Welcome to the next edition of our 2006 Newsletter.
We hope you find the following information of benefit to you and your Organisation.
ACCOUNTING AND TAXATION MATTERS
- Did you know ? FBT and overpaid wages
- Self Managed Superannuation Funds and barter credits
- Cancelling GST - Care on Timing
- Practice Update
FINANCIAL PLANNING
FINANCE AND LENDING
HUMAN RESOURCES
ARM TEAM AND OFFICE MATTERS
LIGHTER MOMENTS
Did you know ? FBT and overpaid wages(Source: Taxpayers Australia 3 April 2006)
It is equally common for the employer to provide time for the employee to repay the overpayment. This would usually be on a weekly or some other regular basis. Most employers would not realise that by doing this, there is a potential loan fringe benefit. However, this may not result in a fringe benefit because of the 'minor benefits' rule.Another problem may occur if the employee leaves employment when they still owe to the employer the overpaid wages. If the employer does not pursue the employee for the overpaid wages (and this may be because they have lost contact with them or the amount does not warrant the expense of doing so) then a debt waiver fringe benefit arises.
If you require further information regarding the above please contact our FBT experts Sean Stroud or David Perry on (03) 9551 2822.
Self Managed Superannuation Funds and barter credits(Source: Taxpayers Australia 3 April 2006)
The ATO has recently released a fact sheet in which they say that if trustees of a SMSF acquire barter credits, they will contravene section 66 of the Superannuation Industry (Supervision) Act 1993 (SISA). This section prohibits trustees from acquiring assets from related parties (generally, related parties are members of the fund and their associates, and standard employer sponsors of the fund and their associates).If this section is contravened, then the fund may be considered to be non complying and would lose its tax concessions.In addition, the ATO points out that trustees of a SMSF must comply with the sole purpose test, which means that the fund has to be operated for the sole purpose of providing retirement benefits. If a SMSF acquires barter credits, the question is raised as to whether it is in accordance with the sole purpose test. As an example, the ATO points out that it may be difficult for trustees to demonstrate that it would be in the best interests of fund members to pay a benefit comprising barter credits.
If you require further information regarding the above please contact our Superannuation experts Neil Wilde or Michael Ryan on (03) 9551 2822.
Cancelling GST - Care on Timing(Source: AcctWebb)
When a business has stopped activity, one of the normal actions is to cancel its Australian Business Number and GST registration. Inability to claim an input tax credit can occur if the cancellation of GST is completed too quickly. An enterprise may, for a number of reasons, cancel its GST registration and then receive some tax invoices for services rendered. Unfortunately, the GST paid on these invoices is not capable of being claimed. An interpretive decision by the Australian Taxation Office (GSTA TPP 089) applies this reasonable logic and says that if you are not registered at the time of the invoice, you can not claim a credit. Therefore, care needs to be taken in only ceasing the business (for GST purposes) after analysis of tax invoices expected to be received from suppliers.
If you require further information regarding the above please contact our Office on (03) 9551 2822 and speak to any one of our well informed Accountants.
End of the FBT Year
Now that 31 March has passed, 2005/06 FBT returns will soon be due for lodgment.
Where we usually prepare the FBT return for your business, we ask that you collect all relevant FBT records relating to the benefits provided, such as:
- motor vehicles;
- car parking;
- entertainment;
- expense payments; and
- living away from home allowances;
together with travel diaries, employee declarations, etc.
Editor: Please call if you need to make an appointment or discuss the records needed.
GIC for June 2006 quarter
The general interest charge (GIC) for April to June 2006 is 12.61%, down from 12.63% for the March 2006 quarter.
Tax and far north Queensland cyclone
Tax Commissioner Michael D’Ascenzo has assured those affected by the far north Queensland cyclone that they have no need to worry about their tax matters right now.
If taxpayers in the cyclone affected area are experiencing any difficulties meeting tax obligations they can call the Tax Office on 13 11 42 (option 3) during business hours.
Cash economy is at least $13.4bn and (probably) rising
The Auditor-General has released his report into the ATO and its handling of the cash economy.
According to the ATO, the major tax risk arising from the cash economy is business income not being reported, however, it does not attempt to estimate the size of the ‘cash economy tax gap’.
Editor: With all due respect, why would they want to? It just puts the spotlight on them.
The Auditor-General acknowledges that, since the cash economy is ‘hidden’ activity, it is difficult to quantify with any precision.
At the lower end of the range of estimates, in 2003 the Australian Bureau of Statistics estimated that the cash economy was approximately $13.4 billion in 2000/01 (Treasury supported this figure).
Comparison study of taxation system announced
The Treasurer has asked Mr Richard (Dick) Warburton and Mr Peter Hendy to lead a study examining how Australia’s tax system compares with other developed economies. This will involve a comparison of overall taxation levels and rates and coverage of the indirect tax, income tax and company tax systems.
The aim of the study is to provide a public document that compares Australian taxes to those that compares Australian taxes to those in other countries. This will identify those areas where Australia leads comparable countries and those areas where it lags. It will enable a focus on the most important areas.
The study will cover taxes collected at national, state and local government levels. Personal, business, indirect, property, transaction and superannuation taxes will be included.
The report is due 3 April 2006, theoretically in time to help prepare the May Budget.
New report profiling SMSFs
Self managed superannuation funds (SMSFs) are a popular retirement savings option for business people and other clients with the time and skills to ‘do-it-themselves’.
The Investment and Financial Services Association has released a report into the use of SMSFs.
Among other results, the report found that:
- the average starting balance for SMSFs established in the last two years was $300,000;
- 55% of investors cited ‘control’ as a reason for establishing an SMSF;
- shares and property were the dominant asset classes for SMSFs, with 89% of SMSFs holding shares and 60% holding property; and
- 58% of SMSFs have managed funds as part of their asset mix and investment in managed funds averaged $120,000.
Editor: Clients who want to discuss superannuation options should contact our office.
FBT: Exempt Benefits – portable computer
The FBT Act exempts notebook computers, laptop computers or similar portable computers from fringe benefits tax. However, a question has arisen as to whether other computers, that are portable but must still be connected to mains electricity, are eligible for the exemption from FBT.
The particular computer that is being marketed to businesses is lighter than an average desktop computer but much heavier than a notebook or laptop computer, comes in three separate units, has no battery and uses mains electricity.
The ATO has decided that these are noticeably different to notebook or laptop computers and therefore are not exempt from FBT.
Such a computer, whilst being portable in the sense that it can be moved from one office to another, cannot be operated in a mobile environment, for example whilst travelling on a plane.
The primary characteristics of notebook and laptop computers are that they:
- are easily portable and designed primarily for use away from an office environment;
- are smaller and lighter than even the most compact desktop computer;
- can operate without an external power supply; and
- are designed as one complete unit.
Proposed amendment to the GST law for real property
The Government has decided to amend the GST law in light of the decision of the Full Federal Court in the Marana Holdings case (Marana Holdings Pty Ltd v FCT [2004] FCAFC 307).
Editor: In the Marana Holdings case, the court held that sales of motel units that had been converted into residential units were sales of "new residential premises" and therefore not input taxed.
According to the Minister, the decision in that case has resulted in a blurring of the lines between properties that are subject to GST and those qualifying for input taxed treatment.
The Government will amend the GST law to continue the tax treatment of property that existed prior to the Court’s decision.
It considers it appropriate that supplies involving properties such as serviced apartments and strata units leased to hotel operators remain input taxed, which will avoid the need for many small investors to register for the GST.
The amendments apply from 1 July 2000.
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 or Marita James on (03) 9551 2822 for their expert advise.
Does Money Really Grow on Trees?
Agribusiness is one of the largest sectors of the Australian and global economy and investments in this sector may possibly provide up-front benefits and high after-tax returns. Is this asset class suitable for you? Let’s examine the key issues.
What is Agribusiness?
Agribusiness is an investment in agricultural produce – anything from timber to grapes to truffles. Agribusiness investors are in effect, primary producers and are buying an immediate and ongoing tax deduction and a deferred income.
Agribusiness returns tend to reflect the market for a particular commodity being grown, so it is important to make sure the investment is backed by a credible manager who has established the market for the produce before opening the project for investment.
The Australian Agribusiness Sector
The Australian Agribusiness sector was worth $160 billion in 2003, generating $27.9 billion in produce in 2002/2003. While more than half of the farms in Australia do not make a profit, the top 25% achieve a good return on farm assets.
Who should invest and why?
- Investors who want to pay off their home mortgage as soon as possible
- Investors who want to reduce their tax liability
- Investors who want to start an investment plan
- Investors who expect to earn more than $63,000 this financial year
- Investors who have sold an investment property this year
- Investors who want to provide for my children’s private education
- Investors who want to start an alternative income stream outside of superannuation
- Investors who may be receiving a capital gain this financial year
Agribusiness investments have the potential to offer substantial tax benefits, supported by ATO product rulings and potential after-tax returns higher than traditional classes such as shares.
How the tax benefit works
You might be eligible to deduct:-
- Some or all of the initial and ongoing cost
- Non-capital establishment and management expenses and all ongoing costs. These could be offset against other taxation income.
The “front-end” tax deductibility benefits those on higher marginal tax rates, effectively lowering the after tax entry cost. Let’s say you want to place $10,000 in a tax-effective investment and you’re on the highest marginal tax rate of 48.5% (including the Medicate levy of 1.5%). You should be allowed to deduct $4,850 from you tax bill, instead of paying tax on the return on a capital investment.
|
An example of the up-front savings |
|
|
Establishment cost (expense) |
$11,000 |
|
GST (claim 100% refund) 1 |
($1,000) |
|
Expense |
$10,000 |
|
Claim tax deductions @ 48.5% 2 |
($4,850) |
|
Net cost day one to grower |
$5,150 |
- Assumes the investor is registered for GST
- Assumes investor is on a Marginal Tax Rate of 47% plus Medicare levy of 1.5%
Future income received from the investment should usually be taxable at your marginal tax rate.
What are the risks?
The risk/return profile of agribusiness investments are about midway between Australian bonds and listed property.
A key aspect of managing risk in this sector is to ensure that the investment is based on a viable business and not just a means of accessing the tax breaks.
While returns cannot be guaranteed, astute managers use tools, processes and strategies to manage risks. Agribusiness can be impacted by the environment lobby, legislative change, ATO rulings, farming and operational issues and climatic conditions including drought or food.
The golden rules for investing in agribusiness
1. Assess the tax benefits2. Check how it fits into your portfolio3. Make yourself aware of the risks associated with investing in agriculture4. Don’t risk ‘going it alone’ talk to your financial adviser
For more information please contact Michael Ryan or the team at Focus Financial Planning on (03) 9551 2822.
At ARM Finance we provide for your finance requirements, whether it be for residential lending, commercial lending or equipment finance. Our experienced professionals have over 30 years of banking experience, and guarantee you the best service.
ARM Finance was formed in 2002 servicing clients in the south eastern region. In early 2006, our Moonee Ponds office was opened which now enables us to cover all of Victoria as well as servicing clients Australia wide. Our team of mobile lenders will come to you if required.
ARM Finance is accredited with 40 financial institutions, including the four major banks, and down to your private/Non-Conforming lending institutions. AS a result ARM Finance is able to provide its customers with a broad range of the most competitive and flexible finance facilities available.
Contact our office today on:
Phone (03) 9370 9811
Fax (03) 9370 9803
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)
Interest rate update
- 5.99% P.A – Residential/Investment (CBA) CR 7.30%
- 8.00% P.A – Commercial purchase or refinance (NAB)
- 7.60% P.A – Poor Credit, No Financials (Liberty Financial)
- 5.99% P.A – Construction Finance (CBA) CR 7.30%
Stand Tall and Deliver(Source: Charter Magazine April 2006, Story by Maureen Jordan)
Passionate and committed staff are motivated by a boss who understands their goals and helps them achieve what they really want.
Hands up those of you who have had a nightmare boss. You're smiling aren't you ? Remembering that boss years ago who made your working life miserable, unpleasant and largeley disappointing. Next, hands up those who had a good boss. Still thinking ?That's bad luck because they are out there.
In fact, bad bosses are sometimes in the eye of the beholder. But should you ever become a boss, remembering what you liked about your 'good boss' will make you an even better one. So what makes for a good boss ?
Different Strokes
According to Hewitt associates, which runs the Best Employer Awards in Australia and New Zealand anually, one of the distinguishing features of the winners is the much lower rates of employee turnover and higher retention rates.
So what are the best ways to retain good workers? Certainly one way is to play by the rules. Government regulations set out strict guidelines on the responsibilities an employer has towards their employees. This is the basic stuff and legislation must be adhered to. According to Karen Moloney, director of Skills with People, a good boss must be able to negotiate with staff. Moloney believes one of the most common mistakes employers make is to assume that everyone is motivated by more money.
Moloney believes it’s important to understand that different things motivate different people. So a good boss finds out what motivates an employee, rather than offer what motivates themselves.
Making It or Breaking It
David Peake, a cultural change specialist from Quantum Edge, says a good boss needs to understand that their staff don’t all have the same view of you as a leader.
He argues there are four distinct characters in the Australian workplace — the whinger, the survivor, the prisoner and the volunteer. Some employees can adopt the whinger identity if the good old ego is roughed up a little. This shows up when the ‘us’ mentality of being a team is replaced by the ‘them’ syndrome. People who single out management or head office have feelings of not relating to the leader. They don’t feel included and that leads to the inefficient outcome of employees who stay but effectively have quit.
In contrast, some employees single out that their greatest achievement is that they’ve ‘survived in the place for ages’. This is the best some employees can come up with when they feel they’ve been ignored, passed over for promotion or not included the company’s vision or strategy. More emotionally damaged is the employ& who’s described as a prisoner.
“The prisoner basically walks around the organisation with a spanner in their back pocket,” Peake explains. “All the energy they’ve put into the organisation has not come back to them in any shape or form.”
The experts argue that employees probably start as volunteers looking for a positive experience, and in many cases leadership had something to do with their new feelings towards the business and their new identity.
It Starts at the Top
Leaders can make or break their staff and so getting it right can have a big impact on the productivity of an operation. Peake says leaders have to have values and philosophies that permeate the whole business. Building bridges for the future and showing that you care about your workers is a smart start. In a sense, the best thing a boss can do is to stop thinking he or she is the boss. The boss differs from a leader in the sense that they have respect for their ability to build bridges, but their aloof ways don’t encourage staff to easily walk across their bridges.
Staff have to feel that they are investing their time in a business that is going forward. It’s like playing sport with a coach who you know has no idea, despite the fact he or she is a nice person.
Sharing a Vision
The ‘true bastard boss’ is building a bridge with a ‘keep off’ sign. The staff feel that they are simply lackeys making their boss look good. There is no shared vision and the bad example creates prisoners or even people who actually can hinder the progress of the business.
Changes within Team Member roles
- Connie Barberis is now working for ARM on a permanent basis, as our Corporate Secretary, the role she will be job sharing with Emma Davis. The days that she will be in the office are Mondays and Thursdays.
- Unfortunately Irene Packer recently resigned from ARM after many years of loyal service to the Practice. Her role of Marketing Officer will be taken over by Emma Davis.
- Emma Davis recently returned from Maternity Leave and will be working three days a week in a dual role as Corporate Secretary on Wednesdays and as the Marketing Officer on Mondays and Thursdays.
- We had a new employee start with us in February in the Accounting Team. His name is Adrian Patane and he's currently studying towards completing a Bachelor of Business (Accounting and/Information Systems) at Victoria University - Footscray. He is in the Office every Thursday and Friday and during school breaks he is in full time.
- Our Financial Planning Team also had a new Team member commence in February. Her name is Lisa Zimmerman and she is currently studying towards completing a Bachelor of Business (Financial Planning) at RMIT.
The Office will be closed on the following days in April:
- 7th April - The Team will be out on a Team Bonding Day
- 14th and 17th April due to Easter
- 24th and 25th April. As we all know the 25th is ANZAC Day and the Partners have graciously given the Team Members the Monday off as well.
For all our clients involved in our Footy Tipping Competition please remember to have your tips into Nathan Batty before the first match each round.
If you need to speak to either a Partner or a Senior Accountant (for any urgent matters) during these breaks please feel free to contact them on their mobile telephones.
Time once again to review the winners of the Annual “Stella Awards.” The Stella Awards are named after 81 year-old Stella Liebeck who spilled Hot coffee on herself and successfully sued McDonald’s (in NM) . That Case inspired the Stella Awards for the most frivolous, ridiculous, Successful lawsuits in the United States. Here are this year’s winners:
- 5th Place (tie): Kathleen Robertson of Austin, Texas, was awarded $80,000 by a jury of her peers after breaking her ankle tripping over a toddler who was running inside a furniture store. The owners of the Store were understandably surprised at the verdict, considering the Misbehaving little toddler was Ms. Robertson’s son. 5th Place (tie): 19-year-old Carl Truman of Los Angeles won $74,000 and medical expenses when his neighbor ran over his hand with a Honda Accord. Mr. Truman apparently didn’t notice there was someone at the wheel of the car when he was trying to steal his neighbor’s hubcaps - 1
- 5th Place (tie) : Terrence Dickson of Bristol, Pennsylvania, was Leaving a house he had just finished robbing by way of the garage. He was not able to get the garage door to go up since the automatic door opener was malfunctioning. He couldn’t re-enter the house because the door Connecting the house and garage locked when he pulled it shut. The family was On vacation, and Mr. Dickson found himself locked in the garage for Eight days. He subsisted on a case of Pepsi he found, and a large bag of Dry dog food. He sued the homeowner’s insurance claiming the situation Caused him undue mental anguish. The jury agreed to the tune of $500,000.
- 4th Place: Jerry Williams of Little Rock, Arkansas, was awarded $14,500 and medical expenses after being bitten on the buttocks by his next door neighbor’s beagle. The beagle was on a chain in its owner’s fenced yard. The award was less than sought because the jury felt the dog might Have been just a little provoked at the time by Mr. Williams who had Climbed over the fence into the yard and was shooting it repeatedly with a Pellet gun.
- 3rd Place: A Philadelphia restaurant was ordered to pay Amber Carson of Lancaster, Pennsylvania, $113,500 after she slipped on a soft drink And broke her coccyx (tailbone) The beverage was on the floor because Ms.Carson had thrown it at her boyfriend 30 seconds earlier during An argument.
- 2nd Place: Kara Walton of Claymont, Delaware, successfully sued The owner of a night club in a neighboring city when she fell from the bathroom window to the floor and knocked out her two front teeth. This occurred while Ms.Walton was trying to sneak through the window in The ladies room to avoid paying the $3.50 cover charge. She was awarded $12,000 and dental expenses.
- 1st Place: This year’s runaway winner was Mrs. Merv Grazinski of Oklahoma City, Oklahoma. Mrs. Grazinski purchased a brand new 32-foot Winnebago motor home. On her first trip home, (from an Ou football game), having driven onto the freeway, she set the cruise control at 70 mph and calmly left the drivers seat to go into the back & make herself a sandwich. Not surprisingly, the RV left the freeway, crashed and overturned. Mrs.Grazinski sued Winnebago for not advising her in the owner’s manual that she couldn’t actually do this. The jury awarded her $1,750,000. plus a new motor home. The company actually changed their manuals on the basis of this suit, just in case there were any other complete morons around.