Taxpayers must complete an IDS 2012 if they operate a company, partnership or trust that has international dealings, some of which have thresholds.

The IDS 2012 will capture data about international transactions that will be used for the Tax Office  international risk assessment and mitigation strategies.

Two key changes between between the new IDS and the old Schedule 25A and Thin Capitalisation Schedule are that the:-

• reporting threshold of aggregate international dealings with related parties has been increased from $1 million to $2 million.
• new report appears to seek much more information (it is more that double the number of pages of the combined previous Schedule 25 and Thin Capitalisation schedule).

Many of our foreign owned clients have substituted accounting periods to align with the reporting requirements in the country of origin. The new IDS will apply to taxpayers lodging their 2011-12 tax return, and this will include early balancers with year end 31  December 2011. Clients with a substituted year end are required to lodge their return or IDS by July 2012. ( Non ELS lodgement is due by the 15^th July and ELS lodgement is due by 30 July.)

A number of concerns have been raised that the new IDS will create a compliance burden for small and medium business’s. Clients dealing with international related parties will need to address the new requirements. Our firm will continue to provide specific advice to effected clients.

Changes to Living Away From Home Allowances

Recently the Federal Government announced significant changes to the taxation treatment of Living Away From Home Allowances which will eliminate or reduce many benefits currently available to foreign employees residing in Australia.

The changes include effectively abolishing all food and accommodation concessions for temporary residents working in Australia unless there is a “double” living away from home situation. LAFHA allowances will revert to be treated under the PAYG system and employees will need to claim deductions in their personal tax return.

Expense payment reimbursements will continue to be treated under FBT laws – as fully taxable in most instance.

The changes apply from 1 July, 2012 for new and existing arrangements.

This will particularly effect Australian subsidiaries of foreign companies that have transferred employees to the Australian operations.

Whilst we are  identifying those effected, we invite anyone with concerns to contact us to assess the impact of their arrangements.

Allworths Office Closure

Our office will be closing during the Christmas period, from 3.00 pm Friday 23December 2011 and re-opening Tuesday 3 January 2012.

We take this opportunity to wish you and your family all the very best for the festive season and good health and prosperity in 2012 !

The quarter just ended

This quarter has been a busy one for the partners and staff of Allworths. Stephen and Mark visited Hong Kong in October to meet with colleagues and discuss issues relating to inbound investment and in establishing businesses in Asia and the different tax laws within these jurisdictions.

In November the partners and some staff attended the inaugural Asia Pacific meeting of the Leading Edge Alliance which Allworths are members of. This gave us an opportunity to share ideas with colleagues from China, Malaysia, Singapore, India and the Philippines.

A common theme amongst the delegates was the issue of staffing. Malaysia and Philippines are losing staff to the more lucrative markets of Singapore, China and the Middle East. China’s government is forcing salary costs up by 20-25% over the next five years.  Ironically Chinese companies are looking to outsource to Vietnam which will no doubt eventually increase Vietnamese labour costs.

China now has a focus on green energy while the Philippines are making it easier for foreign companies to own mining and utility companies in its country.

India appeared to be the only country without labour shortages and has a large pool of young talented professionals. The Indian government are trying to facilitate establishing companies by foreigners and have Special Economic Zones providing foreign business with tax free status for ten years.

 A few New Years Resolutions to think about

No doubt a few of you will look at giving up smoking and drinking, working less and doing more exercise. But here are a few things that shouldn’t be broken:

Review or prepare your Wills – did you know without a Will your estate will go automatically to a pre determined set of beneficiaries?

Review or look at life insurance – if something were to happen to the main income earner how would you pay your bills?  Life insurance can actually be very cheap.

Think about your succession planning – who is going to take over the business when you retire or what happens to the business if you die?

Allworths have been assisting clients look at these issues and provide a step by step approach to implementation.

 Borrowing in a SMSF

In 2007, legislation was enacted to enable Self Managed Super Funds (SMSFs) to borrow funds to make investments for the retirement of the member/s of the fund. Examples include investments in management funds, shares and direct property (real estate).

When borrowing in SMSFs there are significant rules to be followed including the establishment of a ‘bare’ trustee.  Banks are restricted with respect to the types of loans that can be made to SMSF Trustees and they often require personal guarantees by members of the fund.

In undertaking a borrowing of this nature in your SMSF, you must be aware that because of the complexities involved, it can be a lengthy process.

You will need to ensure the steps required to be undertaken are well planned and coordinated.  A solicitor will need to be involved in the preparation of documentation and, in the case of direct property, a solicitor should be engaged to act and assist in purchasing the property.

 For property, banks may require a deposit of around 40 per cent to 50 per cent of the total sum and a personal guarantee from members of the fund. Careful consideration needs to be given if you are contemplating such an arrangement.

Those over the age of 45 should take particular care as there could be equity difficulties if the asset is not paid off before the member’s pension commences. Alternatively, members who are around 40 years of age may find this a good strategic opportunity to acquire assets and have them paid off before commencing their pension.  New real estate also provides the opportunity for capital allowance and depreciation which may assist in the tax effectiveness of the investment within the SMSF.

Allworths have assisted clients with this process through its wealth management arm, Growth Plus Wealth Management.

Talk to us for more information.

 Superannuation Guarantee Charge and Contractors

Last year we presented an article outlining the concept of Contractors being ‘deemed employees’ for the purposes of Superannuation Liability. In essence the Superannuation Guarantee Act 1992 defines a person as an employee if they are an employee under Common Law.

The meaning of ‘employees’ is, however, expanded if the contract is wholly or principally for ‘labour’. In that case the person is ‘deemed an employee’.

The Australian Taxation Office had been involved in a number of cases arguing those deemed ‘employees and those deemed ‘contractors’.

The case of Roy Morgan Research Pty Ltd v Commissioner of Taxation & Anor went before the full Federal Court to make a determination. In that case, the full Federal Court decided that certain individuals engaged by the taxpayer were in fact employees for the purposes of the Superannuation Guarantee Act 1992 (Cwlth).

This reinforces the need for companies to reconsider their position where they have engaged contractors.

Talk to us for further information regarding this matter.

 Personal Services Income

The Australian Taxation Office continues to run cases to contest aspects of the Personal Services Income regime.

One aspect was recently challenged in the case Park vs Commission of Taxation (2011) AATA567. In that case the taxpayer, an I.T. Specialist who provided their services through a Company Structure, claimed that the Personal Services Income rules did not apply because the results test was satisfied by the Company.

In this case it was identified that the services were provided through a labour hire firm with the taxpayer being required to submit weekly timesheets for approval. It was found that there was no evidence that their company was engaged to produce a result even though the Contractor was contracted to work on substantial projects.

As such the Tribunal found that the taxpayer did not conduct a personal services business during the relevant years as the ‘results test’ was not satisfied. The income was therefore attributed to the applicant and a penalty applied.

This reinforces further the ATO’s focus on the Personal Services Income regime. It also confirmed the Administrative Appeals Tribunal felt a 25 per cent penalty was appropriate.

This area is complex and if taxpayers do get it wrong the penalties can be very significant. If you feel that your circumstances need to be reviewed contact us.

 FBT and the New Car Fringe Benefits Legislation

Since the introduction of the new car fringe benefits legislation on 1 May 2011, it is worth revisiting the method chosen for calculating the car fringe benefits tax (FBT).

Previously, if you used the ‘statutory formula method’ for calculating FBT then a sliding scale percentage was used. In this instance, the more kilometres the car travelled, the lower the percentage applied. 

Under the May 1 changes, a flat 20 per cent applies to all car fringe benefits provided after 7:30pm on that date. The rate is phased in gradually from 2011 to 2014. This is outlined in the table below:

There are some circumstances, however, where the old rates will still apply. One such example would be where there is a pre-existing commitment (e.g. A lease entered into prior to 1 May 2011). 

Should the terms of the agreement be varied or changed after that date it may be considered a new agreement. If so, the new rules would apply.

For cars travelling less than 15,000kms per year the FBT rate has actually been reduced and for those travelling between 15,000km to 24,999km there is no difference. 

The rate has increased, however, for those travelling more than 25,000km.  For drivers using their cars for business purposes that fall into this category, it may be worth moving from the ‘statutory formula method’ to the ‘operating cost method’ to calculate FBT. 

In order to rely upon the ‘operating cost method’ a log book must be prepared and kept.

A logbook must be maintained for a continuous period of 12 weeks and contain the following information:

•      The date the journey began and ended (multiple journeys are treated as a single entry)
•      The odometer reading of the car at the start and end of the journey
•      The number of kilometres travelled by the car, and
•      The purpose of the travel.

The odometer readings of the car must be recorded at the start and end of the FBT year.  If you complete a logbook within 12 weeks of the end of the FBT year it can be used for the preceding year, thereby, giving you the option to choose your FBT method for the FBT year ending 31 March 2012.

 Christmas Fringe Benefits

It is that time of year – Christmas party planning is in full swing and employers may be considering gifts for staff and their families. The key is to ensure that your Christmas cheer does not leave you with a Fringe Benefits Tax (FBT) hangover.

Christmas Parties

The general position is that if a Christmas party is not held on your premises and the cost per employee is less than $300 per head ($150 per head if partners attend), it is classed as a minor benefit and no FBT is payable.  The function is, however, classed as ‘entertainment’ and as such no GST or tax deduction will be claimable.

If the function is held on your premises on a work day for employees and it includes a light meal but no alcohol then no FBT is payable and GST and a tax deduction can be claimed.

If however, the function is held on your premises on a work day with the employees’ families and alcohol is supplied (with the cost per employee being less than $300 per head), no FBT will be payable but no GST or tax deduction can be claimed either. 

If this style of function exceeds a cost of $300 per employee then FBT is payable on the family portion and a tax deduction is claimable only for the portion for which FBT is payable.

Gifts

Gifts to employees may be provided at the same time as the Christmas party without being included in the $300 minor benefit cost allowed for the party.  So long as the gifts are less than $300 and are not classified as ‘entertainment’ (e.g. Concert tickets) then no FBT is payable and GST and a tax deduction can be claimed on these items.

With this information in mind, you can enjoy a tax effective Christmas party season!

 Liquidate or De-Register a Company

Deregistering a company can be a cheap, effective way of winding up a business.

When deregistering a company, there are several income tax issues to consider. Firstly, ensure that there are cash funds available to pay all dividend payments and secondly, ensure there are sufficient franking credits available to avoid the dividends becoming unfranked. Alternatively the company can elect to pay a franking deficit tax.

The Capital Gains Tax (CGT) implication of deregistering a company is another key issue to consider. On cancellation of shares, shareholder interest in the company does provide a CGT Event C2. Various actions can ‘trigger’ various CGT provisions. Event C2 is one such provision. This effectively enables a Capital Gain loss to be calculated. Other issues can also arise when shareholders receive dividends but then realise a capital loss as a consequence of the cancellation of the shares.

Alternatively, when winding up a solvent company you can consider a Members Involuntary Liquidation. Significantly, this provides an alternative scenario in relation to distributions as they are treated as the liquidator’s distributions. In broad terms it allows certain amounts to be distributed as capital instead of dividends for tax purposes and this can deal with pre CGT items or capital gains concessionally treated under Small Business Capital Gains Tax Concessions.

Similar to deregistration, the end result of a liquidation process after any distributions have been made is for the shares to be cancelled. This triggers a CGT Event G1 and/or C1 and these arrangements are concessional and can adjust the cost base of the share.

In conclusion where there are significant CGT issues arising from exempt capital profit reserves, or CGT Concessions available to shareholders, the Members Voluntarily Liquidation is often preferable.

It is most important to have adequate planning to determine the optimum path to follow.

Talk to us for more information.

 Staff Loyalty

Retaining staff continues to be a prime source of worry for small business owners.

Consider the following strategies to retain loyal staff:

• Recognise employees doing the ‘right things’ – small gestures can help retain staff in the   long term
• Encourage staff to voice their ideas
• Provide structured plans for the career progression of talented staff

Salary increases are only a small aspect of staff loyalty. Taking the small steps outlined above can go a long way to improving staff retention rates.

 Interns as a Source of Labour

When cash flows are tight small businesses can occasionally find paying their employees difficult. One solution may be to use interns or university students during holiday periods.

While the intern may not receive a large wage, they obtain relevant practical work experience and the small business obtains the intern’s valuable skills at a lower cost than they otherwise would.

To be an effective strategy, ensure the intern is kept motivated. Boring, repetitive administrative work will quickly drive interns away.

Additionally, the mutually beneficial arrangement may lead to long term employment on the conclusion of an intern’s studies.

How Best to Handle Redundancies

With talk of another economic downturn, 2012 may be a year when businesses shed staff. To avoid this becoming a more harrowing experience for the staff being made redundant employers should:

•          Plan and execute the redundancies with precision
•          Avoid making decisions at sensitive times such as holiday periods (e.g.  Christmas Eve)
•          Consider the time it will take employees to start receiving government assistance
•          Carefully script the announcement and deliver the news quickly and succinctly
•          Give employees an opportunity to discuss the situation after the initial panic has gone
•          Discuss the exit process
•          Avoid saying ‘I know how you feel’
•          Avoid saying ‘I’ll see what I can do’
•          Engage a Career Outplacement Consultant

Outplacement Consultants will also be able to advise the employee on how to tell their family and how to put together their resume in order to find their next job. This helps turn the situation into a positive opportunity.Making staff redundant is rarely easy for a manager. By putting proper processes in place, you can reduce the consequences of the negative situation.  Source: BRW

The Government announced a number of measures in the 2011-2012 budget that will impact SMEs and their employees. An outline of these is provided below. It is, however, important to note they have not yet been passed into law and are subject to change.

Minimum pensions

During the global financial crisis the government reduced the minimum pension required to be drawn down for account-based, allocated and market linked pensions. This relief will be reduced by 25 per cent for 2011-12 and phased out in 2012-13.

Low income tax offset for minors

From 1 July 2011 minors receiving non-work income, such as dividends, interest or family trust distributions, will not be entitled to the low income tax offset. This will reduce their tax free threshold to $416.

Accelerated depreciation for small business enterprises

Any motor vehicle purchased from 2012-13 will be eligible for an instant tax write-off for the first $5,000 of its purchase price. The remainder of the purchase value is then depreciated.

Depreciating assets acquired from 2013, valued under $5,000 will be able to be written off immediately.

Log books may help reduce FBT

The 2011 Federal budget also announced changes to the calculation of FBT on motor vehicles. The FBT payable will increase if an employer provided car travels over 25,000 kilometres in the FBT year. The table included here provides a concise breakdown of the current and proposed FBT rates based on kilometres travelled.

The Government has said these changes will be phased in gradually however there is a second way to calculate the FBT on a vehicle – the operating cost method.

This method involves the employer being able to identify:

• Repairs and maintenance
• Fuel
• Registration and Insurance
• Depreciation – if owned by the employer

Private use is determined by a log book.

A log book must be maintained for a continuous period of 12 weeks and contain the following information:

• The date the journey began and ended (multiple journeys are treated as a single entry)
• Car odometer readings taken at the start and end of the journey
• The number of kilometres travelled by the car
• The purpose of the travel

If you complete a log book within 12 weeks of the FBT’s year end it can be used for the preceding year. A new log book must be completed every five years.

Super dates – ATO focus

The ATO have sent letters to a number of businesses reminding them of their requirement to pay their staff superannuation on time. These letters are part of an education campaign launched by the ATO and will be followed up with a compliance program. Below is a table of the payment cut-off dates for super guarantee payments.

If a super contribution is paid after the cut-off date a super guarantee charge statement must be lodged with the ATO and interest paid on overdue amounts at 10 per cent, per annum, plus an administration fee of $20 per employee per quarter.

Reportable Employer Superannuation Contributions – PAYG Payment Summaries

Last financial year a lot of businesses incorrectly completed the reportable employer superannuation contributions section of the PAYG payment summary by including superannuation guarantee contributions (SGC).

Reportable superannuation contributions are superannuation contributions where your employee influenced the rate or amount of super you contribute for them. They are additional to the amounts you must pay under SGC or an industrial agreement.

Whether an employee has the capacity to influence the amount of contributions made is shown by considering:

• Your relationship with the employee
• The employee’s involvement in negotiations regarding super contributions
• The size of the amount contributed compared to the SGC required
• Arrangements you have in place for other employees
• Non-arm’s length dealings.

Example 1: XYZ Pty Ltd has a sole director John. John’s wife and children are the only employees of the company. An industrial agreement was negotiated internally that requires XYZ Pty Ltd to pay 15 per cent of each employee’s salary into super.

In this example the six per cent superannuation paid (above the nine per cent SGC) is a reportable employer superannuation contribution as the agreement was not negotiated at arm’s length.

Example 2: John asks his employer to salary sacrifice $15,000 per annum into superannuation, therefore the $15,000 is a reportable employer superannuation contribution.

If you are unsure about your reportable employer superannuation contributions please contact us.

New system offers business greater security

Consolidation of the various state and federal property security registers into a single registry of security interests will be welcomed by any business that retains an interest in an asset after it has become the property of a customer; one such example is before a final invoice is paid.

The single registry of security interests, effective from October 2011, will not just provide a much-needed simplification of the system, but will also expand the assets that can be included on the register. This will provide a greater level of security for businesses.

Under the new system, arrangements such as hire purchase agreements and leases, and retention of title claims, will now be included on the register.

Security interests are defined as ‘an interest in property provided for by a transaction that secures payment or performance of an obligation’.

According to the Personal Property Securities Act 2009 (Cwlth) reform, this may include intellectual property (such as patents), intangible property (such as contractual rights or licences) and financial property (such as investment instruments, bonds, etc).

Both ‘consumer’ property, such as items used for personal purposes such as a car under lease and ‘commercial’ property, such as trading stock, plant and equipment, are covered.

Another change under the new system is that ‘fixed’ and ‘floating’ charges will no longer exist.  They will instead be known as:

• security interests which attach to a circulating asset (floating charge)
• security interests which attach to a non-circulating asset (fixed charge).

The changes will ultimately provide a much simpler system for registering securities. Businesses that deal with customers throughoutAustraliawill no longer need to record each customer on the relevant state-based registry.  It will also make it much easier for liquidators to assess the rights of suppliers and debtors to companies they are administrating, and speed up the process of returning money to those businesses.

In the short term, however, the changes will create some paperwork for businesses. They will need to redraft their terms of trade to take into account the single register.

It is important for businesses to familiarise themselves with the changes and the new terminology, and ensure they follow procedures correctly to retain title over their property.

For more information on these changes, feel free to contact us.

Debtors

In lean economic times, cash flow is king.  There are small but important steps which can be put in place to improve cash flow starting from when the invoice is produced.

When it comes to your invoice, it is worth considering:

• Does your invoice properly detail your credit terms?
• Do you require payment within a certain timeframe such as 7 or 14 days?
• Does your invoice include the following note so you can start to chase an outstanding payment immediately if it falls due:

TERMS

Please note that our terms are 14 days from this invoice.

By providing your customers details for both the means of payment and your payment address you are more likely to receive payment in a timely fashion.

Include your BSB, bank name and bank account details and, if appropriate, your BPAY information.  Additionally, if securing timely payments have been difficult in the past, you may consider offering a discounted rate should payment be received within your designated payment period.

It is always best practice with debt recovery to adopt a proactive approach.  While letters may be effective to show a paper trail of the work undertaken on your part for debt recovery purposes, it is more expedient if you pick up the phone and speak to the person concerned.

Do not pester clients, but ensure you are vigilant.  Keep records of conversation or attempts to contact the debtor by letter, email or telephone.

If all else fails, consider engaging the services of a debt recovery agency. If further work is required by the debtor, either negotiate an upfront payment or secure instalment payments during the course of your services.

For more information to improve your cash flow talk to us.

Getting your business online

When you last needed to find a business provider, what means did you use to search for and locate a service?  Increasingly, online search engines such as Google are being used. This begs the question, does your business have a presence on the Internet?

According to the Getting Aussie Business Online website   -(www.gettingbusinessonline.com.au) the Internet is now the first place Australians go to find information about businesses.

Getting Aussie Business Online set up by Google and MYOB aims to help 50,000 Australian businesses get online with their first website.

The website provides businesses the opportunity to set up an easy to update website for one year and a free .com.au domain for two years.

Having a web presence for no upfront cost allows you to, over time, assess the relevance and benefit of a website to your business. Business owners can analyse whether business growth has occurred as a result of the new web presence. If it has, you may wish to invest in further enhancing your website design and improving the services you provide clients through your online presence.

Lessons from Lego

Lego was founded in 1932. By 2004 sales had dropped by 35 per cent worldwide and the company was in severe debt. The company had lost focus.  Instead of focusing on building its famous toy bricks, it had branched out into expensive Legoland theme parks and licensing deals with film makers, which were distracting management.

The company no longer knew its purpose.

Lego appointed a new Chief Executive who identified a turnaround strategy.

The following lessons for management came from the Lego experience:

• Don’t get distracted by diversifying too far from the core products.
• Family run company’s need to bring in outside experts when in trouble
• Don’t be afraid to make mistakes
• Reverse bad decisions
• Undertake a listening tour and speak to your retailers, customers and staff to find new ideas and solutions to existing problems.

Are your employees satisfied in their jobs?

Employees respond to job dissatisfaction in four distinct ways:

1.  Exit

Employees may express their dissatisfaction through behaviour directed towards leaving the organisation.

1.    Voice

Employees may actively attempt to provide constructive criticism to their superiors in order to improve their working conditions.

1. Loyalty

Employees may passively and optimistically wait for conditions to improve.  They may simply trust the organisation and its management to ‘do the right thing’.

1. Neglect

Employees may passively allow conditions to worsen through chronic absenteeism, lateness, reduced effort and increased error rate.

Employees can become dissatisfied in their jobs for any number of reasons. Once management is aware of the situation, it is worth trying to reverse the dissatisfaction by encouraging performance and motivating employees with recognition, praise and increased promotional opportunities.

Time saving strategies – stop multitasking

Trying to juggle too many things at once? Never seem to get any task finished? Multitasking might be the problem.

Try timing yourself as you write the numbers 1-26 and letters a-z down, but write one number then one letter – 1 a 2 b 3 c… Once that is done, time yourself writing the numbers 1–26 and letters a-z. How much faster were you when you focused on one task at a time?

When running a business it is hard to avoid interruptions but you can try these easy ideas:

• Turn off your email message notification and instead check your emails once an hour.
• Set aside time each day to return calls. That could be 30 minutes before lunch and another 30 minutes in the afternoon.
• Take breaks – get out of the office at least twice a day – go for a walk to clear your head. It may take five minutes.  The break will
  de-stress you and make you more focused.
• Eat lunch away from your desk. Use your lunch break as an opportunity to interact with staff in the lunchroom.
• Close your office door and ask for no interruptions if you are working on a difficult task
• Try to handle each piece of paper only once.

It requires a bit of discipline and different strategies work for different people.  Experiment with these suggestions and see whether any will save you time and help bring more order to your day.

Age discrimination

There is an old adage that states ‘you can’t teach an old dog new tricks’ yet there is a great deal of anecdotal evidence to suggest this assertion is incorrect.

Studies consistently demonstrate that older employees are perceived as being relatively inflexible, resistant to change and less trainable than their younger counterparts – particularly with respect to information technology.  These perceptions are wrong.

Older workers, typically aged 50 and over, want to learn and are just as capable of learning as any other employee group.  Once trained, older workers are able to perform at comparable levels to younger workers.

Evidence indicates there are differences between people based on individual factors such as ability, motivation, and personality. These traits do influence learning and training outcomes.  Age, however, hasn’t been found to influence these outcomes.

DISCLAIMER: The contents of this publication are general in nature and we accept no responsibility for persons acting on information contained herein.

A number of people have commented to us recently, specifically in respect ofUKand Australian residency, that the number of days spent outside of a country can be the determining factor as to whether a person is a resident for tax purposes.
 
Many countries operate systems where if you spent a certain number of days in the country you are a resident to taxation purposes even if you are a tax resident elsewhere. The problem is that the number of days spent in a particular country has never been the absolute best of residency regardless of how many people are under that impression.
 
Last year the Court of Appeal in theUKupheld the tax authority’s decision that a British businessman who had resided in theSeychellessince 1976 was also a resident for theUKfor taxation purposes, even though he spent less than 90 days per year in theUK.
 
The Court of Appeal stated the taxpayer had not shown a distinct break from social and family ties from his home country. The business man had a house in theUKwhere his wife and son lived, his son was at school in theUKand he had aUKmobile phone. It was also commented that he had a will drawn up under English law and attended Ascot racecourse when in theUK.
 
The courts decision was the taxpayers “centre of gravity of his life and interests were in theUK”.
 
The decision could affect any expatriate who has lived abroad for many years, but retained some link with their country of citizenship, or of previous residency. In this case the taxpayer was assessed 30 million pounds covering the years from 1993 to 2004 inclusive.
 
A taxpayer would usually think that have taken up a new residency 34 years prior that they would be safe and that the new residency had been established and accepted. With the renewed emphasis of many countries on international tax matters, anyone living abroad that has that connection with another country could be at risk. Expatriates need to consider lifestyle changes to comply with stricter tests of residency. Taking children out of school or selling your home for tax compliance is not attractive.
 
Any expatriates, either from other countries living inAustraliaor Australians now living overseas, who have any queries in relation to their circumstances should contact us to have circumstances reviewed.
 

The Government has released a discussion paper for public consultation about two recommendations from the Board of Taxation that addresses two key areas of uncertainty  for trusts:

•      Better align the concept of ‘income of the trust estate’ with ‘net

income of the trust estate’
•      Enable the streaming of capital gains and franked distributions.

The changes will apply for the 2010-11 and later income years.

“It is important to implement the Board’s recommendations so businesses and individuals using trusts can continue to do so with confidence and enjoy more certainty, particularly in relation to streaming of capital gains and franking credits,” Mr Shorten said.

The Government is aware that these interim changes will not resolve all of the issues with the current operation of the trust income tax provisions as highlighted by the High Court’s decision in Commissioner of Taxation v Bamford.  However, the Government understands there is urgent need for certainty on the key issues recommended by the Board.

“As I announced on 16 December 2010, the Government has made a commitment to update and rewrite Australia’s trust taxation laws more broadly.  Drawing on the expertise of the private sector, Treasury will develop options for public consultation that tackle these broader issues.”
 

 The Federal Government has released its response to the Cooper Review into Superannuation. In its final report the Government advised “The Self Managed Super Fund (SMSF) Sector is largely successful and well functioning. While significant changes are not required, there are still a number of noticeable issues, which, for the most part, do not directly relate to Trustees and Members, but instead to service providers”.

Key recommendations supported by the Government include:

• A new penalty regime (sliding scale) to be legislated versus the current scheme of compliant versus non compliant
• Mandatory education for Trustees who breach the rules
• Registration requirements for SMSF Auditors
• A review of the qualification requirements of auditor and an independent standards review
• A review of the current borrowing rules in two years time
• Related transactions to be more regulated
• Net market value to be used for fund asset valuation with the regulator providing guidelines on a standard valuation process for assets
• Legislation amended so SMSF Trust Deeds allow anything permitted by the SIS/Tax Act (Cwlth 1993) therefore minimising the need to prepare amended Trust Deeds.

Interestingly, the Government did not support the removal of the five per cent in-house asset limit, or the probation of the acquisition of collectables/personal use assets. It is noted that those who hold collectables/personal use assets will be required to annually value those assets to net market value and not retained in a member’s residence or associated premises.  They must be professionally stored.

In short, the legislation will ensure that there is no ‘current day benefit’. If these new rules cannot be met, the SMSF Trustee’s will need to dispose of the assets by July 2016.

For more information about the Government’s response to the Cooper Review and how it might affect your SMSF talk to us.
 

Share investment, trading or speculation?

Recently, the ATO has begun focusing on how taxpayers classify their share trading activity – whether it is share investment, trading or speculation.

In making a determination the taxpayer’s intention is taken into account.
 

Investments

The intention should be to derive income through dividends or distributions and appreciation of the value of shares over the long-term
 

Speculation

The intention should be to increase the share value by holding for the short-term and having little to no regard for the income stream.
 

Share trading

The intention should be to increase the share value held for the short-term with little or no regard for the income stream, with routine and systematic analysis and employ a plan or trading discipline.

It is important to know that you can shift from being a share trader to an investor or speculator, depending on your circumstances. There are clear rule changes that apply when shifting from a share trader to an investor or share investor to trader.

These factors need to be discussed with us when classifying your share trading activity.
 

Are your business systems responsive to growth and change?

Ensuring that your business system can handle growth and change is critical for effective tax governance. By ‘business system’, we mean the systems, processes and controls you have in place to capture and record GST information.

An ability to handle growth and change is particularly relevant to small-to-medium (SME) enterprises with growth potential and is important during periods of economic fluctuation.

Those businesses at risk include businesses experiencing rapid growth, restructure, mergers or de-mergers and businesses where there has been a change in accounting staff.

It’s good to pay particular attention to your systems when you are going through a significant change or restructure. Ensure that your systems:
 

• are set up to report new branches correctly
• establish GST accounting processes
• invoice trading stock correctly on transfer to a new business
• properly integrate with any new computer or accounting systems
• correctly classify intra-group transactions subsequent to the change
• set up succession planning in terms of staff change or movement
• provide for staff training in the correct use of your systems.

 
Errors often occur because of incorrect interpretation of the GST law during these changes.

Ensure that your business has established procedures for seeking technical advice to confirm the correct treatment of GST transactions, and that your staff are aware of, and understand these procedures.
 

ATO cracking down on clients who fail to make repayments

The ATO have toughened up their stance on small businesses that fail to make repayments.

They have been issuing garnishee orders which enable the ATO to directly access funds held in a client’s bank account, or in the case of companies, moving to appoint receivers.

We recently sent a separate News Flash to clients in respect of the more aggressive attitude from the ATO, and its re-emptive moves to collect outstanding taxes.

If you have made a payment arrangement with the ATO ensure you make your repayments on time and contact us if you are having difficulty paying.
 

Extra time to lodge for those affected by natural disaster

The Commissioner of Taxation, Michael D’Ascenzo, announced the ATO is allowing additional time for tax-related lodgements and associated payments for individuals and businesses affected by the recent natural disasters.
 

This includes:

• the lodgement of monthly activity statements since December 2010, if not already lodged
• any income tax

• Previously, directors and shareholders of a company had to pass resolutions and the company had to lodge notice of the resolutions using Form 382 each year it intended to rely on the relief.

• Now, directors and shareholders will need to pass resolutions and the company will have to lodge a Form 382 for the first financial year it intends to rely on the relief.  In subsequent financial years, directors and shareholders will still have to pass resolutions, but notice of the resolutions using Form 382 will not need to be lodged.

• Companies that stop relying on (CO 98/1417) relief for a financial year (for example, if they cease to meet one of the conditions of the class order) are required to lodge a Form 396 Notice of cessation of reliance on Class Order 98/1417 with ASIC within 4 months after the end of that financial year.

Impact on Australian Companies Owned by Non-Residents
 
Assuming the company lodged a Form 382 for its current financial year on time, the company will be able to rely on relief in future financial years without lodging another Form 382, provided the company continues to meet all requirements of the class order.
 
We will review and advise clients, individually, however, in most cases no further action should be required.

Christmas is fast approaching and it is time to consider the tax implications of all the Christmas cheer you provide your staff and clients.

Below is a table showing the tax implications of having the party on your premises or having it off-site.

Furthermore, if you give a gift at the Christmas party the outcome of the above table may be affected. If the combined total of the gifts and the party exceeds $300 per employee consider giving the gifts at a separate occasion.

The above applies if you are not a tax-exempt organisation and do not use the 50-50 method for meal entertainment.

Whichever approach you take, have fun and enjoy Christmas!

 Allworths Office will be closing at 3.00pm Thursday 23 December 2010 and

 re-opening Tuesday 4 January 2011

FBT motor vehicle log book reminder

If you use the operating cost method for calculating your motor vehicle fringe benefits tax (FBT) and you have not completed a log book, now is the time to start.

If you complete a logbook within 12 weeks from the end of the FBT year it can be used for the preceding year. You also need to complete a new logbook every five years.

A logbook must be maintained for a continuous period of 12 weeks and contain the following information:

• The date your journey began and ended (multiple journeys are treated as a single entry)
• The odometer reading of the car at the start and end of your journey
• The number of kilometres travelled by the car
• The purpose of the travel.

The odometer readings of the car must be maintained at the start and end of the FBT year.

Superannuation contributions

There are clearly defined limits of superannuation contributions to a superannuation fund.

It is important to be aware of what the Australian Taxation Office (ATO) regards as a ‘contribution’.

The ATO states the following:

• Anything that increases the capital value of the fund can be a contribution
• Contributions are more than just a deposit of money into the fund.

Set out below is the ATO table Taxation Ruling: TR 2010/1 regarding contribution types that can be made to a fund:

Furthermore, the ATO has released the following table which sets out the timing of contributions (TR 2010/1):

It is important to be aware that if you make excess contributions, you may be subject to an excess contribution tax of 46.5 per cent, or 93 per cent of the contribution.

Please consult with your Chartered Accountant before you consider making significant contributions to your superannuation fund.

Contractor or employee?

With more businesses now using contract labour the Australian Taxation Office has begun focusing on contractors and their obligation to pay the 9 per cent Superannuation Guarantee Levy.

Section 12(3) of the Superannuation Guarantee (Administration) Act 1992 (Cwlth) provides that if the contract is ‘wholly or principally for labour’ then that person is deemed an employee and therefore has a Superannuation Guarantee (SG) levy obligation.

The common law principal to determine whether a tax payer is an employee (an individual) is tested against the following:

• The control the employer has
• The basis of the contract
• The ability to sub contract
• Who bears the risk of the project.

Recently there have been significant cases regarding the superannuation guarantee. In general, the courts have taken a more expansive view when testing whether an individual is employed ‘wholly or principally for labour’.

While the impact on individuals is clear, there is now a more a significant focus on interposed entities (e.g. companies); more specifically, between the contractor and the ultimate entity paying the contractor.

According to the ATO, if you make a contract with someone other than the person who will actually be providing the labour, there is no employer/employee relationship.

The following situations are examples of when the contract is not for the labour of the individual:

• If you make a contract with a company, trust or partnership; or
• If the person you have the contract with is free to hire other people to perform the work even if the person ends up performing the work themselves.

A Roy Morgan Case (subject to appeal) highlighted that where a contract is in all practicality for the services of the individual, the payment of contract fees to an interposed entity may not be sufficient to overcome the SG labiality.

The key issue here was the freedom of the contract entered to delegate the work.

We strongly recommend that you consult your Chartered Accountant if you feel this is relevant to your situation.

Business benchmarks

The ATO has developed small business benchmarks to enable businesses to compare their performance against similar businesses. It also provides the ATO with information to help them identify businesses reporting outside the benchmarks.

The benchmarks provide key business ratios for more than 100 industries reporting with high, medium and low turnover ranges.

The ATO have developed benchmarks in the following areas:

• Performance benchmarks
• Cash Sales benchmarks
• Input benchmarks.

Performance benchmarks

Performance benchmarks provide key business ratios for your industry to help you compare your own business performance including:

• Cost of goods sold to turnover
• Cost of Materials to Turnover
• Labour to turnover
• Rent to turnover
• Motor vehicle expenses to turnover.

Cash sales benchmarks

Cash sales benchmarks show the ratio of cash sales to total sales.

The ATO calculated these benchmarks by using card sales from bank data and deducting these figures from the total sales reported in activity statements.

These benchmarks show an expected range for your industry and your average sales value.

Input benchmarks

Input benchmarks show an expected range of income for tradespeople based on the labour and materials they use. These benchmarks apply mainly to tradespeople who undertake domestic projects and are responsible for purchasing their own materials.

The ATO use these benchmarks to identify businesses that may be avoiding their tax obligations. If your business is outside the benchmarks for your industry it will attract the ATO’s attention.

The benchmarks can be found on the ATO website at www.ato.gov.au Tax Topics – Business Benchmarks.

New super clearing house

The Australian Government is offering a free superannuation clearing house service to small businesses with less than 20 employees.

You make a single payment to the clearing house and they will distribute the money to your employee’s superfunds, saving you time and money.

To access the service you can register online at www.medicareaustralia.gov.au/super

Possible superannuation increase

The Federal Labour Government has hinted at increasing the Employee Superannuation Guarantee from 9 per cent to 12 per cent.

Employers should factor in such an increase because, if it gets through, it will add further cost to your business and add to your wages bill.

To minimise the impact of an increase in the Employee Superannuation Guarantee consider increasing your prices and reducing your salary increases.

New system offers business greater security

Consolidation of the various state and federal property security registers into a single registry of security interests will be welcomed by any business that retains an interest in an asset after it has become the property of a customer, for example before a final invoice is paid.

The initiative, effective from May 2011, will not just provide a much-needed simplification of the Personal Property Securities Act 2009 (Cwlth) but will also expand the assets that can be included on the register, providing a greater level of security for businesses.

Under the new system, arrangements such as hire purchase agreements and leases, and retention of title claims, will now be included on the register.

Security interests are defined as ‘an interest in property provided for by a transaction that secures payment or performance of an obligation.’

According the Act, this may include intellectual property (such as patents), intangible property (such as contractual rights or licences) and financial property (such as investment instruments, bonds, etc).  Both ‘consumer’ property (such as items used for personal purposes including a care under lease) and ‘commercial’ property (such as trading stock, plant and equipment) are covered.

Another change under the new system is that ‘fixed’ and ‘floating’ charges will no longer exist.  They will instead be known as:

• Security interests which attach to a circulating asset (floating charge)
• Security interests which attach to a non-circulating asset (fixed charge).

The changes will ultimately provide a much simpler system for registering securities, as businesses that deal with customers throughoutAustraliawill no longer need to record each customer on the relevant state-based registry.  It will also make it much easier for liquidators to assess the rights of suppliers and debtors to companies that they are administrating, and speed up the process of returning money to those businesses.

However, in the short term, the changes will create some paperwork for businesses, as they will need to redraft their terms of trade to take into account the single register.

It’s important for businesses to familiarise themselves with the changes and the new terminology, and ensure they follow procedures correctly to retain title over their property.

DISCLAIMER: The contents of this publication are general in nature and we accept no responsibility for persons acting on information contained herein.

On 8 July 2010, the ATO Commissioner, Michael D’Ascenzo, issued a media release announcing the release of the Compliance Program 2010-11. The program outlined refund fraud, the cash economy, employer obligations, wealthy Australians and tax secrecy havens as some top priorities for the ATO in the coming year.

The Commissioner stated his belief thatAustraliahas a strong culture of voluntary tax compliance. Part of supporting honest taxpayers was, however, taking firm action against those who do the wrong thing.

The ATO has also said it will focus on trusts to ensure the ‘basic requirements’ for compliance are being satisfied. That includes the lodgement of returns and the distribution of income of the trust.

The Commissioner also announced they would extend the ATO’s Small Business Assistance Package for a further year.

Bamford Case & Primary Producers

 Farmers carrying on their business through a trust structure may be impacted by the ATO’s interpretation of the March High Court decision on the Bamford case. Previously the ATO’s approach to Trusts operated by farmers enabled access to concessions such as primary production averaging and farm management deposits (FMD’s). These concessions have proved very beneficial to primary producers as a result of their often uneven income stream due  to market and seasonal conditions.

However, in recent weeks the ATO has indicated where trusts are in a loss position the beneficiaries of those trusts will no longer be considered to be primary producers.  Ceasing to be a primary producer will disqualify the taxpayer  from access to income tax averaging provisions and any FMD’s are required to be repaid (and therefore become assessable income) within 120 days.

The ATO is yet to publish a definitive interpretation on the matter however it is important primary producers operating through trusts monitor their situation closely whilst we await further developments from the ATO.  If the ATO persists with this treatment it will be more important that affected primary producers have their position reviewed prior to year end. At an appropriate time, we will be discussing this with relevant clients to consider action to be taken.

Collectables and in-house assets for Superannuation Funds

The Cooper Review was delivered to the Government on 30 June 2010. It contained a number of recommendations, some of which the Government has already announced they will take up.

One such recommendation was MySuper – a low cost default fund for employees who do not actively choose a superfund.

Another recommendation of the Cooper Review was to ban self managed super funds (SMSFs) from holding investments in collectibles such as art, wine and antiques. SMSFs have been provided with five years to sell existing collectables.

If you have a SMSF and are thinking about purchasing collectables talk to your Chartered Accountant first.

Collapsed Agribusiness MIS

The ATO has advised that it will be contacting approximately 60,000 identified participants of recently collapsed Agribusiness managed investment schemes (MIS) during August 2010 to help them understand the tax consequences of their investments.

The ATO has advised that affected taxpayers will need to factor in any changed tax implications in these schemes when they prepare their tax returns.

GST and requirements for tax invoices

Recent changes to GST law have simplified the requirements for documents to be considered tax invoices or recipient created tax invoices (RCTIs). They have been replaced by requirements with equivalent but more flexible principles.

Where you receive a document from a supplier that is missing key information, you may still treat the document as a tax invoice under certain circumstances. It must be clear that the document is intended to be a tax invoice and you must be able to clearly ascertain the missing information from other documents issued by that supplier. This concession does not apply to adjustment notes or recipient created adjustment notes.

The regulations commenced on 1 July 2010 and apply in relation to net amounts for tax periods starting on or after 1 July 2010.

Non-commercial loans – tightening the rules

The expanded application of the Income Tax Assessment Act 1936  – Division 7A (Cwlth) announced in the 2009/2010 Federal Budget has been made law. Central to the changes is the ability for the ATO to tax the use of private company assets by shareholders or their associates.

Most would be aware of the implications of loans made by a private company to its shareholders and/or their associates. The use of other assets held by private companies such as property, vehicles and boats, either for free or for a non arm’s length value by the shareholders and/or their associates has remained largely unchecked.

Changes to Division 7A allow for a deemed ‘payment’ to be included in the shareholder’s income and taxed accordingly. It would represent the amount they would have had to pay to use the asset.

Where a shareholder and/or associate has exclusive use of such an asset, the deemed payment amount would be equivalent to what would be required to be paid to secure that exclusive use. For example, consider a holiday home held by a private company for the exclusive use of a shareholder and their family. The home may only be used for three months of the year but as it is not available for any other party to use, the deemed payment amount would be equivalent to commercial rent for the entire year.

As originally announced in the 2009/2010 Budget, these changes apply from 1 July 2009. It is crucial you talk to us about reviewing your situation if you hold such assets in a private company.

Payments by direction

A recent case, FCT v Rozman [2010] FCA 324, has been decided in the Commissioner’s favour. The case involved a private company owed money by offshore debtors. The shareholders directed those debtors to pay the outstanding amounts into the shareholder’s private accounts.

The court held that the payment direction by the shareholders constituted a payment from the private company to the shareholders in accordance with Income Tax Assessment Act 1936 – Division 7A (Cwlth). Accordingly, the shareholders were taxed on the amount deemed a dividend.

Interpretations and new legislation are extending the reach of integrity measures such as Division 7A all the time. If you are concerned about the impact of these rules or would simply like to know more you should contact us.

As part of our annual review of your accounts, we review your loan accounts for any potential issues and will advise you accordingly.

Change in law on dividends

 Recently royal assent was given to the Corporations Amendment (Corporate Reporting Reform) Act 2010 (Cwlth).  This legislation amends a number of provisions – particularly provisions dealing with the payment of dividends.

Section 254T of the Corporations Act (and earlier equivalents) has long provided that a dividend may only be paid out of the company’s profits.  The section has been replaced with a new provision which essentially prohibits a company from paying a dividend unless:

• The company’s assets exceed its liabilities immediately before the dividend is declared and the excess is sufficient for the payment of the dividend
• The payment of the dividend is fair and reasonable to the company’s shareholders as a whole, and
• The payment of the dividend does not materially prejudice the company’s ability to pay its creditors.

For directors, there are a number of practical implications including:

• The need for directors to calculate the assets and liabilities of their company
• The effect of paying a dividend on the rights of shareholders (as a whole) and the company’s creditors.
• If a company constitution provides (as did the old Section 254T of the Corporations Act) that a dividend may only be paid out of profits, the directors should consider an amendment to the constitution to ensure that the company has the ability to pay dividends as contemplated under the new Corporations Act provision.

If you have any questions regarding these legal changes please contact us.

OH&S obligations for employers

As an employer you must provide a safe and healthy workplace for your workers and contractors. This includes:

• Providing safe premises
• Maintaining machinery and materials
• Having safe systems at work (such as controlling entry to high risk areas)
• Providing information, instruction, training and supervision of employees to ensure they work in a safe and healthy manner
• Having a suitable working environment (ensuring fire exits are not blocked. worksite is tidy, etc)
• Providing adequate facilities (clean toilets, clean drinking water and hygienic eating areas).

If you do not comply with these legal requirements you can be prosecuted and fined.

To find out your specific obligations go to the occupational health and safety area at www.business.gov.au. There you will find a step-by-step: Workplace Safety guide.

Risk management for unthinkable events

Recent events worldwide have again highlighted the importance of risk management; how your business would survive the ‘unthinkable’.

BP and theGulf of Mexicooil spill brought attention to a lack of foresight and planning for the unthinkable.

This disaster will cost BP billions of dollars and has put the business as a whole in a perilous position. BP has already had to sell major assets to cover the cost of the clean up.

TheIcelandvolcano was another unthinkable event to occur without any warning. The volcano left thousands of people stranded and the repercussions were felt globally. Qantas alone lost $10m during just five days of disruption.

These events prove that management, even in small business must undertake disaster planning and recovery as a serious matter.

Factors beyond your control can impact your business and will affect productivity, output and profits.

Management has a responsibility and duty to undertake planning so that when the ‘unthinkable’ happens contingency plans and procedures are in place to allow the organisation to continue to operate, or at least minimise the disruption.

Opportunity to plan

 With the new financial year underway and your BAS returns for 30 June 2010 now completed, businesses have an opportunity to do some planning for the forthcoming year. For example, you now have some materially reliable figures to put together an operating budget for your business for the year ahead.

You should also be in a position to start assessing your revenue estimates and review your expenditure in the areas of marketing and other cost areas.

Working through this process will allow you to focus on increasing your income so that it comes into line, and hopefully exceeds, your expenditure levels.

You can then also produce a cash flow forecast.

Contact us to help you with the final review of your operating budget and to help you review the cash flows that flow from the operating budget.

Allworths Brisbane Office

The partners are pleased to announce Allworths has opened an office inBrisbane,Queensland.  The new premises will be located on Level 23,127 Creek Street,Brisbane, QLD 4000.

This office will provide us with a base when we visit ourQueenslandclients.  We look forward to more regular meetings with our Queensland and northern NSW clients, closer to their home territory.

Our Queensland office will be managed by Pasandi Gunasekera who has been with us for 10 years.  She will be happy to assist you with any enquiries.

Contact details for the Queensland office are as follows:-

Operating hours:    8.45 am to 5.15 pm

TheQueenslandoffice can also be contacted by phone through ourSydneyoffice numbers.

DISCLAIMER: The contents of this publication are general in nature and we accept no responsibility for persons acting on information contained herein.