Posts Categorized: General

SMSF investment strategies

Last month, the ATO wrote to 17,700 self managed super funds (SMSFs) trustees and threatened fines of up to $4,200. The letters were sent to trustees where their SMSF had more than 90% of its assets in one asset class.

It has now come to light that the vast majority of those letters went to those funds where property was the main asset and there was a limited recourse borrowing arrangement (permissible borrowing with super).

The point remains though there is nothing wrong with borrowing nor buying a property within a SMSF. Both are permissible (as long as all relevant requirements are satisfied).

This includes documenting your decisions to do so within an Investment Strategy.

The only thing that appears to have changed is that the ATO has now re-defined a 23 year old requirement and are now expecting trustees to document the decision why you have decided to do so.

Accountants can’t advise on where you should invest your super (they can only provide a template for you to fill in and complete). If you need assistance with the process and/or want to know the long term ramifications of your strategy (and options) then you should speak to a financial planner.

When can I claim a bad debt as a tax deduction?

You have to satisfy a few conditions:-

There must have been an enforceable sale.
All reasonable attempts have been made to collect it.
The decision to write off it off is evidenced in writing.
The customer hasn’t already gone into liquidation or you haven’ t accepted a deal to be paid only x cents in the dollar.

That all said, if you declare income on a cash basis then there is no deduction to be claimed for a bad debt as there wasn’t any taxable income in the first place.

So how do you avoid the cost of a bad debt? Look out for future blogs including what the real costs of a bad debt can be.

Or better yet, ask us.

We have dozens and dozens of ideas and strategies from dealing with hundreds of clients from many different industries.

Charging credit card fees

Just a warning on charging credit card fees on the back of the ACCC fining Europcar $350,000.

A business can on-charge the credit card fee that they are charged. But no more.

Eurpocar made the mistake of continuing to charge 1.43% despite the fact that the rate they incurred changed over time. Their rate also took no account of different credit card providers charging different rates.

Please refer to the following blogs to learn more.

https://tinyurl.com/yyxuw9r2

https://tinyurl.com/y2py5wfl

Understanding your numbers

Understanding your numbers? If you are using an accounting package alone, then it is very difficult to understand much about your business.

Why? Because traditional accounting packages, even those in the cloud, only really report on what has happened. They simply tally numbers and throw them into columns. Too many just accept this and continue under the mistaken belief that clumps of numbers for this year and last year is all there is to know.

Far from it.

Any trend could start and/or stop and you wouldn’t know what the impact was. Nor would you be in a position to do something about it.

Trends only become clear when you look at performance ratios, solvency ratios and other KPIs (key performance indicators). We actively use such reports with our clients.

But we do more than that.

We also use other unique software which:-

Identifies issues from a high level look.
Predicts the outcome of changing drivers of those weakened area.

In the last week, this tool has enabled us to discuss a matters with our clients such as:-

A price increase of 4.65% was required to get back to last year’s trading profit.
How many customers would have to be lost for a 10% price increase and yet still make the same profit (*).
That a $136,453 increase in sales only added $50,346 to trading profit at last year’s trading margin. See the image below to see the graph and introductory commentary.
In retail where sales are harder to find, that a 1% reduction in overheads was going to save $2,853.
That savings overheads of $2,853 would equate to extra sales of $9,086 (at last year’s margin).
We separately quantified and discussed the effect of not achieving last year’s margin.
For customers paying on average one day early, $2,918 would be added to the bank balance. We also discussed ways to achieve this.
For a new client. Setting the cost of goods section correctly in their accounting ledger so they actually know what they make form each sale.

(*) This is the most stunning tool I have ever used with clients. Time and time it both removes fear of the unknown (in this case losing customers) and the conviction to make key changes to the business.

We also presented clients a one page action plan of the steps and the outcome from achieving them. We will catch up every month by Zoom or Skype to monitor and discuss their progress.

If your accountant just drops a set of financials and Tax Returns on your lap and says sign here, then consider what the cost to you of that myopic service is.

Not understanding your numbers? We would welcome the opportunity to discuss your business and the ways in which we can help you. The meeting will be free of cost or obligation, so you have nothing to lose (as against staying where you are).

Income splitting

Income splitting refers to ensuring income is legally earned by a partner or family member and taxed at their lower tax rate.

In respect of share investments, we often find that new clients have done that.

It often surprises me though, indeed just as it is with a new client, how often the high income earner has all the bank accounts and term deposits earning interest in their own name. Having such accounts in joint names is half as bad. The tax burden would be a lot less if held in the name of the spouse name on the lower marginal tax rate (and almost always will still be treated as a joint asset for family law purposes). Same income, better tax result.

Negatively geared properties however require detailed consideration. Negative gearing refers to the situation where the interest and other expenses incurred on an investment exceed the income from that investment. The tax break on negative gearing often dictates that the investment be made in the name of the high income earner. That said, with the 10 year bond yield under 1%, interest aren’t going up in a hurry – which means that properties become more quickly positively geared than they have in recent years. In other words, getting a tax break doesn’t last for that long and actually becomes a tax problem relatively quickly.

The other factor for consideration is when will the property be sold.

If in retirement, the tax burden may be low; if whilst working the tax could be eye watering.

We welcome any tax question you may have.

STP and super payments

The roll-out of Single Touch Payroll (STP) has proved to be an interesting process!

For some, it just meant clicking another button or two within their payroll program.

For others it meant changing the whole way they processed their payroll.

It has also uncovered some interesting practices.

We have been somewhat surprised to find that some clients weren’t making their employee SG super payments through a SuperStream, nor using a super clearing house. The former is the payment method, the latter is the notification of employee’s contributions. We have also been surprised to learn that super funds, like some of the really big ones, have still been accepting cheques.

There are free solutions out there but the best solution is almost always the one built within your payroll software. Whilst there may be a cost, it is nominal and avoids double handling.

Please call us if you would like to discuss your situation and needs.

WorkCover remuneration certification

It may be time to complete your 2019 WorkCover remuneration certification. Large employers are required to submit early.

Other employers have delayed lodgement dates. That said, it still may be in your interest to lodge soon. This is particularly the case if your remuneration will be significantly less in 2019/20 than for 2018/19.

You will get back what you over pay based off their estimate; but why over pay in the first place.

You will also ensure it is lodged. Many employers forget to lodge and suffer from WorkCover’s default 20% annual increase. So get it done now when you have finalised and issued the PAYG Payment Summaries.

When growth is bad (and running out of cash)

The following is a re-post from February 2015. It has been re-posted as it has been a topic of discussion with a couple of existing clients as well as potential new clients.

With our existing clients, we are planning around how fast they can grow and the issues around including cash flow, cash reserves, need to borrow as well as many other issues including their staffing and training. We have created a clear picture of what sustainable growth will look like, can measure how we are tracking and are dedicating the necessary resources in a planned roll-out.

On the other hand, some potential clients have come to us and they have found themselves, as you could say, in a pickle. Sadly with no proper planning they didn’t see it coming. It has come as a very rude and great shock. Pity their accountants didn’t provide such planning and cash flow assistance.

Last week I queried whether your plan will work and touched upon good and bad growth.

Increasing sales is not the answer to everything. It is not uncommon to see a business solely concentrating on increasing sales fall part if they haven’t ensured the business has the right team and systems in place to support greater turnover.

Worse still, some businesses even fail as they run out of cash due to the increased revenue not being enough to fund greater expenses and the greater amount of money locked up in debtors and stock.

Consider this……

Take a business that doubles its sales from $1,000,000 to $2,000,000 and everything else doubles from:-

Cost of goods sold from $700,000
Overheads from $175,000
Net profit from $75,000 (average tax rate remains at 40%)
Debtors from $125,000
Stock from $160,000
Creditors from $75,000.

Sounds good?

Actually, it’s a disaster.

Why – because the working capital required has doubled from $210,000 to $420,000 whilst the doubling of profit after tax has only generated an extra $150,000 – of which $60,000 will go in tax. What seems to be a new dawn will actually prove to be a nightmare. The business owner in such a case might think they are going forward in the right direction but there is something coming awfully big and fast straight at them!

The problem here is that the owner has concentrated on sales and sales alone. The outcome would be quite different if other key drives such as debtors, stock and creditors turnover were addressed (and for which we have many strategies from our many years of experience and supporting tools).

We were a member of the Principa accountants network (from which this example was generated) as well as other accounting groups that provide tools to assist our clients with cash flow control and planning – and for many other areas as well.

Why not refer to our web page’s article on business improvement potential. Or better yet, why not ring Alex Stewart and make a time to sit down and have an obligation free meeting to discuss how we can help your business.

So again I ask, will your plan work?

Why business planning is important

There is an old saying that if you don’t know where you are going then any place will do.

Business planning is crucial as it focuses one’s attention on how a business has been performing and how that can be improved. Thoughts in the car or shower are brought together and considered in context of all other pertinent matters. It also presents a road map to better performance.

With the start of a new financial year, now is a perfect time to:-

Re-assess your performance over the last financial year.
Set goals for the year ahead.

We can assist you this by:-

Set financial benchmarks by which you can assess your performance.
Set non-financial benchmarks by which you can assess your performance – such as the number of sales enquiries per week, the conversion rate of those enquiries … and many, many more from our extensive library.
Show you the effect of changing the key drivers in your business.
Integrate these budgets into your accounting software.
Employ other reporting dashboards to track your performance.
Hold you to account to your stated goals by regularly checking in with you.

Please call us if to arrange a free meeting. The meeting is free so we can gain an understanding of your and needs. Having gained an understanding of your circumstances and needs will enable us to explain the ways in which we can specifically help you.

As Einstein once said – the definition of insanity is doing the same thing over and over again and expecting different results.

Don’t fall that trap and call Alex Stewart now.