Welcome to the February edition of our 2007 Newsletters
ACCOUNTING AND TAXATION MATTERS
- Practice Update January and February 2007 Issue
- ATO Key Dates for March 2007
- The Value of Diversity and Networking
FOCUS FINANCIAL PLANNING
FINANCE AND LENDING
HUMAN RESOURCES
ARM TEAM AND OFFICE MATTERS
Practice Update January and February 2007 Issue
Valid tax invoices issued by agents
Generally, a tax invoice for GST purposes will contain the name and ABN of the supplier.
However, there is a situation where a tax invoice can have a completely different name and ABN on it – this is where the supplier makes a supply through an agent.
A common example is where there is a partnership of discretionary trusts, and the partnership appoints a corporate agent to run the business of the partnership. The corporate agent enters into all relevant transactions on behalf of the partnership, but the partnership obviously has to account for all of the GST effects of these transactions.
In such a situation, the agent is able to issue a tax invoice containing either:
- the name and ABN of the supplier (i.e., the principal); or
- the name and ABN of the agent.
The ATO has also recently confirmed that an agent can issue a valid tax invoice with its own name and ABN on the invoice rather than the supplier’s, even if the agent is unregistered for GST.
That is, there is no requirement for the agent to be registered for GST for the invoice to be valid.
If it does not have an ABN, it can still issue a valid tax invoice with the principal’s name and ABN.
Note: A tax invoice cannot have the name of the agent and the ABN of the supplier (or vice versa).
Bushfires: Help for residents, fire fighters & volunteers
The Tax Commissioner has assured residents affected by the bushfires around Australia that the ATO will take a sympathetic approach to their individual circumstances.
This offer extends to all taxpayers affected by the bushfires, including businesses, farmers, residents and many others, such as fire fighters and volunteers, who are busy helping out in their local community.
The Tax Office can help by:
- fast tracking refunds;
- giving extra time to pay debts – without interest charges;
- giving more time to meet activity statement and other lodgment obligations;
- helping reconstruct tax records where documents have been destroyed; and
- offering personal visits from field officers to help reconcile lost records.
Deductions for Charity dinners and the like
The Government has announced that, from 1 January 2007, more deductions for fund raising charity dinners and events will be available under the ‘Minor Benefits Measure’.
This measure allows a tax deduction for certain payments to a charity where a benefit (such as a dinner) is received by the taxpayer, as long as the value of the benefit received does not exceed a certain percentage of the total payment.
Under the changes:
- the threshold (i.e., the minimum cost of, e.g., the ticket to the charity dinner) will be reduced to $150 (previously $250); and
- the value of the minor benefit allowed will be increased to 20% of the gift – or ticket price – but not exceeding a value of $150 (previously 10% not exceeding $100).
For example, assume a ticket to a fund raising dinner costs $200. The value of the dinner could be up to $40 and participants would be entitled to a tax deduction of the balance of approximately $160.
Government reviews the taxation of plantation forestry
From 1 July 2007, investors in forestry managed investment schemes (MIS) will be entitled to immediate upfront deductibility for all expenditure as long as:
- at least 70% of the expenditure is directly related to developing forestry (‘direct forestry expenditure’); and
- arm’s length prices are used to determine the value of the direct forestry expenditure.
Direct forestry expenditure comprises:
- expenditures associated with planting, tending and harvesting of trees over the life of the investment; and
- annual costs of the land used, such as rental costs or lease payments for land.
SMSF Compliance Program – audits to double in 2007
In 2005/06, the ATO completed 4,530 audits of SMSFs and is planning to double their compliance coverage in 2006/07.
Compliance Program 2006/07
In 2006/07, the ATO will pay particular attention to:
- ensuring funds meet the definition of an SMSF and comply with the sole purpose test;
- any loans and borrowings; and
- complying with the investment rules, including: – acquisition of assets, ownership of assets, and in-house asset rules; – arm's length investments; – investment strategy requirements.
Editor: Clients who would like to discuss their superannuation needs or concerns should contact our office as soon as possible before the end of the tax year.
Effective Life of tractors and harvesters stays at 62/3 years
The Government has announced that it will retain the current ‘effective life’ of 62/3 years to calculate depreciation on harvesters and tractors.
The Tax Office had suggested that the effective life should be increased to 12 years for new tractors and 10 to 12 years for larger, new harvesters.
The Government is introducing a statutory cap to preserve the current 62/3 year period over which farmers can depreciate tractors and harvesters.
ATO Data Matching activities
The ATO is planning to undertake more data matching exercises to identify non-compliance with lodgment and payment obligations under taxation law.
Taxis and transport
The ATO will collect names and addresses of entities held by the Victorian Taxi Directorate and Queensland Transport.
Retail shopping centre tenants
Data will also be obtained from seven main shopping centre operators, such as Westfield Management Limited.
The ATO will use the information obtained from the program to ensure that retail tenants are:
- registered for GST where required;
- meeting lodgment obligations; and
- correctly accounting for supplies for GST and income tax purposes.
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Please Note: Many of the comments in this publication are general in nature and anyone intending to apply the information to practical circumstances should seek professional advice to independently verify their interpretation and the information's applicability to their particular circumstances. |
If you require further information regarding the above please contact Dennis Malcolm, Michael Ryan, Greg Cusack Marita James or David Perry on (03) 9551 2822 for their expert advise.
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14 March |
Reasonable benefits limits (RBL) – due date to report to ATO all reportable benefits paid in February 2007 |
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15 March |
Superannuation contribution surcharge assessment and termination payment surcharge assessment – due date for payment of assessments issued on 15 February 2007 Superannuation member contribution statements (MCS) – due date for lodging amended MCS for inclusion in the May 2007 processing of assessments |
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21 March |
February 2007 monthly activity statements – due date for lodgement and payment |
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22 March |
Superannuation assessment variation advice (AVA) – due date for lodgement of AVA for variation of assessment issued on 15 February 2007 |
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31 March |
Income tax return for all entities where one prior year was outstanding as at 30 June 2006 (excluding large/medium business taxpayers) – due date for lodgement. - If the outstanding prior year return has been lodged by this date, the 2006 return will be due as in the normal program - Payment for companies and superannuation funds in this category is also due by this date - Payment for individuals and trusts in this category is due as per notice of assessment |
The Value of Diversity and Networking, article by Ivan Misner (Source: mybusiness October 2006)
WHEN IT COMES TO business networking, you never know who (other) people know. One of the important keys to being successful at building a powerful personal network is diversity.
In running a large business networking organisation for the past two decades, I often speak to people who tell me they want to network with exclusively business professionals who have similar clients. Although it is good to include these people in your personal network, networking with them exclusively would be a tremendous mistake.
It is human nature to congregate with people that are very much like us. People tend to cluster together based on education, age, race, professional status, etc. We surround ourselves with people who have similar contacts, making it difficult to make connections with new people or companies with whom we desire to do business.
A diverse personal network enables you to increase the possibility of including connectors or ‘Iinchpins’ in your network. Linchpins are people who in some way cross over between two or more clusters or groups of individuals; this allows them to link groups of people together easily. The best way to increase the number of possible connections in your network is to develop a diverse network — not a homogeneous one.
Having developed over 4000 networking groups in more than 30 countries around the world, I can categorically state that the strongest networking groups I’ve seen are generally ones that are diverse in many, many ways. I believe that one of the problems in understanding this concept is a somewhat built-in bias that many people have about networking with individuals who are outside their normal frame of reference. Let me give you an example. A good friend of mine in Boston, Patti Salvucci, recently told me an amazing story.
Patti runs dozens of networking groups for BNI in the Boston area. She arrived a little early to the meeting of one of the groups she was visiting that met in a private room at Fenway Park and noticed an older gentleman setting up coffee mugs in preparation for the meeting. Patti is a master networker and so she struck up a conversation with the man while waiting for members to arrive.
In talking to him, she mentioned to him that he had an incredible voice and asked what he did before this. The gentleman informed her that he used to be a commentator for CNN! He went on to tell her that in his later years, he wanted to work in a less hectic job as well as live closer to his daughter. He decided to take on the job of managing the owner’s suite at Fenway Park in Boston because it gave him an opportunity to be close to his family while having a less hectic career later in life.
Patti asked him about some of the people that he met during his time in broadcasting. He shared many great stories with her including an interview that he had done with JFK a week before he was assassinated. He also talked about meeting Martin Luther King and Nelson Mandela during his career. It was an interesting conversation that she genuinely enjoyed.
Later when the meeting was in full swing, one of the members, Don, publicly mentioned that he would really like to do a radio talk show someday and was looking for some contacts that could help him pursue this dream. After the meeting, Patti suggested that Don introduce himself because he may very well be able to make a connection for him in the broadcasting industry.
The irony in this story is that Don had seen the man on many occasions — setting up the coffee cups — but had not struck up a conversation with him because he felt that they had little, if anything, in common. The truth is, when it comes to networking, not having a lot in common with someone may mean that they can be a connector for you to a whole world of people that you might not otherwise be able to meet.
If you wish to build a powerful personal network — branch out. Build a diverse network of professional contacts that include people that don’t look like you, sound like you, speak like you, or have your background, education, or history. The only thing that they should have in common with you and the other people in your network, is that they should be really good at what they do. Create a personal network like that, and you’ll have a network that can help you succeed at anything.
Investor Focus February 2007 Issue
SALARY PACKAGING - IS IT STILL WORTHWHILE?
In a modern tax world where the top marginal rates of tax are falling and the tax free thresholds are being raised; is it still worthwhile to package your salary?
These moves are eroding some benefits of salary packaging, but it is still worth considering to help cut the total amount of tax paid.
Salary packaging enables employees to direct pre-tax income towards benefits such as a Motor Vehicle novated lease, superannuation, health insurance, laptops, loans and so on to reduce their PAYG (Pay As You Go) tax and increase their income.
Most employers offer the most common forms of packaging (super and cars) but it is something that needs to be arranged in advance.
The way salary packaging works is that Fringe Benefits Tax (FBT) is paid at 46.5% on most items. However, some items attract no FBT whatsoever. It is these and the concessionally-taxed items that are the ones worth packaging.
In addition to benefits that attract nil FBT or concessional rates of FBT, the trend is for employers to include benefits where FBT is charged at the full 46.5% - simply to attract, retain and motivate staff in a tight labour market.
While gym/golf/health club membership or public transport tickets offer nil tax benefits, the employer can pass on bulk purchase discounts (where there are generally more than 10 employees).
Items attracting nil FBT are one laptop a year, portable printers, mobile phones and PDAs (but not iPods), briefcases (even a $2,000 Louis Vuitton one) and laptop bags. Also FBT-free are airport lounge memberships, travelling lunches, newspapers, magazines and periodicals and taxis to and from work. Most relocation costs are also FBT-free and include things like: Travel/Accommodation/Meals for the whole family in shifting location, Land Agent fees, Stamp Duty on the sale and subsequent purchase of a replacement home. Plus, in-house benefits (that is: goods received free from your employer's business) - increase from $500 to $1,000 from April 2007.
Concessionally taxed items include cars and superannuation.
Generally, therefore, the top choice for salary packaging is employee (pre-tax) super contributions. This is followed by laptops, employer superannuation contributions and a company vehicle. From 1st July 2006, people in $75,000-$150,000 income bracket will be taxed at 41.5%. It may be that motor vehicles included in packaging could become quite marginal due to their personal tax rates being less than the FBT rate of 46.5%. However, it is always worth at least doing the sums. Cars continue to be concessionally taxed, where the mileage of the vehicle is say greater than 15,000km/annum - regardless of whether for business or private use.
However, superannuation is a different story. Assuming that the 2006 Federal Budget legislation passes in its proposed form, many high earners will want to substantially salary sacrifice into superannuation in the years before retirement.
People in the mid-40s to early 50s usually have a sharp focus on super. Typically, they would wait until their mortgage is paid off and the children have left school/home before injecting their newly found excess cash into superannuation. Under the proposed regime, anyone can pay into superannuation up to $50,000, paying 15% tax, a reduction from the maximum of $100,000 for the over-50s. But it is an increase for anybody younger than that. It is expected that the over-50s will have a transitional contributions limit of $100,000 a year for the next five years.
There are several other FBT exempt areas that are worth considering. One is taxis to and from work if you don't have a car. The only conditions are that the passenger only takes the taxi to work or home from work.
Individuals are allowed one laptop a year, with no requirement that they are used for business. Ask us how you can legitimately claim a double-deduction on their purchase cost!
This means they can be given to spouses and children.
"Portable" printers are not FBT exempt. The ATO does not have a strict definition of what is portable, leaving potential leeway for interpretation.
The ATO is tougher on portable devices, however.
IPods attract FBT, despite the fact they can be used as a diary, contact book and a portable memory stick. Smart phones, common or garden mobile phones and Personal Digital Assistants PDA's - even ones that play music - can be packaged, together with running costs.
The requirement for phones is that there is a business use for them and there is no limit to how many can be packaged in a year. For PDA's there is no business use requirement and you can have as many as you want in the year, one for each of the family perhaps.
Employee loans for share purchase plans are not subject to FBT either.
They allow tax to be deferred until the shares are sold, which can be many years hence. While there is a risk that share prices may fall, many companies offer limited recourse loans.
The quick summary for most benefits is that unless you are on the top income tax bracket; the advantages are generally marginal. However, you will still likely gain from packaging concessionally taxed benefits, such as superannuation, laptops and cars.
For more information please contact Michael Ryan and the team at Focus Financial Planning.
Michael Ryan CPA CFP®
Authorised Representative
Premium Wealth Management Ltd
AFSL Number: 237498
Focus Financial Planning Staff Changes
Unfortunately the Focus Financial Planning Team bid farewell to one of their long term employees in Bree Morgan this month.
Bree has taken on a role at the NAB in the capacity of Financial Planner.
We wish her all the best for her future in both her career and personal life, she'll be sadly missed by all of us here at Aston Ryan and Malcolm and Focus.
Focus' new team member in her role as Client Services Manager is Athena Lazogas.
Athena comes to us with Financial Planning experience and we are sure she will fit right into the team at Focus Financial Planning.
Over the last month ARM Finance Pty Ltd has continued to increase the number of lenders that we can deal with. As a result of this we now have access to a lender that will provide finance to 106%. This allows the client to purchase their own owner occupier property onr investmen property with minimal outlay of funds.
Now we can provide a larger range of personal lending products. These products include consumer finance & car loans, which can be useful in providing to your own clients to provide funding for purchases.
Also available is insurance premium funding helping your business to free up some needed cash flow and allow for a better tax benefit. This is available over a period of 12 months.
If you would like to discuss these new options please contact our office on:
Phone (03) 9370 9811, Fax (03) 9370 9803 or Email info@armfinance.com.au
or alternatively you can contact one our consultants on:
Graham Lee 0417 115 611 (Commercial, Leasing, Residential) Jeff Messer 0409 217 002 (Commercial, Leasing, Residential) Shane McFarlane 0411 754 091 (Residential, Leasing)
Father Figures, article by Sue Prestney FCA (Source: Charter February 2007)
Paternalistic business owners can deliver many benefits but there are certain circumstances when it can be a double-edged sword.
A privately owned business can be a very personal operation and it is not unusual for an SME owner to take on a patriarchal role with employees. Unlike a large corporate, owner and employee are not separated by multi-levels of hierarchy. The owner/operator can be clearly identified as the person who makes the rules, disciplines and praises. This person is ultimately responsible for the success of the business and therefore for the financial health and security of the employees. This pseudo family atmosphere can bring real benefits to the business. The sense of personal belonging and family culture generates loyalty and longevity of service. One business owner I know has more than 100 employees, knows everyone by name and regularly tours the factory to speak with each individually. Not surprisingly he has many employees with more than 40 years’ service. The loyalty and knowledge of the business that such long-term employees have generally brings efficiencies in operations and strong customer retention.
DOUBLE-EDGED SWORD
However, a business owner who creates a strong personal bond with employees, making them both financially and emotionally dependent, is using a double- edged sword. If you act as the employees’ mentor, develop them and personally look after them, there is a danger they will identify you in a parental role. If you do something that is in your own interests or in the interests of the business in general, but not to the employee’s benefit, the reaction can be explosive. I saw this recently when an owner failed to promote a favourite employee in favour of a new one with better management experience. The old favourite’s sense of rejection manifested into near hysteria. “I thought of you as a father! How could you do this to me?” His sense of betrayal was so bitter that he left the business.
A conflict often arises when the patriarch is leaving the business to retire or otherwise and has to negotiate with his employees to buy him out. All of a sudden he is not on their side — he is negotiating for his own benefit which is now not aligned with theirs. Price is, of course, a usual bone of contention, but so are restrictive covenants (“surely you would never go into business against us”) and contractual arrangements (“you must be here to help us when we need you”).
The sudden shift from mutual interest to self-interest can create a bitterness that lawyers practising in family law would recognise, with all its attendant emotion and irrationality. One employee with a small existing minority shareholding contested the valuation for the buy-out of the owner’s shares on the basis that it should be consistent with the hugely discounted price she previously had been granted for her very minor holding. She did eventually buy out the owner but the process virtually ended the relationship. She believed her father figure had cheated her — of course he hadn’t, he’d just asked her to pay what the business was worth.
Abuse of such a relationship can go both ways. Trusted employees can take advantage of the paternalistic employer who believes his employees would never cheat him. I have seen one of these father figures refuse to implement a physical inventory control system despite irrefutable evidence that stock was walking out the door. He said “it must be an accounting problem”.
I’m not a psychologist (thank goodness!) but I’ve seen how the complexities of human relationships can intrude on what should be merely rational business issues. We are all aware and alert to these in family businesses but any patriarchal organisation, grown through the energy and personal charisma of the leader runs the risk that these highly emotional forces can have a negative side. Indeed, take the leader out of these businesses and you are often left with a void that takes a long time to fill.
PERSONAL GOODWILL
This is more than just personal goodwill — it goes much deeper. Paternalism should be balanced with corporatisation; reward and discipline should be based on documented objective criteria; employees and customers need to see the business as a functioning entity in its own right not just a manifestation of the personality of the owner.
Owner/employee relationships can be particularly destructive when the leader is a sociopath in paternal clothing. Such a person is manipulative, playing employees off against each other, making them emotionally dependent on the praise and approval of the leader and fearful of that person’s displeasure — not knowing exactly what is expected of them other than to be able to play the leader’s mind games. Their personal success is dependent on the whims of the owner — not on objective measures. Organisations with leaders like these often don’t have processes and systems and frequently have a crippling political culture of blame and back stabbing Beware of buying a business that has been owned by one of these people!
2007 ARM Football Tipping Competition
ARM invites you to be part of their Footy Tipping Competition for the 2007 Season.
The cost to enter the competition is still $44 payable in full prior to the commencement of the first round.
If you would like to be part of the action there are a number of ways to join up:
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Via the internet at: http://www.footytipping.net.au/arm/
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By emailing your intentions to Nathan Batty at nathan.batty@astonryn.com.au or
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calling and leaving your details with Nathan Batty, on (03) 9551 2552
How much can you win?
It depends on the number of registrations we get, but last years end of prize pool was over $2,000 with first prize being over $1,000!
The first round commences on 30 March 2007, so we need to be notified of your participation ASAP!
In addition to the regular methods of account payment we offer our clients, we also have an account payment system set up on our web site at www.astonryan.com.au/AccountPayments
This area allows you to pay your account/s with Aston Ryan and Malcolm using our secure on-line payment system.