSF, you have legally binding responsibilities. The viability of a SMSF varies greatly depending on how much money you have, what other investments you have and what your overall goal is for your retirement.

At BDH Leaders, we advise you on the best fit for your SMSF. View more information on our SMSF service here .

The post The Pros and Cons of Managing Your Own Superannuation appeared first on BDH Leaders .

BDH Leaders

ATO take “Gloves off” on overseas income

How your money is being tracked

What you need to declare in your tax return

Do I need to declare money from family overseas?

I have overseas assets that I have not declared

How to repatriate income or assets

Are all your SMSF eggs in one basket?

Rental property expenses – what you can and can’t claim

Interest on bank loans

Repairs or maintenance?

The sharing economy

Friends, family and holiday homes

The $11.1bn small business tax shortfall

Quote of the month

Tax Time: Are you in the ATO’s sights?

What’s new

Live reporting through Single touch payroll

If your employer has used STP in 2018-19, you can access your Income Statement from myGov . Through your myGov account, you will be able to see your year to date tax and superannuation information within a few days of your employer paying you.

For you

Work related deductions

When you don’t have to keep records

Working from home

If your home is your principal place of business, you might be able to claim a range of expenses related to the portion of your home set aside for your business. What the ATO is looking for is an identifiable area of the home used for business.

Ensure any claims are in proportion to the work related use. You can’t, for example, claim all of your internet expenses because you do a bit of work from home in the evenings and need the internet.

Work related clothing

In general, you cannot claim the cost of your work clothes or dry cleaning expenses unless the clothes are occupation specific, such as chefs whites or a uniform with a logo, or protective gear because your workplace has hazards (jeans don’t count as protective wear).

Just because you have to wear a suit to work does not make it deductible.

Cryptocurrency

You will need to keep records of all of your trades in order to work out whether you’ve made a taxable gain or loss each time you dispose of an asset.

Rental property deductions

In the 2017-18 financial year, more than 2.2 million Australians claimed over $47 billon in deductions and the ATO believes that is too much – one in ten is estimated to contain errors.

When you own a share in a property

This means that if you hold a 25% legal interest in a property then you should recognise 25% of the rental income and rental expenses in your tax returns even if you pay most or all of the rental property expenses (the ATO would treat this as a private arrangement between the owners).

The main exception is that if the parties have separately borrowed money to acquire their interest in the property then they would claim their own interest deductions.

Earning money from the sharing economy

If you are a driver with Uber or another platform, you will need to be registered for GST regardless of how often you drive.

Your business

There are around 3.8 million small businesses, including 1.6 million sole traders in Australia. They employ around 5.5 million people and contribute $380bn to the economy. Small business is also in debt to the ATO to the tune of $15bn.

This tax time, the ATO has stated they are looking closely at taxpayers:

setting up or changing to a company structure claiming motor vehicle expenses who may not be correctly apportioning between personal and business use

There are a multitude of data-matching programs and benchmarks to catch out those attempting to rort the system.

For wealthy groups and medium businesses, the focus is on structuring to avoid tax:

If the ATO suspect there is a problem, you may be contacted to justify why decisions were made to structure your affairs or the affairs of your company in a particular way.

No tax deductions if you don’t meet your tax obligations

From 1 July 2019, if taxpayers do not meet their PAYG withholding and reporting obligations, they will not be able to claim a tax deduction for payments:

of salary, wages, commissions, bonuses or allowances to an employee; of directors’ fees; to a religious practitioner; under a labour hire arrangement; or made for services where the supplier does not provide their ABN.

The Government has also proposed that from 1 July 2021, the ABNs of those required to lodge a tax return but have not done so will be cancelled, and from 1 July 2022, ABN holders will be required to confirm the accuracy of their Australian Business Register details each year.

Recording payments to contractors

The taxable payments reporting system requires businesses in certain industries to record and report payments made to contractors to the ATO.

Businesses within the building and construction industry, cleaning, and courier services need to report payments to contractors in the year ending 30 June 2019 by 28 August 2019.

This reporting requirement is focused on industries identified as active participants in the black economy, raising around $2.7bn per year in income and GST liabilities.

Your trust

Timing of resolutions

Trustees (or directors of a trustee company) need to consider and decide on the distributions they plan to make by 30 June 2019 at the latest (the trust deed may actually require this to be done earlier). Decisions made by the trustees should be documented in writing, preferably by 30 June 2019.

If valid resolutions are not in place by 30 June 2019, the risk is that the taxable income of the trust will be assessed in the hands of a default beneficiary (if the trust deed provides for this) or the trustee (in which case the highest marginal rate of tax would normally apply).

TFN reporting

Has your trust lodged TFN reports for all beneficiaries?

Trustees of closely held trusts have some additional reporting obligations outside the lodgement of the trust tax return each year. The ATO is currently reviewing trustees to ensure their compliance with these obligations, particularly the requirement to lodge TFN reports for beneficiaries.

Where a TFN has not been provided by a beneficiary, the trustee is required to withhold tax at a rate of 47% and pay this to the ATO. The trustee must also lodge an annual report of all amounts withheld.

Failure to comply with the TFN reporting and withholding requirements may incur penaltie s.

Your superannuation

Not making your full superannuation contribution? Now you can catch up

This year is the first year of new measures that enable people who have been out of the work force, like new Mums, to top up their superannuation.

If you have:

A total superannuation balance below $500,000 as at 30 June; and Not utilised your entire concessional contributions cap ($25,000) for the year

then you can ‘carry forward’ the unused amount on a rolling 5 year basis.

Remember:

How to Prepare for a Tax Office Visit

The Tax Office is actively targeting geographic areas for special visits as part of a nationwide crackdown on the black economy.

This financial year, the ATO has visited 22 regions with another four in progress. Next financial year they plan on visiting over 10,000 businesses.

So why these areas? The ATO says these areas exhibit some statistical anomalies, for example, a higher number of businesses not registered for PAYG or GST. Other indicators that set off the ATO ‘alarm bells’ include businesses that:

If ATO officers turn up at your business, they may ask you to show them how you record your sales and ask to see the records for the past day or so. If there appear to be anomalies in your reporting, further action might be taken.

What you can do to prepare for an ATO visit:

The post Tax Time: Are you in the ATO’s sights? appeared first on BDH Leaders .

What you can expect after the Election

Budget 2019-20: The pre-election announcements that are now law

Extension and increase to the instant asset write-off

For assets costing $30,000 or more

One-off energy assistance payments

setting up or changing to a company structure

claiming motor vehicle expenses

who may not be correctly apportioning between personal and business use

of salary, wages, commissions, bonuses or allowances to an employee;

of directors’ fees;

to a religious practitioner;

under a labour hire arrangement; or

made for services where the supplier does not provide their ABN.

A total superannuation balance below $500,000 as at 30 June; and

Not utilised your entire concessional contributions cap ($25,000) for the year