Budgeting

Budgeting for Success: BAS Advice for Small Businesses

09/06/2024

Whether you’re a seasoned business owner or growing your business, understanding your obligations when it comes to Business Activity Statement (BAS) is critical. GST codes and tracking your BAS obligations can seem overwhelming at first, but it doesn’t have to be as painful a process as many business owners find it to be.

In this article, we’ll explore how BAS works, when you need to start collecting and paying it, and considerations to help you budget for BAS payments.

How BAS Works

A BAS is a form submitted to the Australian Taxation Office (ATO) by businesses to report their tax obligations. It includes details on Goods and Services Tax (GST), Pay-As-You-Go (PAYG) instalments, PAYG withholding tax, and other tax obligations. Essentially, BAS helps you report and pay the taxes you owe based on your business transactions.

To complete a BAS, you will need to provide:

  • Details of your sales and purchases
  • GST collected and paid
  • PAYG withholding amounts
  • Any other taxes applicable to your business

When to Start Collecting and Paying BAS

If your business has a turnover of $75,000 or more, you must register for GST and start lodging BAS. Freelancers and smaller businesses need to be aware of this threshold, as once you cross this threshold it’s time to register and comply with BAS regulations.

When you do start lodging your BAS, doing it at the right time can save you a lot of headaches later down the track. Late submissions can lead to penalties and interest charges, so it is important to be organised and stick to deadlines.

Reporting Obligations and Deadlines

Once registered, you need to report your BAS either monthly, quarterly, or annually, depending on your business size and turnover. Understanding these obligations and keeping track of deadlines will help you stay compliant.

If you have a registered accountant (like us) or a registered BAS agent to submit your BAS on your behalf, the ATO allows additional time to lodge your statements.

Tips for Budgeting to Make Your Payments Manageable

It is important to be aware that paying GST can affect your cash flow, pricing strategies, and financial planning. Ensuring you have systems in place to accurately track GST, collected and paid, will help you manage these impacts effectively. If you don’t have a system in place yet, reach out for a chat and we can help you set up a system to make it easier for you to accurately track and code your transactions.
Accurate financial records are the backbone of effective budgeting and correct reporting to the ATO! Using accounting software can automate much of this process, ensuring that your records are always up-to-date and reliable.

Strategies to Manage Cash Flow

Many small businesses lodge their BAS quarterly, and the combination of super, PAYG and GST can compound and be a surprise if you are not prepared. Three easy things to do to make sure you are prepared is budget, forecast and monitor:

  • Set Aside Funds Regularly: Allocate a percentage of your income to cover GST and other tax obligations.
  • Forecasting: Use financial forecasting to anticipate your tax liabilities and plan your finances accordingly.
  • Monitor Expenses: Regularly review your expenses to identify cost-saving opportunities.

ATO Instalment Plans Explained

For businesses struggling to meet their BAS obligations, the ATO offers instalment plans. These plans allow you to spread your payments over a longer period, making them more manageable. However, it should be noted that it is at the discretion of the ATO to approve a payment plan, and you shouldn’t assume you will be eligible. ATO payment plans are a safety net or last resort for businesses struggling to meet their obligations.

Making Sure BAS is in Your Budget

We recommend incorporating BAS into your overall budgeting process. This means regularly reviewing your financial plan to ensure that funds are allocated for your tax obligations. Periodically review and adjust how much you are setting aside to reflect changes in your business operations or financial circumstances.

Budgeting for BAS doesn’t have to be a daunting task. If you need assistance, we are here to help. Feel free to book a chat with Amanda and keep your business on track.

Book a Chat

Business

Small Business Financing: Your Options Explained

13/05/2024

As a small business owner, securing the right financing is crucial for your company’s growth and success. If you are ready to expand, understanding your financing requirements and options is important to acquire funding to grow your business. In this blog post, we’ll explore the world of small business financing, helping you make informed decisions to take your business to the next level.

Understanding Small Business Funding

Access to sufficient capital is often the difference between a thriving business and one that struggles to stay afloat. However, it is crucial to ensure that you have a well-crafted business plan and that your financial projections are sound before committing to any financing options. As a business owner looking for funds to grow your business, you might have questions like:

  • What financing options are available for my business?
  • How can I effectively manage working capital?
  • Are there any new platforms for finding business financing that I should consider?

Types of Business Financing

There are several types of financing options available for small businesses, each with its own advantages and considerations. Let’s take a look at some of the most common:

  • Business Loans – Traditional bank loans and online lenders provide loans similar to a personal loan where you do not need to give away any of your equity but you will need to make regular repayments at the agreed interest rate.
  • Lines of Credit – This is flexible financing that allows you to borrow funds as needed, up to a predetermined limit. It is often used where there is a cashflow shortfall between incoming and outgoing funds. For example, you need to pay your employees but your client is late in paying their invoice.
  • Government Grants – Government entities often provide grants that do not require repayment, making them a highly advantageous option for qualifying small businesses.
  • Angel Investors – These are individuals who provide capital, usually in exchange for equity or ‘convertible debt’ – a loan that can turn into equity.
  • Crowdfunding – Raising funds through online platforms, often in exchange for rewards or equity.
  • Investor Funding – Obtaining funding from investors, such as venture capitalists (VCs), is another viable option for small businesses with high growth potential.

Choosing the Right Financing for Your Business

With so many financing options available, how do you choose the right one for your small business? Consider factors such as:

  • Prepare a Solid Business Plan – Have a clear understanding of your business’s viability, growth potential, and repayment ability.
  • Funding Amount – How much capital do you need, and which options provide that level of funding?
  • Repayment Terms – Look for financing with repayment terms that align with your business’s cash flow and growth projections.
  • Interest Rates and Fees – Compare interest rates and fees among different options to ensure you’re getting a fair deal.

Additional Aspects to Consider

If you are new to business financing, two areas that often cause confusion are investor funding and government grants. Venture capitalists (VCs) are entities or individuals who invest in emerging companies in return for shares of equity. Their contribution goes beyond mere capital infusion; they bring invaluable business acumen, industry networks, and strategic guidance that can propel a business’s growth. However, it’s imperative to understand that although VC investments can inject substantial financial backing and mentorship into your business, achieving this requires a compelling pitch, a visionary business plan, and the willingness to relinquish a significant portion of your company’s equity.

Government grants, on the other hand, are funds allocated for specific objectives like research and development, innovation, or market expansion. It’s essential to acknowledge the high level of competition for such grants and the rigorous standards and reporting obligations involved. Nevertheless, receiving a grant provides your business with financial support without necessitating equity concessions or incurring debt, offering a substantial advantage for your company’s financial well-being.

Understanding Your Options

It’s crucial to understand that every business is unique, and what works for one may not work for another. Conducting thorough research is essential. Accountants often collaborate with financial planners and brokers as part of a team, supporting businesses in finding a financing structure that best suits their individual needs and circumstances.

If you are still wondering about how each funding structure works, let’s consider a few different scenarios:

  • A local restaurant expanded operations by securing a business loan to renovate and increase seating capacity, working with a commercial lender for tailored advice.
  • An e-commerce startup launching a new product line might explore a mix of a business line of credit and small business grants, showing the varied funding avenues available.
  • A small manufacturing company invested in new machinery using a traditional bank loan, using the equipment as collateral. This strategy’s fixed payments were aligned with their revenue projections for a manageable repayment schedule.
  • A tech company initiated a crowdfunding campaign to raise funds for developing and launching an innovative software product, building a supportive community in the process.

Financing for Growth

Securing funding is a critical aspect of running your business, but equally important is ensuring that your business structure and liability considerations are adequately addressed before making any substantial financial commitments. This is particularly crucial if you anticipate rapid growth for your business. It’s essential to have the appropriate structure in place, to fully understand your cash flow projections, and to be aware of any tax or other legal obligations that may arise as your business expands.

Should you have any questions or require assistance in crafting forecasts and budgets for your business plan, please feel free to reach out for a chat.

NDIS Tax

Cracking the FBT Code: A Guide for NDIS Professionals

12/04/2024

Navigating the complexities of taxation can be daunting. For those of you navigating the National Disability Insurance Scheme (NDIS) sector, dealing with the nitty-gritty of Fringe Benefits Tax (FBT) can be quite confusing. Fringe Benefits Tax (FBT) is a topic that often brings about more questions than answers for support workers and coordinators.

What Exactly is Fringe Benefits Tax?

You may have heard the term FBT thrown around, but what is it really about? Well, simply put, it is a tax that employers pays on certain benefits they provide to their employees or their employees’ families on top of wages.

These perks or benefits could include meal vouchers, a company car, or even a gym membership. It’s completely separate from the income tax that we are all familiar with.

Essentially, if your job rewards you with some additional perks, the tax man calls this a ‘fringe benefit’ and expects the employer to pay up.

The Why Factor

If it is such a hassle, why would you, or your employer offer perks under FBT? It’s all about attracting and keeping top talent in the NDIS arena.

Now, we all like a good perk or two, don’t we? In the NDIS sector, your employers often reward employees with fringe benefits such as a car to can use when they are off-duty, meals, gym memberships, or skill-enhancing training sessions.

In a sense, these perks serve as non-monetary payment for employees. Therefore, FBT regulations are in place to calculate the deductions or taxes that the government receives from such payments.

Doing it by the Book: FBT Obligations for Employers

If you’re on the giving end of these benefits, you have to:

  • Make it Official: Register for FBT
  • Crunch the Numbers: Work out how much tax is due, which is a calculated between the value of benefits and tax rates.
  • Document Everything: Keep track of expenses and calculations – every little detail about the benefits and your tax calculations needs to be recorded.
  • File and Pay Up: Lodge a return and settle your FBT dues with the Australian Taxation Office (ATO).
  • Don’t Forget the Paper Trail: Report fringe benefits on your employees’ payment summaries or through Single Touch Payroll (STP) income statements.

What This Means in the Real-World: Common FBT Use Examples in NDIS

Fringe benefits range from the straightforward, like a company car, to things like financial assistance for education, which can be a lifeline for personal growth and remaining compliant.

Accommodation fringe benefits are sometimes used for those who need to travel to undergo specialised in-person training or conferences. Or accommodation could be required to accompany a client for medical or personal reasons; or perhaps you employ specialists such as a physio who visits regional areas on rotation? These might be regular occurrences in your business, or out of the ordinary.

Most common benefits are the essential tech tools of the trade. Phones, ipads, laptops and other tools needed to help your team do their job that you provide for personal use as well can be considered Fringe Benefits.

You may also purchase Gym memberships so your team can train with your clients, or perhaps other activities like the theatre, museum, or other activities that a membership is required for in order to facilitate a clients NDIS plan.

Final Thoughts

Whether you’re giving the benefit or receiving it, understanding the FBT landscape is crucial. While FBT might seem taxing (pun intended), it’s all about investing in people—ultimately, fostering a workforce that’s both fulfilled and more productive. Investing in your workforce means a better quality of service for your clients – and that’s something we can all get behind.

Whether you’re an individual support worker, a coordinator, or a business in the NDIS framework, professional advice can help you correctly navigate these tax-law headaches. If you would like to know more, reach out for a chat with me today.

With the right tools and knowledge, you can confidently navigate the world of FBT in the NDIS sector.

Advice Business NDIS Strategy Tax

Tax Planning for NDIS Providers

15/03/2024

Navigating taxes can seem overwhelming, leading many businesses to procrastinate until the last minute to address them, typically around June 30th. Initially, tax planning may not appear to offer significant advantages, but as your business expands, strategic tax planning throughout the year can yield substantial benefits.

This guide will demystify estimated tax payments, explore ways to optimise business expenses, and ensure compliance. Ultimately, why pay more taxes than necessary when you put in hard work daily?

Previously, we dissected what Tax Planning is in our article Tax Planning: A Strategic Guide To Paying Less And Keeping More. Today, we will delve deeper into practical Tax Planning examples.

Strategies That Save

Onto the real stuff – the strategies that can help your business thrive. Have you thought about deferring income until after June 30th, or bringing forward expenses before the curtain falls on the financial year? Here are some common strategies that save money:

  • Pre-plan Your Expenses: Bring forward necessary expenses before June 30th to have more deductions and lower your taxable income by June 30th.
  • Defer Your Payments: You may consider holding off on paying those invoices until after June 30th if you expect next year to have a higher income.
  • Business Structure Choices: Is your business structure working for you? Review your structure to make sure you are not over-paying on your taxes.
  • Be Asset-Savvy: There’s an instant asset write-off waiting, but why wait till the last minute?
  • Pay Now, Save Later: Pre-paying super can be a win-win, minimising taxes and investing in your future.

If you are new to tax planning, have a read of this article which delves into some of the most common tax planning strategies: Get a Head Start on Your Tax Planning with these Easy Ideas.

Forward Planning & Estimated Tax Payments

Estimated tax payments may not be the most thrilling topic for business management, but grasping their significance can greatly impact your financial standing. As April approaches, insights into your tax responsibilities for the end of the financial year become clearer. While year-round planning is encouraged, now is the ideal time to consult a professional regarding any further actions required before the end of the financial year.

These strategies are not mere financial tactics; they are integral components of a well-devised tax plan. It is advisable to seek professional guidance to ensure that your approach aligns with your specific circumstances and remains compliant. Engaging in simple tasks such as pre-paying interest installments for the upcoming year can enhance cash flow for the next year and enable you to utilise tax offsets promptly.

Likewise, allocating pre-payments towards your superannuation serves not only as a means of saving for retirement but also as a strategy to reduce your upcoming tax liabilities.

Quick Case Study

Let’s explore the process of pre-paying super as part your of Tax Planning. Super contributions hold particular significance, especially for small business owners who are notorious for not paying themselves super, counting on the proceeds from selling their business for retirement funds.

Making super contributions not only looks after future-you, but also reduces your current taxable income. Superannuation plays a crucial role in a well-rounded wealth-building strategy. Consider John, earning $100K annually from his NDIS enterprise before taxes.

  • John’s Income tax stands at $22,967
  • John’s take-home pay amounts to $77,033

By pre-paying $10,000 into his super before June 30th, John can slash his taxable income from $100k to $90k.

  • John’s Income tax then reduces to $19,717
  • John’s take-home pay decreases to $70,283
  • But he retains the $10,000 in his Super account until retirement, saving approximately $3,250 in tax (based on 2023 marginal tax rates).

These funds will accumulate interest for retirement and remain untaxed until that time.

Company Structure – More Exciting Than It Sounds

Choosing between a sole trader, partnership, or company impacts not just how much tax you pay, but how you pay it. Each structure has its advantages and disadvantages, so it’s important to choose wisely.

Sole traders are relatively simple in terms of tax planning – simply declare your income and deduct any eligible expenses. Partnerships, on the other hand, require an agreement between partners regarding how profits will be distributed before June 30th for effective tax planning.

Companies offer a variety of options when it comes to tax planning, such as paying yourself a salary or distributing dividends. It’s important to seek professional advice to ensure your chosen structure aligns with your business goals and tax strategy.

The Power of Tax Planning

Tax planning is crucial for NDIS registered businesses, aiming to maximise entitled deductions and legally minimise taxable income. It’s an ongoing process integrated into your business decisions year-round, not just a yearly task. Simple strategies like pre-paying expenses and maximising super contributions can reduce tax burdens and enhance financial well-being. Remember, you don’t have to navigate this alone. Having a knowledgeable ally by your side can help you make informed decisions, retain more earnings, and ensure compliance with tax regulations. Schedule a chat to discuss estimated tax payments and customise a tax plan for your NDIS registered business to avoid overpaying taxes.

Advice Budgeting Business Strategy

How to Create a Realistic Budget and Effective Forecasting for Your Small Business

17/01/2024

As a small business owner, your financial management should be one of your top priorities. One crucial aspect of this is budgeting and forecasting. However, many small business owners struggle with creating realistic budgets and implementing effective forecasting techniques. This article aims to provide guidance on how to create a realistic budget, explore effective forecasting tools and methods, and identify key financial metrics to assess business performance.

Creating a Realistic Budget 

To create a realistic budget, small business owners need to assess historical data and use it as a foundation for making informed decisions. This can be hard when you are starting up, as you may not have any data to guide you. This is where researching your industry and talking to your accountant about industry standards can be invaluable to get your financial model right. 

If you are starting out, using a system to track your data means that you can quickly see and adapt to trends and patterns as your business grows. 

If you have some data, start by analysing past financial records and identifying trends and patterns. This analysis helps to identify areas of improvement. It will help you set achievable revenue goals, but you will also need to take into account external factors such as current market conditions, industry trends, and potential growth opportunities.

Another step is identifying and allocating expenses. This means categorising expenses into fixed and variable costs. Fixed costs might be rent, utilities, salaries, marketing, inventory, and supplies. Your variable costs change as the volume changes, so these might be the costs of the goods to your business. 

Your reports are only as good as the data, so make sure you assign appropriate funds to each category and monitor the actual performance against budgeted figures regularly. If necessary, adjust the budget to align with business goals and ensure that it remains realistic.

Tools and Methods for Financial Forecasting

Effective forecasting requires the use of appropriate tools and methods. Sales projections are an essential part of forecasting. By analysing historical sales data and considering external factors such as market demand, customer behaviour, and industry trends, you can forecast sales for the month, quarter, year or even five years.

Cash flow forecasting is another essential tool for small business owners. Accurately predicting cash inflows and outflows over a specific period lets you plan for any potential cash shortages or surpluses and make informed financial decisions. 

Conducting scenario analysis is another crucial aspect of financial forecasting. This involves creating multiple financial forecasts based on different assumptions and scenarios to understand the potential impact on your business’s financial performance.

Key Financial Metrics to Measure Business Performance

Measuring and tracking your business’s financial performance is crucial to making informed decisions and staying competitive. To do this effectively, focusing on key financial metrics is essential. 

  • Revenue growth is one of the critical metrics to track. It helps assess your business’s ability to generate sales and increase market share. 
  • Gross profit margin is another essential metric. It measures the profitability of each unit of product or service sold.
  • Net profit margin is equally important as it measures the profitability of your business after deducting all expenses. 
  • Monitoring cash flow is also vital for small business success, as it ensures that you have enough liquidity to cover expenses and invest in growth opportunities. 
  • Lastly, return on investment (ROI) helps to evaluate the efficiency and profitability of investments made in the business.

 

Budgeting and forecasting are crucial aspects of financial management for small businesses. Creating a realistic budget, utilising effective forecasting tools and methods, and focusing on key financial metrics help you make informed decisions and achieve your business’s financial goals. 

Small business owners can stay ahead of the curve by assessing historical data, setting achievable goals, identifying expenses, monitoring cash flow, and tracking financial metrics. If you would like to chat with me about setting up your finance platform for accurately tracking or understanding your financial reports please reach out for a chat. 

 

This blog post is intended for informational and educational purposes only. The information provided in this blog post should not be taken as professional accounting advice or recommendations.

Liability limited by a scheme approved under Professional Standards Legislation.

Advice Budgeting Business

Managing Your Business’s Cashflow during the Holiday Period: Tips from An Accountant

03/12/2023

This is the time of the year when many businesses experience a dip in their cash flow. With several staff members away and a number of public holidays compounding on each other, it’s not unusual for the holiday break to be stressful for business owners. I have seen businesses of all sizes struggle with managing their cash flow during the holiday periods, and I have compiled some tips to help you navigate the festive season while maintaining good cash flow. 

This is the perfect moment to establish positive habits so that next year, you can enjoy the holiday season confident in your business’s financial readiness.

Plan ahead

We all know we should do this, but very few business owners do it. The best time to start planning for the holiday season is at least six months before the year-end festivities begin. Right now, you can analyse your business’s cash flow statements from last year and identify the periods when cash flow was at its lowest. With this information, you can take the necessary steps to minimise the impact of reduced cash flow. Creating a financial calendar that outlines expenses, revenues, or expected inflows will help you stay on track through the year and even set aside a buffer for the next holiday period. 

Track your Spending

Christmas can be an expensive period for businesses, with bonuses, parties and holiday wages. Plan a budget within which your business can run through the holiday season. Adequate budgeting will help you enjoy the festivities without getting caught up in overspending and starting the new year on the back foot with a cash flow crisis.

The start of a new year is a good time to set your business’s financial goals for the year ahead. When you are compiling your forecasts for the year, consider factoring in all costs, including annual leave entitlements and end-of-year bonuses, into your budget. Including these costs in your budget now can help you be prepared for when the festive season rolls around. 

You may even want to consider these expenditures the same as any other recurring business cost and add them as a category to your business expense tracking. Being prepared is key to maintaining healthy cash flow and ensuring your business thrives at any time of the year. 

Proactive Invoicing

Depending on your business type, during the holiday period, some customers may be late with payments if they fall during their business closure, and the resulting delays can cause a cash flow shortfall for your business. Before the holiday season, encourage customers to make prompt payments or pay invoices early that are due during the holiday period. This can help prevent cash flow issues during the festive season. 

Embracing automation can be a game-changer for managing your cash flow during the holiday period. If your business has regular clients with whom you’ve established a repeating billing cycle, consider setting up automatic invoices. Most accounting software can schedule invoices to be sent out at predetermined intervals, ensuring regularity in your cash inflows. 

This means your business’s invoicing carries on in the background, even if you’re soaking up the sun on a beach or carving up the ski slopes. Not only does this provide peace of mind, but it also frees up valuable time that you can use to focus on strategic tasks, ultimately contributing to your business’s bottom line.

Keep Your Employees Productive

Many employees take time off to travel or rest during the holiday period. The impact on your business’s productivity can be enormous, and then you may find that you scramble to get jobs completed before holiday closures or are starting the year with a backlog of work. 

Some businesses add extra resources in the lead-up to the busy period to make sure jobs stay on track, but resources such as staff need to be paid so it is important to make sure you have budgeted sufficiently. 

Stay Active Online

If you have an online store, online payments provide a seamless customer payment experience. Many businesses will let customers know there is a delay in the delivery of goods and services during the holiday period but will continue to take payments online during this time. But the good news is that although your shopfront may close over this period, your online store stays open. 

 

Final thoughts

Managing cash flow over the holiday period doesn’t have to be a hassle. Proactive planning, expense control, prompt customer communication, and smart employee scheduling can help you avoid the stress of a cash flow shortfall this season. These tips should help you maintain a healthy cash flow so that your business can thrive during and after the holiday season. If you need professional advice on managing your business’s cash flow, please reach out for a chat. 

Business

Knowing the Differences Between a Sole Trader and a Company: Which One Fits Your Business?

10/11/2023

If you are starting a business or thinking about restructuring how your business is organised, you might be juggling back and forth between the options of being a sole trader and forming a company. These two structures offer different advantages and disadvantages, and it is important to be familiar with these differences to make an informed decision. In this article, we’ll discuss the three key differences between a sole trader and a company, and help you identify which structure suits your business best.

Liability 

One of the biggest differences between a sole trader and a company is liability. As a sole trader, you are personally liable for the debts and liabilities of your business, and you will be required to pay your creditors from your personal assets if your business cannot pay its debts. On the other hand, if you form a company, the company will be a separate legal entity that is responsible for its own debts and liabilities, and your personal assets will generally be protected from creditors of the company.

Taxation

Another major difference between a sole trader and a company is in taxation. As a sole trader, you and your business are considered one and the same for tax purposes, and you will be taxed on the business’s profits at your personal income tax rate. In contrast, a company is taxed separately from its owners, and it pays corporate tax on its profits. While the corporate tax rate is generally lower than personal income tax rates, you will need to pay additional tax if you pay dividends to yourself or your shareholders.

Ownership and Governance 

Lastly, the ownership and governance of a business differ significantly between sole traders and companies. As a sole trader, you are the only owner and decision-maker of your business, and there are no formal legal requirements you are obligated to follow. In contrast, a company has directors who control how it is run, and shareholders who own the company. 

There are also strict regulatory standards that companies need to comply with such as preparing annual financial reports, holding annual general meetings, and filing their tax returns promptly.

It is important to weigh the advantages and disadvantages of a sole trader and company depending on your business goals and resources. While a sole trader is more straightforward and less costly to set up, forming a company may offer more protection to your personal assets and establish more credibility with your clients and suppliers. 

Whatever structure you choose, you’ll need to make sure that you are familiar with the legal and regulatory requirements for that structure. By understanding the differences between a sole trader and a company, you can make a well-informed decision and set your business up for success.

Business

What Small Business Owners Need to Know About New Superannuation Changes

01/10/2023

From 1 July 2023, new changes to superannuation have come into effect. When you have looked at your recent financial reports for Q1 of the 23/24 financial year, you would have noticed that your super payments have increased compared to last quarter. 

The new reforms carry an additional charge of 0.5%, a seemingly small figure that can make a significant difference in the overall financial outlook of your business. This is a good example of why you must be well-prepared for regulatory changes so you can ensure that your profit margins can withstand these increased resourcing costs. 

In this article, we will delve into the reasons behind the increase in super and provide insights into what future rises are expected. 

Changes in Super Contribution

In Australia, superannuation, often called ‘super’, is a mandatory retirement savings program funded by employers’ contributions; sometimes employees will make additional contributions. By law, employers must pay a percentage of an employee’s ordinary time earnings into a superfund. As of 1 July 2023, this super guarantee (SG) is set at 11%, marking an increase from the previous 10.5%. This percentage will incrementally rise until it reaches 12% by July 2025. 

The responsibility of making super contributions primarily falls onto the employer. Employers are obligated to pay the super guarantee for employees who are 18 years or over and are earning $450 or more before tax in a month. It also applies to employees under 18 years if they work more than 30 hours per week. This super contribution is separate from an employee’s salary or wage; it is an additional cost to the business. Superfunds then invest these regular contributions to grow the employees’ retirement savings over time.

Engaging contractors also carries super responsibilities that small business owners must know. If you employ contractors who are paid primarily for their labour, you may be required to make super contributions on their behalf. This stipulation applies even if the contractor has an Australian Business Number (ABN) or invoices you for their work. The crucial factor is whether the contract is wholly or principally for labour. If more than half the value of the contract is for the contractor’s labour, then super contributions may be necessary. 

Consequences of Not Meeting Super Obligations

Failure to meet superannuation obligations can lead to severe penalties for business owners. Incorrect, late, or non-payment of super can attract legal action, fines, and penalties from the Australian Tax Office (ATO). The financial ramifications of such oversights can be significant, not to mention the reputational damage these can inflict on businesses. All business owners must ensure they are making accurate and timely super contributions for their employees and eligible contractors to avoid such repercussions.

As your accountant, we make sure you are making the correct super payments based on employee earnings and that you are updated with any changes. However, it is still the business owner’s responsibility to ensure that payments are made punctually, as failure to do so can lead to significant penalties. 

A common strategy many businesses adopt is to set aside a designated amount for super and business activity statement (BAS) payments in a separate account. This dedicated account acts as a financial buffer, ensuring that funds are always available for making these payments. This approach can help alleviate stress on business cash flow. 

Why are Super Contributions Changing?

The superannuation system is changing to better address the increasing life expectancy and financial needs of Australia’s ageing population. As people live longer, the need for sustainable retirement income strategies is becoming more crucial. By increasing the super guarantee (SG) incrementally to 12% by 2025, the government aims to ensure individuals have sufficient funds to sustain a comfortable lifestyle during their retirement years. This approach is designed to alleviate some of the pressure on the public pension system as the proportion of working-age people decreases relative to those in retirement.

The Need for Proactive Business Planning

Businesses need to be proactive and factor in the annual, incremental increases in superannuation into their forecasts and budgets. These small changes can have a substantial compound effect on your business’s overall financial health. The key to managing this lies in proactive business planning. 

It’s important to take into account changes to wages, super and tax while planning your annual budgets and forecasts. Doing so helps to minimise the impact when the super guarantee (SG) increase takes effect each July. 

Should you have any questions or concerns about these changes to the superannuation system – or if you are interested in performing a comprehensive review of your budgets and forecasts – please do not hesitate to reach out.

Advice Business Education Tax

Your Ultimate Guide to Tax and Your Small Business

01/09/2023

The small business sector has been described as the engine room of the economy and the country’s biggest employer – and it’s not hard to see why.
So, it’s important to become familiar with the many possible tax benefits for small businesses. Typically, a small business is defined as having an annual turnover of less than $10 million. However, for the valuable small business CGT concessions, the turnover threshold is just $2 million. Don’t worry if your turnover is higher – you may still be eligible for certain concessions. To prevent businesses from exploiting the system by splitting activities to stay under the threshold, turnover must be calculated from aggregated amounts. This means considering your annual turnover (gross income, excluding GST) from all sources.

As a business owner, you can claim certain business expenses on your tax return to reduce your taxable income. From office supplies to travel expenses, there are various types of business expenses that may be eligible for deductions. While some deductions can be complex, like figuring out the percentage of computer use for work, others are 100% tax deductible. You can start maximising your tax savings by looking into which expenses you can claim.

How do tax deductions work?

Claiming work-related deductions on your tax return is your entitlement. To do so, you must meet the following criteria:

  • Keep records to prove your expenses.
  • Have spent the money yourself.
  • Not have been reimbursed for the cost.
  • Ensure the expense is related to your job.

If an expense is for both work and private purposes, you can only claim the work portion. Tax law requires records to be kept for five years and can include receipts, expense invoices, credit card statements, employee records, vehicle records, lists of debtors and creditors and asset purchases. Records can be kept on paper or electronically but should be easily retrieved. Rest assured that we will guide you through this process and help you maximise your deductions.

What are the different types of deductions you can claim?

Vehicle and travel expenses
The most important thing to remember when it comes to work-related vehicle and travel expenses is that you must keep records, which will make life a lot easier at tax time. Whether it’s your own vehicle expenses, or accommodation and transport expenses for airfares, train, tram, bus or taxi fares – all of these can be claimed. Keep in mind some fringe benefits tax may be incurred for some travel.

Work-related clothing and laundry expenses
Do you have to wear specific attire for your job? Whether it’s a suit, a uniform with a company logo, or clothes purchased from the store you work in, it’s important to understand your employer’s dress policy. But when it comes to tax deductions for work clothing, there are specific criteria that must be met. They must be specific to your occupation, protective clothing or footwear or a specific uniform.

Working from home deductions
Whether you work from a designated room or not, there are different methods to choose from when claiming tax deductions from home office expenses. Keep all your records and you can even deduct expenses for computers, phones, and other necessary devices. Plus, running costs for electricals are also deductible. Remember, you can claim up to $300 for home office equipment or a decline in value for pricier items. And don’t forget your phone bill if it’s used for work.

Professional associations, magazine subscriptions and trade union fees
As part of your profession, you might be a member of a professional association or a trade union, which fees are deductible. Magazine subscriptions that are aligned with your work, for example, an investor with financial publications are claimable.

Interest and investments
Deductions can be claimed for interest, dividends, or other investment income expenses. When it comes to interest on income expenses, account-keeping fees for investment purposes can be claimed. However, keep in mind that if you have a joint account, you can only claim your portion of the fees.
As for shares and dividends, you can deduct interest charged on borrowed money used to purchase shares. If the borrowed money was used for both private and income-producing purposes, it must be divided accordingly.

Income protection insurance
Including insurance premiums for loss of income in your deductions is a smart financial move. However, it’s important to note that not all insurance policies are eligible for deduction. Life insurance, critical care insurance, trauma insurance, and policies paid for out of your superannuation contributions do not qualify. Make sure to exclude these when claiming your deductions.

Self-education expenses
Claiming self-education expenses can be beneficial if your studies directly contribute to your work. To be eligible, the course you pursue must result in a formal qualification that meets the following criteria:

  • The course must maintain or enhance the skills and knowledge required in your current job.
  • The course should also lead to, or have the potential to lead to, an increase in your income.
  • It’s important to note that you cannot claim expenses for self-education that are not significantly connected to your current employment.

Here is a list of expenses that you can claim related to your self-education:

  • Accommodation and meals (if you are staying away from home overnight)
  • Computer consumables
  • Course or tuition fees
  • Depreciating assets with a cost exceeding $300 (or decline in value)
  • Equipment or technical instruments costing $300 or less
  • Equipment repairs
  • Fares
  • Home office running costs
  • Interest
  • Internet usage (excluding connection fees)
  • Parking fees (only for work-related claims)
  • Phone calls, postage and stationery
  • Student union fees
  • Student services and amenities fees
  • Textbooks
  • Travel to and from your place of education (only for work-related claims)

If an expense is both for your self-education and other purposes, you can only claim the portion that relates specifically to your self-education as a deduction.

Tools and equipment
You can claim a deduction for tools and equipment used for work purposes. If the items are also used for private expenses, you will need to divide the claim. For assets that cost $300 or less and are not part of a set, an immediate deduction can be claimed. For items over $300 or part of a set, you can claim a deduction based on their decline in value. Additionally, the cost of repairing and insuring tools and equipment can also be claimed if necessary.

Tax preparation fees and travel to see your accountant
Remember that you can claim your last year’s accountant fees and travel costs to and from these consultations.

Government Tax breaks for your small business

Although the Temporary Full Expensing scheme has now finished from 1 July 2023 the government has increased the instant asset write-off threshold to $20,000. This means that small businesses with an aggregated turnover of less than $10 million, will be able to immediately deduct the full cost of eligible assets costing less than $20,000 that is first used or installed ready for use between 1 July 2023 and 30 June 2024. The $20,000 threshold will apply on a per-asset basis, so small businesses can instantly write off multiple assets.

Assets valued at $20,000 or more (which cannot be immediately deducted) can continue to be placed into the small business simplified depreciation pool and depreciated at 15% in the first income year and 30% each income year after that.

The Small Business Technology Investment Boost offers a generous 120% deduction to digitise its operations with digital assets and services. Eligible expenditure includes digital enabling items, digital media and marketing (such as webpage design), e-commerce (such as portable payment devices) and cyber security systems. The boost is applicable for expenses and depreciated assets from 29 March 2022 to 30 June 2023, with a maximum expenditure cap of $100,000. If the expenditure is on a depreciating asset, the asset must be first used or installed ready for use for a taxable purpose by 30 June 2023.

For small businesses, investing in the skills and training of their staff can be a key factor in success. To support this, the Small Business Skills and Training boost provides an extra tax deduction of 20% on eligible training courses provided by registered external organisations. This boost is available to businesses with an aggregated annual turnover of less than $50 million and runs from 29 March 2022 to 30 June 2024. It’s important to note that the training must be provided by a registered business within Australia and cannot be in-house or on-the-job training. If you’re a small business owner looking to invest in the growth and development of your staff, the Small Business Skills and Training boost provides a great opportunity to do so while also receiving a tax benefit.

When it comes to running a small business, keeping on top of your paperwork may be the last thing on your to-do list. So while you focus on running and growing your business, our team at ASAP Solutions can help with getting your records in order and discovering the right deductions.

To make the most of tax time and get your refund as fast as possible, contact us and lock in an appointment.

1 2 3 4