Today was the first day for eligible employers to begin enrolling into the Jobkeeper Scheme. To do so, an employer has already had to:

  • Determine that they are eligible under the GST Turnover reduction test. Interpret various pieces of legislation and guides to ensure correct calculation or forecasting
  • Identified, contacted, and obtained copies of the Jobkeeper Nomination forms for all eligible employees (regardless of whether they are or are not participating)
  • Have paid, or will pay in the next 10 days, a minimum of $3000 per eligible employee

But have employers participating in the scheme considered the true cost of enrolling in the Jobkeeper Scheme. Here are some examples of hidden costs:

  • Administration costs. While many businesses are self managing, most are leaving it to the professionals or their payroll departments. There are costs associated with preparing the required (and often onerous) documentation for supporting eligibility and enrolment. On going reporting and reviewing ongoing eligibility for each employee will be required for each Jobkeeper payment.
  • Interest costs. Many small business owners are drawing down on mortgages, borrowing from family members, or even withdrawing from super due to the Government requiring small businesses to ‘bank roll’ the Government for $3000 per eligible employee. Under the one-in/all-in rule, if you can’t make a payment for all your employees, then none are eligible.
  • Payroll processing costs. Changes to payroll categories, and training payroll processors in applying the various STP reporting categories is a cost each business will need to consider.
  • Leave entitlements and service periods. The complex interaction between leave provisions and Jobkeeper is hard enough to follow, but certain arrangements will lead annual and sick leave accruals. Even for employees who had been stood down but receiving Jobkeeper, the next 6 months will count as employment service, with the potential that redundancies may become more expensive 6 months later.
  • Workers Compensation. NSW iCare has advised that Jobkeeper payments will be included as assessable wages for workers compensation, even those that have been stood down but still receiving Jobkeeper. A café with a policy percentage of 1.7% will now incur an additional $334 per stood down employee – strange considering workers compensation doesn’t cover personal injuries while stood down.
  • Record keeping. Employers will need to keep very detailed records of historical data and minutes of decisions/discussions for a minimum 5 years. We are focusing our client’s attention in making sure documentation is prepared now, and not scrambling during a review/audit.

The question is – would it not have been easier to simply pay all these $750/w payments via Centrelink (for both Jobkeeper and Jobseeker) and employers simply top up payments as required if the staff member works? Surely there are easier ways to support the economy, than forcing small business owners to jump through hoops, beg banks to take on even more debt, and becoming tax, HR, and finance law experts overnight.

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.  Will you be working 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 counselor 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 down slide 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.

When my son Joel recommended a movie called the Laundromat over the holidays, I didn’t immediately find it on Netflix and watch it.  I couldn’t quite see why a movie about a Laundry would be of interest to me.   I do not profess to being a keen housewife, and I certainly don’t iron undies!  When he followed up to see how I liked the movie and told me it was about the Panama Papers, he caught my attention.  Like the true nerd I am I had to watch this movie.

Now this movie is not for everyone. I know you may be thinking, what the hell are the Panama Papers, but for tax nerds like me, this is our type of story about scandal & corruption.  The Panama Papers were documents leaked to the press and releases to the world in April 2016.  Effectively someone at the law firm Mossack Fonseca in Panama leaked 11.5 million documents containing all the juicy details of its client’s offshore dealings to hide money and avoid taxes.  The fact that many of the names leaked were recognisable, including criminals and politicians such as Putin, added extra substance to the story that followed.

Watching this movie made me think about tax avoidance and tax evasion.  I had just been listening to a podcast on a similar subject and the same quote came up in both.  It was that of the former UK Chancellor of the Exchequer (such a fancy title) Denis Healey.  “The difference between tax avoidance and tax evasion is the thickness of a prison wall”.  Tax evasion is a crime were as tax avoidance involves using legal means to avoid paying taxes.

Although the definitions about tax avoidance talk about tax shelters and multinational companies, I believe tax avoidance is what many Australians do, avoid paying taxes?  Much of my job is around finding the legal means for my clients to pay the least tax possible.  Anyone who is negative gearing a rental property is avoiding pay tax.  Few Australians who grapple with the morality of this type of tax avoidance.

Avoiding tax has been around as long as tax has existed.  It is in our human nature to find a way to minimise the amount of tax we need to pay.  In 1696 a tax on windows was introduced in England and Wales because the bigger the house you had, the wealthier you must be.  A count of the windows was a simple solution to measure the occupant’s wealth.  Tax avoidance saw property owners blocking up windows or having one window that spanned two rooms to reduce the tax payable.  Interestingly enough, this is where the term “daylight robbery” originated.  Tax avoidance is not new, it has just become more complicated.

I am guessing you don’t have a copy of the Australian Tax Act in your bookshelf, but it is a massive piece of legislation.  In fact, there are a number of pieces of legislation that make up our tax laws, including two parts to the main legislation enacted in 1936 and 1997.  The tax legislation is an evolving beast with much of the legislation devoted to closing up the loopholes clever accountants and lawyers find to help avoid paying taxes.

So if tax avoidance is not illegal, why doesn’t everyone take advantage of tax shelters, and what is a tax shelter anyway?

Keeping it simple, to create a tax shelter a company sets up its business in a country that has a better tax rate than its own.  Australia’s company tax rate ranges between 27.5-30%.  The company tax rate in the US was 35% until Trump cut it back to 21% in 2017.  Ireland has a company tax rate of 12.5% but extra advantages reducing the rate to 6.25% for revenue tied to patents or intellectual property.  You can see why tech companies like Apple have strong interests in Ireland.  The subsidiary in the tax shelter country charges higher prices to the company operating in the home country, moving the profits to that lower tax country.  In Australia we have rules about “transfer pricing” (that is what it is called), to ensure that profits made in Australia are taxed in Australia, but it is a challenge for our authorities to monitor.  Although it seems contradictory, charging a lower company tax rate can be very good for a country as it encourages businesses to move to that country to operate.  The tax is picked up by providing jobs to people in that country who pay tax.  Apple do have employees in Ireland but without doubt it was a strategic decision to operate out of Ireland to save tax, not just because they love the rolling green hills and the Irish pubs.

Not everyone has the ability to just set up an operation in a tax haven.  Instead, they set up a shelf company in a tax haven and channel their investments through this.  A country like Panama offers no taxes for foreign companies, and it has privacy agreements that prevent it from sharing information with other tax jurisdictions.  It is the perfect place for money to be hidden from the tax authorities.  It is also the perfect place for criminals to hide their money.  The lines between tax avoidance and tax evasion start to blur.

The reason we don’t all set up tax shelters is that it is extremely expensive and few of us make enough money to see any benefit.  We have other ways of avoiding tax (legally) in Australia such as negative gearing.  Also, for many of us we feel we have certain moral obligations to contribute taxes to our country.  Without taxes, the country would not operate.  Although we hear stories of our taxes being wasted on things we feel are not useful, the vast majority of our taxes are critical to maintaining infrastructure such as schools, hospitals, roads and defence.

Next time you are coming up with a scheme to reduce the amount of tax you pay, think about it and work out whether it is tax avoidance of tax evasion.  Just a little hint, taking cash money and not declaring it is tax evasion.  It is illegal, and the days of hiding that money from the authorities are drawing to a close.  There are many examples of small scale tax evasion that we see every day, much of it that would not be detected by the authorities.  Technology and tax legislation will continue to evolve to stamp out both avoidance and evasion, putting all tax payers on a level playing field eventually.

If you are interested in the Panama Papers or tax in general, I suggest you nerd out for a few hours and watch The Laundromat simply to understand what it is all about.  Another similar recommendation is The Big Short which is about the US loan market practices that lead to the Global Financial Crisis.  Both movies take something really complex and break it down to something a little easier to understand.  I know it is not everyone cup of tea so I am not recommending it to those who would prefer to watch Married at First Sight or the Real Housewives.  Although secretly, I enjoy watching those too.

Fringe benefits are an important part of business and can be a useful way of attracting quality staff. However, if you’re going to provide fringe benefits to your staff, you need to be aware of your taxation obligations.
Fringe Benefits Tax (FBT) can be difficult to understand, particularly when the government constantly makes changes to legislation. The experienced staff at Jigsaw Tax and Advisory can assist with all your FBT needs.
Here are five key changes to FBT which will take effect from 2018 year onwards:

Increased tax rates – The FBT rate rose from 47 to 49 per cent in the FBT years ending in 2016 and 2017. The rate will nowdrop back to 47 per cent in the 2018 year.

Not-for-profit changes – There is now a $5,000 cap on top of the existing exemption caps for salary-packaged meal entertainment and entertainment facility leasing expenses for certain employees. These new caps require expenses to be reported in the FBT for this year.

New standards (entertainment) – Employers are now required to use a specific reporting method when submitting tax returns. The ‘concessional valuation rules ’ have been changed. For the current FBT year, employers can’t use the 50-50 split method or the 12-week register methods for valuing salary-packaged entertainment.

No tax for devices – Small businesses can now avoid incurring a FBT liability if they provide employees with multiple portable electronic devices that have substantially similar functions. This is particularly relevant for businesses that may need to provide employees with devices such as laptops, tablets, mobile phones and GPS’s.  Previously, small business employers were subject to FBT if they provided two devices that had significantly identical function, e.g. smartphones can perform similar or identical functions to laptops and tablets. As long as the multiple devices are primarily used for work, businesses will not have to claim them on FBT for the first time this year.

Three-year reporting requirements – The amendment period for a FBT return is three years, however, the ATO can extend that period if it deems it necessary, particularly if it believes an entity is involved in fraud or tax evasion. From this year onwards, employers who receive employee contributions that offset FBT must be registered and begin lodging FBT returns showing the contributions made by the employees. This means businesses need to ensure records are kept for an appropriate amount of time.