Posts Categorized: Tips of the week

Should you use a bucket company?

Should you use a bucket company is a common question at this time of year.

Trusts are great for asset protection and flexibility. However, all income must be distributed (be taxed in someone else’s name). And if the profits are large, then family members might be paying a lot of tax at 39% and 47%.

If the profits aren’t needed, then bucket companies can be attractive. Whatever business income is distributed to the bucket company only gets taxed at 26% (25% next year). That in itself can be a compelling reason. So for this tax year, distributing $200,000 to a bucket company could save you up to $42,000.

The modern problem is what is the company going to do with the money as :-

If it is invested in cash it won’t make 1%.
If the company invests in appreciating assets then there is no CGT discount.
If you take the money then you will pay tax at your marginal tax rate less the prevailing company tax rate. That said, this isn’t such a problem if you are approaching retirement.

So bucket companies, whilst suitable for some, aren’t suitable for all.

And it must also be noted that you can’t assume you can add a bucket company to your group. You need to check whether the trust deed permits it.

Not that it is necessarily the case, but the above concerns in your case might mean it is better to consider a re-structure. We welcome the opportunity to discuss your situation with you.

How not pay tax on the Cash Flow Boost

Whilst JobKeeper got all the press, the Cash Flow Boost played a huge part in enabling employers to retain their workforce.

The Cash Flow Boost was poorly named. No cash was given to employers. Rather employers received a credit on the March to September 2020 activity statements. The credit was a least $20,000. Employers with larger payrolls received up to $100,000 credit off their PAYG Withholding liability.

But it was worth more than that.

It is what is called non-assessable non-exempt income. In other words, no income tax was payable on the receipt of the credit on the activity statements lodged in the 2019/20 year. Same for the Cash Flow Boost applied to the activity statements lodged in this financial year.

But that is not the end of the story. And the next part is not as palatable for some. There are three main scenarios:-

Sole trader employers retain the money tax free.
Companies will have the untaxed Cash Flow Boot form part of their retained earnings. That means when later paid out as a dividend, there will be no proportional tax credit to attach that dividend. Effectively, it results in what is called an unfranked dividend. It means an individual shareholder will pay tax on the full amount of the Cash Flow Boost that they proportionally receive.
And the typical family trust -well it depends. If the trust deed allows for different forms of income to be identified and streamed to individuals, then it comes out tax free. If not is taxable.

In respect of trusts this should not be news. Last year, we had a tax lawyer review our client’s trust deeds to ensure the Cash Flow Boost was treated as it was intended; as tax free income.

Was this handled properly for you last year? Are you at risk of paying tax on the Cash Flow Boost your trust received this financial year? Time to make sure – call us.

Be careful when claiming bad debts

A bad debt can be claimed as a tax deduction. And with the end of financial year rapidly approaching, now is the time to determine what can be written off.

Probably the more important discussion is how to avoid bad debts in the first place. That will be left to a future post.

To claim a bad debt, it must have already been reported as income. That means those who report their income for tax purposes on a cash basis can’t claim a bad debt.

So for those who recognise income on an accruals basis – meaning income is recognised when the invoice is raised – they must have reached a position where all reasonable attempts to collect have failed. It must therefore be more than doubtful.

You then need to make an entry into your accounting system. Those who are using a cloud file must process the bad debt in June. Don’t fall for the trap of ding it later as cloud systems time date entries.

But what if I collect the money later?

There are genuine cases where this happens. The customer could come into money through an inheritance or windfall and do the right thing and pay back their creditors. In that case, you re-recognise the income as a bad debt recovered.

Beware of schemes of arrangement

Sometimes a business may not write off a debt but later accept so many cents in the dollar from a liquidator’s offer. The problem here that accepting say 40 cents in the dollar does not entitle you to claim the other 60% as a bad debt. So keep on top of your customers and ensure you write off bad debts as soon as you can.

Tip

It is always a good idea to document the attempts you have made. That way you will have some contemporaneous evidence as to your decision if the ATO start asking questions.

As I already said, the real question is what can you do to prevent bad debts in the first place – we welcome that discussion with you.

Instant asset write-off warning

The Instant Asset Write-Off is a great way to reduce both your 2021 tax liability and your 2021/22 PAYG Instalments. And you won’t drain you cash flow if you finance the asset purchased.

But beware!

To be able to claim the write off in the 2021 tax year, you must have the asset installed and/or ready for sue before July.

If the car you ordered is not delivered until July then you won’t be able to claim until next tax year.

And as a footnote to the above, financing a lease will not able you to claim the write-off. Under a lease, you are not the owner until you pay the final instalment. This is just another trap.

If you want to know more then call us.

A quick lockdown update

So back into lockdown we go!

We are most sympathetic to those businesses that will suffer financially from this latest lockdown, particularly those in entertainment and hospitality.

The Maggs Reid team is now all back at home but thankfully due to modern technology, will be able to operate almost normally. We do ask that you contact us by e-mail during this time.

Financial assistance

The state government is yet to announce any financial assistance to small businesses. Please be assured that we will update you as soon as details are announced – but judging by one minister’s comments this morning, that, for unknown reasons that surprise me, won’t be until next week.

Compulsory QR codes

As a generalisation, businesses that deal with the public are now required to track visitors to their business electronically by using the government’s free QR service. Such businesses could use other QR services from 30^th April, but as of today, must use the government QR service. You can read more at – https://www.coronavirus.vic.gov.au/about-victorian-government-qr-code-service. Although we are not one stated industries that must use a QR system, we have adopted one as of yesterday as we believe it is a better system than manual sheets.

Survive and Thrive webinar

I take this opportunity to remind you that the next Survive and Thrive webinar will be held on Wednesday 9^th June at 5:30 PM. This month, we will address tax planning actions required before the end of the year. And I’m sure all business owners will be interested in our guest speakers presentation on three legal common traps for small business owners. You can book your place at – https://us02web.zoom.us/webinar/register/WN_l5ZhIapvTTqDqoKSSKStxg

Tax lodgements

Like all accountants, the demands of JobKeeper, rent relief applications, Land Tax applications, JobMaker, cash flow preparations to support loan applications and so on have meant that we are still to finalise and lodge a number of 2020 Tax Returns. In fact that my accounting discussion group meeting on Wednesday night, no accountant, not one, managed to meet the required 85% lodgement deadline of last week. Please do not be concerned as the ATO are tolerant and are rubber stamping all extension requests. In managing our lodgement listing, we are cognisant of people’s positions and are prioritising those matters that require early retention. We do appreciate your ongoing patience in he most unusual period.

Portal improvement

I should again state that we have been preparing 2020 Tax Returns using new software; software that talks to other programs. As part of this process we have been able to adopt better client portal and digital signing software. What this also means is that the existing portal will be inaccessible after 30^th June. We assure you that we of course have copies of everything we have dropped into your portal. We have also saved copies of any documents that you have dropped into your portal. You may though wish to retrieve any document you want at your electronic finger tips.

Stay safe and we look forward to seeing you soon.

What’s in the Budget for you?

Probably significantly more than you think.

As what is now unfortunately the norm, there were plenty of pre-announcements before Budget night. But there is much more to the Budget that was announced on Budget night or leading up to it.

In addition to some key business announcements (extension of loss carry back company rules and instant asset write-off) there were very welcome announcements to being able to getting more money into super. Welcome I say as how can one provide for retirement with a contribution cap – which currently sists at $25,000 before being eroded by 15% tax, life insurance premiums and for some an extra 15% tax).

Also of note were the proposed changes to personal and self managed super fund residency rules. I say welcome as the existing rules are quiet archaic in context of how people today live, work and travel – mind you we still aren’t going anywhere for a while with covid.

We will explore some of the key measures in our next survive and thrive webinar. It will beheld at 5.30pm on Wednesday 2^nd June and you can book here – https://tinyurl.com/reg0206

We will also flesh out some opportunities in upcoming blogs.

But having said all that, please keep in mind that:-

A Budget is only ever a series of announcements,
They still have to be legislated,
They may be changed slightly and
Many have start dates form July 2021 – and we may have a change of government before then.

Please though don’t hesitate to call us if you any questions.

Is your business required to have a QR code system in place?

Is your business required to have a QR code system in place? With so much going on and such little information distributed by the state government about covid requirements, it is understandable you may not know.

The answer is it depends what your business does.

All prescribed businesses must have a QR code system in place by Friday 30^th April. The amnesty period, which has already been extended once, will come to an end this Friday.

A QR code system will not cost you anything other than your time if you use the Victorian Government QR code service.

So is your business one that must have a QR code in place by Friday?

You can check by clicking on the following link here.

And please remember if your business is not required to have a QR system in place, it will still have to record all visitors to your business premises. So may be you are better off moving from the existing paper sign in register to a QR code system.

You can access the paper log by clicking here.

You can access the posters required to be shown in your workplace by clicking here.

Survive & thrive webinar

As we head into a brave new post-JobKeeper world, there is much to keep abreast of.

So our Survive & Thrive webinars are back!

About the Webinar

In our next 25 minute webinar we will

Update you on actions required in May (including new rules for those who employ casuals).
With a hot property market, our guest speaker Martin Ryan will explain recent property loan developments.
And our case study will explore the peril of selling to customers who may not be able to pay you. This has never been so important now that so many business don’t have the JobKeeper financial safety net.

We will also feature special client offerings – and one will of great interest to many.

The webinar will run from 5.30pm, so grab a cup of tea (or beer) and tune in.

And if you away from your home or office, you can still watch it on your phone.

You can register by clicking here

We do hope you can join us on Wednesday, 5th May at 5.30 pm

Entertainment can be taxing

Entertainment can be taxing. That’s an understatement as there are 3 aspects – tax deductibility, GST and Fringe Benefits Tax (FBT). There are 38 outcomes depending on who does with whom where and why. It therefore requires careful analysis

No wonder the ATO has such a great strike right in FBT audits on entertainment.

But that’s not all that has to be considered. For FBT purposes, an employer has to determine which of three methods produces the best result. Although that said, the actual method for quantifying the FBT taxable value of entertainment is usually best for small employers (but not always!).

You can read more on the following factsheet – FBT Flyer – Meal Entertainment Factsheet

Confused or concerned? That’s understandable. We would be happy to discuss your situation.

We take this opportunity to state that the prudent action is to lodge an FBT Tax Return – even if nothing is payable (which is usually the case for small businesses). This extra step is not a waste of time nor money as it starts the audit clock ticking – after 3 years the ATO can’t go back and audit you; don’t lodge an FBT Tax Return and the ATO can go back as far as they like.

Urgent SG super reminder

Wednesday 28^th April is the end date for satisfying Super Guarantee (SG) super obligations for the March 2021 quarter.

But beware as some of the clearing houses have a submission and payment deadline well before then. May be even today!

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; which is 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 $57,090
Non-residents performing work for an Australian business outside Australia

If your payroll system has been set up correctly then it will perform these calculations for you. We would welcome the opportunity to assist you with this and if need be refer you to a good book-keeper.

SG 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 SG rate remains at 9.50%.

So if you haven’t paid your employer super obligations already, we recommend doing so today!