How To Take Cash Out of Your Company

How To Take Cash Out of Your Company

As a sole trader or partnership, the tilt is yours. As a company, it it isn’t. It belongs to the company, not you. So since it isn’t yours, how do you still take cash out of your company?

How To Take Cash Out of Your Company

As a company, when you take cash out of your company, what you take comes with tax attached. How much depends on how you do it.

Sole Trader and Partnership

As a sole trader or partnership, your business and you are one. Your business is not a separate legal entity. You are the legal entity. So your business cash is your cash. Take what you think is right.

How much you take doesn’t affect your tax position. You already paid tax on the business profits at your marginal tax rate.

And it doesn’t affect your creditors, since they have your personal assets as backup. You are personally liable for any business debt. As a partner you are severally liable as well, meaning you are liable for all debt, not just your portion.

So take as much cash as you think is right. And leave the rest.

Company

But all this changes when you set up shop as a company. Now you and your business are no longer one, but two. You are one legal entity. And your company is another. And the company’s cash is no longer your cash.

So how do you take money out of your company? There are 5 ways and only those 5 ways, no other.

1 – Wages

The company pays you a wage and withholds PAYG withholding, which you receive back as a tax offset when you do your individual tax return.

Wages are included in your taxable income and you pay tax on these.

2 – Dividends

The company declares and pays you a dividend, hopefully with franking credits attached. Franking credits result in a refundable tax offset and hence are like cash. They are a refund of the tax the company already paid.

Dividends are included in your taxable income and you pay tax on these.

3 – Shareholder Loan

You just take money out of the company and book it against shareholder or director loan. Or you pay private expenses from your company’s bank account. Nobody says that you can’t do that. You can.

But the crux is that unless you pay this back by the time your tax return is due, this loan will be treated as a dividend. So it gets included in your taxable income and you pay tax on it. Unless….you make it a Div 7A loan.

4 – Div 7A Loan

This is a common way to take money out of a company – for up to 7 or 15 years – without treating it as a wage or dividend. You need a formal loan agreement and minimum yearly repayments of interest and principal.

But a Div 7A loan is only a temporary solution. In the end you have to pay it all back and then your money is back in the company, looking for a new way out.

5 – Capital Distribution

Amounts sitting in your capital reserve, for example pre-CGT capital gains, are distributed as capital upon liquidation of your company. This capital distribution will then attract the 50% CGT discount as well as possibly small business CGT concessions, hence significantly reducing the tax you pay on the cash you receive.

So that’s all you have. Those 5 ways. And each will come with a very different tax treatment. Does all this make sense? Just give me a call, if you get stuck.

 

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Jobkeeper 2.0

Cash Flow Boost Depends on Timing

COVID-19 Help for Business

 

Disclaimer: numba does not provide specific financial or tax advice in this article. All information on this website is of a general nature only. It might no longer be up to date or correct. You should contact us directly or seek other accredited tax advice when considering whether the information is suitable to your circumstances.

Liability limited by a scheme approved under Professional Standards Legislation.

Jobkeeper 2.0

Jobkeeper 2.0

The original Jobkeeper started on 30 March 2020 and will end on 27 September 2020. But what happens next?

Jobkeeper 2.0

All is not lost. Jobkeeper 2.0 is coming, starting on 28 September 2020. But it will be harder to qualify for this one, since there are four changes.

1 – Split Between Full-Time and Part-Time

For Jobkeeper 1.0 all employees were treated the same. All received $1,500 per fortnight. 

This is changing for Jobkeeper 2.0. It will now distinguish between full-time and part-time employees.

Anybody who worked 20 hours or more per week in February 2020 counts as full-time. Everybody else is part-time.

So when you apply for Jobkeeper 2.0, you indicate which employees are full-time and which are part-time.

2 – Drop of Fortnightly Rate

During Jobkeeper 1.0 the fortnightly rate was $1,500 per eligible employee.

For full-time employees on Jobkeeper 2.0 this decreases to $1,200 for October to December 2020 and then to $1,000 from January to March 2021. For part-time employees Jobkeeper drops from $1,500 to $750 and then $650 per fortnight.

3 – Actual Past Turnover

The turnover test for Jobkeeper 1.0 was based on your projected turnover. You just gave it the best estimate you could. And if you got it wrong, that was ok. 

For Jobkeeper 2.0 there is no more guess work. Just actual numbers of what happened so far. After 27 September it no longer matters what you project. All depends on your actual quarterly turnover since 1 April 2020.

If each past quarter (June and September 2020 quarters as well as the December 202 quarter later on) had a drop of least 30%, you continue to qualify. 

4 – Continuous Test

For Jobkeeper 1.0 you just had to pass the turnover test once. It was like a door – once you were through, you were in.

For Jobkeeper 2.0 this changes to a continuous test per quarter. For each quarter, you have to show that the past 2 or 3 quarters all had suffered at least a 30% drop in turnover.

So these are the four changes that come with Jobkeeper 2.0. Just give me a call if you need to know more.

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Tax on Cash Flow Boost and JobKeeper

Cash Flow Boost Depends on Timing

COVID-19 Help for Business

 

Disclaimer: numba does not provide specific financial or tax advice in this article. All information on this website is of a general nature only. It might no longer be up to date or correct. You should contact us directly or seek other accredited tax advice when considering whether the information is suitable to your circumstances.

Liability limited by a scheme approved under Professional Standards Legislation.

Tax on Cash Flow Boost and JobKeeper

Tax on Cash Flow Boost and JobKeeper

Do you need to pay any tax on the cash flow boost and Jobkeeper payments your business receives?

Tax on Cash Flow Boost and JobKeeper

The short answer is No and Yes.

Cash Flow Boost

The cash flow boost is NANE. You include it in your tax return but under non-assessable non-exempt income. So you declare it but you don’t pay tax on it.

JobKeeper

The JobKeeper payment is assessable income for you as employer. But it is also a normal wage expense when you pass the payment on to your employees. So it basically just comes in and goes out without any impact on your tax liability.

For your employees the JobKeeper payment is assessable income, so they will pay tax on those payments. How much else they earned in 2019/20. You as employer need to do PAYG withholding on these payments to them. You can’t withhold any admin fees or other charges on their payment, but you must withhold tax as required. 

2020 Tax Returns

As soon as the 2020 tax returns are out, we will update this paragraph and advise you where exactly (what line and field) in the 2020 tax returns you need to list the cash flow boost and JobKeeper payments.

ATO

The ATO knows exactly how much they paid you. So best to get this right. Wouldn’t look good to tell them something different. It might make them wonder what else you got wrong or forgot.

Please call me if you get stuck. 

 

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Cash Flow Boost

Boost Your Cash Boost

COVID-19 Help for Business

 

Disclaimer: numba does not provide specific financial or tax advice in this article. All information on this website is of a general nature only. It might no longer be up to date or correct. You should contact us directly or seek other accredited tax advice when considering whether the information is suitable to your circumstances.

Liability limited by a scheme approved under Professional Standards Legislation.

COVID-19 Help For Business

COVID-19 Help For Business

COVID-19 help for business – there are 16 measures to help you.

COVID-19 Help for Business

It is difficult to say which of the 16 measures will help you most. Probably the cash flow boost, Jobkeeper payment and the rent reduction under the Commercial Tenancies Code. But maybe all.

1 – Cash Flow Boost

The tax-free cash flow boost ranges from $20,000 to $100,000. It depends on the PAYG withholding you did and do in the March and June 2020 quarters. You need to be registered for PAYG withholding to qualify for this one. The size of your cash flow boost might depend on timing. 

2 – JobKeeper Payments

Eligible employers receive $1,500 per fortnight per eligible employee if they pay at least $1,500 to these per fortnight. There are two groups who qualify – employers and business participants. Sole traders, company directors, partners and trust beneficiaries fall into the second group if they don’t pay themselves a wage.

3 – Commercial Tenancies Code

Under this Code of Conduct landlords can’t evict your business for failure to pay your lease. And they need to give you a rent reduction similar to your drop in turnover since the start of the crisis – half of which needs to be waived. So if your turnover dropped by 40%, they need to waive at least 20% and defer the rest interest-free.

4 – ATO Measures

There are 5 ATO measures to help you when your cashflow is tight due to the crisis:

1 – The due date for paying your BAS, PAYG I, income tax assessments and FBT as well as excise have been deferred by 4 months.

2 – If you expect a GST refund, you can swap to monthly BAS to get this refund much quicker into your pockets.

3 – You can vary your PAYG instalments to zero for this March quarter. And you can request a refund of the last two instalments you paid for the September and December quarters last year

4 – The ATO will remit any interest and penalties incurred after 23 January this year.

5 – And you can enter into a low-interest payment plan for existing tax liabilities.

5 – Easier Access to Bank Loans

It should get easier to get a loan thanks to a new $90b funding facility to banks – as in Approved Deposit Institutions (ADIs). ADIs can access this three-year fixed facility at a base rate of 0.25%, so compare that to the interest rate they want to charge you.  

6 – Easier Access to Loans from Non-Bank Lenders

You should also find it easier to get finance from non-bank lenders thanks to a $15 billion facility available to smaller ADIs and non-ADI lenders. This facility is managed by the Australian Office of Financial Management (AOFM).

7 – Six Month Deferral of Loan Repayment and Interest

If you find it hard to make repayments on your business loan, you can defer repayments and interest for six months between 1 April and 31 October 2020, provided you are a small business. 

8 – Government Guarantee of your Loan

The government guarantees 50% of new loans to small business of up to $250,000 for up to three years. This is called the SME Guarantee Scheme and is limited to loan amounts of up to $250,000. A bank needs to actively join this scheme and SMEs, including sole traders, only qualify if they have a turnover of up to $50m. The loans come with an initial six month repayment holiday.

9 – $150,000 Instant Asset Write-Off

The instant asset write-off is changing to $150,000 until the 30th of June 2020 for businesses with a turnover of less than $500m.

10 – Investment Incentive

The investment incentive, uncapped, until the 30 June 2021, allows a 50% depreciation in the first year for businesses with a turnover of less than $500m.

11 – 50% Wage Subsidy for Apprentices and Trainees

Employers of apprentices and trainees receive a 50% wage subsidy of their apprentice and trainee wages until 30 September 2020, of up to $21,000 per apprentice.

12 – Payroll Tax

All states and territories have introduced payroll tax relief to help you cope with the pandemic crisis. Here is what happened in NSW.

You receive a 25% discount on your annual tax liability for 2019/20. You can defer your payroll tax payments for up to 3 or 6 months depending on your total grouped Australian wages. And from 1 July 2020 your annual treshold increases to $1m.

13 – Small Business Support Grant

The states and territories have all issued support schemes for small business. In NSW small business who don’t pay payroll tax are to receive a $10,000 grant if they meet certain conditions. This scheme is not law yet.

14 – Increased Threshold for Creditor Action

The threshold at which creditors can issue a statutory demand on a company has temporarily been increased. And companies currently have longer to respond to such statutory demands they receive. The Corporations Act 2001 will be amended accordingly.

15 – Waiver of Director’s Liability

There is temporary relief for directors from any personal liability for trading while insolvent.

16 – Expansion of JobSeeker and Youth Allowance

Sole traders may now be eligible for JobSeeker Payment and Youth Allowance. Please see COVID-19 Help for Individuals for more details.

Please call me on 0407 909 779 or email if you get stuck.

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Cash Flow Boost

Boost Your Cash Boost

Cash Flow Boost Depends on Timing

 

Disclaimer: numba does not provide specific financial or tax advice in this article. All information on this website is of a general nature only. It might no longer be up to date or correct. You should contact us directly or seek other accredited tax advice when considering whether the information is suitable to your circumstances.

Liability limited by a scheme approved under Professional Standards Legislation.

cash flow boost depends on timing

Cash Flow Boost Depends on Timing

You wouldn’t think that the size of your cash flow boost depends on timing. But it might. 

Cash Flow Boost Depends on Timing

The timing of your PAYG withholding can significantly impact the size of your cash flow boost payment.

Once you have qualified for the cash flow boost, the next question is, how much? How much boost will you get – just the minimum of $20,000 or the maximum of $100,000?

The answer doesn’t just depend on the actual withholding you do, but also on the timing of these withholdings, especially if you are a monthly lodger of PAYG withholding. 

The cash flow boost is all about your PAYG withholding in your March and June quarters. Any withholding after 30 June 2020 has no impact on the size of your cash flow boost.

Calculation

The cash flow boost depends on your PAYG W in the March and June quarters.

Whatever you withhold in the March and June quarters as a quarterly withholders, you receive twice that amount as a cash flow boost with a minimum of $20,000 and a maximum of $100,000.

Whatever you withheld in March as a monthly withholder, you get SIX times plus twice your withholdings in April to June, all again within the minimum of $20,000 and a maximum of $100,000 per qualifying entity.

Minimum

The moment you qualify, you are entitled to the minimum of $20,000. It doesn’t matter, how much PAYG withholding you actually did.

Even if your business is really small with very little turnover each year, you are still entitled to the minimum of $20,000 – always assuming that you meet the 7 conditions.

And timing doesn’t matter. If the total of your PAYG withholding for the March and June quarters is well below $10,000, then timing of your PAYG W doesn’t matter. It doesn’t matter whether you have more or less PAYG withholding before or after 30 June 2020. And it doesn’t matter whether you withhold more or less in the month of March.

Maximum

To get the maximum – or at least more than the minimum – then timing starts playing a role. It all depends on the W2 for your March and June quarters. 

Your PAYG withholding after 30 June 2020 has no effect on your cash boost. So timing of your withholding is important. Focus on your W2 for your March and June quarters.

However, if your PAYG W is well below $10,000, then timing doesn’t matter at all, since you just get the minimum anyway as long as you qualify.

Monthly Withholder

If you are a monthly withholder, timing is even more important since the cash boost is heavily front-loaded for monthly withholders.  Timing of your wage payments can mean the maximum of $100,000 or the minimum of $20,000. 

If you are a monthly withholder, which you are if you withhold at least $25,000 per year in PAYG Withholding, then your March PAYG W will hit your cash boost 3-fold, while your PAYG W in April, May and June just hit it 1:1. And the PAYG W you pay from 1 July 2020 onwards has no effect at all on your cash boost. So timing is everything.

Let’s go through two examples to make this clear. Shaun and Sheila – both monthly withholders.

Shaun – All in March

Shaun has $20,000 PAYG W in March and nothing after that since he went through a stand down. So Shaun receives a cash boost of $50,000 in late April (3 x $20,000 = $60,000, capped at $50,000) and another $50,000 over 4 instalments in June, July, August and September 2020. So $100,000 in total.

Sheila – Some in April and some in July

Sheila also has $20,000 PAYG W, but half in April and half in July. So she receives the minimum of $10,000 in June and another $10,000 from June to September. So $20,000 in total. The PAYG W payment in July has no impact.

So once you qualify, make sure you correctly report your PAYG withholding for the March and June quarters.  Just call me on 0407 909 779 if you need help.

 

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Cash Flow Boost

Boost Your Cash Boost

How To Boost Your Cash Boost

 

Disclaimer: numba does not provide specific financial or tax advice in this article. All information on this website is of a general nature only. It might no longer be up to date or correct. You should contact us directly or seek other accredited tax advice when considering whether the information is suitable to your circumstances.

Liability limited by a scheme approved under Professional Standards Legislation.

cash boost

Cash Flow Boost

Your COVID-19 cash flow boost is about a lot of money.

How To Qualify for the Cash Flow Boost

The cash flow boost – together with the job keeper payment and other measures – is to help you cope with the COVID-19 crisis. The cash flow boost is at least $20,000 with a maximum of $100,000 for anybody who qualifies – or even a lot more if you operate through several entities.

So the cash flow boost is about a lot of money. But to get it you need to qualify. 

Conditions

To qualify for the cash flow boost you need to meet 7 conditions. 

1 – Turnover – turnover of less than $50m per annum
2 – ABN – active ABN on 12 March 2020
3 – Activity – assessable income in 2018/19 or GST turnover
4 – Payment – payments that require PAYG withholding before 30 June
5 – Notification – lodgement of your BAS to show PAYG withholding
6 – Objective Purpose – you did nothing with the sole purpose to qualify
7 – Lodgement – lodgement of your 2019 tax return and relevant BAS

Let’s look at this in more detail.

1 – Turnover

Put all your entities – companies, trusts, partnerships, sole traders – into one big basket and add their turnovers together. Less than $50m? You pass this test.

2 – ABN

Whoever wants to apply for the cash flow boost – be it you as a sole trader or your company or trust or partnership – needs to have an ABN on 12 March 2020.

3 – Activity

You or your company, partnership or trust needs at least $1 of assessable income between 1 July 2018 and 30 June 2019 or $1 of GST turnover between 1 July 2018 and 12 March 2020. 

4 – Payment

Payment covers anything that requires a PAYG withholding. This is usually salary and wages and – for a company – director fees.

Payment is an issue if you are a sole trader without employees. And it is also an issue if you are a sole director and so far only paid yourself dividends but no wage or director fees.

However, ‘payment’ doesn’t require that you actually paid PAYG withholding. The only requirement is that you made a payment – be it salary and wages or a voluntary withholding from a contractor payment – that requires PAYG withholding, but the actual withholding itself might be nil.

And ‘payment’ is not limited to payments before 12 March 2020 when this measure was announced. You can make a payment anytime before 30 June 2020. But watch out for the objective purpose test when you pay after 12 March 2020. 

5 – Notification

You need to notify the ATO of the payments and withholdings you made and you do that through your BAS. So to report your withholdings you need to be registered for PAYG W by 30 June 2020.

6 – Objective Purpose

If somebody watched you doing what you do, would they think you did it to qualify for the cash flow boost? If yes, there is a problem.

So this is not about what you think but how it looks to others – especially the ATO. If there are no changes in your modus operandi after 12 March – if you just continue doing what you have been doing before – you should be fine. 

7 – Lodgement

To qualify for the cash flow boost you need to lodge. You need to lodge your 2019 tax return and 2020 BAS.

Without your BAS for the March and June 2020 quarters, the ATO can’t calculate the amount of your boost.

And without your 2019 tax return, the ATO can’t see whether you are below the turnover thresholds. So lodge and lodge on time.

So if you meet these 7 conditions, your cash flow boost should be plain sailing.  Just call me on 0407 909 779 if you need help.

 

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Accounting Tips for Your Business

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Accounting Tips for Your Business

 

Disclaimer: numba does not provide specific financial or tax advice in this article. All information on this website is of a general nature only. It might no longer be up to date or correct. You should contact us directly or seek other accredited tax advice when considering whether the information is suitable to your circumstances.

Liability limited by a scheme approved under Professional Standards Legislation.

cash boost

Boost Your Cash Boost

To boost your cash boost focus on W2 on your BAS. The cash flow boost is all about your PAYG withholding in your March and June quarters.

How To Boost Your Cash Boost

The cash flow boost means at least $20,000, possibly up to $100,000 for your business or even a lot more if you operate through several entities. How much you get depends on the timing of your PAYG withholding.

Calculation

The cash flow boost depends on your PAYG W in the March and June quarters.

Whatever you withhold in the March and June quarters as a quarterly withholders, you receive twice that amount as a cash flow boost with a minimum of $20,000 and a maximum of $100,000.

Whatever you withheld in March as a monthly withholder, you get SIX times plus twice your withholdings in April to June, all again within the minimum of $10,000 and a maximum of $100,000 per qualifying entity.

Minimum

As long as you pay $1 subject to PAYG withholding before 30 June 2020, you are entitled to the minimum of $20,000. 

Even if your business is really small with very little turnover each year, you are still entitled to the minimum of $20,000 – always assuming that you meet the 7 conditions.

And timing doesn’t matter. If the total of your PAYG withholding for the March and June quarters is well below $10,000, then timing of your PAYG W doesn’t matter. It doesn’t matter whether you have more or less PAYG withholding before or after 30 June 2020. And it doesn’t matter whether you withhold more or less in the month of March.

Maximum

To get the maximum – or at least more than the minimum – then timing starts playing a role. It all depends on the W2 for your March and June quarters. 

Your PAYG withholding after 30 June 2020 has no effect on your cash boost. So timing of your withholding is important. Focus on your W2 for your March and June quarters.

However, if your PAYG W is well below $10,000, then timing doesn’t matter at all, since you just get the minimum anyway as long as you qualify.

Monthly Withholder

If you are a monthly withholder, timing is even more important since the cash boost is heavily front-loaded for monthly withholders.  Timing of your wage payments can mean the maximum of $100,000 or the minimum of $20,000. 

If you are a monthly withholder, which you are if you withhold at least $25,000 per year in PAYG Withholding, then your March PAYG W will hit your cash boost 3-fold, while your PAYG W in April, May and June just hit it 1:1. And the PAYG W you pay from 1 July 2020 onwards has no effect at all on your cash boost. So timing is everything.

Let’s go through two examples to make this clear. Shaun and Sheila – both monthly withholders.

Shaun – All in March

Shaun has $20,000 PAYG W in March and nothing after that since he went through a stand down. So Shaun receives a cash boost of $50,000 in late April (3 x $20,000 = $60,000, capped at $50,000) and another $50,000 over 4 instalments in June, July, August and September 2020. So $100,000 in total.

Sheila – Some in April and some in July

Sheila also has $20,000 PAYG W, but half in April and half in July. So she receives the minimum of $10,000 in June and another $10,000 from June to September. So $20,000 in total. The PAYG W payment in July has no impact.

So make sure you qualify and then focus on timing.  Just call me on 0407 909 779 if you need help.

 

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Accounting Tips for Your Business

Instalment Activity Statement

Accounting Tips for Your Business

 

Disclaimer: numba does not provide specific financial or tax advice in this article. All information on this website is of a general nature only. It might no longer be up to date or correct. You should contact us directly or seek other accredited tax advice when considering whether the information is suitable to your circumstances.

Liability limited by a scheme approved under Professional Standards Legislation.

Instalment Activity Statement

Instalment Activity Statement

IAS stands for Instalment Activity Statement. Think of it as a gap filler when you don’t have to lodge a BAS for a certain period.

Instalment Activity Statement

The Instalment Activity Statement (IAS) covers PAYG instalments, PAYG withholding and ABN withholding. These three – nothing else. So no GST.

Your IAS comes in, when a particular period is not covered by your BAS. For example, when you report PAYG W on a monthly basis but your GST on a quarterly basis.

PAYG Instalments

The ATO will tell you whether, when and how much you need to pay in PAYG instalments on your so-called instalment income.

Your instalment income includes dividends, interest, profits you made as a sole trader or through a partnership and other income that is not subject to any other withholding, but excluding capital gains. 

PAYG Withholding

For PAYG withholding you are either a small, medium or large withholder depending on your PAYG withholding. 

As a small withholder (less than $25,000 of PAYG W) you report and pay quarterly – through your BAS if you report GST quarterly, otherwise your IAS.

As a medium withholder ($25k to $1m of PAYG W) you report and pay monthly – whether through your BAS or IAS depends on what you do for GST.

Large withholders (more tha $1m) are complicated, so let’s put those aside.

ABN Withholding

If a supplier does not provide an ABN to you for goods and services of more than $75 (excluding GST), you need to withhold the top rate of tax from the payment and report this through your IAS or BAS.

IAS v BAS

If you are not registered for GST, you don’t have any Business Activity Statements (BAS) to worry about. All your reporting is done through an IAS – either monthly, quarterly or annually.

But if you are registered for GST, then it gets more complicated, especially if your GST and PAYG instalments or withholding are on different reporting cycles.

You might do your BAS quarterly but might be a medium withholder for PAYG Withholding and hence need to report PAYG W on a monthly basis. In that case you do both. You lodge your BAS quarterly, but then lodge an IAS for the months in between.

Does this make sense so far? Just call me if you get stuck. My number is 0407 909 779. I am Heide.

 

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Disclaimer: numba does not provide specific financial or tax advice in this article. All information on this website is of a general nature only. It might no longer be up to date or correct. You should contact us directly or seek other accredited tax advice when considering whether the information is suitable to your circumstances.

Liability limited by a scheme approved under Professional Standards Legislation.

Common Tax and Accounting Muck Ups

Accounting Tips for Your Business

Avoid some common mistakes with these 15 accounting tips for your business. 

15 Accounting Tips For Your Business

When you start a new business, the last thing on your mind is accounting and tax. And you are right. Your focus needs to be on the road ahead.

But your numbers are still important. You lose control without them. The good news is that this is not as hard as it sounds.

Here are 15 tips to help you get and keep what is yours. And avoid a few potholes along the way.

1 – Put a Value on Your Time

You only got 24 hours. And what you don’t do is as important as what you do. So delegate the parts that are not worth your time. 

2 – Get Xero

There are various accounting softwares around, but just go with the flow and get Xero. You will be glad you did.

3 – Collect Receipts

Missing receipts can cost you a lot of money later on. So best to stay on top. Just download Hubdoc – a receipt app that comes free with Xero.

4 – Get a Bank Feed

A bank feed will save you time and give you up-to-date numbers. Allowing you to focus on more important things.

5 – Get a Business Bank Account

Using just one bank account for both business and private turns messy very quickly. So get a free business bank account – for example with NAB.

6 – Register for GST on time

Register for GST when your forecasted turnover exceeds $75,000. The good news is that you get to claim the GST you pay.

7 – Treat Employees as Employees

Treat your employees as employees. It is tempting to treat them as contractors, but not worth the penalties and headaches.

8 – Pay SG and Wages On Time

The ATO is really tough around your employees’ super. So pay their super and wages first when cash flow is tight.

9 – Get Works Insurance

Easy to miss but make sure your employees are ensured while working for you. So get the right policy from icare – might save you tons later.

10 – Lodge And Defer

Lodge your tax returns on time, even if your cash flow is tight. And then let’s talk to the ATO about a payment plan and remission of interest.

11 – Safeguard Your Losses

Your business’ tax losses might safe you tax later on, but are also easily lost. Please call me before you change your business structure.

12 – Weigh Up ATO v Bank

The ATO charges higher interest rates than banks. But is also more likely to forgive this interest for the right reasons. So let’s talk this through.

13 – Mind the PSI Rules

If your business depends on your personal skills and efforts, let’s discuss the personal services income (PSI) rules to avoid any potholes.

14 – Claim Car and Travel Expenses

When you use a car or travel for business or work, make sure you claim what is yours. Easy to leave money on the table with this one.

15 – Get and Keep What is Yours

There are many ways to save tax and make you better off. From discounts and conscessions over deductions and write offs to grants and structures. Make sure you get and keep what is yours.

This is just a short overview. Please call me to talk this through.

 

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NSW Payroll Tax

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Disclaimer: numba does not provide specific financial, legal or tax advice in this article. All information on this website is of a general nature only. It might no longer be up to date or correct. You should contact us directly or seek other accredited tax or legal advice when considering whether the information is suitable to your circumstances.

Liability limited by a scheme approved under Professional Standards Legislation.

Small Business CGT Concessions

This overview of small business CGT concessions will give you a rough road map of the most generous concession for small business in Australia. 

Small Business CGT Concessions

Imagine the small business CGT concessions didn’t exist. Let’s say you have a small business. And your business is your life. Started from scratch 30 years ago. Risked the family home during the GFC for it. Risked everything. Gave dozens of people good steady jobs. Was part of the engine that drives Australia.

Now you get an offer to sell with a $1m capital gain. How much do you get to keep? 53% – the ATO will take the other 47%, assuming that you have other income and the capital gain fully hits the top marginal tax rate.

Doesn’t feel right. So can you see why we need the small business CGT concessions? To make sure your life’s work doesn’t evaporate in tax. If you qualify, you will pay little or no tax. It can change your life.

Do You Qualify In Principle?

The small business CGT concessions are very generous. But to qualify you have to pass three hurdles. 

Hurdle # 1   Basic Conditions

The basic conditions are your first hurdle. To pass these basic conditions, you need to meet one of 4 conditions – A, B, C or D. It is an either-or proposition. If you fail one, you can still get through with another.

A – Turnover 

You need to carry on a business and have a turnover of less than $2m. This is called the small business turnover test. If you don’t pass it, just keep going. Maybe you pass the net asset value test.

B – Net Asset Value 

You pass the maximum net asset value test, if you have net assets of $6m or less. Your net assets include your interest in the business you sell as well as certain assets of your affiliates and connected entities. But your net assets don’t include your main residence, personal use assets and superannuation for this test.

C – Partnership

If the asset you sell is a partnership asset, then the partnership as a whole must carry on a business and meet the turnover test. If that fails, then the your proportionate share of the partnership will go into your net asset value test under B.

D – Passively Held

If the asset is passively held and used by an associate or connected entity in a small business entity, you pass.

You only need to pass one of these four. Take a capital intensive business like a farm as an example. It might hold land worth more than $6m, but have a turnover of less than $2m, and hence qualify.

Hurdle # 2     Active Asset Test

The active asset test is your second hurdle. You need to always pass this test. This means that the asset must have been part of your business. ‘Used or held ready for use’ is the term they use.

Hurdle # 3      Shares or Units

And the third hurdle only applies if shares or units are involved. If they are not, skip this one. You are done.

If your set up includes shares or units, then this turns into a different ball game. It will get a lot more complicated. How this all works is a long story that we will cover later.  So for now let’s just assume that no shares or units are involved. That you are a sole trader selling your business. 

Do You Qualify For a Specific Exemption?

So you qualified in principle. But what do you actually get? It depends which specific concession you qualify for.

 There are 4 small business CGT concessions. Each of these four is unique with its own set of rules and requirements. Would be boring otherwise. And how you combine these four is important as well and might result in different tax outcomes.

Subdiv 152-B    15-Year Exemption

The first and most generous exemption is the 15-year exemption. It is unique in that it exempts the entire capital gain without any cap. Think about that. The entire capital gain: Tax-free.

This exemption takes priority over the other three exemptions. And it applies before any capital loss offset. So you can keep your capital losses and still get the entire capital gain tax-free.

But to pass you must have owned the asset for at least 15 years and be at least 55 years old. 

And the CGT event must happen in connection with your retirement or permanent incapacitation. What is or isn’t “in connection with your retirement” is often a point of contention though.

If you qualify for the 15-year exemption, you can stop reading here. Anything that comes after this won’t affect you anymore since your entire capital gain is disregarded. This exemption has priority. If you qualify, it applies whether you like it or not. But we have never met a living soul who doesn’t like this one.

Subdiv 152-C   50% Reduction 

This one is easy. The moment you pass the basic conditions, you have this one in your pocket. You don’t have to apply it but you can.

The 50% reduction allows you to reduce a capital gain by a further 50%. Why further? Because you probably already got the 50% CGT discount if you held the asset for at least 12 months.

So now in addition you get the 50% small business reduction when you pass the basic condition. And after that you can still apply the other two exemption, hopefully reducing your capital gain to zero.

Subdiv 152-D    Retirement Exemption

This one is also easy even though it comes with slightly more fineprint. You can claim a capital gain of up to $500,00 as exempt. But not more – ever. That is the lifetime cap.

And there is one more catch. If you are under 55, you have to pay the exempted amount into super. Some people don’t like that. And so they skip this one or park it. The secret word is J5. Sounds confusing – I know.

Here is an example how this works out in conjunction with the 50% reduction.  Let’s say the capital gain is $4m. The 50% CGT discount brings it down to $2m. The 50% reduction brings it down to $1m. And then you and your spouse claim $500,000 retirement exemption each. And voila. You walk away with $4m tax-free in your pocket. Not bad.

Subdiv 152-E  Rollover 

This one will buy you time. Your capital gain is not disregarded just yet, but you defer paying tax on it.

This rollover relief allows you to defer the capital gain for at least two years or beyond two years if you acquire a replacement active asset or incur capital expenditure on active assets. You can choose to rollover the entire capital gain or just a portion after the 50% reduction and retirement exemption. The decision is yours.

If you don’t acquire a replacement asset withing the 2 years, you trigger CGT event J5. But guess what? That might be exactly what you had inteded.

By now you might be 55 and no longer have to put the retirement exemption into super. So now you apply the retirement exemption and walk away with the cash tax-free. 

So that was a quick small business CGT concession overview to give you a rough idea. To show you what is possible.

But don’t give up if this sounds too confusing. Just ask your accountant or ask us. My number is 0407 909 779 – just call me. I am Heide Robson.