Be careful with industry benchmarks
Be careful with industry benchmarks for I have two problems when measuring against industry benchmarks:-
1/. Are you really comparing apples with apples?
How many businesses make up the benchmark and just how comparable are they to each other and indeed to your own business?
Are they big & small, metropolitan &/or country based, new & old, running the same funding and operational structures and so on.
One can place faith in more common and the more identifiable businesses but otherwise, great care should be taken. Data from well know franchises can reliably be compared against each other, but thereafter, beware.
2/. I have found over the years that clients who focus on their industry benchmark fall for the trap of thinking that as they ahead or close to a benchmark, that all is OK. Laziness and mediocrity tend to creep in (it reminds me of one of those great lines from Jim Collins seminal book Good to Great – good is the enemy of great).
More successful business owners however are more focused on improving any system and process in their business.
It’s amazing how often little changes have big results (see our blog titled Greater profitability is closer than you may think).
So should you refer to industry benchmarks? The answer is yes but a qualified one. Just make sure you know what you are comparing yourself to and more importantly. Also, place greater emphasis on improving the processes and systems within your own business. In this regard, it is amazing how some businesses have come to dominate their industry by employing systems and processes from different industries.
The one benchmark though that you should not avoid is any applicable ATO’s small business industry benchmark. Like many accountants, I question how they derive their numbers. For example, it is a blight upon my profession that many public accountants lazily declare cost of goods sold items within overheads so this must greatly distort the ATO’s gross profit margin numbers. Questionable as these benchmarks are, they can’t be ignored as they are the ATO’s greatest business audit selection method and they target those businesses operating outside the ATO’s industry benchmarks.
We have software that reports on your business’ performance in real time. Some of the measures are leading indicators so you can understand what will happen next. We can also play with the key drivers to see what will be the result of making changes to your key drivers. We welcome the chance to demonstrate this to you in a free meeting.
What GST to charge on food and drinks?
We often get asked by our food and hospitality clients what GST to charge on food and drinks.
Sounds easy but its frequently not.
Thankfully the ATO have created a search tool which you can find at:-
ATO GTS food and drink search tool
We help a number of clients within food and hospitality and would welcome the opportunity to uncover the ways in which we can help you. We can also show you our real time reporting food and hospitality dashboard (which is full on financial and non-financial KPI’s).
Companies beware – Division 7A changes
Division 7A is the area of tax law that requires shareholders or their associates (which includes family members and trusts) to repay loans to companies. Current laws been in place for 21 years but remain incapable of being fully understood by a reasonable person.
We therefore welcomed the announcement within the 2016 Federal Budget that the government would simplify Division 7A with effect from July 2018.
July 2018 has obviously come and gone.
However, Treasury has finally released a consultation paper.
Treasury alleges that it is based on the recommendations by the Board of Taxation. It is anything but.
In fact it’s downright scary!
Announcements from the 2016 Federal budget which have found their way into the Treasury consultation paper include:-
- All loans to be placed on 10 year terms.
- Removal of the need for a formal agreement.
Those aside, other changes are nasty to say the least and include:-
- Repayments in early years will be higher annual instalments to be equal.
- The interest rate will be calculated off a different base and will increase by some 3%. In other words, it costs individuals more and the company pays more tax.
- Repayments during the year will be disregarded so interest will be based off the opening balance. How unfair and unrealistic can you get?
- Pre-1997 loans that are not treated under the current system will be required to adhere to Division 7A.
- Division 7A currently only applies where there is an excess of assets over liabilities. This exemption will be removed.
- Unpaid distributions by trusts to companies will be required to be on 10 year loan term from 2019.
- Private use assets of the company will be required to be valued under a formula and subject to a market valuation every five years.
- The period of review under which the ATO can go back and review the situation will be increased to 14 years. Other than fraud (where the ATO can go back as far as I like), no area of tax law has a period of review anywhere near as long as this.
The 2016 Federal Budget announcement was made under the guise that there would be a simplification of Division 7A. This is not a simplification. This is dramatic shift under which the implications are far more onerous and costly.
Treasury’s consultation paper has caused a storm within the profession. It such a dramatic shift that it will be hard for the profession to retain current positions. There is also remarkably short period of time to do so as the amendments are to apply from July 2019.
We will keep our affected clients informed. Moreover, we will be actively be taking corrective stances before July 2019. We do though welcome any query you may have now.
Exempt fringes benefits – mobiles & other electronic devices
A small business can provide an employee with a portable electronic device every year and do so free of Fringe Benefits Tax. They qualify as exempt fringes benefits.
That could be a mobile, lap-top or tablet.
The limit is one per year but it must be used for work purposes.
It probably doesn’t mean as much to the owner of a small business as they are going to get a deduction under the $20,000 asset write-off concession (but which is due to expire come 30th June 2019). But if you are an employee, it is a cost effective way of buying such items.
Want to know a few more tips – then call us.
Or better yet, meet with us as our initial meeting with business clients is free of cost or obligation.
Single touch payroll for small businesses
Single touch payroll for small businesses is not far away.
Come July 2019, every small business in the country will need to report their payroll to the ATO at the time of payment. No longer will a business report total wages and tax on an activity statement and then confirm what was paid to whom by issuing PAYG Payment Summaries (group certificates) after year end.
Instead, at the time of payment, a business will need to report to the ATO:-
- How much was paid to each employee, and
- What the tax withheld was and what super is required to be paid.
This will allow the ATO to better chase up unpaid PAYG Withholding. Moreover, by matching super contributions received as reported by super funds, the ATO will be better placed to chase the almost $3 billion of unpaid SG super. And don’t think the ATO and the government aren’t serious about this. They have already announced an intention to legislate 12 months jail terms for unpaid super (presumably of some significant amount).
Not that directors don’t want to not pay PAYG Withholding and SG super. Since July 2012, PAYG Withholding and SG super unreported and unpaid after 3 months becomes a personal tax liability of a director.
This is not something to be left to July or that last minute.
Please pay attention to our progressive information and training.
The ATO has announced that small businesses don’t need to have a payroll program (and presumably they will release some on line version). But a payroll program will make it easier.
As stated above, we will educate and assist our clients to comply. If you have another accountant, then we welcome the chance to explain to you how we can help you in this area and other ways we can assist you to improve your business and to make you more successful and secure.
You may also wish to watch the following introductory ATO video.
Cash flow – state actual due date on invoice
Instead of stating terms such as 14 days on an invoice, we suggest stating the actual due date – such as Monday Nov 5.
We have found that other clients that have moved away from number of days to the actual due date have experienced earlier receipts from customers.
How to improve your cash flow
Xero’s latest Business Insights reports that as of August, only 53.5% of businesses were cash flow positive.
That means that almost half of Australian businesses have more money going out the door than in. That is a lot of stress, sleepless nights and extra interest to fund.
Together with our years of experience, our businesses analysis dashboards can reveal where you’re at and what will be the impact of making changes to the business. More to the point, we can show you on a rolling basis what your cash flow will be like in the months ahead.
Sleep easier by giving us a call to discuss your situation and opportunities.
Super Guarantee
Friday 26th October is the end date for satisfying Super Guarantee (SG) super obligations for the September 2018 quarter.
Super guarantee is payable on most forms of remuneration including:-
- Commissions.
- Bonuses (but see below).
- Directors’ fees and all other forms of remuneration to directors.
- Allowances (except where fully expended).
- Contractors paid mainly for their labour.
But super guarantee is not payable on the following items of remuneration:-
- Overtime.
- Reimbursements.
- Unused annual leave on termination.
- Remuneration of less than $450 in a month.
- Bonuses that are only in respect of overtime.
- Bonuses that are ex-gratia but have nothing to do with hours worked (harder to satisfy than what you might think).
- In respect of employees younger than 18.
- Employees carrying our duties of a private or domestic nature for less than 30 hours in a week (such as nannies).
- On quarterly remuneration greater than $51,620.
- Non-residents performing work for an Australian business outside Australia.
SGC super should never be paid late as late payments attract substantial interest and penalties. Furthermore, and SG (and BAS) liabilities that remain unreported and unpaid after 3 months automatically become personal debts of directors.
The SGC rate remains at 9.50%.
Please ensure that you make your payment with sufficient time through your Super Stream gateway. A SG commitment is only satisfied when the money is received by the fund; not when paid to the gateway. Whilst some gateways pay into the respective super funds the next working days (such as the ATO’s free gateway), other gateways take up to 5 working days.
We welcome any question you might have.
Savings from a company tax rate cut?
So Scott Morrison has said that they wish to accelerate the company tax rate cuts for small business. So what are the savings from a company tax rate?
Not much if you intend to pay out profits as dividends.
In fact you might be worse off.
For more, read our previous blog at:-
SMSF – minimum balances
ASIC is considering mandating a minimum balance for a self managed super fund (SMSF) to be opened.
Certainly there is good reason for this given reports as to how many SMSFs have unviable balances.
What is most important though is that one receives financial planning advice as to the appropriateness of opening a SMSF.