Month: September 2021

Thinking About Becoming A Contractor? ABNs, Sham Contracting, Agreements And More…

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Being a contractor offers flexibility, choice and more control over your own schedule. It also means that you have different responsibilities from other employees that you may have to fulfil.

For employers, knowing the difference between a contractor and an employee is a must. It can lead to costly penalties if the two get confused.

An independent contractor is someone who operates under an ABN and is not an employee of the company that they perform work for. They may also provide services to another person or business,

Sometimes an independent contractor may operate their own business and have many clients, in other cases the independent contractor may only do work for one company.

There are a number of factors that determine whether or not you may be classified as a contractor versus an employee. These can include:

  • How much control you have over the work you are conducting for the business – the more control you have, the more likely it is an independent contracting relationship.
  • If you are allowed to pick when you are working – employees have set hours in their agreement.
  • If you are running your own business and can have other clients while doing the work for this particular business.
  • If you are able to delegate or subcontract the work to others.
  • If you are the one responsible for your work and insurances – employees are covered by their employer, contractors are responsible for organising their own.
  • If you are expected to have your own equipment prepared for the work that you will be performing – employees will be provided with the equipment that they need.
  • If you bear financial risk for your errors.  You might have to redo the work for no pay if you get it wrong

In Australia, independent contractors often use the sole trader business structure when operating and conducting their business. Due to this, there is a legal requirement that you register an ABN for yourself or your business if operating as a contractor/sole trader.

Having an ABN is important. It identities you and your business to the government, and helps with tax and other business-related activities.

Not everyone may be entitled to an ABN (especially if they are considered to be an employee for the work that they are performing),. As a sole trader though, you are as you are considered to be starting or carrying on an enterprise.

For those who wish to contract you for your services, an ABN means that your clients will not be required to deduct tax from you. If you invoice an organisation without being in possession of an ABN, they are required by law to deduct tax at the highest rate that they can, as well as declare the income you receive from them through to the ATO.

If you’re operating as an independent contractor or sole trader, losing a chunk of your income to tax before you even get paid isn’t something that you’re likely to want to happen. That’s why having an ABN is important for you, to ensure that that doesn’t happen.

If your business is looking into creating a working relationship with a contractor, you need to be careful that you do not fall into a sham contracting arrangement.

A sham contractor arrangement is when a business (or individual) tells a worker that they are an independent contractor. It can exist even if the worker is treated like an independent contractor in some ways such as having an ABN and providing invoices like what a genuine independent contractor might have to do.

It’s illegal, and may be done knowingly by an employer to avoid taking fiscal responsibility for paying legal entitlements to employees. It is illegal to:

  • tell an employee they are an independent contractor
  • say something false to convince an employee to do the same work for the employer but as an independent contractor
  • dismiss or threaten to dismiss an employee if they don’t become an independent contractor, or
  • dismiss an employee and hire them as an independent contractor to do the same work.

If you are concerned that you may be involved in a sham contracting arrangement, or are an independent contractor looking for assistance in ensuring that you are remaining compliant with your current obligations when it comes to tax, super or business, we can assist. We are also equipped to help you with dealing with an ABN.

Changes To Employers & Super When Stapled Funds Come Into Effect 1 November 2021

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This year has seen a lot of amendments and changes to the rules governing superannuation funds and their providers by the Federal Government that may have an impact on how you as an employer deal with super.

Are you aware of the changes to “choice of fund” rules that you might need to be aware of as an employer of new to the workforce employees?

Currently, as an employer, you may be paying contributions to your new employees into a  default superannuation fund of your choice if they have failed to provide you with their own choice of superannuation fund details. This may be due to not having a superannuation fund (as in, the employee is new to the workforce), or as a result of other circumstances.

As an employer, you must provide all new employees with a Superannuation standard choice form within 28 days of their start date. They may also be provided with one if:

  • They as an employee request one
  • You are not able to contribute to their chosen fund, or it is no longer a complying fund
  • You change the employer-nominated fund into which you pay the employee’s contributions.

If the employee holds a temporary working visa or their super fund undergoes a merger or acquisition, they will not be able to choose their super fund themselves.

From 1 November 2021, if you have new employees start and they don’t choose a specific super fund, you may need to request their ‘stapled super fund’ details from the Australian Taxation Office.

A stapled super fund is an existing account that is linked, or ‘stapled’ to an individual employee, so it follows them as they change jobs. This change aims to reduce the number of additional super accounts opened each time they start a new job. If a new employee does not have a stapled fund and they do not choose a fund, the employee’s super can be paid into the employer’s default fund.

With fewer superannuation funds being opened, employees are less likely to generate ‘lost super’ as they transition through their employment periods and various careers leading up to their retirement.

As an employer, you’ll be able to request stapled super fund details for new employees using the ATO’s Online services for business.

To get ready for this change, you can check and update the access levels of your business’ authorised representatives (such as your accountant or bookkeeper) in Online services. This will mean you’re ready to request stapled super funds if needed. It will also assist in protecting your employees’ personal information.

As an employer, you legally cannot provide your employees with recommendations or advice about super unless you are licensed by ASIC to provide financial advice. You can give your employees information about choosing a fund however, including:

  • Why do they need to choose a super fund?
  • The process of choosing a super fund.
  • Your obligations as an employer to pay the super guarantee and provide a default fund to pay into
  • How they can nominate their chosen fund

Remember, registered tax agents and BAS agents like us can help you with your tax and super queries. Come and speak with us about your options, and to ensure that you are compliant with your super requirements as an employer.

If you are a new employee entering into the workforce, and you’d like to know more about your options when it comes to superannuation, you should have a serious discussion with providers and conduct your own independent research on the funds available.

Capital Gains Tax Can Be Tricky – That’s Why We’re Here To Help

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If you have disposed of any assets (which can include the loss, destruction or sale of an asset) which are subject to capital gains tax, you need to let us know as soon as possible. These are known as capital gains events, which can affect the way in which a capital gain or loss is calculated, and when it is included in a net capital gain or loss.

The type of CGT event that applies to your situation may affect the time of the CGT event’s occurrence, and exactly how to calculate your capital gain or loss. As mentioned earlier, a CGT event can involve the loss of an asset, the destruction of an asset or the sale of an asset.

The Sale Of An Asset

If there is a contract of sale, the CGT event happens when you enter into the contract.

A common CGT asset involved with contracts of sale that is often sold is the house. The CGT event, in that case, happens on the date of the contract, not on the date of settlement.

If there is no contract of sale, the CGT event is usually when you stop being the asset’s owner.

Your capital gain or loss for the assets is usually the selling price, less the original cost and certain other costs associated with acquiring, holding and disposing of the asset.

Loss Or Destruction Of An Asset

If a CGT asset that you own is lost, stolen or destroyed, then the CGT event happens when you first receive compensation for the loss, theft or destruction.  In this way, the capital gain for such an asset is the amount of compensation less the asset’s original cost. If you do not receive compensation for the asset, the CGT event happens when the loss is discovered or the destruction occurred. Replacing the asset may result in being able to defer (or “roll over”) the capital gain until another CGT event occurs (e.g. selling the replacement asset).

The best way to ensure that you are doing the right thing when it comes to CGT tax is to keep your records up to date. This will assist us in ensuring that you are remaining compliant Any CGT events that have occurred need to be recorded (including asset disposals for at least five years after the event occurred. The best way to ensure this is to keep track of:

  • receipts of purchase, transfer or sale
  • if money was borrowed and details of interest
  • receipts for insurance, rates and land taxes
  • receipts for the cost of maintenance, repairs and modifications
  • any market valuations
  • brokerage on shares and cryptocurrency
  • digital wallet records and keys.

Keeping accurate and well-maintained records for CGT events is of utmost importance, as it allows us to ensure that you are accurately reporting your transactions and lodging your return correctly. If they incur any net capital losses, this needs to be reflected in the return as they may be able to offset these against capital gains in a later year. Once a loss has been offset against a capital gain, you need to keep the records about that CGT event for two years (for individuals and small businesses) or four years (for other taxpayers).

If you are in the process of disposing of a capital gains asset, you will want to be certain that you are doing the right thing. Capital gains tax can be a tricky issue, with plenty of rigamarole. Come speak with us to ensure that your returns are lodged with the most accurate and correct information needed for submission.

A Restructure Only Means A Setback To Your Business, And Not A Closure – Here’s What The Reforms Could Mean For Your Business

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With the demanding conditions that have plagued the retail industry over the past twelve months, business owners need to be aware of all the restructuring options available before it is too late.

COVID-19 has unfortunately resulted in reduced foot traffic, store closures, the accumulation of legacy creditors and significant deteriorations in working capital positions.

Even with the support of JobKeeper and other government initiatives buoying business ventures from early 2021 to now, many family and small businesses are sure to continue to struggle.

The Misconceptions Of Formal Restructures

The idea of restructuring your business or reaching out for external help can appear scary and often seen as something to be avoided at all costs. However, business owners are not on their own when dealing with the difficult conditions facing them in their short-term future.

No one wants to see a business fail.

That’s why there are always options available to businesses. However, the longer a company holds off on making a decision, the more the business and its available options will deteriorate.

If companies and businesses can act early enough, their options include informal arrangements and advice, voluntary administration, and new restructuring reforms for small businesses.

With the availability of these options and the right people involved, there is no reason why a financially distressed small business cannot survive the challenging times and thrive in the future. All companies experience some form of distress from time to time and often at no fault of their own. The ones that survive focus on cash, seek appropriate advice from trusted advisors at the right time and act further on it.

How Might A Business Survive Financial Distress

Using the voluntary administration process as a restructuring tool allowed Tuchuzy (a well-known retailer in Bondi) to successfully deal with legacy creditors, refocus on high margin product lines, and ultimately, the company continued to trade profitably.

The key to Tuchuzy’s restructure was a ‘light touch’ administration to minimise costs and disruption to the business and closely working alongside the director to ensure the proposal submitted to her creditors would be acceptable than an immediate winding up scenario (of which it was).

There is a lot of flexibility and breathing space afforded in the voluntary administration process.

The administrator can quickly reset the cost base by exiting unprofitable stores, reducing the workforce, and focusing on only buying and selling favourable margin products.

Even when a liquidation becomes necessary, the process can be reasonably quick, fair and transparent if run properly.

The secret is to overcome the general stigma accompanying restructures and approach restructuring experts early who will ‘unemotionally’ explain each available option and provide an impartial recommendation that aligns best with the individual circumstances.

What Do The New Small Business Restructuring Reforms Mean For You?

For a business with few creditors and a single location, the process of voluntary administration can be expensive and unnecessary.

Indeed, voluntary administration is often not appropriate for many small businesses due to associated financial costs and the hurdle accompanying a director relinquishing control.

The government has responded to this critique and offered an alternative. This alternative comes at a perfect time as directors are, once again, exposed to personal liability for insolvent trading.

The new small business restructuring (SBR) reforms offer a lower cost and far simplified restructure process, critical for small businesses to continue to trade after government assistance such as JobKeeper ceased in March 2021. The reforms add an essential new path that will assist many retailers.

Though there have been only a handful of SBRs to date, and their effectiveness to save businesses is yet to be appropriately evaluated, it is an option to explore in the right circumstances.

Critical Questions Your Business Should Be Asking

The COVID-19 crisis has put a severe strain on many previously successful businesses. Though the government and many advisors are attempting to ensure that they do not collapse, directors and business owners need to be proactive and engage early for them to work.

Often businesses approach liquidators and advisors at the point where their financial problems have become insurmountable, and a liquidation/shutdown is often the only option left. The timing of coming and asking for help can be the difference between a shutdown and the continuation of trading.

With proper preparation and an effective plan that considers all stakeholders, any business should be able to restructure and continue to trade.

If your answer to any of the below questions is yes, you should seek immediate advice from a trusted restructuring advisor.

  1. Am I currently losing money?
  2. Am I finding it hard to pay bills on time?
  3. Have I got old debts that I am finding hard to pay down?
  4. Do I need some breathing space?
  5. Do I have my ‘head in the sand’?