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Struggling in business? You are not alone.

Working with small business owners, and being a small business owner myself, there is a common theme that we tend to sweep under the carpet – but it is something that we should all talk about. We should be talking about it with each other a lot, because we may be able to help each other. Yet we hide what is going on, sometimes until it is too late.

Until I became a business owner I had no idea of the stress and anxiety involved in running a small business. The roller coaster ride of emotions mean that one minute you are thinking everything is going great only to have is snapped away instantly when another “challenge” raises its ugly head. This may happen once a month, once a week or a number of times a day. Any wonder small business owners are becoming a focus for mental health awareness programs. According to a recent Everymind study 57.6% of business owners reported stress levels outside of the normal range.

Whether we like it or not there is still a stigma attached to asking for help when you are just not coping. Many business owners wear a mask most of the time to hide what they really feel. I know I do. Sometimes that mask cracks (usually in the privacy of our homes, to the detriment of those we love) but most of the time the mask is firmly in place so we can demonstrate to the world how successful and in control we are. We don’t always have someone to talk to and share what we are feeling.

The anxiety and stress is often linked to the bank balance for small business. There are some that are lucky enough to have great cashflow, but most small business owners are struggling. How do you feel when you see your Business Activity Statement? How do you feel when you call the ATO to make a payment arrangement and are spoken to with no respect or empathy by the public servant on the end of the line who has no understanding of the challenges you are facing? How do you feel when the bank manager says “no” to you and asks why you have not managed to save money as your results look good, even though you have a stack of money tied up in Trade Debtors, or you have reinvested everything into your business? These people have no idea what you are going through and what that means for your confidence and health.

Not only do I see it from my clients – I feel it too. So here are a few things that may help you feel not so alone on your business journey.

· Just because you are in business does not mean you are rich. There is a perception that a business owner has heaps of money and can afford anything. I know my family expect me to pay for everything because I am the business owner so I must have the money. While my family are out enjoying themselves I am at home, usually working so that we can earn enough money to cover our costs. Some weeks I cannot afford to pay myself because people have not paid my business. Some nights I do not sleep trying to do the numbers in my head to work out how we will get through – particularly at Christmas time which is meant to be a time of joy and celebration, but not for the small business owner. We do not have the certainty of a weekly pay cheque like others and we are at the whim of our customers. If this sounds familiar to you, you are in the majority of small businesses. Cashflow is the biggest factor to cause small business to fail and without doubt the biggest stress factor.

· You are not the only one who has a payment arrangement with the ATO. I probably don’t really need to elaborate on that but I assure you that many businesses have ATO debts and payment arrangements.

· You do work harder than everyone else. As business owners we are always worried about our staff and their wellbeing. We make sure they take regular breaks and take days off when they are not feeling well. We make sure they schedule regular holidays and leave work on time. But what about you? I bet you are the first to start work, the last to leave, work even if you are sick, and don’t take as many holidays as you should. Did you work over Easter this year? Did you work over the Christmas break last year? Did you continue to work while you were on holidays? Do you check your emails and catch up on work over the weekend? Do you even get a weekend? Do you work late at night or early in the morning?

· You give away your time or skills for free because that is what people expect. How often do friends or family ask you to pop over for a beer so that you can fix their leaking tap, broken power point or whatever it is that you are skilled in. Although beer is nice, it does not pay the bills. We all do it, we all take advantage of other people to a certain extent, and we don’t mind a bit of it, but I am sure deep down it frustrates you. Your time is precious and you devoted a lot of time to master your skills. It is OK to be a little frustrated when people take advantage of you.

What I really want you to know is that you are not alone. There are many people out there feeling exactly the same way you do. Everyone copes differently. Some throw themselves even deeper into work, others drink too much to take away the pain. You are likely to snap when your work mask comes off and this can affect your family relationships.

I am not a counsellor and I certainly don’t have the answers. All I can do is let you know that I understand how it feels. I rarely talk about my own struggles as I really don’t think anyone cares to listen. If I do try to speak about how I am feeling with my family they try to tell me how to solve my problems, but that is not what I am after. Sometimes I just want someone to listen and care. Sometimes I just need to have a cry and get some reassurance that everything will be ok, that every problem can be solved. Right now I am feeling pretty good about things, but that may all change by the end of the week. My emotions are intrinsically linked to my business and I can’t tell you what will trigger the next downslide as small business is full of surprises.

If you are a business owner and feel this way please talk to someone. If someone is talking to you, please listen and offer your support. If you think you need professional help, don’t be afraid to ask for it. You are taking a brave step in the right direction and that will help everyone in the long run.

26 August 2021/by JigsawReview

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Car Allowances

With the Fringe Benefits Tax year ending on 31 March, it is a good opportunity to look at the difference between providing a fully paid car for your employees (subject to fringe benefits tax), or instead providing them with a car allowance. This article will help to explain the difference and hopefully assist with making this decision. If you are an employee who does get a car allowance, this will help you to understand how to get the best tax benefits from it.

What is a car allowance?

A car allowance is a payment to an employee of a set amount (usually as part of their pay) to assist with the running costs of a car. Typically, a car allowance is only provided when a car is a necessary part of being able to perform the job role. It is common for such jobs as sales representatives and real estate agents.

The payment of the car allowance is an expense to the business providing the allowance. It is an expense that is very similar to a wage payment. The responsibility for justifying the business usage of the car is transferred from the business to the employee. The employee is the owner of the car and responsible for all of the expenses relating to that car.

The employee receiving the car allowance will need to justify how this money was spent when they do their tax return.

What is a car fringe benefit?

If a business provides a car to an employee that is owned or leased by the business, a potential car fringe benefit exists. The justification for the business usage and any resulting fringe benefit tax falls to the employer. For more details on motor vehicle fringe benefits see an article I have previously written at the following link.

https://www.tradiewags.com.au/wagtips/2019/5/12/fringe-benefits-tax-part-2-the-motor-vehicle

If your car is provided by your employer or provided under a salary sacrifice arrangement you are not able to claim motor vehicle expenses in your individual tax return. The tax deduction has already been claimed and essentially you are double dipping.

Paying a car allowance and tax

Many employees wrongly assume that a car allowance is a tax free payment. This is not true. A car allowance is taxable income to the employee and will be included in their tax return. Like all allowances, it is a trigger for your tax preparer to discuss whether there is an offsetting deduction that could apply.

If you want your car allowance to be paid without tax being withheld you will need to apply to the ATO to vary your PAYG Withholding. The ATO will assess your application and advise your employer of a different withholding rate that may apply to your pay. For more information (or to apply for a PAYG Withholding Variation) please see the link below.

https://www.ato.gov.au/individuals/working/in-detail/payg-withholding/payg-withholding—varying-your-payg-withholding/

Note, the ATO states that an employer cannot vary the withholding rate until they receive an official variation notice from the ATO. Variation notices only last for one financial year. With the increased scrutiny on payroll by the ATO and your obligations as an employer to withhold money on staff wages, I strongly suggest you follow these rules and only change the tax withholding rate on advice from the ATO.

Maximising your car allowance deductions

If you are getting a car allowance it is essential that you keep a log book for your car. Without a valid log book you will only be able to use the Set Rate Method (cents per kilometre) to claim your car expenses. This is capped at 5000km. The rate in 2020/21 is 72 cents per kilometre, so the maximum claim is $3,600.

While this is a great claim for someone who does use their motor vehicle moderately for work, it is not a particularly good claim if you are receiving a $10K or $15K car allowance and using your car extensively for work.

If you do have a log book your claims can be as follows (taken straight from the ATO website):

Under the logbook method:

Your claim is based on the business-use percentage of the expenses for the car.
Expenses include running costs and decline in value but not capital costs, such as
- the purchase price of your car
- the principal on any money borrowed to buy it
- any improvement costs.
To work out your business-use percentage, you need a logbook and the odometer readings for the logbook period. The logbook period is a minimum continuous period of 12 weeks.
You can claim fuel and oil costs based on either your
- actual receipts
- estimate of the expenses based on odometer records that show readings from the start and the end of the period you had the car during the year.
You need written evidence for all other expenses for the car.

Creating a valid logbook

While there are physical ways of creating a proper log book (see the article below), the ATO are strongly encouraging taxpayers to use the myDeductions tool.

https://www.tradiewags.com.au/wagtips/2019/5/24/keeping-a-proper-log-book

The myDeductions tool can be found on the ATO App which is very handy to have on your phone. It is useful for any work related expenses, but also has the ability to record your work related travel. There are three ways it can do this; a point to point trip, a GPS trip or an odometer trip. The ATO will accept the information on this app as a valid log book.

Simple tips to get the best results from your car allowance

1. Keep a valid log book (this is essential)

2. If you have more than one car in the family, use a different car for your private family trips when possible. This will help you to maintain a higher business use percentage for your work vehicle

3. Set up a separate bank account that is only used for the allowance and car expenses. This helps to keep everything in the same place.

4. Don’t buy a car that is too expensive. The ATO have a cap on the car cost that can be depreciated and this is currently set at $59,136. While this does not prevent you from buying a very expensive car, you can only claim the depreciation up to this amount.

5. Keep all of your records for fuel, services, insurance and registrations.

Wrap up

If you are an employer and you are looking to pay your employee a car allowance, make sure they are aware of their obligations to keep good records. Only offer a car allowance to an employee who needs a car to perform their work, and make sure you are withholding the appropriate amount of tax from the payment.

Car allowances can work very well for those who understand them and keep their records.

26 July 2021/by JigsawReview

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Portable long service leave

Long Service Leave is an entitlement that is payable to most employees under State legislation. The rules around entitlement do vary from State to State, but in general the entitlement is available to long term employees who have typically worked for more than 5-10 years for the one employer.

For some industries that type of longevity with one employer is almost impossible. Their work is often project based and projects are not likely to run into a 10 year time frame. As such, each State and Territory has its own portable long service leave scheme which raises money through various levies and pays long service leave to those entitled based on their overall service in the industry (not necessarily to one employer).

This applies consistently for the Building and Construction industry and each State/Territory has an authority to administer a portal long service leave scheme. Some States and Territories also cover contract cleaning, security, community services and coal mining (note coal mining is administered by the Federal government). If you do operate in one of these industries you need to check with your relevant State authority to see what industries they cover.

While the concept is rather simple, the schemes are not as widely known as they should be. The responsibility to report employee service falls to the employer. If you are self employed (as in sole trader or partner in partnership), your tax agent will be able to report your service when your tax return is prepared. However, many “self-employed” tradies operate through a company or trust in which case they are employed and need to report their service as if it is an employer/employee relationship.

Tax agents can find it difficult to know who is registered for the scheme and who needs to have their service reported. If you are registered you should be getting regular correspondence from the scheme authority and this should be a trigger to report your service. If you need the help of your tax agent make sure you remind them.

If you are not registered for the scheme but believe you should be, use the links below to check out the scheme for your State/Territory. Your financial advisor should be able to help you with the registration if you are having difficulties.

In NSW, long service leave is available to building and construction workers once 10 years of service has been recorded. The long service is 8.67 weeks for 10 years of service and this is paid at the award rate for the type of work performed. If you are employed under a certified agreement the long service leave will be paid at the agreement rate. Like everything there are conditions so take the time to see how the scheme can work for you.

If you are entitled to be registered as a worker you can register yourself and let your employer know. If you have moved house it is important that you keep your contact details updated with the relevant authority.

This is real money that may be owed to you so look into it. If your long service leave is paid out by an authority it is taxable income, however tax will not have been withheld from the payment. You need to let your accountant know to include the payment in your tax return and it is strongly recommended you set some of the funds aside to pay the tax bill.

The various authorities for the Building & Construction industry are listed below. If you work in other industries such as cleaning, security or community service do some research to see if your State or Territory has a scheme that may be relevant to you.

ACT https://actleave.act.gov.au/

NSW https://www.longservice.nsw.gov.au/

VIC https://www.coinvest.com.au/

QLD https://www.qleave.qld.gov.au/

WA https://www.myleave.wa.gov.au/

SA https://www.portableleave.org.au/

TAS https://tasbuild.com.au/

NT http://www.ntbuild.com.au/

19 July 2021/by JigsawReview

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Why you MUST MUST MUST pay your super on time

Compulsory superannuation started in Australia in 1992 and almost 30 years later it is still an obligation that not all employers take seriously. It is often not until an employee starts to chase their employer for unpaid super that the issue is highlighted and I have seen many salary and wage earners turn a blind eye to their unpaid super, either due to fear of approaching their employer, or that they just can’t be bothered.

Finally, after almost 30 years the ATO are in a position to be proactive about unpaid super. From my observation, this is going to be a very big issue that small business (and accountants) will be dealing with. The ATO are not waiting for an employer to make a complaint before they take action. With Single Touch Payroll they are quickly aware of missed or late payments. It is time for employers to get serious about their superannuation obligations.

Compulsory superannuation must be paid into your staff members superannuation fund (that they have been allowed to choose) on a quarterly basis by the due date. If the payment has not been made by that date a Superannuation guarantee charge statement must be lodged with the ATO and the calculated Superannuation Guarantee charge must be paid to the ATO. Due dates are shown in the table below (taken from the ATO website).

But it is only a late payment???

If the superannuation is paid late, even by 1 day, the superannuation is no longer a tax deduction.

If the superannuation is paid late, even by 1 day, the superannuation guarantee charge statement must be lodged and the superannuation guarantee charge must be paid. This includes a penalty of $20 per employee and 10% nominal interest.

If the superannuation is paid late, the basis of the superannuation guarantee shortfall moves from Ordinary Times Earnings to Salary and Wages. This means that overtime is included in the calculation.

And it gets worse! As soon as the superannuation guarantee shortfall is unpaid by the due date the directors of a company become personally liable. The ATO can issue a range of penalties, including a Part 7 penalty, the maximum of which is 200% of the superannuation guarantee charge payable.

We have already seen the ATO approach some of our clients about superannuation that has been paid late without a Superannuation Guarantee Charge Statement being lodged. We then need to go back and prepare that statement and pay the nominal interest charge from the time between the oligation arising and the statement being processed (not the date the super was paid). This may mean 4 years of nominal interest at 10% on a payment that was a few days late.

This is going to become common practice. The ATO will work with employers to educate them about their obligations, but let me assure you that sticking your head in the sand and ignoring your super responsibilities is no longer an option.

What can I do to make sure I comply?

The ATO have released a short online course and I suggest that all business owners take an hour to complete this course. The link is below. The Commissioner of Taxation will be directing certain employers to undertake this course, but there is absolutely no reason you cannot do the course now and be proactive. I did it and I found there were some things I was not aware of either (and I work with this day in day out).

https://www.ato.gov.au/Business/Super-for-employers/In-detail/SG-Employer-obligations-course/?page=1#Start_the_course_now

Next, do an audit of your business’s superannuation. Is it being calculated correctly? Is it applying to all of your employees? Have you given all employees a choice of superannuation fund? Are there any contractors who you should also be paying superannuation for? It is surprising how often there are mistakes that have gone unnoticed.

Have you been late in paying your superannuation in the past? If so, it is a pretty big chance you did not lodge a Superannuation Guarantee Charge Statement and you probably should talk to your accountant about fixing this up now before the ATO chase you.

Make a BIG note in your diary to update your payroll system on 1 July 2021. Superannuation goes up to 10% from that date.

Make sure you are paying your super on time. Many payroll systems now have the ability for you to push the payments through as often as you like. We are recommending that super payments be made at the same time as payroll so you are always up to date (and it helps with your cashflow as well).

While I may sound like a broken record always stressing the importance of paying superannuation on time, I am only doing this for you own good. I have seen the devasting results of superannuation audits. Understanding your obligations and getting it right the first time will save you a mountain of stress and money.

Jigsaw Tax can help you to understand your obligations and fix up any issues. If you would like our assistance please contact Emily Roper at emily@jigsawtax.com.au. We will assess the situation and advise our costs to assist you.

13 July 2021/by JigsawReview

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More than crunching numbers

As tax time is upon us again. The cycle of what we do is all too familiar after years of experience. While we look at 30 June as the date everything hinges on, our work really does span a full year.

Lodgement dates are peppered throughout the year. We don’t just lodge income tax returns, we also lodge Business Activity Statements and other compliance obligations such as Fringe Benefit Tax Returns. Our last lodgement date in the financial year is 5 June for certain individuals and trusts. This left us with 25 days when all of our lodgements should be complete and we can kick up our feet and relax.

If only! There are always a few clients who are a little behind with their obligations and there is a whole lot of tax planning to be done. In fact, May and June are two of the busiest months for me as my clients prepare for the new tax year. Once 1 July hits it is too late for tax planning.

It was not always this way. In the past I could reliably book a holiday for June knowing the workload was substantially lower and I could rest up before the next wave of work started. The difference between now and then is that my role as a tax accountant has changed. I am now more of an advisor to my clients and my advice goes beyond how much tax they need to pay. My role is to guide my clients so that they can run successful businesses. Our conversations tap into ideas about cashflow, growth, asset protection, succession planning, staffing, business planning… the list goes on.

With over 30 tax planning meetings I had planned through May and June, it was rather exhausting. Each meeting requires both the client and myself to do preparation work. There are always burning questions that I need to answer, financials to update and things to check, but it is during the meeting that I feel energised and inspired. I love meeting with my clients. I love providing them with answers and direction. I enjoy understanding what is motiving them and providing advice that can drive the business forward.

Following the meeting I write up my notes and list the actions that need to be addressed. Most of those action points have little to do with tax. We are helping to educate our clients, put their mind at ease, and drive their business forward. It feels wonderful to be more than the person who prepares the tax return.

The new financial year will see me doing more of this type of work. I already enjoy creating content with this blog and my podcast Money Honey, but the new financial year will see me moving away from the day to day number crunching spending more time in the advisory role. More of my time will be devoted to working with clients to achieve their business goals.

Over the past financial year we have been developing our team who are all very skilled. We have worked with our clients to make their accounting more automated and ensure they are compliant in areas such a Single Touch Payroll and superannuation. On top of all of this we have been managing Jobkeeper and other stimulus programs. The work we have put in allows me to take a step back from the daily processing work . I will still be very much involved with this from a supervisory level, but I probably won’t be the one who puts the numbers in the boxes. I am very excited to see what the new financial year brings.

We will be running two tailored workshops for our clients – business planning and cashflow management. Each requires a commitment of at least half a day. It is a great chance to get out of the office and work on your business with the assistance of myself. There will be an additional fee for this work, but if you are looking for something more for your business, including 4 hours of one-on-one attention with your accountant, this is for you.

Having a good business advisor goes way beyond how much tax you need to pay. I am great at crunching numbers but I believe I can offer so much more. I can combine my knowledge of tax with real world business experience, putting the puzzle pieces together. It is going to be both fun and useful. Bring on the new year because I am ready.

If you are interested in one of these workshops please get in contact with Emily Roper our Business Development Manager. Emily’s email is emily@jigsawtax.com.au and she will be happy to provide you with a quote.

9 July 2021/by JigsawReview

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July 2021 NSW Small Business Grant information

Small Business COVID-19 Support Grant

The NSW Government has announced a major new grants package to help tens of thousands of Small Businesses, Sole traders, Not-for-profits, Tourism, hospitality and Regional NSW businesses across NSW impacted by the current COVID-19 restrictions. The package includes grants of between $5000 and $10,000.

What can the grants be used for:
Grant funds can be used for business expenses for which no other government support is available, for example:

• meeting business costs, including utilities, wages and rent
• financial, legal or other advice to support business continuity planning
• marketing and communications activities to develop the business
• the cost of perishable goods that can no longer be used
• other activities to support the operation of the business.

Eligible businesses receiving either the Small Business Grant or the Hospitality and Tourism Grant can receive:
• $10,000 for a decline in turnover of 70%, or more
• $7000 for a decline in turnover of 50%, or more
• $5000 for a decline in turnover of 30%, or more

To apply, businesses will need to compare their turnover over a minimum two-week period after lockdown commenced, to a minimum two-week period in June and/or July 2019.

Businesses that were not operating in June/July 2019 may still be able to apply for the grants. These businesses should contact Service NSW to discuss their application.

Eligibility criteria.
The grants will be divided into two streams:

Small business
• have fewer than 20 FTE (including non-employing businesses)
• have an Australian Business Number (ABN) registered in NSW or can demonstrate they are physically located and primarily operating in NSW. Only one grant is available for a single ABN

• have total Australian annual wages below the NSW Government 2020-2021 payroll tax threshold of $1,200,000 as at 1 July 2020
• have an annual turnover of more than $75,000 as at 1 June 2021
• have not applied for, or received, the Hospitality and Tourism COVID-19 Support Grant
• have business costs for which there is no other government support available
(Full criteria will be available in coming days on the Service NSW website).

Tourism and hospitality businesses will be eligible for a Hospitality and Tourism COVID-19 Support Grant if they:
• have an ANZSIC code that is classified as a tourism or hospitality business
• have an Australian Business Number (ABN) registered in NSW or can demonstrate they are physically located and primarily operating in NSW. Only one grant is available for a single ABN
• have total annual Australian wages below $10 million as at 1 July 2020
• have an annual turnover of more than $75,000 as at 1 June 2021
• have not applied for, or received, a 2021 Small Business COVID-19 Support Grant
• have business costs for which there is no other government support available
(Full criteria will be available in coming days on the Service NSW website).

Sole traders and not-for-profits can apply if they have turnover over $75K and meet all other eligibility criteria.

Regional businesses can apply if they have been impacted by the public health restrictions, given school holidays are an important trading period for businesses across NSW.

More information on the small business support grants package will be available shortly on the Service NSW website.
Applications for grants must be made through Service NSW, with the application process due to go live later in July 2021.

If you would like to read more on this topic, here are some links to the above information.

https://www.nsw.gov.au/covid-19/businesses-and-employment/grants-and-loans/2021-covid-19-support-package

https://www.nsw.gov.au/media-releases/major-new-covid-19-support-package-to-help-tens-of-thousands-of-businesses-across

https://www.service.nsw.gov.au/transaction/apply-covid-19-business-support-grant

6 July 2021/by JigsawReview

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Year end tax planning – Individuals

My previous article was about tax planning for business. Business is unpredictable and requires planning towards the end of the financial year. For most individual taxpayers, the tax situation is relatively stable from year to year. While there are a few tips to help you get the best return, it is best to be planning for your tax all the time, not just at the end of the year.

The reason I say this is that tax deductions need evidence. Evidence may be in the form of a receipt, a diary entry or a log book. Tax deductions are usually spread throughout the year, not saved until the last few weeks in June despite what the retail advertisers are claim with their End of Financial Year Sales.

Here are my top tips for individuals tax payers, whether it is the end of financial year or not. I will not be discussing rental properties as a tax deduction in this article. This is really based on a simple tax return.

1. Keep your receipts

I can’t tell you how many times I have prepared a tax return and the taxpayer tells me they bought heaps of things for work but didn’t keep the receipts. The ATO are very clear on this – no evidence, no deduction. I strongly urge you to download the ATO app on your phone so you can take photos of your work-related receipts to keep track of them.

If you want to claim motor vehicle expenses make sure you are recording your work related trips, or better still, keep a log book.

2. Understand what you can claim

I hate quoting tax legislation but the laws that allows you to claim tax deductions is simple.

8-1(1)
You can deduct from your assessable income any loss or outgoing to the extent that:

(a) it is incurred in gaining or producing your assessable income; or

(b) it is necessarily incurred in carrying on a * business for the purpose of gaining or producing your assessable income.

Section 8-1, Income Tax Assessment Act 1997.

It then goes on to say that you cannot claim an outgoing to the extent that is of a private or domestic nature.

Basically, the deduction must have some connection with the income you are earning. If it is partly private it should be proportioned as such, or is not claimable at all. The ATO give very good guidance on most types of deductions. I suggest you look at the Occupation and Industry Specific Guides for your profession at the link below.

https://www.ato.gov.au/Individuals/Income-and-deductions/Occupation-and-industry-specific-guides/

While you may be able to loosely connect an expense to your income, remember that the ATO are not stupid. Is it really worth claiming something you are not entitled to claim and risk getting caught?

3. Understand when items need to be depreciated

There has been a lot of talk lately about the full expensing of capital assets, but this is only available to business owners. As a wage or salary earner, or if you are purchasing assets for your rental property, the rules are quite different. You can only write off an asset in full if it costs less than $300.

This means that going out and buying an expensive asset on 30 June will not give you the great tax deduction you are expecting. Your claim will be made over a number of years depending on the effective life of the asset you have purchased.

4. Spend some money

Now that you know what is deductible, it may be worth bringing forward some minor expenditure to claim the tax deduction this year.

5. Be generous

There are a number of charities out there who would love you to give them a donation. If you are making a donation make sure you get a receipt, and make sure they have DGR (deductible gift recipient) status. Without this, you cannot claim the deduction. You also cannot claim a donation if you get something for it, such as a raffle ticket, a badge or a teddy bear.

6. Make a personal contribution to superannuation

There is a threshold on the concessional contributions you are making into super each year. Concessional contributions means that someone is claiming a tax deduction for them (or could be if they were paid on time). Most of the time the tax deduction is being claimed by your employer as part of your Superannuation Guarantee. However you can personally top up your superannuation to the threshold ($25,000 in the 2020-21 year).

Additional personal concessional contributions are tax deductible and one of the most effective ways to save tax at the moment. Check with your employer or on your My.Gov account to see how much super has been paid this year. You may also be able to access some carried forward unused caps from the previous 3 year. To find out more read the link below to the ATO information about this.

https://www.ato.gov.au/individuals/super/in-detail/growing-your-super/super-contributions—too-much-can-mean-extra-tax/?page=6

7. Working from home

Many of us have spent part of the year working from home due to COVID-19. If you want to claim home office expenses you have a few options. The options really depend on whether you have a dedicated home office room in your house.

If you do, you can claim usage of that room at 52 cents per hour. You can also claim for office expenses such as part of your internet, printing and stationery and the depreciation of your office equipment and furniture.

If you don’t have a dedicated space (perhaps you are sitting at your kitchen table to work) you can use the rate of 80 cents per hour. That covers everything – internet, printing and stationery and depreciation.

Make sure you have some record to show how you calculated the hours you worked from home to support your claim.

The ATO will expect to see a change in the deductions claimed for those who have been working differently due to COVID-19. If you have been working from home you probably travelled less and you may need to have a new log book. Think about how COVID-19 may have changed what you can claim this year.

8. Prepay expenses

An individual can claim a deduction for expenses it prepays so long as that expense will be used in the next 12 months. There may be some upcoming expenses that you can pay prior to 30 June to get a tax deduction this year.

My final tip is to not try to lodge your return too early. The ATO have an incredible amount of data being fed into their systems so your return can be accurately prefilled with information on wages, interest and dividend income, private health insurance and a host of other items. This information is not there on 1 July. The ATO suggest you hold off lodging until the end of July to make sure the prefill information is accurate.

Once again we anticipate increased audit activity from the ATO. Stick within the rules and make sure you have evidence about any claims you are making.

Happy Tax Time.

5 July 2021/by JigsawReview

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Year end tax planning – Business

It is that time of year when business clients require tax planning. Tax planning prior to April can be rather useless for businesses as most have a level of unpredictability about their performance. By the end of March we have a reasonable idea of how the business has travelled and can make some predictions on how much tax could be payable and if there is anything we can suggest to minimise this. May and June have been jam packed with tax planning meetings with my clients. I thought I would share my approach to tax planning which may help as the financial year draws to a close.

Make sure the accounts are up to date and correct

It may sound obvious but without updated financial accounts it is impossible to do any tax planning. My first step is to not only check that the accounts have been updated, but to do some mini reconciliations of the accounts to ensure that they are reasonably correct. Below is a list of the things I find most likely to be misrepresented in the accounts, particularly in the Profit & Loss Statement (P&L) which we use to calculate your tax.

· Wages and Salaries – your wages & salaries should agree to your payroll reports. When you run payroll a journal is automatically created recognising your payroll expenses (wages and superannuation) and your liability to pay these wages (either under a Wages Payable, Payroll Clearing or Superannuation Clearing account). When the wages are actually paid from the bank account they should be recorded against the liability account.

We often see clients record the actual payment of the wages to the wages expense account. This is double counting of the wages in your profit & loss and will significantly alter the end profit result. In addition some clients record their drawings as wages, again over stating the expenses.

Check that your wages do agree to your payroll report and if there are some additional transactions in their move them to the correct account.

· Superannuation – In the same way that wages can be recorded as an extra expense when paid, superannuation is often double expensed. Make the same check as you would for wages to ensure the superannuation expense agrees with the payroll reports.

In addition, check to see if any of the superannuation you paid is not tax deductible. If you are unsure about the late payment of super read my article here. If you have paid late superannuation, unless it was declared AND paid during the superannuation amnesty, your superannuation will not be tax deductible.

· Income tax payments – while income tax payments are an expense, they are recorded from after tax profits. Your profit is calculated, the tax is calculated and what is left is your after tax profit. I often see the P&L being run to include income tax payments which gives a false sense of the business profit position. Exclude those income tax payments from your calculation, or better still record them to an Income Tax Payable account on your balance sheet.

· Dividends and Drawings – Like income tax, a dividend is an after-tax item. You do not get a tax deduction for paying a dividend. Drawings can also be lumped in as an expense to the business but really should be shown on the balance sheet rather than in the P&L.

· Loan Repayments – Loan repayments are not tax deductible, they reduce a liability. The interest on these loans is likely to be tax deductible. Make sure loan repayments, including those for Equipment Loans or Chattel Mortgages for motor vehicles, are not included in your P&L.

· Coding of Stimulus money – The two main forms of stimulus money last year are Jobkeeper (which is taxable income) and Cashflow Boost (which is not taxable income). Both of these items should be shown as income in your P&L. Many clients have confused these payments or not recorded them correctly. You may need some help from your accountant or bookkeeper if you are not sure.

Jobkeeper in particular can be a reasonable amount of money and should properly be factored into your tax estimates.

Temporary Full Expensing of Assets

Most clients are very aware of the fact that assets can be written off in full this financial year, but I urge you to check your tax return for the prior year as many businesses had already written off their assets in 2020.

Part of the COVID-19 Stimulus Measures were to increase the Instant Asset Write Off to $150,000. While there have been various changes to the levels of Instant Asset Write Off and the eligibility to access these write offs, if you are a small business you will have had the $150,000 write off available to your business at 30 June 2020.

If you have elected to use the small business depreciation rules you could write off the balance of your Small Business General Asset Pool as at 30 June 2020 if the balance was less than $150,000. Many businesses were eligible for this last year and wrote off their assets in full. If that applied to you, unless you have purchased new assets this year, you will not have any depreciation.

If you pool was not written off in full last year, it will be this year. In fact, the ATO rules do not give us an option. We must write off the pool balance this year. For some businesses this will be a significant amount of depreciation.

Understanding how much depreciation will be applicable to you this year will be fundamental to your tax planning. If you are not sure, ask your accountant.

Paying tax on a Cash or and Accrual Basis

This is another instance where you may need to ask your accountant. This is also NOT necessarily linked to the way you prepare your Business Activity Statement.

As a small business you can elect to pay your tax on a Cash or an Accrual basis. If you pay tax on a Cash basis you only pay tax on the money you have received, and claim deductions on the money you have paid during the year. If you pay tax on an Accruals basis you include the invoices raised for the year (even if they have not been paid) and any Accounts Payable that have not been paid.

If you are using Xero or QBO you can run your P&L reports on a Cash or an Accruals basis so check with your accountant to make sure you are looking at the correct report. The results can be quite different particularly if you have large swings in your Accounts Receivable balances.

So what is your position?

Now that you have an idea of your Profit and Loss figure, including depreciation, you need to look at any items that are not taxable or tax deductible.

The main non-taxable item is the Cashflow Boost. While there may be some other small business grants that are non-taxable, assume they are. Most will be taxable income.

The main non- deductible items are fines, entertainment and superannuation that has not been paid or not paid on time.

Where there any carried forward tax losses from last year? Check your tax return to find out. If you do have carried forward tax losses, add them into your calculations.

What is the result? Is there a profit that will need to be taxed, or a loss?

If there is a loss

Depending on your structure you may be able to get some benefit out of a tax loss. If you trade out of a company (and this is only relevant for companies) you may be able to access the new Tax Loss Carry Back provisions giving you a refundable tax offset for taxes paid in 2018-19 or 2019-20. There are a number of conditions to this but the ATO is expecting this to work in conjunction with the Temporary Full Expensing of assets to help cashflow for small businesses. Your accountant should be able to help you access this rebate at tax time if it is applicable.

If you are trading out of a different structure you probably don’t need to do too much more.

If there is a profit

Let’s face it, we are in business to make money and making money means that we pay tax. Making a profit is an awesome thing, however you may want to consider ways to minimise the amount of tax you need to pay this year.

Things to consider:

· Is there anything you need to purchase prior to the end of the year? If you have been considering getting that new laptop and have the cashflow to do it, maybe it is time to make that purchase. We see a lot of money changing hands between businesses at this time of year so that tax deductions are maximised.

· If you have invoices to raise that can be delayed until 1 July, consider delaying them. Particularly if you pay tax on an accruals basis (although you might find the invoice is paid quickly if someone else is trying to get a tax deduction for it).

· Look at prepaying some expenses. The small business prepayment rules apply if your turnover is less than $10 million. This means that you can prepay expenses that will be used in the next 12 months and claim the deduction now. Examples could include rent or interest payments.

· Consider making additional superannuation contributions for the business owners. There are limits on how much you can contribute to superannuation and specific ways to do this, but seek advice if you are considering this. You need to make sure any contributions have been received prior to 30 June to be deductible.

If you have a Discretionary Trust

If you use a Discretionary Trust for your business you need to make the decision around how income is to be distributed prior to 30 June. Even if the trust appears to be in a loss position you should be making that decision now. You may need some help from your accountant to make this decision, and record it so there is no doubt that the decision was made in this financial year.

One final word on Division 7A

If you have been drawing money out of the business other than as wages, see if you need to repay any of this (or can repay any of this). If you don’t cover your drawings, your accountant will need to look at how to cover these which will impact the way your taxes are prepared.

If you have existing Division 7A loans make sure the minimum payments have been made. Again this is something you may need to discuss with your accountant.

You should seek advice

This is quite complicated stuff and any tax planning really should be done with the assistance of a professional but hopefully this gives you an idea of some of the steps I run through for tax planning. Remember, every business is unique. There is no one size fits all and the structure of your business, the nature of the business you are operating and the circumstances of the individuals involved will all play a part.

5 July 2021/by JigsawReview

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Why paying tax can be a good thing?

Its June, and everyone is madly thinking how to reduce their tax bill. Media publications, accounting bodies, finance gurus are all posting on legal ways to reduce tax. Apart from a few options, most involve spending more money. But is reducing tax, at the expense of everything else, really the right approach to financial security?

EOFY Spending Craze
In the last month of the financial year, everyone seems to be having EOFY sales. Harvey Norman is discounting PCs, Milwaukee is offering cash backs for their tools, and fashion labels seem to be clearing out stock. The only difference this year is that with ongoing COVID supply chain issues and the world wide resource crunch, car dealers don’t have any stock to discount.
Are all these sales because these companies feel like being generous? No – its because they need a sales bump to report to their shareholders. Make no mistake – they’ll be paying tax on those extra sales, but to those companies, higher sales = happier shareholders, happier banks and happier staff. Tax is merely an expense that needs to be accounted for as part of their profit.

We too might be tempted to go out and grab a bargain – but is that what our business needs? Only recently, did someone ask me whether they should go out and buy a truck for $110k to reduce their tax. I asked them “do you need it”… which was answered with “no, but I don’t want to pay tax”. As business owners, we’ve been taught that tax under all circumstances is bad, rather than understanding that tax is a by-product of making a profit. In this case, the clients didn’t realise the most they will get back is $37,500 – and that the business is still out of pocket $72,500 for an asset they didn’t really need.

The changing roles of accountants
2 years ago, the main topics we discussed at EOFY meetings is how to lower the end of financial year tax. 1 year ago, that topic was how much more JobKeeper or Cashflow Boost can I get and whether my business will survive the COVID pandemic. This year, more and more, I see the words “wealth”, “retirement”, “security” in my EOFY meeting notes.

No longer are accountants judged on whether they can minimise tax the best or keep the ATO at bay. No longer do clients find visiting their accountants an annual chore. We’re now being asked to help with personal budgets, set goals for the future, discuss cashflow, design buffer budgets and in a few recent cases plan cash flows for business owners expecting time off for maternity leave (and how best to manage their interaction with Centrelink and smooth out their taxable income).

Legally minimize taxes
There is nothing wrong or illegal with managing or legally minimizing tax. This could be through using the right structure to income split and lower overall tax, using a corporate entity which holds profits and is taxed at a lower rate, contributing to super (moving from one bucket to another).

Other strategies include prepaying expenses to obtain tax relief in this current financial year (small business corporate tax rate reducing on 1 July), restructuring into a different entity, paying out bonuses early or bringing forward any NEEDED asset purchases.

Having the right entity can make a huge difference when it comes to sell or retire from your business – the goals should be laid out and updated regularly.

Focus on the average tax rate, not the amount
One thing I’ve been working with clients this year, especially those who have had a bumper year and are receiving tax bills higher than ever before, is to focus on the average tax rate. Vary rarely do we see clients go over the 30% average tax rate across their personal/business/super income. Those clients are managed very carefully.
Now consider these examples… which one would you rather be:

a) Earning $200,000 and paying tax at 20% = $40,000; or
b) Earning $1,000,000 and paying tax at 30% = $300,000.
Personally, I would love to be in a position to pay $300,000 tax as I would have $700,000 in my bank.

Reinvest in yourself
Take the previous example of the business owner consider that truck purchase. Rather than buying the truck that didn’t need to be bought, I proposed that we pay the tax and the remaining $72,500 can be reinvested into themselves/business:
– a new employee to take some the stress of running the business and focus on growing the business or go on holidays
– a new fit out to improve staff productivity
– hold onto it and start looking at buying a commercial property rather than renting
– look at purchasing an investment property and generate passive income for retirement
Successful businesses all pay tax. If they didn’t, what is the point?

Higher income = higher taxes = higher borrowing power
Own a small business and want to buy a house – good luck! Since COVID, the hurdles for business owners wishing to borrow have been raised to high jump levels. Banks are now tending to focus solely on taxable income (with adjustments for depreciation etc.) rather than strict financial statement income and are applying far greater scrutiny to all financial information. The banks’ reliance on taxable income is because business owners can shift accounting income, but tend not to push the ATO too much, which requires a level playing field. Cashflow Boost is an example between accounting income and ATO taxable income – many businesses received up to $100,000 profit boost just from the CashFlow Boost, but for income tax purposes and bank serviceability, this was not counted as income.

COVID has delayed purchasing the new family home or investment property, and now we have families needing to move just as prices are increasing. Selling high, buying hopefully not too much higher is now a reality for most upsizers. Take the previous example of delaying the truck purchase of $110,000. The payment of $37,500 of tax, gave a 3x multiplier in borrowing capacity of the foregone expenditure – adding an extra $300,000 in borrowing capacity and being able to purchase a larger home while locking in record low interest rates: ATO happy; Family happy; Bank happy.

Social contract
Previously the idea of a great accountant has been one that will make sure you pay as little tax as possible. Now, the accountant is responsible in assisting business owners meet their social contract – providing employment, being a good corporate citizen and paying suppliers, complying with the law in respect to health and safety, taxes etc. – and being rewarded with not only thankless long hours and risking everything… but a few tax concessions (exempt fringe benefits, income splitting). More and more, the role of the accountant is to work with clients not just towards 30 June, but discussing their family, retirement, and lifestyle goals.
It would not be a complete article if I didn’t mention why we pay taxes. Australia, on the whole is a great place to live. While we all whine at the Sunday BBQ of paying too much in tax, we forget how lucky we are to have a (at most times) functioning Government, health system, education system, and that our wealth is protected (protected by law, the police, the courts and even from rampant inflation).

So the next time you’re concerned about paying too much tax, look at your average tax (not the dollars), look at whether the expenditure is actually needed, and whether you can leverage the profit to build wealth outside of the business.

Michael Konarzewski is a partner of Jigsaw Tax and Advisory.

10 June 2021/by JigsawReview

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Why have I just received a Fringe Benefits Tax return to sign?

Over the last few weeks, we have been sending out FBT returns for signing. In nearly all cases, there is no amount payable. So what’s the point?

FBT was brought in as an additional tax regime in 1986. The purpose was to provide a taxing point for ‘non-cash’ benefits outside an employee’s normal salary. The objective was to return these non-cash benefits to a pre-tax point, and using the top marginal rate as the base tax rate. Non-cash benefits are quite wide ranging and can include:
– a company car being provided to an employee or an associate (child, spouse, parent etc.)
– a low finance loan
– food and entertainment (onsite or externally)
– carparking spot (which would otherwise be paid from post-tax income)
– paying rent or someone’s mortgage (sometimes allowed for not-for-profits)
– many other defined fringe benefits
– residual benefit is a catch-all clause that if something isn’t provided as cash, it can still be a fringe benefit.

The most common fringe benefits provided in a small business are motor vehicle and exempt motor vehicle benefits.

The FBT year ends 31 March 2021 (to make our lives easier?!), hence we are preparing your FBT returns now for 30 June 2021 tax returns.

Motor Vehicles

Unlike individual/sole trader/partnerships, which rely on the logbook method or cents per KM, in a company or trust (where the owners are usually deemed employees), expenses related to a vehicle owned by the company/trust are claimed 100%, even if its your 4WD you only go camping in or to the shops (i.e. 100% personal use).

But rather than having to pay tax of around 47% (top marginal rate inc. medicare), the Government provides some concessions for low business use motor vehicles, where the annual fringe benefit is calculated at 20% of the car value when purchased (high business use can still use logbooks under the operational cost calculation)

Say you buy a Mazda3 for $30,000, the ATO will deem that the value of the fringe benefit, regardless of how many business or personal kms travel, is $30,000 x 20% = $6000. The physical payment required to the ATO would be $6000 x 2.0802 x 47% = $5,866.16 in fringe benefits tax.

So why don’t you need to pay?

Once the fringe benefit component is calculated on your car, there are two options:
– pay the amount, or
– report the fringe benefit as an income contribution from the owner/employee on the business tax return – i.e. the fringe benefit has been “zeroed” out and no FBT is payable

We prefer the latter, as it allows applying losses/deductions/franking credits against the liability, rather than making a direct payment to the ATO.

Exempt Vehicles

FBT does not apply to exempt vehicles (utes, vans, trucks etc.) but it is still important to disclose to the ATO that you have considered any potential or minor private use, and advise how many exempt vehicles are in your business.

Controlling an ATO Audit

As many of our client know, our Canberra partner, Michael Konarzewski was an ATO auditor and spent some time auditing FBT. One lesson he has implemented is that without an FBT return lodged in good faith (i.e. no material misstatement), the ATO’s audit powers are essentially unlimited. By lodging a NIL payable return, with the correct amount of motor vehicles and exempt vehicles in the return, the ATO’s period of review is curtailed to only 2 years from the date of lodgement.

Michael’s strong recommendation is that even if the FBT contribution is disclosed on the income tax return separately, that an FBT return be lodged. A common flag for the ATO is reviewing the motor vehicle deduction label and the FBT Employee Contribution labels or FBT return.

Michael has been involved in cases where there has been a review of motor vehicle expenses and the private usage component by the ATO. In one case, as no FBT return was lodged, the ATO imposed 6 years of FBT, as the logbooks were not correctly prepared and the taxpayer couldn’t rely on the operational cost method. Had the taxpayers lodged FBT returns, prepared in good faith on the incorrectly prepared logbooks, the ATO’s period of review/amendments would be limited to 2 years.

An FBT return is cheap insurance, especially with the ever-shifting rules for exempt vehicles on allowable personal kilometers and exempt trips.

31 May 2021/by JigsawReview

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