Deduction rules for small businesses

By August 12, 2019 Business

Spending on capital assets usually cannot be deducted immediately. Instead, small businesses claim the costs over time in accordance with the asset’s depreciation. There are many different processes that businesses can employ to make claims on their assets. For small businesses with lower-cost assets, methods such as simplified depreciation or the threshold rule can help to make more effective claims.

Simplified depreciation:
Under simplified depreciation rules, business owners can immediately deduct the business portion of each depreciating asset that was first used or installed ready for use up to:

  • $30,000 from 7.30pm (AEDT) on 2 April 2019 until 30 June 2020.
  • $25,000 from 20 January 2019 until 7.30pm (AEDT) on 2 April 2019.
  • $20,000 before 29 January 2019.

Owners can also pool the business portion of most other depreciating assets that cost more than the relevant threshold in a small business asset pool. Then they can claim a 15% deduction in the first year, regardless of whether they were purchased/acquired during the year, and then a 30% deduction each year after. When less than the relevant threshold, the balance of the small business pool can then be written off at the end of an income year. This is calculated before applying any other depreciation deductions.

The threshold rule:
The threshold rule allows owners to claim an immediate deduction for most expenditure of $100 or less, including any GST, to buy physical assets for the business. The rule is designed to help save time as purchases don’t have to be specified if they are of revenue or capital nature. The threshold rule doesn’t apply separately to expenditure on an element of a composite asset. This means items that are not functional on their own wouldn’t normally be classified as a separate asset. Some examples of items costing $100 or less that fall within the threshold rule are:

  • Office equipment – staplers, pens, books, etc.
  • Catering items – cutlery, glasses, table linen, etc.
  • Tradesperson small hand tools – pliers, screwdrivers, hammers, etc.

The threshold rule doesn’t apply to expenditure on:

  • Establishing a business, business venture, building-up a significant store or stockpile of assets.
  • Assets held under a lease, hire purchase or similar arrangement.
  • Assets acquired for lease or hire to (or that will otherwise be used by) another entity.
  • Any part of a collection of assets that are dealt with commercially as a collection.
  • Trading stock or spare parts.

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Ineligible downsizer contributions and how they are administered

By August 12, 2019 Super

When a downsizer contribution is ineligible, the fund must re-assess the amount in accordance with the Superannuation Industry (Supervision) Regulations 1994 and the trust deed. This is to determine if the amount can be retained as a non-concessional contribution.

Provided the trust deed allows so, the fund can return the contribution to the member or adjust the prior downsizing contributions to nil and report this amount as a non-concessional contribution when the member meets the age and work tests.

When a contribution can’t be returned or returned in full:
Members who no longer have a super interest with the fund, or an insufficient return amount, must have their contribution re-reported as non-concessional, even if the contribution was returned because the member did not meet the age/work tests. Some of the contributions may be an excess non-concessional contribution (ENCC). Regardless of the age of the member, if this is the case the member will receive an ENCC determination or when the fund can’t return the full amount. Members will continue to have access to all review rights under the ENCC scheme including:

  • Applying for a Commissioner’s Discretion if they have special circumstances; or
  • Lodging an objection to the ENCC determination.

Even if the member is in pension phase, the funds will still need to return an ineligible downsizer contribution if it cannot be accepted.

When a fund receives a release authority:
An amount released under these circumstances is treated as a super lump sum as it is a portion of the member’s super interest. Being in pension phase doesn’t prevent a fund from complying with the release authority although it may mean the full amount can’t be released, as the available balance may be lower than the amount stated in the release authority. Where the member’s available balance is lower than the release authority amount, the fund must release the maximum amount available.

The ATO monitors the rectification of this contribution reporting. Where funds don’t act within legislative timeframes, the Australian Prudential Regulation Authority (APRA) may be contacted.

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New ATO toolkit helps small businesses get expenses right

By August 12, 2019 Tax

The ATO has developed a new toolkit that helps small business owners to understand their entitlements and avoid mistakes in their tax returns.

The 2019 Tax Time Toolkit Small Business covers information about:

  • Three of the most common expenses: home-based business, motor vehicle, and business travel.
  • Single Touch Payroll (STP) for small employers.

These toolkits are designed to highlight areas that small businesses may struggle with at tax time. Subjects include:

  • Information about claiming deductions for home-based business expenses.
  • Types of motor vehicle expenses that you can claim.
  • The importance of accurate record keeping.
  • How to differentiate between business and private use.

As it is common for there to be confusion around these topics, taking the time to understand your obligations as a business owner can streamline the returns process and help to ensure correct reporting.

One of the factsheets, in particular, provides options and support for employers using STP. Some of the important topics outlined in the fact sheet include:

  • What information you need to report and when you need to report it.
  • How to correct the amounts reported.
  • The changes to payment summaries.
  • Information you need to provide to your employees.
  • Available exemptions.

With STP now applying to all businesses, owners who are not familiar with requirements are encouraged to look into areas they are unfamiliar with.

Whether you use a registered tax agent or lodge your own tax return, this toolkit and other tax toolkits provided by the ATO includes practical information to help small business owners and operators with their tax obligations throughout the year.

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Getting on top of cash flow

By August 6, 2019 Money

Managing cash flow is critical to the success of a small business. While it is necessary to be profitable, your profit is a number that shows up on your accounts at the end of the year whereas your cash is the money you have in the bank. In a small business, it is cash that determines whether you can pay your expenses. By incorporating the following tricks, you can help to maintain the flow of money coming in and keep the business running smoothly.

Prepare a cash flow projection:
There are always unforeseen challenges or changes in the marketplace. While you won’t always be able to predict or forecast these, you can gain a better grasp on industry trends and patterns. No matter what business you’re in, you’re going to have a lag between outgo and income, often having to pay for raw materials and equipment before seeing a payment. Drawing up a cash flow projection can help you plan the ups and downs of your spending. In your projection, be sure to include:

  • Cash receipts, including income from sales and income from financing.
  • Cash disbursements, including all expenses (cost of goods, operating expenses, loan payments, income tax payments, etc).
  • Net cash flow — opening cash balance plus receipts, minus disbursements.
  • Ending cash balance.

Generate new business:
The business is going well; you’re meeting your targets, money is coming in, and you’re happy. This is not a time to relax, it is a time to be seeking out and generating more business. Cash flow may keep your business alive, but sales are what keeps cash flow alive. Keep expanding and preparing your business to cater for growth. This will help prevent you from chasing your tail when times are tough.

Be prompt with billing:
Businesses don’t get paid unless they send their invoices out. Many businesses, however, delay sending out their bills. This may be for various reasons such as feeling uncomfortable asking someone for money, being afraid of confrontation over how much they’ve charged, or just too busy working to compile and send the bill. The longer you wait to send out your invoices, the greater the chance you won’t get paid.

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Be wary of unregistered tax preparers

By August 6, 2019 Tax

The Australian Taxation Office (ATO) is warning taxpayers to keep an eye out for people posing as tax agents who are not registered with the Tax Practitioners Board (TPB). Only a registered tax agent can charge a fee to prepare and lodge your tax return.

There are concerns from the ATO about the number of people claiming to be tax agents, often promising refunds that sound too good to be true, or providing discounted services much cheaper than registered, legitimate tax agents. Unregistered preparers will often use a taxpayer’s personal login details to access their ATO Online account through myGov to lodge tax returns.

To protect yourself from a large tax bill or from facing penalties, check that your tax agent is registered on the TPB website or ask to see their Certificate of Registration of Tax Agent. Protecting your myGov login details and password will also ensure safety as a legitimate tax practitioner will never ask for your myGov credentials. Registered tax agents can access the information they need themselves through ATO online services dedicated to lodging returns for their clients.

Individuals should also be aware that if you use an unregistered tax or BAS agent and they are negligent, you will not be protected under the safe harbour provisions set out in the Taxation Administration Act 1953.

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Boost employee productivity

By August 6, 2019 Business

All businesses need to look at ways to increase the productivity of their staff. When your employees get more work done, it will ultimately lead to the business making a bigger profit. As well as increasing productivity, employers should also aim to improve the happiness and wellbeing of their workers. Here are some ways to boost employee productivity without losing staff engagement.

Use feedback:
Collect as much data as you can from your employees. This can inform how you create the workplace to best suit their needs. Data you might collect could include information on their performance levels by installing productivity tracking software on their devices. You could also regularly survey your staff to gain more qualitative data on their personal insights and happiness levels at work. When your employees can communicate openly and honestly, they will feel more comfortable and supported in the workplace.

Provide good tools:
A business can only foster a productive environment when employees have access to the best tools. Provide your staff with excellent hardware, software and office supplies. This includes laptops, office furniture, and amenities. The more comfortable that your employees feel at work, the more work they will get done. High-quality software will also help your business to achieve work more efficiently.

Allow flexibility:
Having an employee schedule in place may be one way for you to ensure your workers stay on task and produce a consistently high standard of work. However, rigid schedules do not always suit all employees. Allowing your employees to make minor changes, such as swapping shifts, flexible start or finish times and remote working arrangements can actually improve productivity and loyalty to the business. It can also benefit employee communication, dependance and engagement. As a manager or employer, you should still have to approve all requests to ensure that the flexible work environment does not get taken advantage of.

Encourage healthy competition:
Productivity can be further increased through the encouragement of healthy competition between employees. You may consider using incentives, such as short term coupons or long-term awards like an ‘Employee of the Year’ initiative. However, making a workplace too competitive can potentially have a harmful effect, so take caution to ensure you are striking a fine balance.

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Illegal early release of super on ATO watch-list

By August 6, 2019 Super

Illegal early release of super (IER) is one of the risk areas that the ATO has identified as being of most concern and in need of action.

Each year, the ATO analyses its data to identify the areas of high risk that will form part of its compliance program. Aside from illegal early release, another key risk area is non-lodgement. In the last year, the ATO has targeted individuals and promoters who register self-managed super funds with the intention of using the fund to illegally access super benefits.

In the 2019 financial year, the ATO cancelled the registration of 609 newly registered SMSFs who intended to use the funds for IER. They also withheld the details of 352 funds from the Super Fund Lookup, meaning they couldn’t receive payments and rollovers.

Some of the most common reasons for IER are:

  • Financial stress.
  • A desire to spend funds on a current-day benefit.
  • Individuals having limited knowledge of setting up an SMSF and are therefore targeted by scrupulous promoters.

The ATO has warned of severe consequences for you and your fund if super is accessed before you are legally entitled to it. These include disqualification of trustees, administrative penalties, the fund deemed as non-complying, or even prosecution.

Fund trustees or members who have knowingly been involved in a scheme or been approached by anyone claiming that they can withdraw their super early should contact the ATO immediately to advise of the situation and avoid further penalties.

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Supporting mental health in the workplace

By July 29, 2019 Business

Business owners have a responsibility to look after their staff and ensure they have a healthy working environment. This extends to mental health as well as physical. With one in five people experiencing a mental health issue at some stage in their life, there is a greater need to have mental health support specifically within the workplace environment of small businesses.

While most workers can successfully manage their illness without it impacting on their work, some may require support for a short period of time and others may require ongoing workplace strategies. Employers should be aware of mental health issues they can encounter and how best to approach them. Research is key in helping to understand what your employee is going through, how to recognise the illness and ways to successfully manage it.

Employers need to recognise the role in which work can play in an individual’s mental health. An ‘unhealthy’ work environment or a workplace incident can cause considerable stress and possibly contribute to or worsen a mental illness. Under the Disability Discrimination Act 1992, employers must make changes to the workplace to enable someone with anxiety and/or depression to remain at or return to work, provided they can continue to meet the core requirements of their role. These changes can be temporary or permanent.

There are many ways to support individuals in the workplace who are experiencing a mental health condition. Listening and offering support can make a huge difference to an individual who is experiencing mental health problems. Whilst some conditions may require time off, others may feel better continuing to work. Developing a work plan is a great way to maintain a routine whilst helping ensure they are not pushing themselves. Continually check in on progress, both work and health-related, and make adjustments where necessary. Informing other team members of changes without disclosing details is a good practice so no one feels that certain staff are being given special privileges.

Further ways to promote mental health initiatives within your business include encouraging members of your workplace to seek help, reducing the stigma surrounding mental illness, and fostering connectivity and communication. Managing mental health within your business by avoiding conditions that lead to excessive stress and encouraging awareness and support can have many positive outcomes and cultivate a mentally safe and healthy workplace. Employers should also familiarise themselves with the work health and safety regulatory body in their state or territory.

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Tax requirements for capped defined benefit income streams 

By July 29, 2019 Super

Members who receive income from one or more capped defined benefit income streams may have additional tax liabilities. They would then need to calculate their entitlement to the 10% tax offset if the income from all their capped defined benefit income streams exceeds their defined benefit income cap. SMSF trustees should be checking whether they are meeting withholding obligations for capped defined benefit income streams paid to their members.

SMSFs who pay a capped defined benefit income stream to members with a cap will need to provide the ATO with a PAYG withholding payment summary annual report, due by 14 August 2019. Members will have a cap if they have income from a capped defined benefit income stream and are 60 and above or under 60 and receiving a death benefit income stream from a person who died aged 60 or over.

When preparing their individual tax return, members need to:

  • Consider all income they receive from capped defined benefit income streams.
  • At label 7M, include half of the income from the tax-free component and taxed elements of all their capped defined benefit income streams which exceeds their defined benefit cap.
  • At label 7N, include any untaxed element.
  • At label T2, calculate and include their entitlement to the 10% tax offset (the amount may be nil).

The defined benefit income cap will be $100,000 for most individuals. It may be less in some circumstances, such as if they turned 60 during the year or were over 60 and then started receiving income from a capped defined benefit income stream for the first time part way through the year. Capped defined benefit income streams include life expectancy and market-linked pensions which were payable before 1 July 2017 and reversionary income streams paid to beneficiaries.

SMSFs must ensure they meet all obligations. These include registering for PAYG, providing members and the ATO with payment summary information, and making sure to comply with withholding obligations of their activity statement.

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New tax toolkit for rental property owners

By July 29, 2019 Tax

The ATO has developed a new rental property owners toolkit for property investors to ensure that mistakes are avoided in their tax returns.

Each year, the tax office identifies fairly common mistakes being made with tax claims made in regard to investment properties. In a recent review of individual tax returns, nine out of 10 taxpayers with a rental property were found to have made a mistake in their tax return.

The newly developed toolkit focuses on areas were mistakes are most commonly being made. These include:

  • Renting out a room, a unit, or a whole house on an occasional basis through the sharing economy (such as Airbnb).
  • Repairs, maintenance and capital expenditure.
  • Any borrowing expenses incurred when taking out a rental property loan.
  • Interest on a loan that is taken out to purchase a rental property.

One of the six fact sheets identifies the most common tax mistakes that will cost you time and money, and how you can avoid them. Some of the tips outlined in the toolkit include:

  • Keeping the right records.
  • Getting your capital gains right when selling.
  • Getting construction costs right.
  • Getting initial repairs and capital improvements right.
  • Apportioning expenses and income for co-owned properties.

Each fact sheet within the toolkit is also available to be downloaded individually. The toolkit is designed to assist rental property owners to get the information they need in order to lodge correctly and to avoid any lodgement mistakes in the future.

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