Unfair contract term protection

As of 12th November 2016, unfair contract term protection that apply to consumers will be extended to cover standard form small business contracts.

Standard form small business contracts are ones where one of the parties has limited or no opportunity to negotiate the terms therein. Small businesses are businesses that employee less than 20 people.  Employees of related entities are not counted against this limit.

This new form of protection will apply to contracts entered into or varied on or after 12th November, 2016 for contracts of less than $300,000, or $1,000,000 if the contract is for more than 12 months. 

Terms that can be found to be unfair include those that enable one party but not the other two:-

  • Avoid or limit their obligations under the contract,
  • Terminate the contract,
  • Penalise one party for breaching or terminating the contract, or
  • Unable one party to vary the terms of the contract.

However, the law does not provide relief from the upfront price payable under a contract.

So, as from yesterday, standard form contracts “forced” upon a small business can be found to be unfair by a court or tribunal. The effect is that that a term can be disregarded (but the balance of the contract remains in place).

We have all heard of cases or know of first hand situations where small business owners being unfairly treated by large businesses. This amendment to Australian Consumer Law is not only welcome, but long overdue.  Too many businesses and indeed family lives have been ruined by conduct that can now be prevented.

Very few accountants provide their clients with anything like the free tips, education, seminars and literature that we do. Please let all your small business owner colleagues know of this welcome relief.

If you would like to know more about these new provisions, please refer to the frequently asked questions provided by the Australian Competition & Consumer Commission (ACCC) at:-

https://www.accc.gov.au/business/business-rights-protections/unfair-contract-terms/unfair-contract-terms-faqs

 

At MRS, we will spend today planning for your success tomorrow.

 

Should your SMSF be registered for GST

Should your SMSF be registered for GST?  Unless it has to be because of its turnover, I suggest not. 

A fund can’t claim back all of the GST on its accounting, actuarial and audit fees. It therefore means that the cost of the time required by the trustees and the accountant are usually far less than any minor GST claim.

If your fund is registered for GST because of commercial rents, then that may be a different story. The fund will be able to claim back all of the GST it incurs on commercial property expenses – but gain it is an equation of time & cost versus GST claimed back.

We welcome your call if you are not sure what is best for your fund.

At MRS, we will spend today planning for your success tomorrow.

 

When cheap becomes costly

It never ceases to both sadden and amaze me how many people go for what is the cheapest offering – rather than what is right and best for them. The end result is that cheap becomes costly.

I was reminded of this in an article in the Sunday Age edition of October 30, 2016. In a letter to the editor within the financial section, the aggrieved consumer was complaining about being unable to claim for their full loss under their home insurance policy.  Their mistakes were (1) to take out the cheapest policy and (2) to do so without understanding what was excluded.

The basic idea of insurance is, for the cost of a minor annual fee, to pass a risk on to someone else. It is therefore critical to ensure that you are appropriately covered, particularly for the most important items such as your home, your future income, trauma insurance and against temporary and permanent disability.  Having the cheapest policy that provides incomplete cover is the most expensive.

There is also a lesson in that it is dangerous to do some things by yourself. The need to speak to a qualified insurance broker is as important as ever.  Don’t be fooled by ads, price and “simple” online applications.

At MRS, we will spend today planning for your success tomorrow.

 

Which PAYG instalment method to use

Which PAYG instalment method to use is a question that comes up at the start of every financial year – or rather with the September activity statement.

PAYG Instalments are income tax payments paid during the year by companies, super funds and individuals.  In respect of individuals, it is levied on income not taxed upon receipt with common examples being interest, dividends and trust distributions.  It is not assessed on wages or capital gains.

One can pay PAYG instalments under one of two methods – by paying a fixed dollar amount as advised by the ATO or applying a percentage advised by the ATO against the income of that quarter. So what are the relative advantages and disadvantages of each method?

Under the fixed dollar method:-

  • You know what you are up for.
  • If the current year (in this case 2016/17) is much better than 2015/16, then any shortfall will not be payable until the Tax Return for 2017 is lodged – this could be as late as May 2018.
  • It’s a simple method as it doesn’t require any calculations.
  • If the amount is too high then it can be very downwards – but I would not do so on the September activity statement when the year is far from known.
  • Should it be that the PAYG Instalments already paid are too high then a variation can be made and any overpayment refunded.
  • This is a better method to use if you wish to avoid complex and costly calculations of your gross income years (which is required under the percentage method).
  • As it is a simple method, no extension to lodge is granted where there is only a PAYG instalment payable; the extensions to lodge through the Taxpayer or Tax Agent Portal are not available.

Under the percentage method:-

  • The ATO determines the percentage by dividing the prior year’s tax bill into the prior year’s tax liability. It is a rough method but one which usually approximates the appropriate tax.
  • One will pay more if the income in 2016/17 is greater than 2015/16. People who prefer to pay the appropriate (or should I say approximate) amount of tax each quarter as they go prefer this method.
  • It is a good method to use if one’s income is likely to be less than the year before as one will pay less tax. Under the fixed dollar method, one would be forced to vary the amount which could be problematical (see below).
  • As the percentage method requires a calculation of gross income, an extension to lodge is available to those who lodged through the Taxpayer or Tax Agent Portal

Two other important points to note are:-

  1. You are entitled to vary an amount or instalment downwards – but do so carefully as the ATO has the right to issue a fine for gross underestimations.
  2. It may be that your September activity statement offers only the fixed dollar or percentage method. If you do wish to change method, a request to the ATO can be made to reissue the activity statement with both methods being offered.

We would welcome the opportunity discuss which is the best method for you.

At MRS, we will spend today planning for your success tomorrow.

 

SG super obligations

Friday 28th October is the end date for satisfying Super Guarantee (SG) super obligations for the September quarter. 

SG super is payable on all 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 excluding the following 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.

At MRS, we will spend today planning for your success tomorrow.

When a SMSF is no longer an option

What do you do when a SMSF is no longer an option?

This is a situation that confronts those with their own self managed super fund (SMSF) when they:-

  • Lose mental capacity,
  • Otherwise no longer have the time or inclination to fulfil all SMSF trustee obligations,
  • Have become disqualified from continuing to act as a SMSF trustee (after having become bankrupt or convicted of an act of dishonesty), or
  • Are about to move overseas for more than two years and become a non-resident of Australia tax purposes.

There are a couple of options. One commonly unknown option is to replace the current members as trustee(s) either in their own names or as a director of a corporate trustee and replace them/it with an APRA approved trustee.  One key benefit of this option is that the super fund has not been deemed to dispose of its assets and therefore does not crystallise any capital gains tax liability.

In addition to this important taxation consideration, there are some other important options, advantages and disadvantages. You can discuss these financial planning considerations with a financial planner.

At MRS, we will spend today planning for your success tomorrow.

 

ATO’s small business benchmarks

The ATO’s small business benchmarks have recently been updated for the 2014 financial year. They cover over 100 industries and in particular the sort of cash industries the ATO love to audit.

The ATO use this as one of their main tools for identifying businesses to audit and actively select anyone well outside their norms. Please refer to the June 2012, 2013 and 2014 edition of Tips and Traps to see how the ATO has assessed substantial income tax and GST shortfalls as well as hefty interest charges and penalties.  They are eye watering amounts.

Their data is split into three groups based off turnover. They also have some regional and metropolitan ratios.

If the ATO has a small business benchmark for your business then we will discuss it with you in your annual general meeting. If you like to learn more though in the meantime you can go to:-

Before closing I must though express a personal view on benchmarks. They can be a great tool but must be used with care as:-

  • You may not be comparing apples with apples. Even if the right industry has been selected there can be natural differences between say a newly established business and one establish some time ago.
  • There is great danger in comparing oneself to a norm. It is not the average you should be comparing yourself to but the upper quartile.

I also wish to add that we are trialling some non-ATO industry benchmark software of which you will hear more later.

At MRS, we will spend today planning for your success tomorrow.

 

Three proposed changes to super

On Thursday, the Treasurer Mr Scott Morrison announced three proposed changes to super.

The three changes to those changes announced in this year’s Budget are:-

  1. A new non-concessional contribution (non-deductible) limit system.
  2. Deferment of the concessional catch-up system.
  3. Abandonment of the proposal for those aged between 65 and 74 to be able make concessional and non-concessional contributions without having to first satisfy a work test.

Yet not all is as bad as what the press may have you believe. Yes, some of the changes are unpalatable.  Yes, future generations will not be able to accumulate significant sums in super as previous generations have.  But that all said, there are still some sensible and attractive reform announcements from this year’s Budget.  If you want to read more about those tax changes, email accountants@mrsaccountants.com.au and we will forward you a copy of our 2016 Budget briefing paper and addendum thereto.

With all this negativity and uncertainty about super, it is important to remember two things:-

  1. Super is before all else a low tax environment with current tax rates being 15% on contributions, 15% on earnings within accumulation mode (10% for capital gains) and 0% on the earnings on the balance in pension mode. These tax rates are less than those for many working Australians, often significantly so.
  2. It is arguably the best asset protection vehicle.

So don’t be misled by all the negativity and political debate. It would though just be nice to return to the position we had from 1983 until 2006 when we had a prolonged period of sustained stability and promotion of super (as both Keating and then Costello understood the benefit to the government purse on encouraging people to look after themselves rather than relying on the age pension at a time of rapidly ageing population).

 

At MRS, we will spend today planning for your success tomorrow.

Travel expenses made simple

Travel expenses made simple. Most would disagree as keeping, and at times even getting receipts when you’re travelling is difficult.  This is a problem that is even more difficult in respect of getting employees to hand over the right records.

Fortunately, the ATO provide some relief. Each year, the ATO issues what are called reasonable travel rates; the determination also covers overtime meal allowances.

Reasonable travel rates are set for:-

  • Domestic travel – amounts in respect of overnight stays for accommodation, food & drink and incidentals.  These amounts vary for each major centre and high cost remote areas.
  • Overseas travel – amounts for food & drink and incidentals (receipts must be kept for all accommodation).  Allowance rates vary for each country and the employee’s salary level.

Employers who pay no more than these reasonable amounts are set by the ATO do not have to withhold PAYG withholding.

Employees who receive a reasonable allowance are not subject to substantiation unless their expenses exceed the reasonable amount.  You can obtain a copy of the 2016/17 rates at http://tinyurl.com/jft95s2

Please always remember that an overseas travel claim is not deductible unless it is supported by a travel diary or record.  The same applies in respect of a domestic trip which is for 6 or more nights.

We would welcome your questions as to how you may benefit from using this system.

 

At MRS, we will spend today planning for your success tomorrow.

 

New credit card surcharge rules

New credit card surcharge rules came into effect as of today. You probably heard this on this morning’s news on TV and radio.

But don’t panic, it may not affect your small business yet.

These new rules don’t apply to small businesses until September 1, 2017. It does though already apply to businesses with more than $25 million of turnover or more than 50 employees.

These new laws have been introduced by the Australian Competition and Consumer commission (ACCC). With their past history, it is a given that they will very quickly make someone a scapegoat.

Under these new rules, there are maximum percentage surcharge rates that can be used. And for those businesses that charge a fixed amount, that amount must not exceed the cost to the business.

Most businesses charge a percentage. The set maximum rate for Visa and MasterCard is 1.5%, 0.5% of debit cards and 3% for American Express.

I would expect there to be very loud protests leading up to September next year as many businesses are charged more than the 1.5% on Visa and MasterCard transactions by their bank. And then there are those that use generic solutions such as Square which charges a flat 1.9%.  We will keep our clients updated leading up to this second implementation date next year.

If you would like to read more, a good short summary has been prepared by MYOB which can be accessed at:-

http://tinyurl.com/jeyxllv

If you want to read the nitty-gritty or are have trouble sleeping, you can read the Reserve Bank review at:-

http://tinyurl.com/zk2d79u

 

At MRS, we will spend today planning for your success tomorrow.