cash flow management

Cash Is King

by Advice

In these times of seemingly ever-increasing costs, improving cash flow is crucial for the financial health of a business. Here are some strategies to help you do that:

  1. Invoice Promptly: Send out invoices as soon as goods or services are delivered. Consider offering early payment incentives to encourage faster payments.
  2. Follow up on Payments: Establish a system for following up on overdue payments. This might involve sending reminders, making phone calls, or even offering payment plans.
  3. Manage Expenses: Analyse your expenses and cut any unnecessary costs. Look for opportunities to negotiate better terms with suppliers.
  4. Inventory Management: Avoid overstocking inventory, as it ties up cash. Use just-in-time inventory practices when possible.
  5. Tighten Credit Policies: Be cautious with extending credit to customers. Screen new customers for creditworthiness and set clear credit terms.
  6. Reduce Operating Costs: Evaluate your fixed and variable costs. Look for ways to reduce expenses without sacrificing quality or service.
  7. Increase Sales: Focus on marketing and sales efforts to boost revenue. Consider diversifying your product or service offerings to attract more customers.
  8. Improve Cash Reserves: Build up cash reserves during periods of strong cash flow to cushion against lean times.
  9. Negotiate with Suppliers: Negotiate favourable payment terms with suppliers. Extended payment terms can provide some breathing room.
  10. Consider Financing: Explore financing options such as business loans or lines of credit to cover short-term cash flow gaps.
  11. Monitor Cash Flow: Keep a close eye on your cash flow through regular financial reporting. This will help you spot issues early and take corrective action.
  12. Forecast Cash Flow: Create cash flow forecasts to anticipate future needs and plan accordingly.
  13. Streamline Operations: Look for ways to make your business processes more efficient, which can reduce costs and improve cash flow.
  14. Offer Discounts for Early Payment: Consider offering discounts to customers who pay their invoices early to incentivise prompt payments.
  15. Debt Management: Manage your existing debt wisely, ensuring that interest payments and principal repayments fit comfortably within your cash flow.

A list like this can be a bit overwhelming so just pick one or two to start off with.  Focus on those for the next month or so and see how you go.  Then pick another strategy and build from there.

Remember that improving cash flow often requires a combination of strategies tailored to your specific business needs and circumstances. It’s essential to regularly review your financial statements and adjust your approach as needed to maintain healthy cash flow.

A crucial part of the equation is having accurate and up-to-date financials.  None of these will work if you are flying in the dark.  That’s where we come in.  Activ8 can do the number crunching so you can focus on your business.  No more losing sleep over the books.  Give us a call on (07) 3367 3366.

SMSF

SMSFs Are On The Rise – But Why?

by Advice

Compulsory superannuation for employers was introduced in 1991.  Since then, the pool of funds in Super has been growing steadily bigger and of June 2022 there was $3.3 trillion invested in Super.

Of this pool, the Self Managed Super Fund sector makes up a significant portion.  As at June 2022, there were 601,432 SMSFs in Australia with a total of 1.1 million members. This represents less than 5% of the population, but they have $869 billion in assets, or about 26% of the total invested in Super.

We had seen inquiries about Self Managed Super drop over the past decade due to increased regulation and potential legal and investing complexities. However, there has been renewed interest in the last couple of years from an increasingly younger demographic.

This is highlighted by recent ATO data which shows about 44 per cent of savers starting an SMSF are aged under 45 years, with about one-third of new members aged between 35 and 45 years.  With the growth in their super balances, this younger cohort are starting to realise there is real money involved and they want to have greater control.

Compulsory super contributions of at least 11 per cent are contributing to sizeable balances after about a decade of work and increasing awareness of retirement wealth and investing compared to earlier generations.

This group is growing much richer than earlier generations as they become middle-aged, particularly for couples who pool their investment savings.  They are looking to use a self-managed superannuation fund for their retirement savings while adding to a separate portfolio of assets outside of super when investment opportunities arise.

We think SMSFs are great investment vehicles with their significant tax advantages.  There are strict rules in place for running them and they are not for everyone.

Here are some pros and cons:

PROS

  • Better flexibility and control with an SMSF
  • Reduced costs for larger SMSF funds
  • Greater access to investment options
  • The tax benefits of SMSFs
  • You can share a SMSF fund with family members
  • Flexible estate planning

CONS

  • Duties & responsibilities of being a trustee
  • Can be time consuming
  • Financial & legal risk in SMSF decision making
  • SMSFs aren’t eligible for government compensation schemes
  • Additional expenses in low value funds
  • Living overseas can affect your SMSF

If you like to know more about SMSFs and what they can offer, give us a call.  We cannot advise on whether they are right or wrong for your personal situation, but we can give you the low down so you can make an informed decision.

Super-death-tax

Super Problems After Death

by Advice

It’s vital to think about what happens to your super when you die.  Few Australians realise the government will come for their superannuation savings when they die. The recently bereaved find themselves holding a massive surprise bill to the government because their parents or partners didn’t know they needed to plan for death to avoid tax.

The first thing to realise is that Superannuation is treated differently in law from the rest of a person’s assets, and you need to think about it separately.

Contrary to popular belief, your Will does not determine who is to receive your superannuation in the event you were to pass away.

Unless you provide your superfund with a binding death benefit nomination, the trustee of your super fund will decide who receives your super in the event of your death, which will be based on your relationships and eligible superannuation dependents at the time of your death.

A binding death benefit nomination for your Superannuation dictates to the Trustee who you would like your super to be paid to if you pass away.   The binding nature of this type of nomination leaves your super fund with no discretion. That is, they must pay your remaining super balance exactly as stated in your nomination.

A couple of things to watch out for:

  1. Make sure you sign a binding, as opposed to non-binding nomination, because that way the fund trustees will have to comply with it.
  2. Think about signing a non-lapsing binding nomination as it will last until you change it. The lapsing variety expires after three years. 

Who Can My Super Be Paid to?

If you die, your superannuation can only be paid to a limited number of people. These types of people are defined as dependants under superannuation legislation.

Specifically, a superannuation dependant includes:

  • Your spouse or de facto spouse
  • Your child of any age
  • A person who was in an interdependency relationship with you at the time of your death

An interdependency relationship is defined as a close personal relationship between two people who live together, where one or both of you provide financial, domestic or personal support to the other.

If you do not have any superannuation dependants, or would like your superannuation to be paid to someone who is not a superannuation dependant, you will need to nominate for your super to be paid to your Legal Personal Representative / Estate. This way, your superannuation is then combined with all of your personal assets and distributed in accordance with your Will. 

Super death payments and tax

Super money left directly to dependents via a nomination or a decision by trustees is not taxed.

Dependents, according to the Australian Taxation Office, include children under 18, current and ex spouses and de factos, and others you have been financially supporting.

Children under 25 who are students or dependents are also not taxed on super death payments.

Grandchildren are not considered dependents unless there is some special circumstance like disability.

As a generalisation, for anyone who is not a dependent (this includes adult children), the ATO will take 15 per cent of the payout plus the Medicare levy, effectively making it 17 per cent.

There are extra complications here.

There are taxable and tax-free components to superannuation. Taxable components relate to concessional super contributions entering the fund.  That means any money put in the fund through super guarantee payments made by your boss, salary sacrifice or personal concessional taxable contributions that were only taxed at 15 per cent on the way in.

Those taxable contributions and the earnings on those contributions will be taxed at 17 per cent when paid to a non-dependent.

If the deceased was a public sector employee, then potentially the contributions could be taxed at 32%.

What avoids the tax?

Non-taxable contributions include any payments you made to your fund that did not have a tax deduction attached. These include non-concessional one-off payments including downsizer contributions made on the sale of the family home.

These are not taxed on the way out of super because the ATO considers you must have paid tax on the money before you put it in.

If your super is made up of concessional and non-concessional payments your fund will have a record of how much of your balance is in both categories so look at your annual statement for details.

Earnings in the fund are allocated to concessional and non-concessional payments, according to the ratio of both balance types.

Re-contribution strategy

If you are approaching retirement, you can look at a withdrawal and re-contribution strategy.  The fund member withdraws the maximum yearly amount and immediately deposits it again as a contribution. By consistently withdrawing funds from both components and re-depositing them, retirees can slowly alter the ratio of their super fund and leave less of a tax obligation for any nominated beneficiary.

I know all this can be very confusing, so don’t hesitate to reach out to us if you wish to know more.

Family-leave

Paid Family & Domestic Violence Leave From August 1

by Advice

Paid family and domestic violence leave (FDVL) kicked off for large employers on February 1. Now it’s time for small businesses to get on board.

Ten days’ paid family and domestic violence is a significant new entitlement for employees.

The obligation to provide paid family and domestic violence leave applies:

  • from 1 February 2023, for employees of businesses that are not small businesses (i.e. on 1 February 2023, the business employed 15 or more employees); and
  • from 1 August 2023, for employees of small businesses (i.e. on 1 February 2023, the business employed fewer than 15 employees).

What is Family and Domestic Violence leave?

Paid family or domestic violence leave will be available in the event that the employee needs to do something to deal with the impact of the family and domestic violence and it is impractical for them to do it outside their ordinary hours of work.

For example, making arrangements for their safety or the safety of a family member (including relocation), attending urgent court hearings, or accessing police services.

Family and domestic violence – What is it?

A family or domestic violence incident is defined as violent, threatening, or abusive behaviour directed at an employee by a former or current intimate partner, a household member, or a close relative in an effort to coerce or control them.

A close relative of an employee is considered the following:

  • Spouse or former spouse
  • Current or former de facto partner
  • Child
  • Parent/s
  • Grandparent
  • Grandchild
  • Sibling
  • Family members of an employee’s current or former partner, including siblings, children, parents, and grandparents
  • Individuals who are related to the employee according to Aboriginal or Torres Strait Islander kinship rules.

The following types of behaviour are examples of family and domestic violence:

  • Financial abuse
  • Stalking
  • Emotional abuse
  • Sexual assault
  • Physical violence
  • Controlling behaviour

When does Family and Domestic Violence Leave apply?

Employees (including part-time and casual employees) can take this paid leave if they need to do something to deal with the impact of family and domestic violence. For example:

  • Making arrangements for their safety or the safety of a close relative (including relocation)
  • Attending court hearings
  • Accessing police services
  • Attending counselling sessions, medical appointments, financial consultations, or legal consultations.

Who is entitled to Paid Family and Domestic Violence Leave?

Employees covered by the Fair Work System, including full-time, part-time, and casual employees, are entitled to ten days of paid leave for domestic and family violence. For every 12 months of employment, employees will receive ten days paid for family and domestic violence; the entitlement is provided up-front at the start of each 12-month period. The leave does not accumulate like annual leave.

Employees who started employment on or after 1 February 2023 are entitled to the full 10 days from their starting day.

How is pay calculated for Family and Domestic Violence Leave?

The type of employment determines the amount of pay for paid family and domestic violence leave.

Both part-time and full-time employees are entitled to receive full pay for the hours they would have worked if they did not need to take family or domestic violence leave.

Casual employees are paid their full pay rate for the hours they were scheduled to work if they need to take leave due to family or domestic violence.

Family and Domestic Violence Leave pay slip data and record keeping

The employer must ensure that any information regarding paid family and domestic violence leave balances or leave taken is not included in payslips. This safety measure aims to reduce any risk for employees that need to use their family and domestic violence leave.

Employers must keep a record of all employees’ leave balances and leave taken for Family and Domestic Violence.

What are the employee’s obligations when taking Paid Family and Domestic Violence Leave?

As soon as practicably possible, the employee should notify their employer they are taking family and domestic violence leave and how long they expect to be away from work. The notification can be after the employee has taken the leave.

Employers may request evidence that shows the leave taken was to deal with the impact of family or domestic violence and that it was not feasible to manage this outside of working hours. Evidence can be documentation issued by the police, a court of law, family support services or a statutory declaration.

The employer can only use the information provided to determine whether the employee is entitled to family and domestic violence leave.

Key takeaways:

The Paid Family and Domestic Violence Leave legislation key points:

  • On 1 February 2023, the new paid family and domestic violence leave is available to employees for businesses with at least 15 employees or over.
  • The start date for paid family and domestic violence leave for employers with less than 15 employees is 1 August 2023.
  • Over 12 months, full-time, part-time, and casual employees can take up to 10 days of paid family and domestic violence leave.
  • The leave is pro-rated for part-time or casual employees.
  • No matter how many hours employees work per week, they are entitled to 10 days of family and domestic violence leave.
  • Employees who started employment on or after 1 February 2023 are entitled to the full 10 days from their starting day.
  • The paid family and domestic violence leave renewal is on the employee’s start date anniversary, not on the 1 February every year.
  • The 10-day entitlement does not accumulate year after year, like annual leave.
  • An employee’s pay slip must not contain any information regarding paid family and domestic violence leave as of 1 February 2023.

For more information on paid family and domestic violence leave, visit fairwork.gov.au.

work from home deductions

Working-from-home Deduction Changes

by Advice

The ATO has made some changes to how you can claim work-from-home expenses.

The ATO has scrapped the ‘shortcut method’ for claiming work-from-home expenses. This method allowed taxpayers to claim 80 cents per hour worked from home and was an all-inclusive rate so no other work-from-home related expenses could be claimed on top.

You still have the option of claiming on an hourly basis – but it is much less generous than previously.

There are two methods available to claim work-from-home expenses: (1) Fixed Rate Method, and (2) Actual Cost Method.

Fixed Rate Method

The ATO has updated the fixed rate method from 52 cents to 67 cents per hour. However, the new fixed rate now covers all ongoing expenses such as phone bills, internet and utility expenses while working from home.

The only additional expenses that can be claimed on top of the hourly rate are new equipment, office furniture and cleaning (if you have a dedicated home office).

The changes don’t stop there, the ATO has also introduced stronger record-keeping for at-home expenses. From 1 July 2022 to 28 February 2023 taxpayers can provide a four-week diary representing their hours worked from home. From March 2023 onwards, the ATO will require each hour worked from home to be recorded.

Actual Cost Method

The Actual Cost Method remains unchanged and allows you to claim a deduction for the actual expenses you incur. This method takes all of the at-home expenses and then proportions them for their work-related use. These include internet, phone, electricity, computer consumables, stationery, and cleaning (if you have a dedicated home office). A detailed diary is not required – a 4-week period that represents your work use can be used. You will need to keep copies of invoices and bills.

Which rate will be best for you will depend on your individual circumstances. Generally, we find that in most cases the actual cost method gives a greater deduction. When preparing your return, we will do an analysis to ensure you get the best deduction possible.

Please reach out to Activ8 for more information on what’s required to claim home office expenses and your eligibility to maximise your return.

A8-Group-1

Introduction Of Deduction For Skills Training & Technology Costs

by Advice

120% deduction for skills training & technology costs

This was originally announced in 2022 budget by the Morrison Government. It has been adopted by the current Government and on the 21st June 2023, the legislation to allow these measures was finally passed.

Technology Investment Boost

The Technology Investment Boost is a 120% tax deduction for expenditure incurred on business expenses and depreciating assets that support digital adoption, such as portable payment devices, cyber security systems, or subscriptions to cloud-based services. 

The boost is capped at $100,000 per income year with a maximum deduction of $20,000. 

The $20,000 bonus deduction is not paid to the business in cash but is used to offset against the assessable income. If the company is in a loss position, then the bonus deduction would increase the tax loss. The cash value to the business of the bonus deduction will depend on whether it generates a taxable profit or loss during the relevant year and the rate of tax that applies. 

Skills and Training Boost

The Skills and Training boost is a 120% tax deduction for expenditure incurred on external training courses provided to employees. This incentive will not apply to sole traders and independent contractors. 

External training courses will need to be provided to employees in Australia or online and delivered by training organisations registered in Australia. 

The training must be necessarily incurred in carrying on a business for the purpose of gaining or producing income. That is, there needs to be a nexus between the training provided and how the business produces its income. 

Note that the additional deduction relating to the 2021/22 financial year is to be claimed in the 2023 tax returns.  

If you require further information on any of these measures, please do not hesitate to contact our office on (07) 3367 3366.

A8-Group-2

Changes for Business From 1 July, 2023

by Advice

From 1st July 2023, there are a number of key changes to come into effect which will impact your business and employees.

SUPER GUARANTEE RATE RISE 

Don’t forget that the super guarantee rate increases to 11% from 1 July 2023. 

This means you need to calculate super contributions at 11% for your eligible workers for payments of salary and wages you make from this date. 

Your super contributions for the current quarter (ending 30 June, due by 28 July 2023) are still calculated at the 10.5% rate for payments of salary and wages made prior to 1 July.  

WAGES GO UP 

Wage increases kick in on 1 July, following a ruling from the Fair Work Commission. 

For employees who aren’t covered by an award, the minimum wage will go up from 1 July to $882.80 per week, or $23.23 per hour, and will apply from the first full pay period starting on or after 1 July 2023. 

For employees covered by an award, minimum award wages will increase by 5.75%, also applying to the first full pay period starting on or after 1 July 2023.  

PAID PARENTAL LEAVE CHANGES 

From 1 July, amendments to the Paid Parental Leave Scheme will come into effect.  

Notably, the Dad and Partner Pay (DAPP) scheme, which currently provides up to two weeks of paid leave, will now be combined with the 18-week paid parental leave scheme. This means eligible parent couples or single parents can share their 20 weeks of leave – aimed at greater gender equity in parental caring responsibilities. 

There are other changes, too, such as the whole 20 weeks of leave of instalments can be received flexibly in multiple blocks within 24 months of the child’s birth or adoption date, removing the previous requirement of 12 weeks in one continuous period. 

Also, note that employees now have greater rights to request an additional 12 months of leave (24 in total) – and employers need to show reasonable business grounds on which to refuse.

DOMESTIC VIOLENCE LEAVE INTRODUCED 

This entitlement has been in place since 1 February 2023 for employers with 15 or more employees.  For smaller employers who employ less than 15 employees, this entitlement will operate from 1 August 2023. 

Employees will be entitled to 10 days of paid family and domestic violence leave (FDVL) per year.  

Paid family and domestic violence leave is quite a sensitive topic, and there need to be procedures in place – for everything from how the HR or manager handles requests to the privacy issues around how it gets recorded on a pay slip.  

PENSION AGE AND ELIGIBILITY INCREASES 

For those businesses employing older Australians, it’s worth noting that from 1 July, the pension age will be raised to 67 for those born on or after 1 January 1957. 

Not only that but asset and income eligibility tests will also be revamped, which means singles can earn $204 a fortnight and couples $360 a fortnight, before losing their full pension.  

ENERGY BILL RELIEF ON ITS WAY 

With soaring power bills contributing significantly to business operating costs, $650 in bill relief is on its way from July for small businesses. 

To be eligible, your business must be on a separately metered business tariff with your electricity retailer and your annual consumption must be less than 100MWh.  If you run a business from home, you probably won’t qualify. 

You don’t need to do anything. If you are eligible, you will receive bill relief on your electricity bills from 1 July 2023.  

Note these are Queensland numbers.  There are different thresholds and bill relief for each state. 

If you require further information on any of these measures, please do not hesitate to contact our office on (07) 3367 3366.

Tax-Refund-3

8 Ways To Max Your Tax Refund

by Advice

The end of the financial year is now less than 3 weeks away.  It’s time to make sure your house is in order by targeting tax breaks, trimming loss-makers and invigorating wealth-creating strategies.

The following are eight strategies that can help you get the max from your tax return.

1. Get organised and claim what you are entitled to

The tax office is a big fan of paperwork to back up any claims you make.  We are seeing increased audit activity by the ATO so it is vital you have the receipts and proof to back up any claims you make in your tax return.  You don’t need to keep piles of paper receipts.  The ATO is happy with unedited scanned copies.  Just remember to save your documents for the five years that the ATO requires.

2. Work expenses

If you spent money in the process of making money, a whole range of work-related costs can be claimed on tax – everything from sunscreen for outdoor workers to the cost of laundering professional uniforms.

Transport costs are one of the most popular travel tax deductions. Generally, work-related travel in your car or on public transport is claimable with the exception of travel from home to work (and vice versa).
Other expenses you may be able to claim for are:

  • Clothing and laundry expenses of uniforms that are distinct to your job and company
  • Protective clothing and certain accessories for specific employees
  • Self-education expenses, including home office costs
  • Tools and equipment purchase and other related expenses
  • Fees of books and periodicals, as well as digital information and subscriptions.

You can only claim a deduction if they are related to your job. A course that helps you be better for your current duties can be claimed. However, one that may aid you in getting a promotion or another job cannot be claimed.

If you’re unsure, just check with us or the Tax Office website for a virtual A-Z of expenses that are tax deductible.

3. Claim your work from home expenses

In February this year, the ATO changed the way you can claim deductions for costs incurred when working from home.  Firstly, they have revised the fixed rate method and what is covered by that rate. Then they increased the compliance obligations.

With these changes, we believe most clients will be better off claiming work from home expenses based on the actual costs incurred, rather than the cents per hour method. This is because the new fixed rate of 67 cents per hour now absorbs some tax deductions that you used to claim separately.

This method involves claiming the actual work-related portion of all running expenses. To claim this method, you must have an area set aside as a dedicated home office.

Compliance obligations include keeping detailed records for all the working from home expenses being claimed, including:

  • All receipts, bills and other similar documents to show you have incurred the expenses you want to claim.
  • A record of how you have calculated the work-related and private portion of the expenses (for example, a diary or similar document kept for a representative 4-week period to show the usual pattern of work-related use of a depreciating asset such as a laptop).

If you want to use the cents per hour method, then from 1 March 2023 you need to keep a record of the actual hours you worked from home.  Estimates or the 4-week representative log book will not be accepted.

4. Make strategic use of Super (and boost your retirement savings)

It used to be a case of ‘use it or lose it’. If you couldn’t contribute the maximum annual concessional (before-tax) contribution amount to your superannuation, the opportunity was lost.

However, from the 2019/20 year, if your super balance was below $500,000 at the previous June 30, you can use “catch-up” provisions to “legitimately breach” the annual limit.  From 1 July 2018, the ‘unused’ amount of your annual cap can be carried forward for the next five financial years.  After five years, that unused amount will expire.

Given that Superfunds are generally taxed at 15%, if you are on the top tax rate, these additional contributions can save up to 32% in personal income tax.

If you want to take advantage of this but are unsure of the catch up amounts available, we can quickly get this information from the Tax Office portal.

5. Cut capital gains

If you have a capital gain this year that is going to be taxable, then consider realising capital losses to offset against the gains.

To offset a loss against a gain, both must be realised.  This means you must sell both before 30 June to reduce your tax bill.

This is a chance to re-align your investment portfolio to be in line with the portfolio objectives, but also take the opportunity to potentially clean out any poorer performers and manage capital gains and losses.

6. Trust distributions

In recent years, it seems the ATO has decided they really don’t like Trusts.  Albeit they are a legitimate vehicle for transferring and managing wealth. One area that is getting focus lately is the need to complete a trustee resolution before June 30.

Failure to do so means the trustee could be assessed on the trust’s taxable income at the highest marginal tax rate.

Activ8 will be in touch with all our clients within the next week to follow up on this issue.

7. Instant Asset Write Off

If you’re a business that is looking to purchase an asset with a value greater than $20,000, ideally do it before 30 June. You will be able to claim 100% of its cost in FY23.  Note the asset needs to be installed and ready to use before 30 June to get the deduction.  If purchased after 30 June, then these assets will be added into a small business simplified depreciation pool and depreciated at 15% in the first year and 30% each year thereafter.

8. Make donations

Tax time is when the feel-good factor of charitable giving can really kick in. Donations of $2 or more to registered charities are tax deductible.

You’ll need a receipt for large gifts but if you’ve handed some loose change to a street collector you can still claim the donation without a receipt as long as it’s less than $10. Don’t forget to include donations for any workplace giving programs you are part of.

If you want to discuss any of the initiatives referred to above, or if you need help getting your taxes ready or coming up with a plan, don’t hesitate to reach out to Joanna or myself. We’d love to chat.

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2023 Budget – What It Means For You and Small Businesses

by Advice

The 2023 Federal Budget was very underwhelming tax-wise with the primary focus being measures aimed at lowering the cost of living or improving welfare.

This budget is a first-term government setting the tone to win a second and third term.  It’s not a big spending budget and the government is banking a lot of the tax windfall it will receive over the next 4 years.  The numbers are a bit rubbery, but it is a good start to repair the budget.

There is little to no structural change to the tax system, and they have left the stage 3 tax cuts alone.  The government is doing everything it can to not break promises and to send a message about economic competence.  Short of a drastic change in economic circumstances, I think the stage 3 tax cuts are here to stay.

The Treasurer, Dr Chalmers, has indicated that more “difficult decisions” will need to be made to sustainably fix the budget, but I think they are looking to the next term of government.  Labor wants to bank some trust and goodwill with the electorate before it brings any major tax reform to the table. 

BUDGET OVERVIEW

The key measures of the Budget affecting small business and what it means for you.

1. Temporary Full Expensing is Ending

Currently, most businesses that purchase business assets can claim 100% of its price in full, in the year that it’s purchased and ready for use. This will finish on 30 June 2023.

Recommendation: If you need to purchase a business asset and have the cashflow to do so, we recommend you purchase it BEFORE 30 June 2023 to be able to claim 100% of its cost in the 2023 year.

2. Instant Asset Write Off – $20K

Replacing temporary full expensing is the Small Business Instant Asset Write-off.  Businesses with a turnover of less than $10 million, will be able to immediately deduct the full cost of eligible assets costing less than $20,000 (incl GST).  Assets need to purchased and installed before 30 June 2024.

Assets that cost more than $20,000 will be added into a small business simplified depreciation pool and depreciated at 15% in the first year and 30% each year thereafter. Remember, this is a tax deduction, and it is not $20,000 cash back to you.

3. Low and Middle Income Tax Offset (LMITO) has ended

The temporary LMITO was introduced in the 2019 Budget and then extended during the COVID-19 pandemic.  It resulted in extra tax refunds of between $675 and $1,500 (depending on your level of income) for individuals. The Government didn’t extend the LMITO, so it has ended as at 30 June 2022.

Lower tax refund: Individuals who received an extra tax refund of up to $1,500 in 2022 will not receive it again this year in 2023.

4. Small business failure to lodge penalty amnesty

An amnesty has been announced for small businesses with a turnover of less than $10m, and have fallen behind on their tax returns.

A small business will not be charged failure-to-lodge penalties for outstanding tax lodgements that are lodged between 1 June 2023 and 31 December 2023 that were originally due between 1 December 2019 to 29 February 2022.

You’ve got 7 months to sort this one out and avoid some fines if you need to catch up.  Remember to reach out if you need a hand!

5. Super Stuff

The budget confirmed changes that were previously announced.  From July 2026 employers will have to pay super at the same time as wages, rather than quarterly.  This measure is designed to increase compliance with the legislation.

It won’t begin for 3 years but you will need to factor this into your future cashflow planning.

At the other end of the scale, very high superannuation balances will attract a higher rate of tax from 1 July 2025. Earnings on balances exceeding $3 million will pay tax on earnings at a rate of 30 per cent, 15% higher than the current rate of 15%. Earnings on balances below $3 million will continue to be taxed at the concessional rate of 15 per cent. Defined benefit interests will be appropriately valued and will have earnings taxed under this measure in a similar way to other interests to ensure commensurate treatment.

If you have a balance of more than $3 million in your Superfund you should do a complete review of your arrangements to determine the best tax strategies going forward.

6. Family Support

From 1 July this year, Parental Leave Pay and Dad and Partner Pay will combine into a single 20-week payment. A new family income test of $350,000 per annum will see nearly 3,000 additional parents become eligible for the entitlement each year. The Government has also committed to increase Paid Parental Leave to 26 weeks by 2026.

7. Tax incentive for energy efficiency

The Small Business Energy Incentive provides an additional deduction of 20% of the cost of eligible depreciating assets that support electrification and more efficient use of energy.

Up to $100,000 of total expenditure will be eligible, with a maximum bonus deduction of $20,000.

While the full detail of what qualifies for the incentive is not yet available, it is expected to apply to a range of depreciating assets and upgrades to existing assets such as electrifying heating and cooling systems, upgrading to more efficient fridges and induction cooktops, and installing batteries and heat pumps.

Some exclusions will apply including electric vehicles, renewable electricity generation assets, capital works, and assets that are not connected to the electricity grid and use fossil fuels.

8. Plan for higher PAYG instalments in 2024

Normally, PAYG instalments toward next year’s tax are adjusted using a GDP adjustment or uplift.

In 2022-23, the Government reduced this uplift factor to 2% instead of the 10% rate that would have applied. And now for 2023-24, the Government has set the uplift factor to 6% instead of the 12% rate that would have applied.

If you continue to make good business profits with tax to pay, you will need to budget for slightly higher PAYG instalments. 

OTHER STUFF FOR SMALL BUSINESS 

A few other “watch this space” announcements for supporting small businesses:

  • $23.4 million Investment in Cyber Security
  • $392.4 million Investment in an Industry Growth Program
  • $18.1 million Investment in Buy Australia Plan

These types of investments tend to filter down through state government grants so keep an eye out.

These are the main measures affecting small businesses from this budget.  Remember, these are subject to the measures passing through Parliament.  If you require further information on any of these announced measures, please do not hesitate to contact our office on (07) 3367 3366.

improve your business

5 Tips For Using Your Financials To Improve Your Business

by Advice

With preparation of year-end financials getting underway, it’s timely to explore where the opportunities for improving business results can be found in your financials.

Changing the outcomes of business results rarely happens by continuing to do what has been done in the past, but understanding what you have done, what that has achieved and how that can be changed will arm you well to make decisions for the future.

Here are 5 tips to apply when reviewing your financials which can lead to actions to improve your business.

1. Sales and Gross Profit

Your top-line sales figure for this year compared to last year gives you limited information, so drill down to explore the reasons for the change.  Have there been particular product or service lines that have performed stronger this year, what was the driver for that and did it really improve profitability? For example, your sales may have increased because you cut your prices, but if that didn’t generate sufficient volume increases you may be no better off.  Say your gross profit margin is 35 percent and you reduce your prices by 10 percent; your turnover has to increase by 40 percent just to maintain profit levels.

A simple yet effective profitability benchmark is your average dollar sale, to calculate that divide your total sales by the number of transactions. Compare this year’s average dollar sale with the results from a year ago to see some trends. To improve business year on year, set yourself a target, supported by a few initiatives, to increase this by 10 percent in a year’s time — it’ll do wonders for your profitability.

2. Breakeven point

The availability of your financials is an opportunity to update your breakeven point, which is a fundamental piece of information you need to know about your business.

If you know what cash you need to collect from your customers to cover your outgoings each month, it’s a truly motivating factor and a very early indicator of impending success or challenges on the horizon. We refer to outgoings rather than overheads or expenses because you need to factor in your drawings or tax as well as overheads when calculating your breakeven point.  This number can then be used to drive activities from salespeople and accounts staff to ensure the work is processed, invoiced and funds received month on month.

3. Solvency

Review your balance sheet with particular attention to your current assets and current liabilities, items in there include cash at bank, accounts receivable and short-term debt.  When classified as ‘current’ they are expected to be received or paid within 12 months and reviewing this comparison is a very good indicator of business solvency.

Can you pay your bills as they fall due, or are you dependent upon some extended trading terms of suppliers to continue to trade?  As directors of trading businesses, you have a legal duty not to take on liabilities you cannot repay and doing so puts yourself at risk of disqualification from directorship and severe financial consequences.  Identifying a solvency concern, determining the options available and taking action early is the best approach to ward off future issues.

 

 

4. Cash flow statement

It’s not unusual for business owners to look at a profit number only to ask “where has that profit gone?”. If your financials include a cash flow statement, use this to identify where all your profit has gone if it’s not sitting as cash at bank.  Alternatively, request a source and application of funds summary to be provided with your financials.

A cash flow statement or summary will show the sources of funds and how they have been applied over the period, which is essential because many of the outgoings of a business will not appear in the profit and loss account (for example, drawings, tax or loan repayments).  Use this Source and Application of Funds summary to understand where the profit from the last 12 months has gone and decide on future actions in light of this information.  Some common places you might find your profit sitting include the debtors, reduction of loan principal and tax payments.

5. Advance to and from directors/shareholders

How much money does the business owe you, or do you owe money back to the business? If the business owes you a substantial sum, it is good practice to consider each year if it is time to begin planning to draw this money down.

This could trigger a restructure of your finances if the business profitability is suitable and replace your advance account with a business loan. This will enable you to withdraw the money you are owed to build wealth outside the business or reduce personal debt.

If you owe money back to the business, keep this in check, reviewing it annually with a view to repaying it with priority.  Approach management of the advance account with full support from your Mazars adviser to plan for any tax consequences of these actions.

Good business operators take a keen interest in using annual financials as a means to understanding the financial well-being of their business.  There are no silly questions when it comes to clarifying elements within the financial statements and using the historical performance to set goals for the future.

At Activ8, we are focussed on supporting the development of efficient profitable businesses and can assist in identifying opportunities for improvement from your financials.  The preparation of monthly or even quarterly financial statements will provide more timely information, which will further allow for the identification of areas of improvement in your business.