Stay up to date with what’s happened in the Australian economy and markets over the past month.
While headline inflation eased to 2.8% in the September quarter, the RBA appears cautious on interest rates.
The RBA Governor stated that Australia’s core inflation remains too elevated to justify interest rate cuts in the near term.
The sharemarket reacted to the RBA’s comments in the last days of a month that had seen several all-time highs as markets globally reacted to Donalds Trump’s win.
Click the video below to view our update.
Please get in touch if you’d like assistance with your personal financial situation.
A catchy business name, a trustworthy brand and an engaging website or social media presence are all vital to any small business. But don’t underestimate the effect of the business structure.
Choosing whether to operate as a sole trader, company, partnership or trust depends on many factors including cost, the size of the business, whether you have dependants and family members to share income with, and the degree of financial or legal risk involved in running the business.
Sole trader
Many small operators start out as a sole trader, and some decide to continue with this structure.
On the positive side, it’s easy to set it up and, with fewer business reporting obligations, it’s cheaper to run than other business structures.
There are one or two considerations that, depending on your circumstances, could mean a sole trader structure doesn’t work for you.
One of these is the extent of your liability if things go wrong. When you’re a sole trader your liability is unlimited, meaning your assets are at risk in the case of legal action. Some businesses may consider their risk to be too low to warrant changing the business structure or they may choose to find an insurance product to provide some protection.
Tax is another consideration. Among other issues, as a sole trader, you’re liable to pay tax on all income received by the business and you can’t split profits or losses with family members.i
Partnership
Two or more people can form a business partnership and distribute business income among themselves.
Like a sole trader structure, a partnership structure can be slightly cheaper to operate because there are minimal reporting requirements.
All partners are liable for all the debts and obligations of the business although there are different types of partnerships that vary liability among the partners.
For tax purposes, each partner reports their share of the partnership income or loss in their own return and pays tax on any income. Partners cannot claim a deduction for any money they withdraw from the business. Amounts taken from a partnership are not considered wages for tax purposes.ii
Company
A company structure has a number of advantages over a sole trader or partnership structure, but it costs more to set up and operate and there are more reporting requirements.
A company is considered a separate legal entity and has its own tax and superannuation obligations, but company directors have a number of legal responsibilities.
Companies pay an annual fee to be registered with the Australian Securities and Investments Commission (ASIC) and they usually cost more to put together the necessary annual accounts and tax return.
On the plus side, you will be able to employ yourself and claim a tax deduction for your wages.
But be aware of the Personal Services Income (PSI) rules. If more than 50 per cent of the income of the business is produced by your personal exertion, it’s considered PSI and you will pay tax at your marginal rate, rather than the lower company tax rate. This rule affects taxpayers with any business structure.
Trust
A trust is the most expensive and complex business structure to operate but it might be the most appropriate for your needs.
There are some pluses and minuses so expert advice from your accountant and lawyer is crucial. You will need help to decide on the type of trust, to set up a formal trust deed and to carry out annual administrative tasks.
On the positive side, there may be tax advantages and there are some protections from financial and legal liability.
On the flip side, all income earned must be distributed to beneficiaries each year otherwise tax is paid at the highest marginal rate. Also, losses can’t be distributed to beneficiaries, it may be difficult to dissolve or change elements of a trust and it may be more difficult to borrow funds.
Ask for guidance
The importance of choosing the best business structure for your needs and understanding the regulatory requirements is crucial to the success of any small business. Check in with us for expert guidance.
Employers need to check that payroll systems reflect recent legislative changes, and the ATO is highlighting deduction opportunities available to some small businesses. Here’s your roundup of the latest tax news.
Updated employer obligations
The ATO is reminding employers to stay on top of legislative changes affecting payroll systems.
The Super Guarantee rate increased on 1 July 2024 to 11.5 per cent of ordinary times earnings, so all payments (starting with those for the July to September quarter) to super accounts for eligible workers must reflect the new rate.i
Individual income tax rate thresholds and tax tables changed also changed on 1 July 2024 so you may need to check calculations for your Pay As You Go Withholding obligations.
Claims for energy expenses
Many small business are eligible for a bonus 20 per cent tax deduction for new assets (or improvements to existing assets), that support more efficient energy usage.
The Small Business Energy Incentive applies to eligible assets first used or installed ready for use between 1 July 2023 and 30 June 2024.ii
Eligible expenditure for external training courses for employees incurred between 29 March 2022 and 30 June 2024 could also qualify for a 20 per cent bonus tax deduction from the Small Business Skills and Training Boost.iii
Pay less capital gains tax (CGT)
While a business can reduce capital gains made during a tax year by offsetting them with capital losses from the same or previous income years, not all capital losses are eligible.iv
Capital losses carried forward from previous years need to be used first, with losses from collectables (such as artwork and antiques) only permitted to be offset against capital gains from collectables.
Losses from personal use assets (such as boats or furniture), CGT exempt assets (such as cars and motorcycles), paying personal services income to yourself through an entity you set up, and leases producing income (such as commercial rental property), are ineligible as offsets.
Fuel tax credit rates change
Before claiming fuel tax credits in your next Business Activity Statement (BAS), check you are using the latest rates as they have changed twice in the new financial year.v
On 1 July 2024, the rate for heavy vehicles travelling on public roads changed due to an increase in the road user charge, with the rate altering again on 5 August 2024 due to a change in fuel excise indexation.
Different rates apply based on when you acquired fuel for your business’ use, so ensure you use the correct rate. If you are unsure, try the ATO’s online Fuel Tax Credit Calculator to work out the amount to report in your BAS.
Records essential for rental expense claims
Rental property investors without correct documentation to substantiate their expense deductions may find their claims declared invalid.vi
The ATO is warning investors they need all receipts, invoices and bank statements plus details of how deductions were calculated and apportioned for a valid claim.
Lodging a ‘nil’ BAS
While taxpayers registered for GST automatically receive a Business Activity Statement and are required to lodge and pay in full by the due date, businesses with nothing to report are still required to lodge.
If you have paused your business, you are required to lodge a ‘nil’ BAS by the due date either online or via the ATO’s automated phone service.vii
Stay up to date with what’s happened in markets and the Australian economy over the past month.
Despite some signs of a weakening economy with stalling growth and a softening labour market, persistently high inflation is acting as a roadblock to the RBA’s possible rate cuts.
Markets have now priced in a risk that the RBA could hike rates as soon as the next meeting in August.
Australian shares finished the month close to where they started, with investor sentiment influenced by news of higher inflation and fears of another interest rate hike.
Click the video below to view our update.
Please get in touch if you’d like assistance with your personal financial situation.
Tax cuts ease the message of greater ATO oversight
Every taxpayer can look forward to a tax cut from 1 July thanks to the centrepiece of the Federal Budget delivered in May.
On average, taxpayers will save around $36 a week under the new rules, which were legislated in February.i
The lowest tax rate in 2024-25 reduces from 19 per cent to 16 per cent, and the 32.5 per cent marginal tax rate reduces to 30 per cent for those earning between $45,001 and $135,000.
The current 37 per cent marginal tax rate will be retained for people earning between $135,001 and $190,000, while the existing 45 per cent rate now applies to income earners with taxable incomes exceeding $190,000.
The Budget also included a commitment to reform current tax laws and give the ATO discretion to stop chasing on-hold historical tax debts of individuals and small businesses.
Boost for tax compliance
Other Budget tax measures include a $2.5 billion crackdown on the shadow economy, as well as other fraud and tax avoidance through upgrades to the ATO’s IT systems to enable real-time identification and blocking of suspicious activities.ii
A new compliance taskforce will also be formed to focus on recovering lost revenue and stopping fraudulent refunds.
Instant asset write-off retained
Small businesses will be pleased to know that the deadline for the popular $20,000 instant asset write-off has been extended to 30 June 2025.iii
Under the instant asset write-off rule, small businesses with an annual turnover of less than $10 million are permitted to immediately deduct eligible assets of less than $20,000, rather than depreciate them.
Key focus areas
The ATO has announced it will be taking a close look at three common errors taxpayers are making in returns lodged this financial year.
These include incorrectly claiming work-related expenses, inflating deduction claims for rental properties and failing to include all income when lodging a return.
Work-from-home expenses will need comprehensive substantiation and rental landlords will need to carefully check their repairs and maintenance deductions.
Meanwhile, existing CGT exemptions for foreign residents buying and selling assets will be tightened.
Unpaid GST and income debts
The ATO has signalled it intends to increase its focus to ensure both individuals and businesses pay their tax and super obligations on time.
For example, there will be a crackdown on businesses failing to pass on $50 billion in undisputed debts for GST and PAYG from employee wages.
Around 65 per cent of this debt is owed by small businesses and the ATO has warned it is returning to its normal, pre-pandemic debt collection practices.iv
Changes for trust tax returns
Small business owners who are trustees or trust beneficiaries need to remember new income tax reporting changes commence on 1 July 2024.
Trustees will be required to provide additional information about capital gains tax on the trust’s tax return statement of distribution to provide beneficiaries with additional information when completing their trust income reporting obligations.
Trust income from managed funds will also be reported with the additional details.
SG payment reminder
With the new Super Guarantee (SG) payday rules due to start on 1 July 2026, the ATO is reminding employers they need to ensure timely payment of their quarterly SG obligations.
Payments for the fourth quarter (1 April to 30 June 2024) are due by 28 July at the latest, with more frequent payments being encouraged.
Check for unlawful tax schemes
The ATO has warned businesses again about the potential risks of becoming involved in unlawful tax schemes, including structured arrangements incorrectly classifying revenue as capital, exploiting concessional tax rates and obscuring the source of funds or party relationships.
Warning signs for these schemes include zero-risk guarantees, being asked to maintain secrecy and fees or commissions based on the tax saved.
We’d be happy to provide further information or clarification about any of the new tax measures or to provide advice if they affect you.
It’s a risky business being in business for yourself, so knowing how to identify and manage risk is an important part of running a thriving business.
Anything that impedes a company’s ability to achieve its financial goals is considered a risk, and there are many issues that have the potential to derail a successful business. Some of these can ruin a business, while others can cause serious damage that is difficult to recover from.
However, taking risks is an essential part of growing a business – it’s how you thrive and expand. The key to achieving the rewards that come with risk and avoiding the devastation that can occur, is identifying and actively managing your business risk.
Assessing your tolerance for risk
The first step is to think about what level of risk you are comfortable with. A range of factors influence your appetite for risk including your individual circumstances, financial resources, specific industry dynamics, economic conditions, and business goals.
It’s important to acknowledge the relationship between risk and reward. High-risk activities may provide the potential for significant returns when you are going for growth but are also associated with greater uncertainty and the potential for larger losses.
Not all risk is equal
Some types of risk are best managed through insurance while others can be managed through thoughtful decision making and risk mitigation.
Risk taking is often associated with innovation and entrepreneurship and there are countless examples of reckless business behaviour that paid off – and as many examples that did not pay off. To expand, evolve and stay relevant in a changing marketplace, businesses may need to take calculated risks. This can encompass the development of new services or targeting a different client base, employing staff, developing new products, the adoption of emerging technologies, or exploring new markets.
Taking calculated risks involves some planning – conducting research, gathering supporting data and considering possible outcomes before making a decision. Informed, calculated decisions have a greater chance of success and doing your homework is a great way to mitigate risk in business.
Managing business risk
There are many ways to manage business risk, depending on the type of risk. Threats come in many shapes and forms and can include strategic, compliance, operational, environmental, and reputational, but one of the most fundamental risks is that of the business no longer being financially viable. All the above can impact a businesses’ bottom line so when considering your strategies, it’s a good idea to identify the risks that could affect your business’s ability to meet its financial obligations.
Setting up and maintaining a cash reserve is critical for small businesses, particularly ones with narrow margins. Half of all small businesses hold a cash buffer of less than one month which may not be adequate.i A cash reserve is a great risk mitigation strategy as it can help you get back on your feet when faced with an adverse event.
Keep an eye on cashflow
Growing a business can put pressure on cashflow, and managing your cashflow is a powerful way of managing your business risk.
If you have not already done so, creating, and maintaining a cash flow forecast helps you anticipate and cash shortages. Monitoring your cash flow over time gives you visibility of your financial situation and an understanding of any seasonal ebbs and flows.
Some things you can do to manage your cashflow include being responsive with invoicing and chasing overdue payments. Negotiate payment terms that support your cashflow requirements and consider offering incentives for early payments or penalties for overdue invoices.
For many businesses, one of the leading causes of cash flow shortfalls is overstocking, which increases the amount of cash you have locked up in your stock. Effective inventory management and working with suppliers to reduce lead times can assist with cashflow.
We can help you develop solid cash flow management and provide expert advice to make growing your business less of a risky proposition.
Many small business owners are feeling the pinch after the tough years of COVID and high inflation, but receiving a business grant could be the helping hand you need.
If you know where to look, some extra dollars from the federal or your state/territory government could make all the difference between merely getting by and a flourishing business.
What grants are available?
Grants for small businesses range from a few hundred dollars to around $10,000. Some also provide support with securing loans, business introductions, or mentoring services.
The best place to start searching for a business grant is GrantConnect, a free database listing all Australian Government grant opportunities currently open to applicants.
Another important resource is the business.gov.au Grants and Programs Finder tool, which can help you find grants, funding and support from Australian Government agencies.
The government’s Australian Small Business Advisory Services program delivers tailored advice on adopting digital tools to save time and money, and to help expand your business. Businesses with fewer than 20 full-time (or equivalent) employees, as well as sole traders are eligible.
Tech companies can check out the government’s Landing Pads program. This helps tech businesses expand into new markets by providing valuable market insights, expansion strategies, network introductions and venture capital contacts.
Each state and territory offers a range of grants to encourage local businesses. Grants vary between states, so check the online database listing the programs for your state/territory to see if any are suitable for your business.
The NSW Government for example, has a searchable Grants and Funding database highlighting financial incentives for businesses, such as payroll tax rebates for employing apprentices and trainees and the $1,000 SafeWork rebate.
For Victorian-based small businesses, check out the government’s Grants and Programs online database.
If you haven’t found a suitable grant or program, another potential source of information is Grants Hub. Although you need to register for access, you can try it out for 14 days for free.
Read the fine print
When ‘free’ money is up for grabs there is always fierce competition, so it’s important to put in a strong application.
The process will be different for each grant, making it essential to read all the information provided before getting started. Also, check that you meet the criteria, as applications will only be considered from businesses meeting the eligibility requirements.
It’s important to tailor your application to meet the grant requirements and check you prepare all the required documentation. This needs to be in the specified format.
Applying for a grant can be time-consuming, so start early and don’t leave it until the last minute to get your documentation together.
Where to start
There are private operators who offer to find business grants for a fee, but details of government grants are freely available on GrantConnect and Business.gov.au, or your state government’s website.
Small business and industry associations sometimes offer grants, so it may also be worth checking the relevant one for your business.
An easy way to find additional funding opportunities can also be to talk to us, as we can help you with government tax programs, such as the small business tax write‑off.
If the grant application process seems too time-consuming, consider hiring someone to help. While a consultant can write your application, grants are awarded on merit and using one will not give you any special access or consideration.
If you need help with finding or applying for a business grant, call our office today.
Businesses looking to attract and retain staff often provide employee benefits, on top of salary, as a way to sweeten the deal.
Many of these benefits (but not all) can have potential tax consequences – known as fringe benefits tax (FBT) – so it is important to weigh up the effect on your business.
FBT is separate to income tax and is calculated on the value of the benefit provided to the employee. Employers must work out the amount of FBT they owe each year and lodge a return.
It is worth noting that the FBT year is not the same as the financial year. It runs from 1 April to 31 March.
What to report
Most fringe benefits must be reported to the ATO. Some examples of benefits include: the use of a company car outside of work; free parking; gym membership; payment of school fees; tickets or vouchers for concerts, meals or movies; and living accommodation.
Some benefits do not need to be reported and do not incur FBT.i These include a number of benefits provided to employees working in remote areas, such as living assistance.
Other fringe benefits that are exempt from tax include work-related items such as portable electronic devices, computer software, protective clothing and tools of trade.
If the taxable value of an employee’s fringe benefits for the FBT year (1 April to 31 March) is less than $2,000, no reporting is required.
In adding up the fringe benefits, the ATO says you will need to make sure you include the employee’s part of any benefits they share with other employees as well as the value of any benefits provided to the employee’s associates, such as their partner.
Doing the numbers
For each employee, you’ll need to calculate their ‘reportable fringe benefits amount’ (RFBA) by multiplying the total taxable value of the benefits provided by an ATO ‘gross-up rate’.
The Type 1 gross-up rate is used where a GST credit entitlement is applicable to the benefit. The Type 2 gross-up rate is used where there is no GST credit entitlement applicable to the benefit. (For the FBT year ending 31 March 2023, the Type 1 rate is 2.0802 and the Type 2 rate is 1.8868.)
This calculation grosses up the pre-tax income the employee would have had to earn to buy the benefits themselves.
FBT and salary sacrifice
Benefits provided to employees through salary sacrificing may also attract FBT.
Under a salary sacrificing arrangement, an employee agrees to forgo part of their salary in return for benefits of a similar value, such as more super or a car. As a result, the employee pays less income tax and the employer pays FBT on the benefits provided.
Extra super contributions made under a salary sacrificing arrangement are not subject to FBT and are treated differently. They are considered employer contributions and are taxed in the super fund.
Claiming deductions
Employers can claim income tax deductions for the FBT they are required to pay. You can also claim an income tax deduction and GST credits for the cost of providing the fringe benefits.
The ATO provides some suggestions for reducing FBT liability. For example, employers do not incur an FBT liability if you give an employee a benefit they would have been able to claim as an income tax deduction if they had paid for it. Your FBT liability can also be reduced if the employee contributes towards the cost.
Fringe benefits can be a valuable and strategic tool in your recruitment and retention toolbox. We can help you understand and comply with the reporting requirements and be clear about the impact of FBT on your business.
New controls for ATO Online and tax charges non-deductible
Following the use of stolen personal data to access ATO Online accounts, the federal government has tightened the access rules to online tax accounts as part of an increased focus on the vulnerability of small and medium businesses to cyber incidents.
ATO interest non-deductible
From 1 July 2025, taxpayers will no longer be able to claim tax deductions for ATO interest charges.i
Although not yet law, the government made the announcement in its 2023-24 Mid-Year Economic and Fiscal Outlook.
Since deductions for general interest charges (GIC) and shortfall interest charges (SIC) will not be permitted after July 2025, any GIC or SIC later remitted by the ATO need not be included in assessable income.
New fraud controls
Tighter controls for taxpayers’ ATO online accounts will make it more difficult for criminals to commit identity fraud using stolen personal information such as bank and ATO statements and tax file numbers.
The changes mean taxpayers who use their myGovID to log into the ATO will need to use myGovID for all future logins, leaving criminals unable to access the account without it.
The government is urging Australians to upgrade to myGovID when interacting with government agencies online and has released its new Cyber Security Strategy to support small and medium businesses vulnerable to cyber incidents.
Holiday home claims
The ATO is continuing its crackdown on tax deductions for holiday homes by encouraging tax professionals to check how clients are using their property and if they are correctly apportioning deductions in line with the time period the property is producing income.ii
Some holiday homeowners are not reducing deduction claims if they are reserving their property during peak periods or are placing unreasonable conditions restricting the likelihood the property will be rented.
We have been requested to check the number of days the property is blocked out for the owners, how and where the property is being advertised, whether family or friends used the property, and if any parts of the property are off-limits to tenants.
Checking R&D claims
Working in conjunction with the Department of Industry, Science and Resources, the ATO will be undertaking random reviews of companies taking advantage of the government’s R&D tax incentive.
The reviews will be assessing the eligibility of company’s R&D tax incentive activities and expenditure, with companies selected for review being contacted directly.
If common errors are identified during the review process, the ATO will share them with all program participants.
Tough times may mean a payment plan
With some small businesses facing difficult trading conditions, the ATO is reminding taxpayers in financial distress they may be eligible to set up a payment plan if they are unable to pay their tax bill in full and on time.
Eligible taxpayers who have a tax bill of up to $200,000, may be able to set up their own payment plan using the ATO online or self-help phone services.
Payment plan eligibility requires the business to be viable and able to make an up‑front payment with completion within the shortest possible timeframe to minimise accruing GIC (currently 11.15 per cent).
Medicare safety net thresholds increase
Thresholds for the Medicare safety nets rose from 1 January 2024, resulting in an increase taxpayers need to spend on out-of-hospital medical expenses before qualifying for a higher rebate.
The increase is in line with indexation based on inflation and rose to $560.40 on the original Medicare safety net for concessional and non-concessional individuals and families.
The extended Medicare safety net increased to $811.80 for concessional individuals and families and $2,544.30 for non-concessional.
Translated cybersecurity guides available
The government’s Australian Cyber Security Centre has released five popular cyber security guides in more than 20 languages to help business owners from non-English speaking backgrounds to improve their cyber security knowledge.
The five free guides include a small business cyber security guide, personal and top tips for cyber security, easy steps to securing devices and accounts, and a seniors guide to securely using the internet.
There are many advantages to running a small business. You have the flexibility and independence to make your own decisions, you can turn your vision into a reality and then reap the rewards.
However, there are financial risks and it can be difficult to make a profit, particularly when times are tough and there is strong competition for customers’ dwindling dollars.
In fact, many small business owners are currently taking home less than the average full-time adult wage, according to the Small Business Matters report by the Australian Small Business and Family Enterprise Ombudsman.
If the way you have always run your business isn’t creating the returns you want, it may be time to try doing things differently.
There are lots of areas to explore to improve profits. The good news is that many don’t require extra expenditure, just a different way of doing things, or a new mindset about your core clients and products.
Here are nine ideas that could boost your profit margin and help improve the return you receive from all the hours you put into your business.
1. Go digital
Consider whether it’s time to add some digital solutions to improve the efficiencies within your business. Many manual tasks related to payroll, regulatory requirements and business reporting are ripe for automation. Introducing new software or technologies can see a big reduction in the time required to complete these necessary – but largely unprofitable – tasks within your business.
2. Understand your cash flow
Preparing a cash flow budget and automating your invoicing and collection processes can improve your cashflow and profits.
3. Collect what you’re owed
Taking steps to enhance your post-sale credit control may lose you a few customers, but these are usually the ones increasing your servicing costs by failing to pay on time.
4. Keep on top of essential reporting
Ensure all your business reports (such as BAS, Taxable Payments Annual Report, Single Touch Payroll and tax returns), are up-to-date and lodged online to save time and keep on top of your obligations. It’s also important not to forget your Super Guarantee records and payments, or you risk paying the Super Guarantee Charge.
5. Improve your visibility
Consider whether an enhanced social media presence could spread your message further. Check if your website and Google ranking are properly optimised. If Google cannot find you, potential customers are unlikely to know you exist.
6. Keep your customers close and sell them more
Think about the potential for selling more to your existing customers. Upselling – or the old ‘Would you like fries with that?’ – can add to your bottom line without the costs associated with finding and selling to new customers.
Check your customer ‘churn’ rate to identify how long customers stay with you. Experts estimate it costs between five to 25 times more to acquire a new customer than to keep an existing one. Develop strategies to reduce your churn rate, as increasing retention rates by five per cent can increase profits by 25 to 95 per cent. i
7. Review pricing and products
Analyse your offer to see if unprofitable products need to be eliminated. Review your pricing by working out how much margin you need to cover your expenses and develop a pricing strategy.
8. Be ruthless about expenses
Audit your business expenses and identify any that can be eliminated or reduced by switching to cheaper suppliers or options (such as leasing and refinancing). Try negotiating if you are paying for recurring monthly services. Smarter spending on fixed costs is an easy way to gain extra dollars in profit.
9. Set aside time to plan ahead
Evaluate what is working in your business and what isn’t. Write a detailed business plan for the year ahead so you and your team know where you are headed and what is needed to get there. Consider outsourcing resource-intensive tasks (such as IT or marketing) to free up time so your employees can spend more time generating profits.
Call us today for some help with improving your business’s bottom line.
