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Income Protection - A Valuable Asset

In most cases, your home is not your most valuable asset; it's your ability to earn an income

With escalating property prices continuing to make headline news, it's no surprise that many people consider the family home as their most valuable asset. It's certainly one they fully insure. But have you considered that, over your lifetime, your earning capacity could amount to millions of dollars - putting the value of your family home well and truly in the shade.

The math on annual income

For instance, let's imagine you're currently aged 40 and are married with two kids, earning $150,000 a year as a logistics manager. Now, let's say that you plan to work until you're at least 65 years of age, and you can expect annual increases of a modest two per cent each year.

Over the next 25 years, your accumulated earnings will amount to more than $4.8 million to cover you and your family's lifestyle and living expenses – everything from the mortgage, to family holidays, your car, school fees, and more. Yet only one in three Australians has income protection insurance, putting many families at risk.

Peace of mind

While injury or illness may stop your income, it certainly won't stop the bills. Indeed, Australian cities are among the most expensive in the world. This high cost of living, coupled with the fact that Australians have a one in three chance of being disabled for three months or more before the age of 65 provide compelling reasons to insure your income.3

Affordability

These days, you can tailor income protection insurance to suit your circumstances and budget. If cash flow is a struggle and finances are tight, you might prefer to get income protection insurance through your super fund.

These days, you can tailor income protection insurance to suit your circumstances and budget.

Being insured through super is generally an easy and more cost-effective option although the amount of cover available is limited compared to holding income protection separately. So if you're an established professional with a high income, or if you want to maximise your retirement savings rather than dip into them for insurance premiums, holding income protection insurance outside your super will probably be more beneficial.

It's also good to know that, unlike other types of personal insurance, income protection premiums are tax deductible.

Two other factors influence the cost of income protection:

1. Waiting period

Policies typically come with a waiting period – and the shorter this is, the more expensive the premiums will be. So if you have enough savings to manage expenses for three or six months, it's worth extending this waiting period.

2. Length of benefit period

You can cover your lost salary for a specific length. The greater your benefit period the more expensive your premiums will be.

To find the most appropriate way to protect your most valuable asset, it's a good idea to talk with your financial adviser.

 

Why 90000 more businessss can now access the $20000 instant asset write off

 

 

 

 

The popular $20,000 instant asset write-off for small business ends on 30 June 2017.  This concession enables small businesses to immediately write-off depreciable assets which cost less than $20,000.

Until recently, this instant write-off was only accessible to businesses with an aggregated turnover of less that $2 million.  But, a last minute deal struck between the government and Senator Nick Xenophon to pass the enterprise tax Bill - containing amongst other things the tax cuts for business and a change in the small business threshold – will see up to 90,000 more businesses access the instant write-off.

While the Bill containing these changes is not yet law, we expect that it will be passed when Parliament next sits.

For those businesses that have not accessed this concession previously, it's important to understand how you can take advantage of it before 30 June 2017.

What is the $20,000 instant asset write-off?

A deduction is generally available for purchases your business makes.  The instant asset write-off however changes the speed at which you can claim a deduction.  Since 7.30pm, 12 May 2015, small businesses have been able to immediately deduct business assets costing less than $20,000. On 30 June 2017, this $20,000 deduction limit reduces back to $1,000.   When we say "immediately deductible" we mean that your business can claim a tax deduction for the asset in the same income year that the asset was purchased and used (or installed ready for use).  The deduction is claimed on the business's tax return. 

If your business is registered for GST, the cost of the asset needs to be less than $20,000 exclusive of GST.  If your business is not registered for GST, it is $20,000 including GST.

Assets costing $20,000 or more can be allocated to a pool and depreciated at a rate of 15% in the first year and 30% for each year thereafter.

The instant asset write-off only applies to certain depreciable assets.  There are some assets, like horticultural plants, capital works (building construction costs etc.), assets leased to another party on a depreciating asset lease, etc., that don't qualify - check with us first if you are uncertain.

Also, you need to be sure that there is a relationship between the asset purchased by the business and how the business generates income. You can't for example just go and purchase multiple television sets if they have no relevance to your business.

How can you access the $20,000 instant asset write-off

There are a few issues to be aware of if you want to utilise the instant asset write-off:

Does your business qualify?

To access the instant asset write-off, your business needs to be a trading business (the entity buying the assets needs to carry on a business in its own right).  It also needs to have an aggregated turnover under $10 million.  Aggregated turnover is the annual turnover of the business plus the annual turnover of any "affiliates" or "connected entities". The aggregation rules are there to prevent businesses splitting their activities to access the concessions.  Another entity is connected with you if:

·         You control or are controlled by that entity; or

·         Both you and that entity are controlled by the same third entity. 

Should you spend the money now?

If there are purchases and equipment that your business needs, that equipment has an immediate benefit to the business, and your cashflow supports the purchase, then in many cases it will make sense to go ahead and spend the money – you have until 30 June 2017 before the deduction threshold drops back to $1,000.

The $20,000 immediate deduction applies as many times as you like so you can use it for multiple individual purchases. But, your business still needs to fund the purchase for a period of time until you can claim the tax deduction and then, the deduction is only a portion of the purchase price.

Assets must be ready to use

If you want to access the $20,000 immediate deduction, you have to start using the asset in the financial year you purchased it (or have it installed ready for use).  This prevents business operators from stockpiling purchases and claiming tax deductions for goods they have no intention of using in the short term.  So, if your business purchases an asset on 20 May 2017, it needs to be used or installed and ready to use by 30 June 2017 to qualify for the immediate deduction.

Second hand goods qualify

The instant asset write-off does not distinguish between new or second hand goods.  For example, second hand machinery may qualify if it meets the other requirements.

The immediate deduction can be used more than once

Assuming all the other conditions are met, an immediate deduction should be available for each individual item costing less than $20,000.  Just be careful of cashflow. 

Be careful of contracts

You need to ensure that any contract you sign makes your business the owner of the asset and that the asset can be used or installed and ready to use by the business on or before 30 June.  The rules require you to "acquire" the asset before 30 June so the wording of the contract will be important.

Assets for business and pleasure

Where you use an asset for mixed business and personal use, the tax deduction can only be claimed on the business percentage.  If you buy an $18,000 second hand car and use it 80% for business and 20% for personal use, only $14,400 of the $18,000 is deductible.

You don't get $20,000 back on tax as a refund

The instant asset write off is a tax deduction that reduces the amount of tax your business has to pay. It enables your business to claim a deduction for depreciating assets in the year the asset was purchased and used (or installed ready to use).  For example, if your business is in a company structure the most you will 'get back' is 27.5% (in 2016-17). If your business is likely to make a tax loss for the year then the bigger deduction might not provide any short-term benefit to you.

The material and contents provided in this publication are informative in nature only.  It is not intended to be advice and you should not act specifically on the basis of this information alone.  If expert assistance is required, professional advice should be obtained.

 

Businesses are advised to make sure their tax records are in order, with one expert warning the Australian Tax Office is beefing up its data tracking methods.

Chartered accountant with Pilot Partners Murray Howlett says the ATO has more than just the tax status of salads on its mind at the moment: SME owners' social media accounts could also be under scrutiny, Howlett told SmartCompany.

"The ATO is very concerned about tax avoidance and making sure people are doing the right thing, so they're trying to get better at looking at what's publicly available," Howlett says.

"They're looking for inconsistencies in what people are reporting, and what their social media reveals their lifestyle to be like."

Howlett uses the example of a citizen who reported low income to the ATO but had multiple photos of "flashy cars and boats" on his social media.

In a statement to SmartCompany, the ATO revealed it has been "investing in data collection analysis to find cases of people's declared income not matching their lifestyles".

"It's a reality of the age we live in that there is more and more information publicly available, particularly through social media platforms. We never go looking for this information where people are doing the right thing and are open with us," an ATO spokesperson said in a statement.

"We only go looking when something doesn't add up. We continue to support those who do the right thing, and identify and take action against those who choose not to."

The ATO's policies surrounding the use of social media for tax compliance outline mean that ATO staff may only access social media sites found through a search with a "search provider", such as Google.

Drones highlight benefits of disruptive technology

 

 

Drones highlight benefits of disruptive technology - by My Business

Many business owners worry about the impacts of technological change. Yet drones (or UAVs) are a prime example of the benefits available to businesses regardless of size or industry.

Speaking before the Bankwest-sponsored seminar "2040 Farming – The Next Generation", David Kerr, CEO of Interspacial Systems/3D Aerial, said that a diverse range of industries are increasingly recognising the potential of drones.

"Unmanned aerial vehicles or drones have many uses in society. They can be used for things like security, real estate photography, mining [and] agriculture," he said.

Other uses include surf lifesaving and reconnaissance by emergency services.

In agriculture alone, David says the uses of this technology are far-reaching, enabling farmers and primary producers to achieve a new level of efficiency as well as removing the risk of injury and death due to accidents.

"If you're a water bomber or a crop sprayer, you have a one in six chance of having an accident," he said, noting that tests are already underway in Queensland with unmanned water bombers and crop dusters.

David said drones also offer farmers more efficient means of herding and mustering livestock, as well as surveying paddocks and using thermal imagery and other types of specialist photography to determine things such as soil temperature and saturation levels.

SME owners have previously outlined to My Business how they are embracing technology to transform both how they engage with their customers and how they operate behind the scenes.

 

To discuss the impact of technology changes on your business talk to us today. Arrange an appointment at http://www.clarkemcewan.com.au/contact_us/request_an_appointment or email us at info@clarkemcewan.com.au Sunshine Coast and Brisbane Offices

In 2011, the Reserve Bank of Australia set out to create a policy-induced housing construction boom to fill the hole being left by the collapse of the 2003-2011 mining construction boom. It cut interest rates 12 times between November 2011 and August 2016 to levels never before seen in Australia, to lift house prices and lower borrowing costs to encourage development.

House prices are important for Australian investors for several reasons. The local economy and stock market are heavily reliant on the local banks remaining solvent and lending. Our big banks make up one third of the local stock market value and they pay one half of all dividends.

The vulnerability of banks

The problem with the banks has four main elements:

  1. they are extremely highly leveraged (at around 20:1, for every $1 of debt there is 5 cents of equity capital)
  2. they are highly exposed to the local housing and housing construction industries
  3. they are heavily reliant for funding on fickle foreign markets, as Australia's conduits for foreign debt, and
  4. mortgage interest rates are extraordinarily low and rising rates will put pressure on highly geared borrowers.

The pattern of mining booms switching to housing construction and lending booms that collapse in bank bad debt crashes and economic recessions is not new. The 1870s-80s mining boom (which gave birth to BHP, Rio and many others) turned into the 1880s housing construction and lending boom which collapsed in the bank bad debt crash in the early 1890s, triggering a deep economic depression. The 1960s mining boom turned into the early 1970s housing construction and lending boom which collapsed in the property finance crash in 1973-1974, triggering the deep 1974-1976 recession. The early 1980s 'mini-resources boom' expanded into the mid-1980s 'entrepreneurial boom' which after the 1987 crash turned into the late 1980s construction and lending boom which collapsed in the bank bad debt crisis in the 'recession we had to have' in 1990-1991.

Problems looming in apartments but not houses

In each of these cycles, Melbourne saw the worst of the excesses in construction and lending and suffered worst in the crashes, in terms of price falls, vacancies, bad debts, business failures and unemployment. In the current cycle Melbourne is once again leading the charge (along with Brisbane), while the excesses are less severe in Sydney and other cities.

The main problem is not in the broader suburban housing market but in high-rise construction. As in all previous cycles, the current over-construction will result in high vacancy rates, boarded up building sites, properties lying empty for years, falling rents, falling prices, bankrupt developers and bankrupt over-extended buyers. As in past cycles the problem for the banks will mainly be property developers, not just the highly-leveraged buyers.

This has happened several times before and it will happen again. The risk for investors is that the collapse in the high-rise market will probably also infect the broader economy and the broader housing market as well.

Our broad housing market has not suffered big crashes as it has in most other countries. Our high rates of immigration and population growth and extreme concentration of population in a few large diversified ities ensure broad house prices have tended to rise rapidly for a few years every decade or so, and then go sideways in real terms for several years.

 

There are regular price falls of 10% to 15% or so but no major broad-based collapses like in the US and many other countries. We easily forget that as recently as the seven years from 2004 to 2011, there was no real growth in house prices following a surge from 1996 to 2004. We have had five periods since 1900 when real house prices have not risen for a decade or more.

While the Melbourne and Brisbane high-rise markets are probably heading for another sizable collapse similar to past boom-bust cycles, the most likely outlook for the broad housing market is for modest price falls in housing and then many years of no real growth, rather than a sudden major crash.

 Ashley Owen is Chief Investment Officer at independent advisory firm Stanford Brown and The Lunar Group. He is also a Director of Third Link Investment Managers, a fund that supports Australian charities. This article is general information that does not consider the circumstances of any individual.

9 tips for buying a medical practice

Buying a practice? There's plenty to consider.

Purchasing a medical practice, and in some cases the property it sits upon, is a significant business and investment decision. There is a lot to consider, from the purchase through to how you're going to run it on day one. Seeking out specialist advisors who have the experience to support you is a great first step towards success.

At Medfin, our finance specialists have been helping Australian healthcare professionals purchase, set-up and maintain practices for over 20 years. This experience means we know what you should be thinking about when it comes to your practice purchase, so we've compiled a list of things to consider.

1. The structure is key

We're not talking about checking the bricks are in good shape – but that's also important. In this case, we're referring to the way you structure the purchase of the practice. One portion of the final price will be for the tangible assets like equipment and furniture - ensure the seller has good title to these. The other portion will be for the practice's goodwill which includes intangible assets like its brand and patient lists.

This can be difficult to negotiate, because in some instances you as the purchaser will want the asset portion to be higher for tax reasons, and to secure the best finance rates, while the seller will want the opposite treatment for their own tax related reasons. How you make the purchase could affect how you are taxed later on. From a capital gains perspective, it is common practice to purchase the goodwill portion in the individual practitioner's name and the practice assets in the business name. You should consider consulting your tax and legal advisors.

Whatever direction you take, Medfin has a range of finance solutions with varying repayment options to cater to the way you choose to structure your purchase.

2. Zoning

It's often forgotten about, but you need a council permit to run a practice. This is even the case if you're purchasing an existing practice - just because there is a practice there right now doesn't mean they have been operating with a permit. Also, permits may need to be amended from time to time. So make sure your solicitor checks with your local council.

3. Valuations

There can be a perception that you always need a valuation before buying a practice. Valuations (working out the value of a practice) by an expert valuer can be important but also expensive. Medfin does not always require a valuation, provided your accountant completes due diligence. Once again this is something to discuss with your advisers.

 4. Government grants

There is a lot to think about when purchasing a practice so this means buyers can forget about the variety of grants available to practices in Australia. There are a lot of grant opportunities for general practices and the dental industry. Speak to a Medfin specialist to find out more about the opportunities.

5. Accounting for all costs and cash flows

You should think through all the costs of a practice purchase because there can be a lot. From stamp duty or GST (if it applies), to solicitor fees and staff costs. It's also vital to assess the practice's existing cash flow (if relevant) because the last thing you want to do is take ownership, not anticipating unexpected outlays for things like equipment, building infrastructure etc.

6. Thoroughly discussing the transition process

There are many things that need to be negotiated in a purchase and the transition. Putting together an agreement is a complex matter and often initiated by the seller's solicitor. Some things that may need to be considered include a contract of sale, when and how money changes hands, whether there is a lease, if there is an associate or partnership agreement, and more.

Also consider whether your contract of sale should include a non-compete or restraint of trade clause. These are designed to ensure the purchaser gets the benefit of the goodwill they've paid for. For example, you don't want the seller to go and open a new practice down the road the week after the sale! Your legal advisor will be able to assist you with this.

7. Staffing

If you are purchasing an existing practice , you may have the option of taking over the existing staff contracts. This can be beneficial from a patient retention perspective, however it's important to assess the existing staff abilities and liabilities such as annual leave, sick leave and long service leave (and then arrange for these liabilities to adjusted at settlement).

8. Negotiating terms

Negotiating an agreement is a complex matter and often initiated by the seller's solicitor. Some things that may need to be covered include a contract of sale, agreement on when and how money changes hands, if there is a lease and negotiating the transfer to you or even a totally new one, if there is a non-compete clause and more. Medfin recommends you to work with your own independent legal advisor.

9. Risk insurance cover

Many new business owners don't consider this initially, but especially if you're buying in conjunction with other people/partners, it's important to set up insurance cover right from the beginning. It's worthwhile looking into how you will mitigate your risks through things such as business insurance, buy/sell agreements and arrangements for partner incapacitation. There is little more destructive to a business that dealing with a grieving relative who is involving emotions with the smooth operation of a practice.

To discuss the finance options when it comes to purchasing healthcare equipment talk to us today on 1300 361 122 or request a quote or request a call-back.

Important Note:

Any advice in this article has been prepared without taking into account your objectives, financial situation and needs. Before acting on this advice, you should consider its appropriateness to you and seek independent professional advice. Medfin Australia Pty Ltd ABN 89 070 811 148, Australian Credit Licence 391697 (Medfin). For Personal Loans, Home and Residential investment loans for individuals, Medfin is a credit provider, as agent for National Australia Bank Limited ABN 12 004 044 937, AFSL and Australian Credit Licence Number 230686 (NAB). Medfin is a wholly owned subsidiary of NAB and part of the NAB Health specialist business.

 

 

When is it worth starting a family trust

With proposed cuts to superannuation tax concessions and contribution limits, there is renewed interest in family trusts.

 

When is it worth starting a family trust ?

If family trusts are the new black, who do they best suit and do you need big assets upfront to make them worthwhile? Absolutely not, say advisers.

It's all about what your assets are likely to grow to and the tax rates of trust members years down the track when you sell investments and incur capital gains tax (CGT), says Andrew Simpson, partner with accounting firm Gunderson Briggs.

That's because capital gains can be distributed among family members to make use of all their income tax-free thresholds.

Thanks to the proposed cuts to superannuation tax concessions and contribution limits, there is renewed interest in family trusts.

Jonathan Philpot, partner in wealth management at HLB Mann Judd, says if you've got your mortgage out of the way and you've got monthly savings of about $5000 to invest, it's worth starting one. That's on top of maximising your super contributions.

$200,000 savings

"This would be with the aim of building up a family trust to at least $200,000 over the next few years," he says. "If, however, there was a lump sum of $50,000 and no further investments were likely, it would not be as cost-effective."

If yours is a household where you're pay-as-you-go employees and your savings are mostly in super, a family trust will not be as attractive. 

Anne Graham, managing director of McPhail Financial Planning, says: "There is generally no benefit in a PAYG employee having their salary paid to a trust – there are look-through tests re taxation of income and therefore this is not effective. So trusts don't work for PAYG employee income, regardless of the level of income earned. 

"They do work well for investment portfolios, income splitting, ownership of businesses etc."

Let's look at how a family business could make the most of a family trust structure.

Graham cites the case of Claire* and David* who are self-employed by their IT business, C&D Partners, drawing a nominal salary of $50,000 a year each.

Inheritance investment

The shares in the company are owned by their family trust – C&D Family Trust – and they are trustees. The beneficiaries of the trust are Claire and David, their children (students Natasha, 18, and Nathan, 21) and various other family members. The company makes a annual profit of $150,000, which is paid as a franked dividend to the shareholder which is the family trust.

"The income of the trust needs to be distributed otherwise it is taxed at penalty rates," explains Graham. "As the children have little or no income, we can elect to distribute income of say $60,000 each and Claire and David receive $15,000 each. All distributions carry franking credits."

Because the income is split, the overall tax payable is about $20,000 less than if Claire and David received salaries of, say, $125,000 each.

What about using a family trust to invest an inheritance?

Angela* and Fred*, 40, earn $180,000 and $40,000 respectively and have two children, 13 and 8. They've inherited $500,000, have no mortgage and want to invest the sum to spend the investment earnings on lifestyle expenses.

Lower tax

If they invested it in Fred's name, says Philpot, the annual income of $25,000 (assuming 5 per cent earnings) would be taxed at $8,62 (including the Medicare levy).

By investing the money through a family trust, the overall tax result for the first five years would be the same. But after that, says Philpot, their oldest child will be 18 and can become the main beneficiary, meaning tax would be $1,347 (including the low income rebate). 

"A further five years on and perhaps the eldest child is now working but the second child could then be a beneficiary," says Philpot. "Finally when they both retire, they can split the income between them."


 

The Economy in 2026 - What it might look like

The economy in 2026 – 6 possible transformations for Australia

By imagining for a few minutes that the year is 2026, we can get a better idea of how the Australian economy might evolve. Here six economists speculate on how the economy might change in the decade after 2016.

INTHEBLACK asked six leading economists to exercise their imaginations and invent a story of what Australia's economic evolution might look like by 2026. They invented economic environments with elements that we can already see, but with huge changes to jobs, businesses, cities and international relations.

Here, then, are six thought-provoking visions of possible economic changes ahead, each addressing a different element of the economy.

Automation, looking back from 2026 – Shane Oliver

In the past decade hundreds of thousands of jobs have disappeared in transport, professional services, manufacturing, government and other sectors as machines have taken over repetitive tasks.

In the past, such transformations occurred over decades, giving displaced businesses and workers time to adjust, and the technologies that have driven the process have given rise to new industries.

 

Shane Oliver

Shane Oliver

However, AMP Capital Investors chief economist Shane Oliver says the decade to 2026 has been different. The rapid speed of change has been traumatic for many – old jobs have been destroyed at a much faster pace than new ones have been created.

 

This has caused a growing gulf between those in well-paid jobs, immune to automation, and the rest.

With less disposable income around, economic growth has slowed and social tensions are increasing. There are growing demands for the government to use the tax and welfare systems to even the spread of income, and people are loudly advocating a shift to a four-day week to share jobs.

All is not gloom, however. Cafes, tourism operators, gyms, gene therapy clinics and other personal service providers are prospering, and new jobs and businesses are appearing all the time. Despite this, the period of dislocation has been painful for many.

The workplace, looking back from 2026 – Deborah Cobb-Clark

The plunge in office rents and property prices that began in 2021 shows little sign of letting up as the days of the corporate head office appear increasingly numbered.

 

Deborah Cobb-Clark

Deborah Cobb-Clark

While a core of employees continue to work in the same physical space, for years now a growing proportion has been taking advantage of advances in communications technology to work from remote locations – homes, shared office spaces and even cafes with dedicated work areas.

 

University of Sydney professor of economics Deborah Cobb-Clark, who anticipated this development a decade ago in 2016, says this, combined with the increasing automation of many jobs, is transforming the way we live and work.

People have more leisure time as their workload shrinks and an increasing number are freed from having to undertake the daily commute.

The new model of work is changing the structure and purpose of cities. Increasingly, the CBD as a work destination is a relic of the past and the "peak hour" pressure on transport networks is receding. People still flock to cities, but mostly for their amenity and social life rather than work.

Population ageing, looking back from 2026 – Stephen Koukoulas

Having already helped to usher in land taxes in the states, the Federal Government is now facing an even tougher political fight over plans to increase the retirement age to 70 years, introduce death duties and establish a HECS-style scheme for the aged pension. 

 

Stephen Koukoulas

Stephen Koukoulas

Stephen Koukoulas of Market Economics says there is little choice. "It is a matter of dollars and cents," he says. "Community expectations are that the provision of services be held to a high level, and that is very expensive."

 

The nation's swelling ranks of retirees are driving ever-increasing demands for health care, community services and income support. The burden of this cost is falling on a shrinking share of working-age Australians.

The situation has called for radical solutions, and the government is now contemplating measures that 10 years ago would have been considered unthinkable – including a progressive scale of death duties and a "reverse-HECS" for pensions, under which a means-tested proportion of the welfare payments claimed by recipients are reimbursed to the government from their estate when they die.

"People want a decent level of government-provided services," Koukoulas says, "but without some serious action, there is a real risk of it becoming unaffordable."

Productivity, looking back from 2026 – Mardi Dungey

Australia's biggest economic achievement of the past decade has been to solve the conundrum of chronically low productivity.

 

Mardi Dungey

Mardi Dungey

By breaking down rigidities in the way work is conceived and structured, University of Tasmania professor of economics and finance Mardi Dungey says the nation has tapped into a rich pool of labour and expertise among those who in the past have been systematically excluded from the workforce, such as those with disabilities and chronic medical conditions.

 

By relaxing time constraints and instead conceiving jobs in terms of outcomes, the nation has opened up a swathe of opportunities for those who might take longer to complete a task, but can deliver results at least the equal of able-bodied workers.

Innovations like e-lancing and a more sophisticated approach to measuring production, particularly in the services, have helped drive the transformation.

Deflation, looking back from 2026 – Nicholas Gruen

Almost 20 years on from the global financial crisis, the Australian economy, like that of much of the developed world, continues to struggle to get out of second gear.

While Australia's record of 35 years of unbroken growth is remarkable, Lateral Economics principal Nicholas Gruen says there is little to celebrate from the last 10 years. The dark cloud of economic stagnation that settled over Europe in the wake of the GFC has spread Down Under.

 

Nicholas Gruen

Nicholas Gruen

The tough medicine policies forced on Europe's debtor nations (Italy, Spain, Greece) by Germany stoked deflationary forces that quelled growth there, and a similar dynamic has gripped Australia. Central banks around the world, including in Australia, have struggled in vain to lift the inflation rate.

 

Most workers have not had a real pay rise in years, and housing costs are claiming an increasing share of income, leaving fewer dollars left over for shopping and personal services. In turn, soft turnover has given firms little reason to hire more staff or make substantial investments.

In the past decade, annual growth has averaged 2.5 to 3 per cent, rather than 3 to 3.75 per cent. The result, says Gruen, has been to make the country 5 per cent poorer than it would otherwise have been. 

Instead of acting to break out of this rut, successive governments have been complacent. "Now our unemployment rate is higher than the United Kingdom and the US, and there is no sense of urgency, or that something is seriously wrong," says Gruen. "It is a story of the great Australian complacency."

China's hard landing, looking back from 2026 – Saul Eslake

In the decade since 2016 the country has endured slowing population growth, a continued decline in the terms of trade and productivity, and an end to booming house prices. Yet the biggest shock has come from the liquidity crisis that crippled China's financial system.

 

Saul Eslake

Saul Eslake

The warning signs were already appearing in the middle of the last decade, says independent economist Saul Eslake, when the country's banking system developed some of the worrying characteristics of the American banking system before the global financial crisis hit.

 

"The GFC was not primarily caused by a huge increase in bad mortgage loans, but by a wholesale run on funds tied up in securities," Eslake said at the time.

"China's banking system has taken on some of that character. China's banking system has become much more dependent on the types of funding [securities] that brought down the Western banking system [in the GFC]," he adds.

The Asian country's massive foreign exchange reserves, worth around US$3 trillion, were of little help in what became a solvency crisis. For Australia, whose trade dependency on one nation was greater than at any time since the 1950s, the economic consequences have been severe.


Bookkeeping Basics for SME's and Professional Practices

On average, small business owners spend 10 hours each week recording, organizing, and processing financial transactions – everything from accounts receivable and payable, to employee payments, expense receipts and supplier invoices.

While the process may be time-consuming (and tedious!), effective bookkeeping is the foundation of sound financial management – which in turn, is the lifeblood of your business.

Feeling overwhelmed by mountains of paperwork and complex calculations? Here are three bookkeeping basics to help ensure a healthy financial future for your small business.

Faithfully track expenses

Accurate and consistent expense tracking is crucial for claiming tax deductions and lowering your overall tax bill. Plus, analyzing expenses can offer crucial insights into spending patterns and the overall profitability of your small business.

Small business owners should consider using a mobile app for simple, consistent expense tracking. Options like Expensify and Receipt Bank help do away with manual data entry with automated functions, including:

  • Receipt data capture via your smartphone's camera (no need to hold onto paper receipts, which can get lost or misfiled);
  • Synchronization with your phone's GPS to track mileage of business travel; and
  • Importing bank and credit card data, plus integration with accounting software.

Systematic invoicing and filing

Efficient invoicing is about more than ensuring you get paid in a timely fashion. An invoice is an official record of the terms of each transaction and must be completed accurately to avoid errors in your bookkeeping process.

Here are a few tips for professional invoicing:

  • Ensure each invoice includes all the important details: contact information, a tracking number, a detailed list of products or services rendered, and a breakdown of the total amount due;
  • Provide an electronic receipt to reduce waste and create a "paper trail" if there's ever a dispute; and
  • Maintain an invoice-filing system that records when you sent the invoice, to whom, when payment was made, and any reminders sent out.

An online invoicing tool can streamline this aspect of your bookkeeping process and provide an efficient backup filing system.

 

Save time with accounting software

By law, every business is required to keep organized and timely financial records. However, manually posting income and expenses to ledgers and journals is time consuming – not to mention stressful for the math-averse.

Shave some time (and stress) off your weekly bookkeeping with an all-in-one accounting software solution like SageOne, Xero, QuickBooks, MYOB or CashFlow.

Online bookkeeping offers numerous advantages, such as:

  • Instant reports and real time insights on profits and loss, customer accounts, payroll – and your overall financial "big picture";
  • Simplified data entry so you can collate and print invoices, purchase orders, and payroll much faster than with manual methods; and
  • Improved accuracy through automation (once data is entered, the software handles all subsequent calculations and processes – including invoicing).

When it comes to accounting, vigilance is the key to mitigating risk and ensuring the long term profitability of your small business. Be sure to set aside time each day, week, and month to update and review your books to catch any red flags and ensure your finances are on track.

Should you require any additional information or want to arrange to have our bookkeeper take care of your business please do not hesitate to contact the office.


 

Tax Tips for Small Business

 

Check eligibility for small business tax regime

Small businesses (sole traders, partnerships, companies and/ or trusts with a turnover of less than $2 million) may be eligible for a range of tax benefits including immediate write off of assets costing less than $20,000, a 28.5 per cent company tax rate, simplified depreciation, capital gains tax concessions and accounting on a cash basis.

Broadly, the small business must carry on a business and its annual turnover (excluding GST) cannot exceed $2 million. Turnover will also be aggregated to include the annual turnover of certain affiliates and entities connected with the taxpayer.

While meeting the $2 million turnover test automatically entitles small businesses to choose certain concessions such as simplified rules for both tax depreciation and trading stock, it is important to note that additional eligibility tests apply to claim the small-business CGT concessions.

The government has proposed increasing the annual small business threshold to a turnover of $10 million from 1 July 2016. This would normally create a number of year-end tax planning opportunities for businesses with an annual turnover of between $2 million to $10 million, however at the time of writing it is uncertain whether this proposed increase will become law, therefore we suggest that taxpayers be circumspect.

Maximise depreciation deductions

Small businesses can get an immediate tax deduction for nearly all individual assets purchased by 30 June 2016 that cost less than $20,000, to the extent it is used for an income producing purpose and is installed ready for use by the end of the financial year. This measure is due to expire 30 June 2017.

For businesses registered for GST, the $20,000 threshold is calculated on a GST-exclusive basis, but for businesses not registered for GST, the threshold is calculated on a GST-inclusive basis.

A depreciating asset that is not immediately deductible (an asset costing $20,000 or more) will be automatically depreciated at a flat rate of 15 per cent in the year it was bought to the extent the asset is used for income-producing purposes, and is used or installed ready for use by 30 June 2016. The adjustable value of such an asset can be depreciated, on that basis, at 30 per cent in subsequent years.

For those businesses with a turnover of between $2 million to $10 million, they may wish to delay the purchase or delivery of assets costing less than $20,000 until next financial year as such expenditure may then qualify for an immediate deduction.

However given the uncertainty as to whether the small business turnover threshold increase will become law, we suggest that businesses factor that uncertainty into their decision(s) on whether or not to change the timing of asset purchases until the new financial year.

Tax cut for SMEs from 1 July 2016

Normally we would encourage taxpayers to consider taking advantage of a number of year-end tax planning opportunities that a proposed company tax rate cut creates, however it is uncertain whether this proposed cut, especially for companies with a turnover of between $2 million to $10 million will become law, so again we suggest that taxpayers take care.

If you do want to take the risk, the following changes announced in the budget provide a number of tax planning opportunities:

  • the proposed reduction in the company tax rate from 28.5 to 27.5 per cent for companies that have an annual turnover of less than $2 million from 1 July 2016
  • the proposed reduction in the company tax rate from 30 to 27.5 per cent for companies with a turnover between $2 million to $10 million from 1 July 2016
  • the proposed increase in the unincorporated small business tax discount from five to eight per cent on the income tax payable on business income received from an unincorporated entity that meets the relevant small business test, capped to $1,000 per individual.

In particular, eligible businesses can bring forward expenses into this financial year (to receive a higher deduction for such expenses), and delay revenue into the next financial year (as revenue will be subject to a lower tax rate). 

As always, care should be taken to ensure that any actions do not breach the tax general anti-avoidance rules or any specific provisions such as the tax prepayment rules.

SMEs should seek professional advice from their CPA Australia-registered tax agent to understand how they may legitimately benefit from the proposed (but uncertain) reduction in the company tax rate, if eligible.

Review salary sacrifice arrangements

Employees can consider salary sacrifice arrangements under which their gross salary may be foregone to obtain either a packaged car for fringe benefits tax (FBT) purposes, or they can make additional superannuation contributions.

A 20 per cent flat rate applies when calculating a car fringe benefit under the statutory-formula method, regardless of how many kilometres the vehicle travels annually. However, there may still be some tax savings in packaging a car under these rules compared to the cost of funding all your car expenses from your net salary.

In addition, under these rules employees who predominantly use a car for work-related travel may be able to obtain tax savings by calculating the FBT paid on the car under the operating-cost method rather than funding their car expenses from their after-tax salary.

Advice should also be obtained from a CPA Australia-registered tax agent as to whether such salary sacrifice arrangements would be tax effective.

Make trust resolutions by 30 June

As always, trustees of discretionary trusts are required to make and document resolutions on how trust income should be distributed to beneficiaries for the 2015-2016 financial year by 30 June.

If a valid resolution is not executed by 30 June, any default beneficiaries under the deed will become presently entitled to trust income and subject to tax (even where they do not receive any cash distribution), or the trustee will be assessed at the highest marginal tax rate on any taxable income derived but not distributed by the trust.

A trustee must be able to show how an effective resolution was made through minutes, file notes or an exchange of correspondence documented before year end. However, the trust's accounts do not need to be prepared by 30 June.

As a corporate trustee may need time to notify its directors that a meeting must be convened to pass and record a resolution, such a notice should be sent out well before the 30 June deadline.

Seeking professional advice when starting a business

From 1 July 2015, the professional expenses associated with starting a new business, such as legal and accounting fees, are deductible in the year those expenses are incurred rather than deducted over a five-year period as was the case in previous years.

If you established a business in 2015-2016, you should speak to your CPA Australia-registered tax agent about claiming professional advice fees as an expense.

Small business restructure rollover relief

From 1 July 2016, small businesses will be able to change the legal structure of their business without incurring any income tax liability when active assets are transferred by one entity to another.

This rollover applies to active assets that are CGT assets, trading stock, revenue assets and depreciating assets used, or held ready for use, in the course of carrying on a business.

If you are in the process of or considering restructuring your small business, you should consider delaying the restructure until after the new financial year commences. Business restructuring can be complex, so you should first speak to your CPA Australia-registered tax agent.

Stream trust capital gains and franked dividends

Broadly, trustees of discretionary trusts can stream capital gains and franked dividends to different beneficiaries if the trust deed allows the trustee to make a beneficiary "specifically entitled" to those amounts. The trustee must document this resolution before 30 June and the beneficiary receives or is entitled to receive an amount equal to the net financial benefit of that gain or dividend.

These streaming rules are complex and taxpayers should consult their CPA Australia-registered tax agent for advice.

Private company loans

Income tax law can potentially treat a payment or a loan by a private company to a shareholder or an associate (like a family member), or the forgiveness of a shareholder's or associate's debt, or the use of a company asset by a shareholder or their associate, or the transfer of a company asset to a shareholder or their associate as an unfranked deemed dividend unless an exemption applies.

The most common exemption is to enter into a written loan agreement requiring minimum interest and principal repayments over a specified loan term, which may be seven or 25 years depending on whether or not the loan is secured.

There are various things a private company can do before its 2015-2016 income tax return needs to be lodged to minimise the risk of a shareholder or an associate deriving a deemed dividend. Depending on the circumstances, these strategies may include repaying a loan, declaring a dividend or entering a complying loan agreement before the return needs to be lodged.

The rules around private company loans can be complex, therefore you should consult your CPA Australia-registered tax agent on this.

Prevent deemed dividends in respect of unpaid trust distributions

An unpaid distribution owed by a trust to a related private company beneficiary that arises on or after 1 July 2015 will be treated as a loan by the company, if the trustee and the company are controlled by the same family group. In these circumstances, the associated trust may be taken to have derived a deemed dividend for the amount of the unpaid trust distribution in 2015-2016.

However a deemed dividend may be prevented if the unpaid distribution is paid out, or a complying loan agreement is entered into before the company's 2015-2016 income tax return needs to be lodged. Alternatively, a deemed dividend will not arise if the amount is held in an eligible sub-trust arrangement for the sole benefit of the private company, and other conditions are satisfied.

Trustees and beneficiaries should consult their Clarke McEwan Advisor on the full implications of these very complex rules if applicable.

Write-off bad debts

Businesses can only obtain income tax deductions for bad debts when various conditions are met.

A deduction will only be available if the debt still exists at the time it is written off. Thus, if the debt is forgiven or compromised before it is written off as bad in the accounts no deduction will be available. The debt must also be effectively unrecoverable and written off in the accounts as bad in the year the deduction is claimed. The bad debt must have been previously brought to account as assessable income or lent in the ordinary course of carrying on a money-lending business. Certain additional requirements must be met where the creditor is either a company or trust.

SuperStream

Originally due to come on line on 1 July, the ATO has announced it is extending the compliance deadline for small businesses to adopt SuperStream until 28 October.  This means that if you are an employer with 19 or fewer employees you will pay super contributions for your employees electronically (EFT or BPAY) and send the associated data electronically.

There is no change for larger employers as they already do this.

The data is to be in a standard format so it can be transmitted consistently across the super system – between employers, funds, service providers and the ATO. It's linked to the payment by a unique payment reference number.

This means you can make all your contributions in a single transaction, even if they're going to multiple super funds.

If you are not prepared for SuperStream, seek professional advice or visit the ATO website www.ato.gov.au.

Seek independent advice on end of year tax effective investment products

The end of the financial year often sees the emergence of tax effective investment products. If you are considering such an investment, seek independent advice before making a decision, particularly from your CPA Australia-registered tax agent at Clarke McEwan Accountants


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