Posts Categorized: News

Some good tax news at last – the government’s Innovation Statement

The Federal Government today released its Innovation Statement.  Part of the overall package includes some attractive tax announcements.

There have been few favourable tax announcements over the last 7 years so I relish the opportunity to pass on these attractive and common sense intended reforms with you.

Of the announcements, there were 4 that would most likely apply to our collective client base:-

  1. The existing same business test will be relaxed. This test applies to companies who are trying to offset current year profits against past tax losses. The existing law is mean and unrealistic as it punishes a company from undertaking any form of new activity; at times it even punishes those companies barely tweaking their existing business model. It was announced today that companies will be able to enter into new business activities and transactions and do so without jeopardising the ability to offset past tax losses.
  2. Newly formed companies (not trusts) will be able to attract investors with a non-refundable 20% tax offset. The investors will be able to reduce their personal tax liability by the amount of this tax offset. And there are steak knives with this – there will also be a 10 year CGT exemption for investments held for at least 3 years.
  3. The existing insolvency laws will be relaxed for “risky projects.” Directors will be able to obtain a safe harbour from personal liability by appointing a “professional restructuring officer” who develops a plan to turn around a company in financial difficulty.
  4. The existing default bankruptcy period of 3years will be reduced to 12 months.

Please remember though that there are only announcements.

We await the fine print which will appear in bills to be put before parliament some time in 2016.  We particularly await to see what if any announcements relate to those who are or would otherwise structure their operations through a discretionary or unit trust.

We welcome the opportunity to advise our clients as to how they may be able to utilise one or more of these announcements.

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

 

Afraid of increasing prices?

Most business owners are.

It always amazes how many clients happily pay increased prices to their suppliers and give wage increases to their staff, yet either don’t pass on the full increase, do so in arrears or worse still, not at all.  So they end up making less – and often working harder to make up the loss of profits.

We have some software that, amongst its other fabulous features, will calculate how many customers one would have to lose for a particular price rise and yet still make the same profit as before.  Now it remains unknown just how many customers will be lost – but with this software, I can tell a client what the magic number is at which the business makes less than before.

There have been three common outcomes from using this software with clients:-

  1. They don’t lose as many clients as they first feared.
  2. They lose few if any of their better customers.
  3. The business performs a whole lot better, they worry less and they sleep better.

There is of course a process put in place to advise customers why prices are increasing.  On occasions, it has even been initially tested on a group of customers.

One of the initial such sessions in which I used this with a client started with them saying they would lose half their customers if they increased their prices by 10% (their prices had been the same for 2 years).  The calculated number was 42%.  Less than 30 seconds after saying he would lose 50% of his customers, upon seeing that tolerable customer loss rate was 42%, he said categorically that he would lose nowhere near 42% of his customers.  This is what replacing fear with probable fact does to the decision making process.

And what happened you ask – he lost barely any (and they were his worst customers anyway).  And the result – the bottom line (after allowing for salaries, super and fringe benefits to the owners) tripled.

This is one of the many ways we help our clients to understand what can become of changing the key drivers in their business.

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

The perils of discounting

I bought some fuel today and picked up a drink in the process.  As I did so, I saw one of those usual attractive deals – only an extra $2 for a drink (costing around $3.25) when buying a sandwich for $5.  The service station will have worked out this all out but it reminded how often small business owners get it wrong when discounting.

Take the situation of a firm which sells 10 items a day at $10.  Their costs of sale are $50 (so their gross margin is 50%) and their overheads are $30.  They make $20 profit a day.

Let’s say they offer a 20% discount.  Their cost of sale will remain at $50 (unless they can arrange a better deal) so they are now breaking even as their gross/trading profit is the same as their overheads.

Many clients get this but not all do.  However, what many clients fail to understand is how many more items they need to sell to make the same profit as before.  The answer in this example is a 66.67% increase sales – they now need to sell 16.67 units a day up from 10.  Or to put it more simply, if they sold 3 before, they now have to sell 5 just to hold their ground.  Is that possible?  May be it is, may be it isn’t.

The outcome of reducing prices in your business and the required increase in the number of transactions to make the same profit will depend on your margin, your cost structure and the level of discount.  We can show you this number simply.  With that knowledge, you can then make an informed decision.  All too often, people don’t know the result of making such a change and walk into what was an avoidable disaster.  Let us help you make an informed decision – in situations like this as well as many other scenarios whether they be quoting for work or responding to a customer’s’ request for a discount.  You have everything to gain and nothing to lose as we don’t bill possible clients for their first meeting.

At times it is appropriate to discount such as with getting rid of dead stock.  However, discounts are often a path to ruin.  If you are going to discount, make sure you do so understanding the variables at hand and therefore the likely outcome.

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

 

WorkCover injury poster

There are a number of obligations under WorkCover.

One of the fundamental ones is to display the If you are injured at work poster which you can access at http://www.rrp.com.au/safety-blog/workplace-noticeboard-requirements

If you are visited by a Victorian WorkCover official then they will most likely ask to see it – and you will be fined if you don’t have it displayed.

If you employ workers (and some types of contractors) interstate then you will also need to comply with that state or territory’s obligations (which can also be checked at the above web page link.

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

Which PAYG Instalment method is best for you?

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.

With respect to PAYG Instalments, we usually prefer that clients use the instalment amount method.  In the majority of cases, it will not result in an over-payment that can so often arise under the instalment rate method.

In some cases though, the % rate method may enable one to pay a lesser amount.  If the instalment income is nil or negligible in the first couple of quarters or much less than the year before, then no or little tax will be paid.  A significant payment will only be required at such time as income is received.

It is critical with PAYG Instalments (and indeed GST Instalments) that any downwards or indeed upwards variation be made cautiously.  If a variation results in the instalments paid being 15% less than the actual liability then the ATO will issue a fine.

Please do not hesitate to call us should you wish to discuss your own situation.

 

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

Why you should use the GST instalment method

Being the start of another activity statement year, one can exercise the choice as to the method to be used to calculate GST and pay GST for the 2015/16 year.

We recommend that Option 3 GST Instalments be selected in most cases for those that lodge a quarterly BAS.

Option 3 (which is only offered to small businesses with turnover of less than $2,000,000) is far and away the best option in the majority of cases as:-

  • It reduces our fees by our not having to prepare BAS’s or amend those prepared by clients (at the risk of being misunderstood, there are matters that only come to light when preparing annual financial statements and which require past BAS’s to be amended).
  • One doesn’t have to amend BAS’s for where a tax invoice is not held by the time a BAS is lodged.
  • If profits are increasing, then one’s GST net liability will also be increasing.  The instalment will represent an under payment as the ATO advised instalment is based off the prior year’s lodged activity statements.  In most cases, the shortfall is not payable until May of the following year so one receives an interest free loan from the ATO to pay any GST shortfall.
  • If the instalment is too high, then it can be varied downwards (but best left until at least the second and preferably the third or fourth quarter when the year’s position becomes clearer).

Please contact us if the ATO have marked on your BAS that Option 3 is not available.  This is often simply an ATO error and one that we can easily have rectified.

If Option 3 is adopted, then the ATO will issue an Annual GST Return at the end of the financial year.  This form is used to net off the actual liability against the instalments paid.  The form is required to be lodged by the time the Tax Return is lodged and by which time a shortfall is to be paid or a refund will be generated.

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

Deadlines for Sep 15 quarter

For those of you who are employers, Wednesday 28th October is the end date for satisfying your SGC super obligation for the September quarter.  Late payments will attract substantial interest and penalties.  Consequently, SGC super should never be paid late.  In the past, payments made even a day late had to be paid directly to the ATO.  Now payments up to a month late can still be made to employees’ super funds.  Payments made more than one month in arrears must be paid to the ATO.  BAS’s and SGC liabilities that remain unreported and unpaid after 3 months automatically become personal debts of directors.

As per earlier reminders, the SGC rate increased from 9.25% to 9.50% as from 1st July 2014.  Please ensure that your system is calculating the SGC at this slightly higher new rate as we have found some clients have still been using the previous rate.

For those who lodge a quarterly BAS, your September quarter BAS is due for lodgement by Wednesday 28th October.  However, you will have to Wednesday 11th November if you are a registered user of the Tax Office’s Taxpayer Portal.  As per our June 2014 edition of Tips & Traps, we encourage you to register for the ATO Taxpayer Portal if you have not done so already; particularly as no further paper activity statements will be issued when an activity statement has been lodged electronically after 30th June 2014.

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

So what did Friday’s public holiday cost your business?

We have long had a public holiday for a horse race; we now have one for the AFL Grand Final.

I have been asked many times over the last week about what Friday’s holiday cost the typical small businesses. The answer depends on the nature of your costs.

If your costs are largely fixed (like mine), the loss is basically the loss of time and subsequent billings. Or costs basically don’t change – maybe we saved $10 of electricity.

Other business will have more variable costs than fixed. Most of these businesses losses won’t be as great as they avoided the variable costs that otherwise would have been incurred on Friday.

Some businesses may have gained, but I suspect that they are few and far between. I understand a lot of shops were closed but some cafes may have a booming day even after allowing for penalty rates and other labour costs.

All this leads to an interesting point.

So few business understand what costs are direct and which aren’t and which ones are fixed and which are variable.  They don’t know their gross margins and they don’t know their break-even point (which may be rising in steps as they grow).

With this information to hand, you can confidentially make decisions about your business and know what the outcome will look like. Our business clients know these things. Do you? If not, why not have a free meeting with us to see how we can help you.

In the meantime, read the following posts from our archive:-

  • 1st post from Feb 2015 – Greater profitability is closer than you may realise
  • Last post from Feb 2015 – When growth is bad (and running out of cash)
  • Last post from March 2015 – What your accounting system should do for you.

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

Don’t be misled

Front page headlines on Tuesday and to that night’s TV news were how the share market had dropped $60 billion by day’s end. It was a big number.

Some mentioned the % fall; most didn’t. The “billions wiped out” bit was the big message, with the headline often being in red and/or pictures of unhappy people.

So what has actually happened? On Tuesday. the share market index value which opened at 5,070 fell to 4,918.

It made up half of those gains within the next 24 hours. Now, at the close of trading on Thursday, only 48 hours later, it sits at 5,110 – i.e. 40 points higher than when it started on Tuesday.

But does this recovery and indeed increase above Tuesday’s “wipe-out” lead the news? Most certainly not. There probably won’t be a single heading anywhere except in the business section. So unless you read the business pages you would be left thinking that the market had suffered some kind of permanent loss.

So who won out of this – these that that took the chance to buy shares at a reduced price.

So who has lost out of this – those that panicked and sold shares at a lower value. It’s funny how many of these people then buy back in at inflated prices.

The clear lesson from these often recurring episodes is to be very careful of what you read and hear. The market might well fall further. But do not confuse sensationalised headlines with facts and fundamentals. Short term minor corrections, no matter how the press portray them, should not cause you to make snap and emotional decisions.

The 10 benefits of cloud accounting

One seemingly today can’t spend five minutes without hearing about cloud services and, in particular, cloud accounting packages.

However, we believe that there are now compelling reasons as to why most businesses should upgrade to a cloud-based solution if they have not done so already (please note the use of the words solution rather than version and most but not all clients).

Here are our top 10 benefits of using cloud accounting:-

  1. You can access your numbers anytime from anywhere and do so easily. So can we.  So can your bookkeeper.  So can someone else in another store.  So can anyone else that you need or wish to give access to.  Access can be granted with differing rights to access certain areas and perform various functions (such as access payroll records and generate a profit and loss).
  2. You can issue invoices from anywhere at anytime, even from a tablet or mobile.  No more waiting until you get back to the office.  You might even be able to speed up your cash flow by taking payments on the go.
  3. The three big players in this space, Xero, MYOB and Reckon Hosted (QuickBooks), all include the option to automatically upload bank transactions.  You don’t have to, but it does save time.  The first time a payee name appears in a data feed, you assign an account to it – so, for example, the first time Maggs Reid Stewart appears, you link our name to accounting fees.  Thereafter, Maggs Reid Stewart is automatically posted to accounting fees unless you otherwise edit the transaction.  As you can imagine, data entry progressively takes less and less time and it is for this reason that there are a lot of good bookkeepers out there scratching for work.  The fees for these bank transaction data feeds are now very reasonable.  So the benefit to you is that you either pay your bookkeeper less or spend less time yourself bent over the keyboard.
  4. With automatic bank feeds, it becomes much easier to keep your numbers up-to-date.  Remember that old saying – what you can measure you can manage (and by extension, what you can manage you can control and what you can control gets done).  You will have the power to know what is happening in your business at all times.  The days of business owners being in the dark as to their true situation until a Tax Return is prepared some time after 30th June should, finally, be a thing of the past.
  5. As multiple people can access the same file, gone will be the common problem of the client, the bookkeeper and the accountant all wanting to work on the file at the same time yet only one having the current file at any one time.  No more re-entering invoices, no more incorrect restores, no more avoidable time wasting, no more wasted and costly time in delivering or collecting a back-up of a desktop file and other such annoying problems.
  6. It is sometimes months after year end before we finalise a client’s financials (we only have two arms so we can’t finalise them all in July).  Cloud accounting packages allow us to access a client file at all times.  The closer we are to the time of each transaction, the greater value we can be to our clients.
  7. You don’t have to load upgrades to the software – it is done for you.
  8. No more version control problems between a client and their accountant.
  9. We have for some years used programs such as LogMeIn to access clients’ computers remotely whether that be to obtain reports, fix problems, etc.  Those remote access programs are comparatively cumbersome.  With cloud based programs, we can just login once you have set us up as a user.  We can then answer your queries far more quickly and efficiently.
  10. When up and running and used properly, cloud accounting should reduce accounting fees and, more importantly, enable us to provide a better service.

Is cloud accounting the way to go for your business.  And if so, which program will better suit your needs?  Call us fro a free initial meeting to discuss your business and its needs.

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