Month: June 2019

Defining your audience

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Defining your target market is the key to shaping your entire marketing strategy. Knowing who you intend to assist can help to differentiate your business from the competition, tailor your marketing efforts to better meet customer needs and potentially boost sales. Taking the time to identify and understand your particular niche audience can help you dominate it.

A broad target market that tries to appeal to everybody can get lost amongst the crowd. Demographics, such as age, gender, income and occupation, do not necessarily provide enough insight into the attributes of your target customer.

When constructing your market profile, narrow down the typical customer by looking closely at the psychographic, geographic and behavioural characteristics. This can help further develop the vision of your target market.

Psychographics:
Categorising your target market through psychographics uses personality and interests to define your target customer. Psychographics analyses variables such as lifestyle, attitude, values, personality traits, social class, activities and opinions. This explains the “why” element of why your customers want your product. Often closely related to demographics, combining the two forms of data collection can build a complete, sophisticated profile of consumers based on a more detailed picture of who they really are.

Geographics:
Segmenting your target customer through geographics involves considering what continent, country, city or town they may live in. It can also further studies by looking into specific neighbourhoods, the size of that area and even the climate. Geographics require far less personal data and can be performed simply with a map of the area in question. This form of analysis is quite general so it is best when used in conjunction with other methods.

Behavioural:
Behavioural segmentation involves your target customer’s behaviour towards your products or services. This format looks at customers based on what benefits they desire, how often they will use your product or service, loyalty to your brand, readiness to buy your products/services, or if your products/services are used for a specific occasion such as a holiday or an event.

Good record keeping practices

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Starting your business with a good record keeping system can help you track your business performance, meet reporting responsibilities and access financial history with ease. Since different rules apply to different types of documents, the length of time that a business needs to retain documents depends on what the documents are. Some businesses may need to keep documents indefinitely.

The seven year principle is recommended as a base due to the fact that seven years is sufficient time for defending tax audits, lawsuits and potential claims. Government departments and organisations, such as the Australian Securities and Investment Commission (ASIC) and The Fair Work Ombudsman (FWO), require company and employee records to be kept for seven years.

Owners should note that there are some circumstances where it may be required to keep documents for more than seven years. For example, documents relating to intellectual property rights, such as trademarks and copyright, can be needed indefinitely by a business. These documents should be retained for as long as the rights in the intellectual property exist.

Financial, legal, employee, policy and procedural records are the main categories of documents that a business will need to retain. Keeping good records can save you a lot of time and money when a situation arises as you may need to rely on these files if disputes or other issues appear in your business.

The general standards for record keeping in Australia are as follows, documents need to;

  • Be in writing, either on paper or electronically.
  • Be written in English.
  • Explain all transactions.

There are benefits and risks to storing files both on paper and electronically. The most important thing to remember, regardless of storage method, is to back up your records. A combination of both methods can ensure you have documents available when needed.

First Home Super Saver Scheme

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The First Home Super Saver (FHSS) scheme was introduced in the Federal Budget 2017–18 to reduce pressure on housing affordability. The scheme allows people to save money for their first home inside a superannuation fund, helping first home buyers to save faster. Changes introduced to the FHSS scheme in the Treasury Laws Amendment (2019 Measures No. 1) Bill 2019, will come into effect on 1 July 2019.

The FHSS can now only be applied to a first home that is bought in Australia, as opposed to previously being in any location.

Another change is that individuals must now also apply for and receive a FHSS determination from the ATO before signing a contract for their first home or applying for the release of FHSS amounts. A contract can be signed to purchase or construct a home either:

  • From the date a valid request to release your FHSS amounts is made;
  • Or up to 14 days before a valid request to release your FHSS amounts is made.

There is no longer a waiting period between the first FHSS amount being released and signing a contract to purchase or construct the home.

Individuals now have 12 months from the date they make a valid release request to do one of the following:

  • Sign a contract to purchase or construct the home and notify the ATO within 28 days of signing;
  • Or recontribute the assessable FHSS amount (less tax withheld) into their super and notify the ATO within 12 months of the valid release request date.

These changes apply retrospectively to valid FHSS release requests and contracts entered into on or after 1 July 2018.

Tax planning tips for businesses

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Although the 2018-19 financial year is coming to an end, there are still a number of tactics you may be able to employ to ensure that you get the most out of your tax return.

Bring forward expenses:
It is a common recommendation at tax time for small business owners to claim all of the appropriate deductions that are available. These can include rent, utilities, repairs for the business, or work-related travel. You may also consider bringing forward as many expenses as possible to before 1 July, such as pre-paying rent or repair expenses. This can allow you to claim the necessary deductions in your 2018-19 tax return.

Take advantage of the instant-asset write off:
More business owners can take advantage of the instant-asset write off this financial year, as it has now been extended to include businesses with a turnover from $10 million to less than $50 million. These businesses can claim a deduction of up to $30,000 for assets purchased or installed and ready for use from 2 April 2019 until 30 June 2020. This could be particularly helpful for individuals who rely on tools, cars or other assets.

Keep strong records:
As a good recommendation to keep in mind for the end of each financial year, keeping up-to-date records can make tax time a little easier next year. It’s never too late to start getting your records in order, so consider keeping all of your documents together once you have filed your 2018-19 tax return. As an added benefit, a well-detailed set of records is the easiest way to resolve any issues that you may face with the ATO.

Capital gains and losses:
For those who have made any capital gain from investments this financial year, you may consider selling any investments on which you have made a loss before 30 June. This will make the gains on your successful investments able to be offset against the losses, reducing your overall taxable income. However, you should avoid solely letting tax benefits drive your investment decisions. Seek professional advice before making major changes to your investments.

Ratio analysis methods for your business

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Financial ratios are useful tools for business owners to monitor, analyse and improve their business performance. By using ratio analysis methods, you can gain insight into a company’s liquidity, efficiency and profitability by comparing the information contained in its financial statements.

Solvency:
Solvency ratios measure the company’s capacity to fulfil long-term financial commitments. Debtor days is one of the key measures of this ratio analysis method. It shows the average number of days that a business takes to collect invoices from their customers. The longer it takes to collect, the greater the number of debtor days. When debtor days increase beyond normal trading terms, it indicates that the business is not collecting debts from customers as efficiently as it should be. The formula for working out debtor days is:

(Trade receivables ÷ Annual credit sales) x 365 days

Profitability:
Profitability ratios help measure and evaluate the ability of a company to generate income relative to revenue, balance sheet assets, operating costs and shareholders’ equity during a specific period of time. The net profit margin measures what percentage of each dollar earned by a business ends up as profit at the end of the year, the formula is:

Net income ÷ Total revenue = Net profit margin

Liquidity:
Liquidity ratios measure a company’s ability to pay off its short-term debt obligations. This is done by comparing a company’s most liquid assets, those that can be easily converted to cash, with its short-term liabilities. Current ratio indicates whether a company has the liquidity to meet its short-term obligations. The formula is:

Current assets ÷ Current liabilities = Current ratio

Activity:
Activity ratios measure the efficiency in which management runs the company. Inventory turnover is an important activity ratio, showing how effectively a business is using its inventory. This ratio measures how many times the company’s inventory has been turned over or sold during a specified period. The formula is:

Cost of goods sold ÷ Average inventory = Inventory turnover

Tax time changes

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The ATO will start processing 2018-19 tax returns on 5 July 2019 and are expected to start paying refunds from 16 July 2019, with the majority of electronically-lodged current year tax returns completed within 12 business days of receipt. There a few changes to tax returns that individuals should take note of going into this end of financial year.

Private health insurance statements:
From 1 July 2019, health insurers are no longer required to send private health insurance statements, it is now optional to send this information. Private health insurance information will be available in the pre-fill report, expected by mid-August. If it is not populated by then, taxpayers may need to request a statement from their health insurer.

Low and middle-income tax offset:
Taxpayers may be eligible for an income tax offset if they are an Australian resident for income tax purposes or their taxable income is in the appropriate income range. It is not compulsory to claim this offset, the ATO will work it out when their tax return is lodged.

In the event the changes proposed in the 2019-20 Budget become law after 1 July 2019, the ATO will automatically amend assessments. The offset can only reduce the amount of tax paid to zero and it does not reduce Medicare levy.

Income statement:
Employers reporting through Single Touch Payroll are not required to provide a payment summary to their employees as income statements will replace them. Employees can access their income statements through ATO online services at any time. Employees will receive a notification through myGov when their income statement is ‘Tax ready’, so they can complete their tax return. Employees will be able to contact the ATO for a copy of their income statement if they do not have access to myGov.

How the ‘Protect Your Super’ changes will affect you

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A number of changes to superannuation will come into effect from 1 July 2019. The ‘Protect Your Superannuation’ Bill passed through Parliament in February and forms part of the Government’s package of reforms that were announced in the 2018-19 Federal Budget.

The new legislation is designed to protect Australians’ superannuation savings by ensuring that their super balance isn’t negatively affected by unnecessary fees on insurance policies. Changes that may affect you are;

Insurance:
For those who do not act before 1 July, your insurance may be deemed inactive. Under the Protect Your Superannuation Bill, super accounts that have been inactive for 16 months will have their automatic insurance cancelled. These inactive accounts will also be transferred to the ATO. Members will be able to ‘opt-in’ to protect their insurance cover and stop their account from being inactive, but this must be done before 30 June. Once the regime has commenced, trustees will need to ensure that they have ongoing arrangements in place to identify members who risk becoming inactive.

Ban on exit fees:
The new laws will remove the need to pay exit fees from all superannuation accounts. Trustees that are currently charging exit fees will need to review the current fee structure in order to implement any necessary disclosure and product changes. This will ensure that exit fees will not be charged on or after the 1 July 2019, the date these changes will commence.

While the policy changes are intended to protect consumers, there may be alarming consequences for those who may not realise their account is inactive and assume that their insurance cover will continue. All superannuation trustees and members will need to review these changes to ensure they are meeting all necessary obligations. If further help is needed about how the changes will impact you, consult your financial advisor.

What and when you need to report in your SMSF

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The event-based reporting (EBR) framework for self-managed super funds (SMSFs) commenced on 1 July 2018. This system allows the ATO to administer the transfer balance cap. Reporting under the EBR framework commences when your first member begins a retirement phase income stream. The transfer balance account report (TBAR) is then used to report certain events and is separate from the SMSF annual return.

An SMSF must report events that affect a member’s transfer balance, these should include details of:

  • Pre-existing income streams being received on 30 June 2017 that;
    • continued to be paid to them on or after 1 July 2017.
    • were in retirement phase on or after 1 July 2017.
  • New retirement phase and death benefit income streams including value and type.
  • Limited recourse borrowing arrangement (LRBA) payments, including the value and date of each relevant payment, if entered into on or after 1 July 2017.
  • Compliance with a commutation authority issued by the ATO.
  • Personal injury contributions.
  • Commutations of retirement phase income streams that occur on or after 1 July 2017.

Events that an SMSF do not need to report include:

  • Pension payments made on or after 1 July 2017.
  • Investment earnings and losses that occurred on or after 1 July 2017.
  • When an income stream ceases because the interest has been exhausted.
  • The death of a member.

All SMSFs must report events that affect their members’ transfer balances. If no event occurs, there is nothing to report.

Timeframes for reporting are determined by the total superannuation balances of an SMSF’s members. In the events affecting members’ transfer balances, reports must be made within 28 days after the end of the quarter in which the event occurs. Unless a member has exceeded their cap and the fund needs to report an event sooner, the first due date for the lodgment of TBARs is 28 October.

Changes to the ABN application process

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The ATO has made recent changes to the application process for an Australian Business Number (ABN). The changes have been made as a measure to protect the process’ integrity and identify those who are attempting to misuse it.

An ABN is a unique 11 digit number that identifies your business to the government and the wider community. The recent changes focus on:

  • Ensuring that those who are entitled to an ABN are the only ones who will receive one.
  • Identifying people going through the application process multiple times.
  • Confirming entitlement and helping people to understand their obligations.

You are only entitled to an ABN when carrying on or starting an enterprise in Australia. An enterprise includes activities done in the form of a business, including operating a charity, renting or leasing property, or acting as the trustee of a superannuation fund. It is compulsory for businesses with a GST turnover of $75,000 or more to have an ABN and be registered for GST. While businesses with a turnover of less than $75,000 can still apply for an ABN and may choose to register for GST, it is not compulsory.

There is no single test to determine cases where you are carrying on a business. However, features of a functioning business include:

  • An intention to make a profit from the activity that is demonstrated by a business plan (unlike a hobby).
  • The activity is a significant commercial activity that is a reasonable size and scale, involving the sale of goods or services.
  • The activity is organised, systemic and is carried on in a business-like manner with records kept.

For businesses that are not yet underway, you would be expected to undertake a number of commencement activities for a successful ABN application. These activities include advertising and setting up social media or a website for the business, obtaining business licences, or consulting with financial, business or tax advisors.

Other reasons that you may be entitled to an ABN are if making supplies connected with Australia’s indirect tax zone (defined as including Australia but not its external territories or certain offshore areas), or if you are a Corporations Act company.

The ATO’s changes better define who is eligible for an ABN, helping business owners to understand their obligations in cases where there may be doubt. Consider consulting your professional advisor if further help is required.

Avoiding unfair business practices under Australian Consumer Law

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Under Australian Consumer Law, there are a number of sales practices that are illegal for businesses to engage in when dealing with their customers. Unfair business practices encompass a wide range of activities, such as misleading or false statements and deceptive conduct.

Here are some examples of illegal activities that you should be aware of as a business owner in order to avoid harsh penalties.

False or misleading statements:
It is unlawful for a business to make false or misleading representations about their goods or services that they are supplying, offering to supply, or promoting. For example, businesses may not make false or misleading statements about the standard or quality of goods or services, testimonials from other customers about the goods or services, or their price. While it will depend on the circumstances of each particular case, the maximum fine for this offence is $220,000 for individuals and $1.1 million for a body corporate.

Accepting payment without intending to supply:
Payment cannot be accepted for goods and services if businesses do not intend to supply, they intend to supply materially different goods or services, or if they are aware that they will not be able to supply the goods or services in a timely manner. However, this is not intended to affect businesses who demonstrate a genuine attempt to meet supply agreements. For example, a business may avoid prosecution if the failure to supply was due to something beyond its control.

Unconscionable conduct:
Businesses are prohibited from acting in a manner that is against good conscience. For conduct to be classified as unconscionable, it is extremely harsh or aggressive where one party exploits another and must be more than just unfair or unreasonable. Examples of this conduct include coercing a person to sign a blank or one-sided contract, failing to disclose contractual terms, or taking advantage of low-income consumers by misleading them about prices. Whether certain conduct is deemed to be unconscionable will depend on the particular circumstances involved and may require legal action. There is a list of factors that courts may consider, including the relative bargaining strength of the parties, and the extent to which the parties acted in good faith.