The sun is shining, the end is near, and we begin to look forward to celebrating with friends, family and coworkers. As your advisor we wanted to make sure that you are fully aware that the end of year celebrations that you put on for your employees may hit you with unintended tax consequences. This message is to provide you with information so that you are fully informed.
Christmas Parties
These are some common scenarios relating to work Christmas parties, and their tax consequences:
Party held on business premises
Where the party is for current employees only, there is no fringe benefits tax (FBT) to pay. However, there is also no income tax deduction or GST credits claimable.
If the party includes current employees and their associates or some of your clients, it depends on how much the cost of the party is per head.
If your party costs less than $300 per head, then there is no FBT to pay, but also no income taxdeduction or GST credits claimable.
If the party costs more than $300 per head, then the amount that is attributable to your employee’s associates (such as their spouse/partner) is subject to FBT. Any amount that is subject to FBT is claimable as a tax deduction, and you can claim GST credits as well. All the other amounts are not subject to FBT, but also are not deductible for income tax and no GST credits to claim.
Party held away from business premises
If the party costs less than $300 per head, then no FBT is payable. However, you also cannot claim a tax deduction and no GST credits are available to claim.
If the party costs more than $300 per head, then FBT is payable with respect to each employee that attends, as well as their spouse/partner. Again, if FBT is payable on an amount, then you can claim an income tax deduction as well as any GST credits.
If any clients of yours attend the party, and it costs more than $300 per head, then no FBT is payable, but also no income tax deduction or GST credits can be claimed.
However, if the party costs less than $300 per head, and at the party guests are provided a hamper (or other non-entertainment gift) worth less than $300, then the hamper is allowable as a tax deduction and GST credits can be claimed.
This is because the hamper is considered a gift which is separate from the party.
Christmas Gifts
If you provide your employees with a non-entertainment Christmas gift to thank them for their service, there is no FBT payable as long as that gift is valued at less than $300. Examples of non-entertainment gifts include a Christmas hamper, a bottle of wine or spirits, giftvouchers, flowers or other similar types of gifts.
If your are not sure where you stand with your holiday gifts and entertainment get in touch and we can help.
More than ever, cashflow is a vital part of staying afloat, whether your business is in recovery or growth mode. Revenue, profit and your bottom line all deserve your attention. But keeping everything running is the baseline.
Regular cashflow forecasts help you keep that in focus. Here’s why:
Cost control – If you can’t reach your targets for income, reining in your costs may give you a little extra head room to manage cashflow while you plan your next move.
Visibility on outgoings – Cost control can be a challenge when it’s hard to pinpoint hidden costs or where established ways of doing things cost more money than they should. You may also have been coping with unexpected expenses, as you’ve adapted your business for unplanned circumstances or increased costs.
Improving business practice – It’s more than only keeping an eye on outgoings (though that’s important). It’s about looking at each aspect of your business and business systems (or the gaps where there should be business systems) to see if poor practice is driving costs up unnecessarily.
It can be useful to break it down – You can look at cost centres such as office supplies or freight. Or you can look at what those costs do for your business. It can help to analyse costs in terms of cost of sale and overheads.
Cost of sale and overheads
Cost of sale (also known as Cost of Goods Sold or CoGS) is how much it costs you to make a sale.
In a business that sells products, CoGS is based on the price paid for the product, plus any costs necessary to put the merchandise into inventory and make it ready for sale, including shipping and handling. You can even break it down to calculate the cost of sale of individual units.
Overheads are general business expenses. They can’t be tracked directly to sales. Overheads are what it costs you to open your doors (whether online or actual) every morning.
What’s your plan?
Reduce unnecessary expenses – Trim expenses that aren’t related to your core product or service.
Suppliers – Are you able to work with your providers to ask for discounts or more favourable payment terms on either cost of sale or overhead expenses?
Talk to your team – Analyse your costs and involve your team, including frontline sales staff.
Efficiencies – Are there efficiencies that could save you money, this can be anything from reducing shipments from suppliers or between stores, to taking advantage of AI to save you time, money or both.
Advertising – It might be a false economy to cut back on advertising, as customers are always looking for bargains and price-checking alternatives. But would targeted campaigns work better?
Prioritise – Can you pinpoint products most likely to bring the fastest or best return and hold back on products that are a slower sell?
Promote or discount – If you have old or slow-moving stock, can you discount it and convert old stock to cash? If you attract customers now, you may be able to use it to spotlight other products.
Every dollar you pull back from your costs can go straight into cash flow. Talk to us if you’d like to review your costs and your systems to keep costs under control. Whether your sales are boom or bust, make sure your costs aren’t holding you back.
Opting for a self-managed superannuation fund (SMSF) may give you more control over your investment strategy and allow you to be more agile as a fund in the market. But are you fully aware of the governance and compliance responsibilities of running an SMSF?
Let’s take a look at the main areas you should be focusing on as a fund trustee.
Five key areas when managing your SMSF
The members of your SMSF run the super fund themselves, as the name suggests. So, it’s vital that you’re on top of the responsibilities of managing the fund.
This means having a good overview of:
Compliance and governance
You’ll need to understand and fulfill your responsibilities as trustees, ensure the fund meets the sole purpose test, maintain up-to-date trust deeds and an investment strategy.
You must also comply with all ATO administrative and reporting requirements and arrange annual independent audits.
Investment strategy and performance
You must develop and regularly review a comprehensive investment strategy for the fund and ensure your investments align with the fund’s objectives and risk profile. You’ll also need to diversify your investments appropriately and monitor and evaluate investment performance, as well as remaining within the in-house asset limits (generally 5% of total fund assets).
Contributions and Benefits
It’s vital that you understand and adhere to contribution caps (both concessional and non-concessional) and manage the timing and amount of contributions strategically. You also need to ensure that all contributions are properly recorded and reported, that you understand the preservation rules and conditions of release, and that you manage benefit payments in compliance with the regulations.
Record Keeping and Reporting
It’s important to maintain accurate and detailed records of all transactions and keep minutes of all investment decisions and trustee meetings. You’ll need to prepare and lodge annual tax returns and member contributions statements and value the funds assets regularly. All relevant documents must be kept for the required period (usually 5-10 years).
Separation of business and SMSF assets – a key part of your responsibilities is to maintain clear separation between personal, business and SMSF assets. All transactions between the business and SMSF must be made at arm’s length and you should be cautious when considering using the SMSF to purchase business property.
Talk to us about your SMSF concerns
If you’re thinking of setting up an SMSF, or are already managing one, it’s best to get regular professional advice throughout the life of the superannuation fund.
We can advise you on record-keeping, accounting and the tax implications. And we can connect you with superannuation experts and financial advisers when you have questions about your investment strategy, or deeper questions regarding the management of the SMSF.
When you’re running a business, it’s easy to get caught up in the day-to-day activity and lose sight of the big picture. Taking stock of the health of your business is important. Knowing where you are allows for more effective planning, early warning about any issues, and the chance to better chart a course for success.
There are some quick ratios that will help you to gauge the health of your business. We can help you to assess your business health and show you how to calculate these vital checks.
Liquidity Ratios
Liquidity ratios are about how quickly you can turn your business assets into cash – which helps you assess whether you’ll be able to pay the bills if cashflow gets tight.
High ratios are better, as this means you’ve got more assets than liabilities.
Current ratio
Current ratio = Total current assets / Total current liabilities
As a general guideline, 2:1 is a good current ratio, but this does depend on the kind of industry you’re in, and the nature of the assets and liabilities.
Quick ratio
Quick ratio = (Current assets – stock on hand) / Current liabilities
This measure excludes your existing stock, which you may not be able to quickly turn into cash, and is seen as a more realistic quick snapshot of your position.
Solvency ratios
Solvency ratios look at sources other than cash flow to see whether your business will be able to settle debts.
Leverage ratio
Leverage ratio = Total liabilities / Equity
This is a measure of whether your business is reliant on debt financing or equity to fund your assets. A higher ratio can make it harder to borrow money.
Debt to assets
Debt to assets = Total liabilities / Total assets
This tells you what percentage of assets is being financed by liabilities.
Profitability ratios
Profitability ratios will let you know how efficient your business operations are. Where possible, it’s good to measure your business against others in your industry.
Gross margin ratio
Gross margin ratio = Gross profit / Total sales
This ratio tells you whether you can cover the necessary business overheads from your sales.
Net margin ratio
Net margin ratio = Net profit / Total sales
This measure tells you the percentage of sales dollars left after you’ve settled your expenses, except for your income taxes.
Checking in on your business health is a great habit to get into. Using these ratios helps you to understand your current business health and allows you to plan. Talk to us about how to calculate the factors in these ratios in order to keep your business on the right track.
Treasury has provided draft legislation on a May 2023 Federal Budget measure to extend your businesses 2-year amendment period to 4 years for income tax returns.
Small and medium business entities
You are a small or medium business entity for an income year if you:
carry on a business during the income year, and
one or both of the following applies:
the aggregated turnover of your business in the previous income year was less than $50 million, and/or
your business’s aggregated turnover for the current year is likely to be less than $50 million.
Current amendment period
The period during which the Australian Taxation Office (ATO) may amend an assessment for businesses your size is 2 years. The amendment period applies from the day on which the ATO gives you a notice of assessment.
Proposed amendment period
The draft legislation proposes an amendment to allow the ATO to amend the tax return for your business, upon your request, within 4 years after the day on which the ATO gave you a notice of assessment. The application for an amendment must be in the approved form and given to the ATO before the expiry of the 4-year period.
The additional time is intended to reduce the administrative burden on your business if you need to amend your tax return, as well as on the ATO. The current 2-year period is considered too short, as outside of this window you would otherwise have to engage in costly and lengthy objections and appeals processes with the Commissioner of Taxation.
Note that the Commissioner may only amend your assessment to give effect to the decision on your application. As such, the provisions will not allow the Commissioner to amend your assessment about other items not included in the application. This is to ensure that sufficient certainty is still afforded to you, as the 4-year period only applies in respect of those particulars mentioned in your amendment application.
What doesn’t change
Despite this proposed change in legislation, there is no change to the length of time you are required to keep records for your business. You need to keep records for your business in case the ATO wants to audit your tax return.
For instances such as fraud and tax evasion, the Commissioner of Taxation may amend your return at any time. Generally, records are required to be maintained for 5 years from the date on which the record was prepared or obtained, or from the time the relevant transaction or act was completed, whichever is the latter.
Contact us
Please note this draft measure will be required to receive parliamentary approval before it comes into effect. In the interim, please do not hesitate to contact our office should you have any queries.
Australia’s small businesses are the power behind our economy. Small businesses (employing less than 20 people) added nearly $590 billion of value in 2022, making up around a third of all Australian gross domestic product (GDP) for the period.
But keeping on top of your financial management, accounting and tax planning can be a major challenge for some owners.
With this in mind, the ATO has set up a new advice portal for small business owners, giving you tips and advice on everything you need to know about your finances and business taxes. Strengthen Your Small Business
Essentials to strengthen your small business.
The ATO’s Essentials to Strengthen your Small Business portal is your first stop for business advice. There are helpful tips covering everything from having your first business idea, through to founding a startup, growing a business and even help on exiting the business.
From a tax perspective, there are several courses to help you keep your tax on track:
Starting a business – this course helps you set up your first business, with advice on common business structures and the registrations you need to run a small business.
Using your business money and assets – this course gives an overview on paying yourself, with advice on the different options and the records you must keep.
Record-keeping – advice on using technology to help your mandatory record-keeping, and on overview of the tax and super records you’ll be required to keep.
Claiming small business tax deductions – this course covers expenses you can deduct immediately, expenses you can deduct over time and expenses you can never deduct, as well as motor vehicle expense deductions.
Growing your small business – This course helps you plan the growth of your business, alongside other considerations like GST and capital gains tax (CGT).
Goods & Services Tax (GST) – an overview of who must register for GST, how to calculate GST on sales and purchases, as well as other requirements such as invoicing, record-keeping, and reporting GST to the ATO.
The ATO’s online resources are incredibly helpful when you’re starting out as a business owner. But if you need deeper advice on mandatory record-keeping and tax, come and speak to us.
We’ll be glad to take you through all elements of your tax requirements and record-keeping.
